Aggregate Supply Trivia Quiz
Aggregate supply is the total supply of goods and services produced within an economy at a given overall price level in a given period. There is mostly a positive relationship between aggregate supply and price of an item. Test your understanding of this by taking up the questions below. All the best!
- 1.
Aggregate Supply is
- A.
The total amount of goods and services that all industries in the economy will produce at a given price level
- B.
A specific amount of goods and services that all industries in the economy will produce at a given price level
- C.
The total amount of goods and services that only one industry in the economy will produce at a given price level
- D.
A given amount of outputs that all industries in the economy will produce at a given price level.
- E.
The total amount of goods and services that only one industry in the economy will produce at any random price level.
Correct Answer
A. The total amount of goods and services that all industries in the economy will produce at a given price levelExplanation
Aggregate Supply refers to the total amount of goods and services that all industries in the economy will produce at a given price level. It represents the combined output of all industries in an economy, indicating the quantity of goods and services available for purchase. This concept is important in understanding the overall production capacity of an economy and how it responds to changes in price levels.Rate this question:
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- 2.
What is the relationship between the price level and the amount of output that a country's industries will supply?
- A.
Negative
- B.
Positive
- C.
No relationship
Correct Answer
B. PositiveExplanation
The relationship between the price level and the amount of output that a country's industries will supply is positive. This means that as the price level increases, the amount of output supplied by the industries also increases. This is because higher prices incentivize producers to increase their production in order to maximize their profits. Conversely, when the price level decreases, the amount of output supplied by industries tends to decrease as well.Rate this question:
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- 3.
The short run aggregate supply curve looks very much like a microeconomic supply curve that is ?
- A.
Downward sloping
- B.
Without sloping
- C.
Upward sloping
Correct Answer
C. Upward slopingExplanation
The short run aggregate supply curve is upward sloping because in the short run, businesses can adjust their production levels and prices to meet changes in demand. As demand increases, businesses can increase production by hiring more workers and utilizing existing resources more efficiently. This leads to an increase in output and a higher price level. Conversely, if demand decreases, businesses can decrease production, leading to a decrease in output and a lower price level. Therefore, the short run aggregate supply curve is upward sloping to reflect this positive relationship between output and price level in the short run.Rate this question:
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- 4.
In macroeconomics analysis, the short run is defined as
- A.
The period of time when the price of product do not change.
- B.
The period of time when the output levels of the production do not change
- C.
The period of time when the factors of production do not change.
- D.
The period of time when the prices of the factors of production do not change.
- E.
The period of time when the prices of the production changes.
Correct Answer
D. The period of time when the prices of the factors of production do not change.Explanation
The short run in macroeconomics refers to a period of time where at least one factor of production is fixed and cannot be changed. This means that some inputs, such as capital or technology, cannot be altered in the short run. However, the prices of these fixed factors of production can still change. Therefore, the correct answer is "the period of time when the prices of the factors of production do not change."Rate this question:
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- 5.
In a Aggregate Supply curve, the x-axis of the graph represents
- A.
Real output
- B.
Total output
- C.
National income
- D.
Price level
- E.
Demand quantity
Correct Answer
A. Real outputExplanation
The x-axis of the Aggregate Supply curve represents real output, which refers to the total amount of goods and services produced by an economy. This axis shows the level of output in terms of quantity, allowing us to analyze the relationship between the price level and the quantity of goods and services produced in the economy. By plotting different levels of real output on the x-axis, we can observe how changes in price levels affect the overall supply of goods and services in the economy.Rate this question:
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- 6.
If a large level of output is produced, what average costs of production are the firms likely to face?
- A.
Normal average costs
- B.
Lower average costs
- C.
Higher average costs
Correct Answer
C. Higher average costsExplanation
When a large level of output is produced, firms are likely to face higher average costs of production. This is because as production increases, there may be a need for additional resources such as labor, raw materials, and equipment, which can lead to higher costs. Additionally, there may be diminishing returns to scale, where the increase in output is not proportionate to the increase in inputs, causing inefficiencies and higher costs per unit of output. Therefore, higher average costs are expected when a large level of output is produced.Rate this question:
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- 7.
