It's Time To Learn About Aggregate Supply Quiz

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ITs Time To Learn About Aggregate Supply Quiz - Quiz

Aggregate supply is one of the things that every economist should understand clearly so as to estimate market prices and get accurate turn over. Do you think you understand all there is about aggregate supply? If you said yes then take up this simple quiz to see what you should read up more on.


Questions and Answers
  • 1. 

    What is the definition of Aggregate Supply?

    • A.

      The total supply of goods and services at a given price during a certain period of time.

    • B.

      The total spending on goods and service in a period of time at a given price level.

    • C.

      The level of demand for services and goods during a given time period.

    • D.

      The average supply of goods and services in an economy.

    Correct Answer
    A. The total supply of goods and services at a given price during a certain period of time.
    Explanation
    The correct answer is the total supply of goods and services at a given price during a certain period of time. This definition refers to the total amount of goods and services that producers are willing and able to supply in an economy at a specific price level over a specific time period. It takes into account factors such as production costs, technology, and resource availability. The aggregate supply curve represents the relationship between the overall price level and the quantity of output supplied in an economy.

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  • 2. 

    What does a Short Run Aggregate Supply Curve look like?

    • A.

      Downward sloping.

    • B.

      Upward sloping.

    • C.

      Horizontal.

    • D.

      Vertical.

    Correct Answer
    B. Upward sloping.
    Explanation
    The Short Run Aggregate Supply Curve is upward sloping because in the short run, as the price level increases, firms are able to increase their output and profit by hiring more labor and utilizing their resources more efficiently. This leads to an increase in the aggregate supply of goods and services. However, in the long run, the aggregate supply curve becomes vertical as the economy reaches its full potential output and resources become fully utilized.

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  • 3. 

    There is a _______________ relationship between the price level and the amount of output that a country's industries will supply.

    • A.

      Positive

    • B.

      Negative

    • C.

      Inverse

    • D.

      Equal

    Correct Answer
    A. Positive
    Explanation
    The correct answer is positive because as the price level increases, the amount of output that a country's industries will supply also increases. This is because higher prices lead to higher profits, which incentivizes producers to increase their production levels. Conversely, when the price level decreases, the amount of output supplied by industries decreases as well. Therefore, there is a positive relationship between the price level and the amount of output supplied.

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  • 4. 

    What is the short run?

    • A.

      The amount of production during two quarters of the year.

    • B.

      The amount of production during a specified period of time.

    • C.

      The period of time when the prices of the factors of production do not change.

    • D.

      The period of time when the amount of production finally changes.

    Correct Answer
    C. The period of time when the prices of the factors of production do not change.
    Explanation
    The short run refers to the period of time when the prices of the factors of production do not change. This means that during the short run, businesses are unable to adjust their input costs, such as wages or raw material prices. It is a temporary period where businesses can only make adjustments to their output levels by utilizing the fixed resources they have. In the long run, businesses have the flexibility to adjust both input and output levels, but in the short run, they are limited by the fixed prices of factors of production.

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  • 5. 

    If a larger level of output is produced, firms are likely to face _____________ average costs of production.

    • A.

      Higher

    • B.

      Lower

    • C.

      Equal

    • D.

      Minimum

    • E.

      Maximum

    Correct Answer
    A. Higher
    Explanation
    When a larger level of output is produced, firms are likely to face higher average costs of production. This is because as production increases, firms may need to hire more workers, invest in additional equipment, or increase their use of resources. These additional costs can cause average costs to rise. Additionally, economies of scale may not be fully realized at higher levels of output, further contributing to higher average costs.

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  • 6. 

    What is the law of diminishing returns?

    • A.

      Marginal and average costs will rise as output increases in the long run.

    • B.

      Marginal and average costs will lower as output increases in the long run.

    • C.

      Marginal and average costs will rise as output increases in the short run.

    • D.

      Marginal and average costs will lower as output increases in the short run.

    Correct Answer
    C. Marginal and average costs will rise as output increases in the short run.
    Explanation
    The law of diminishing returns states that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease. This means that each additional unit of the variable input will contribute less to the total output. As a result, the costs associated with producing each additional unit of output will increase in the short run. This is because the fixed input becomes more stretched and less efficient as more variable inputs are added. Therefore, the correct answer is "Marginal and average costs will rise as output increases in the short run."

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  • 7. 

    What will lead to a shift in the Aggregate Supply Curve?

    • A.

      Price

    • B.

      Any other component

    Correct Answer
    B. Any other component
    Explanation
    A shift in the Aggregate Supply Curve can occur due to changes in factors other than price. These factors include changes in input costs, technology, government regulations, and productivity. Any alteration in these components can lead to a shift in the Aggregate Supply Curve, indicating a change in the overall level of goods and services that suppliers are willing and able to produce at different price levels.

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  • 8. 

    A decrease in costs results in a(n) _______________ in aggregate supply.

    • A.

      Increase

    • B.

      Decrease

    • C.

