CLEP Macroeconomics chapter practice4 questions

10 Short-Run and Long-Run Aggregate Supply

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

The overall price level rises while nominal input prices remain fixed under existing contracts. Which of the following occurs?

With input prices locked in by contract, a higher output price widens margins and firms produce more, which is a move along the curve they are already on. Choices B and C would each take a change in costs or in capacity, E has capacity responding to a nominal variable, and A moves the demand side rather than the supply side.
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D. The economy moves up short-run aggregate supply.

With input prices locked in by contract, a higher output price widens margins and firms produce more, which is a move along the curve they are already on. Choices B and C would each take a change in costs or in capacity, E has capacity responding to a nominal variable, and A moves the demand side rather than the supply side.

Question 2

Question 2 of 4

The world price of oil jumps sharply, and the economy in question imports all of its oil. In the short run,

Costlier energy raises production costs at every price level, so less output is profitable and the short-run curve moves left. Choice A reverses that direction, C treats a cost shock as a gain in capacity, and B and D relocate the demand side, which the oil price does not directly touch.
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E. short-run aggregate supply shifts left

Costlier energy raises production costs at every price level, so less output is profitable and the short-run curve moves left. Choice A reverses that direction, C treats a cost shock as a gain in capacity, and B and D relocate the demand side, which the oil price does not directly touch.

Question 3

Question 3 of 4

Stagflation names an uncomfortable pair of movements. Which of the following combinations does the term describe?

An adverse supply shift raises the price level while real output contracts, and that pair is what the word names. Choice B describes a favorable supply shift, C describes a demand expansion, D describes steady conditions, and E pairs falling prices with production at capacity.
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A. Rising prices and falling output

An adverse supply shift raises the price level while real output contracts, and that pair is what the word names. Choice B describes a favorable supply shift, C describes a demand expansion, D describes steady conditions, and E pairs falling prices with production at capacity.

Question 4

Question 4 of 4

To raise sustainable productive capacity rather than current spending, policy makers should look for

Lasting productivity gains raise what the same resources can produce, which is what moves potential output. Choices A and E change nominal variables and leave capacity alone, and C and D cut spending without adding to what the economy can make.
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B. a permanent improvement in productivity

Lasting productivity gains raise what the same resources can produce, which is what moves potential output. Choices A and E change nominal variables and leave capacity alone, and C and D cut spending without adding to what the economy can make.

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