What is the most straightforward explanation of supply-side shocks?
- A.
They are changes in the cost of production.
- B.
They are factors that cause decreasing cost of production.
- C.
They are factors that cause increasing cost of production.
- D.
It is not related to cost of production.
- E.
Both B &C.
Correct Answer
E. Both B &C.Explanation
Supply-side shocks refer to factors that cause changes in the cost of production. This can include both decreasing and increasing costs of production. Therefore, the most straightforward explanation of supply-side shocks is that they are factors that cause both decreasing and increasing costs of production.Rate this question:
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- 8.
A ___ in wages will result in an ____ in the cost of production to firms, and therefore a fall in aggregate demand.
- A.
Increase; decrease
- B.
Increase; increase
- C.
Decrease; decrease
- D.
Decrease; increase
- E.
None of above
Correct Answer
B. Increase; increaseExplanation
An increase in wages will result in an increase in the cost of production to firms. This is because when wages increase, firms have to pay more to their workers, which increases their expenses. As a result, the cost of production for firms increases. This increase in production costs can lead to a decrease in firms' profitability and their ability to invest and expand. Consequently, this can lead to a fall in aggregate demand as firms may reduce their production levels and cut back on hiring, causing a decrease in overall economic activity.Rate this question:
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- 9.
Changes in the costs of production include:
- A.
A change in wage rates
- B.
A change in the costs of raw materials
- C.
A change in the price of imports
- D.
All above
Correct Answer
D. All aboveExplanation
The correct answer is "All above" because changes in the costs of production can include any or all of the listed factors: a change in wage rates, a change in the costs of raw materials, and a change in the price of imports. These factors directly affect the expenses involved in producing goods or services, and any fluctuation in these costs can impact the overall cost of production. Therefore, all of the options listed are valid examples of changes in the costs of production.Rate this question:
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- 10.
The economy will operate where aggregate demand is equal to aggregate demand.
- A.
False
- B.
True
Correct Answer
B. TrueExplanation
The given statement is true. The economy will operate where aggregate demand is equal to aggregate supply, not aggregate demand. This is because aggregate demand represents the total demand for goods and services in an economy, while aggregate supply represents the total supply of goods and services. When these two are equal, it signifies a state of equilibrium in the economy, where there is no excess demand or excess supply.Rate this question:
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- 11.
Two main Schools of thought concerning the shape of the Long Run Aggregate Supply are
Correct Answer
Keynesian Economics and Neo Classical economists (free market enonomists)Explanation
The correct answer is Keynesian Economics and Neo Classical economists (free market economists). These two schools of thought have different perspectives on the shape of the Long Run Aggregate Supply. Keynesian economists believe that the Long Run Aggregate Supply is horizontal or flat, indicating that the economy can produce more output without increasing prices. On the other hand, Neo Classical economists argue that the Long Run Aggregate Supply is vertical or upward sloping, suggesting that the economy operates at its full potential and any increase in output would lead to inflation.Rate this question:
- 12.
In Keynesian LRAS supply curve phase 3 (where the slope is biggest), when the economy reaches its full capacity it is impossible to increase output any further because factors of production are fully employed, this suggest that the LRAS is _____.
- A.
Perfectly elastic
- B.
Elastic
- C.
Perfectly inelastic
- D.
Inelastic
Correct Answer
C. Perfectly inelasticExplanation
In Keynesian LRAS, phase 3 represents the full capacity of the economy where factors of production are fully employed. In this phase, the supply curve is perfectly inelastic because any increase in demand cannot be met with an increase in output. This means that no matter how much demand increases, the economy is unable to produce any more goods or services due to the limited availability of factors of production. Therefore, the LRAS curve is perfectly inelastic in this phase.Rate this question:
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- 13.
Does full employment mean that there is no unemployment at all?
- A.
Yes.
- B.
No, it only indicates that the unemployment rate is below 5%.
- C.
No, it indicates the unemployment rate is somewhere around 10%
Correct Answer
B. No, it only indicates that the unemployment rate is below 5%.Explanation
Full employment does not mean that there is no unemployment at all. The correct answer states that it only indicates that the unemployment rate is below 5%. This means that there may still be some level of unemployment present, but it is considered to be at a relatively low level. Full employment refers to a situation where the economy is operating at its maximum potential level of employment, with most individuals who are willing and able to work being employed.Rate this question:
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- 14.
In Neo Classical LRAS curve, when the price level rise, does the level of output change?
- A.
No.
- B.
Yes.
Correct Answer
A. No.Explanation
In the Neo Classical Long Run Aggregate Supply (LRAS) curve, the level of output does not change when the price level rises. This is because the Neo Classical view assumes that the economy operates at its full potential in the long run, meaning that there is no slack in the economy and all resources are fully utilized. Therefore, any increase in the price level does not lead to an increase in output as the economy is already producing at its maximum capacity.Rate this question:
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- 15.
In Keynesian perspective:
- A.
Decrease aggregate demand without the need of supply side policies, when starting from a position of low demand.
- B.
Increase aggregate demand with the need of supply side policies, when starting from a position of high demand.
- C.
Decrease aggregate demand without the need of supply side policies, when starting from a position of low demand.
- D.
Increase aggregate demand without the need of supply side policies, when starting from a position of low demand.
- E.
None of above
Correct Answer
D. Increase aggregate demand without the need of supply side policies, when starting from a position of low demand. -
- 16.
What will cause the LRAS curve shift to the right?
- A.
Technological advances
- B.
Improvements in educations
- C.
Discoveries of new resources
- D.
All above
Correct Answer
D. All aboveExplanation
Technological advances, improvements in education, and discoveries of new resources can all cause the Long-Run Aggregate Supply (LRAS) curve to shift to the right. Technological advances can lead to increased productivity and efficiency, improving the overall capacity of the economy. Improvements in education can result in a more skilled and productive workforce, also increasing the economy's potential output. Discoveries of new resources can expand the availability of inputs, further boosting production capacity. Therefore, all of these factors can contribute to a rightward shift in the LRAS curve.Rate this question:
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- 17.
Supply side policies can be divided into two categories:
- A.
Market oriented policies
- B.
Interventionist policies
- C.
Monetary policies
- D.
Fiscal policies
- E.
Both a and b
Correct Answer
E. Both a and bExplanation
Supply side policies can be divided into two categories: market-oriented policies and interventionist policies. Market-oriented policies focus on creating a favorable business environment, promoting competition, and reducing government intervention in the economy. Interventionist policies, on the other hand, involve direct government intervention to stimulate economic growth, such as through infrastructure development or industrial subsidies. Therefore, the correct answer is "both a and b" as it encompasses both market-oriented and interventionist policies.Rate this question:
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- 18.
Market Oriented supply side policies does not include
- A.
Reduction in income taxes
- B.
Deregulation
- C.
Privatization
- D.
Reduction in trade union power
- E.
Increase in corporation taxes
Correct Answer
E. Increase in corporation taxesExplanation
Market-oriented supply-side policies aim to promote economic growth and efficiency by reducing government intervention and promoting free markets. These policies typically involve reducing income taxes to incentivize work and investment, deregulating industries to promote competition, and privatizing state-owned enterprises to increase efficiency. They also often involve reducing trade union power to increase labor market flexibility. However, increasing corporation taxes goes against the principles of market-oriented policies as it can discourage investment and hinder business growth.Rate this question:
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- 19.
Interventionist supply side policies include:
- A.
Education and training
- B.
Research and development
- C.
Provision of infrastructure
- D.
Improved information
- E.
All above
Correct Answer
E. All aboveExplanation
Interventionist supply side policies aim to increase the productive capacity of an economy by directly intervening in various areas. Education and training initiatives help to improve the skills and knowledge of the workforce, leading to increased productivity. Research and development efforts focus on innovation and technological advancements, which can enhance productivity and competitiveness. The provision of infrastructure, such as transportation networks and communication systems, supports economic activities and facilitates trade. Improved information, through data collection and dissemination, allows businesses to make informed decisions and adapt to market changes. Therefore, all of the mentioned options contribute to interventionist supply side policies.Rate this question:
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Mar 20, 2023Quiz Edited by
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Sep 10, 2010Quiz Created by
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