      No change

    Correct Answer
    A. Increase
    Explanation
    A decrease in costs leads to a decrease in production costs for businesses, allowing them to produce goods and services at a lower cost. This encourages businesses to increase their production levels, leading to an increase in aggregate supply. As a result, more goods and services are available in the market, leading to an increase in aggregate supply.

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  • 9. 

    An increase in wages will result in a(n) ____________ in the cost of production to firms, and therefore a ______ in aggregate supply.

    • A.

      Increase, decrease

    • B.

      Decrease, increase

    • C.

      Increase, increase

    • D.

      Decrease, decrease

    Correct Answer
    A. Increase, decrease
    Explanation
    An increase in wages will result in an increase in the cost of production to firms because they will have to spend more money on paying their workers. This increase in production costs will lead to a decrease in aggregate supply because firms will be less willing or able to produce the same quantity of goods and services at higher costs.

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  • 10. 

    In the short run, does Aggregate Demand equal Aggregate Supply?

    • A.

      Yes

    • B.

      No

    Correct Answer
    A. Yes
    Explanation
    In the short run, Aggregate Demand does equal Aggregate Supply. This is because in the short run, the level of output in an economy is determined by the intersection of Aggregate Demand and Aggregate Supply. When Aggregate Demand equals Aggregate Supply, it means that the total amount of goods and services demanded by households, businesses, and the government is equal to the total amount of goods and services supplied by firms. This equilibrium condition in the short run determines the level of output and employment in the economy.

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  • 11. 

    The full capacity level of output is known as...

    • A.

      Long Run Aggregate Supply

    • B.

      Short Run Aggregate Supply

    • C.

      Full employment level of output

    Correct Answer
    C. Full employment level of output
    Explanation
    The full employment level of output refers to the maximum level of production that an economy can achieve when all of its resources are fully utilized. At this level, there is no cyclical unemployment and the economy is operating at its highest potential. It represents the point where all available resources, such as labor and capital, are being employed efficiently.

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  • 12. 

    What type of shift would we expect in a LRAS curve when a country's factors of production are constantly changing?

    • A.

      No change.

    • B.

      Steady increases in the LRAS.

    • C.

      Steady decreases in the LRAS.

    • D.

      Factors of production does not affect the LRAS curve.

    Correct Answer
    B. Steady increases in the LRAS.
    Explanation
    When a country's factors of production are constantly changing, we would expect a steady increase in the Long-Run Aggregate Supply (LRAS) curve. This is because factors of production, such as labor, capital, and technology, are essential for economic growth and productivity. As these factors improve or increase over time, the economy becomes more efficient and productive, leading to an upward shift in the LRAS curve. This indicates that the country's potential output is increasing, allowing for sustained economic growth in the long run.

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  • 13. 

    A shift in the ___________ can be shown from either a Keynesian perspective or a neo classical perspective.

    • A.

      Long Run Aggregate Demand Curve

    • B.

      Short Run Aggregate Demand Curve

    • C.

      Long Run Aggregate Supply Curve

    • D.

      Short Run Aggregate Supply Curve

    Correct Answer
    C. Long Run Aggregate Supply Curve
    Explanation
    A shift in the Long Run Aggregate Supply Curve can be shown from either a Keynesian perspective or a neo classical perspective. This means that both Keynesian and neo classical economists believe that factors such as changes in technology, labor force, or capital stock can cause shifts in the long run aggregate supply curve. This curve represents the total output that an economy can produce in the long run, and understanding its shifts is important for analyzing the overall health and growth potential of an economy.

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  • 14. 

    The increase in the full employment level of output is equivalent to the _______ shift of the PPC.

    • A.

      Upward

    • B.

      Downward

    • C.

      Inward

    • D.

      Outward

    Correct Answer
    D. Outward
    Explanation
    When the full employment level of output increases, it means that the economy is able to produce more goods and services without any unused resources. This leads to an expansion of the production possibilities of the economy, causing the production possibilities curve (PPC) to shift outward. An outward shift of the PPC indicates an increase in the potential output of an economy, showing that it can produce more goods and services than before. Therefore, the correct answer is "Outward".

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  • 15. 

    What does PPC stand for?

    • A.

      Post production curve

    • B.

      Pre production curve

    • C.

      Production possibilities curve

    • D.

      Production potential curve

    Correct Answer
    C. Production possibilities curve
    Explanation
    The correct answer is "Production possibilities curve." A production possibilities curve (PPC) represents the different combinations of goods and services that can be produced by an economy, given its resources and technology. It shows the trade-offs between producing one good versus another, illustrating the concept of opportunity cost. The PPC demonstrates the maximum potential output of an economy and helps in analyzing resource allocation and efficiency.

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  • 16. 

    Which of the following is NOT an example of something that will cause the shift in the LRAS curve to the right?

    • A.

      New sources

    • B.

      Prices

    • C.

      Education

    • D.

      Technological advances

    • E.

      Employment

    Correct Answer
    B. Prices
    Explanation
    The LRAS curve represents the long-run aggregate supply, which is determined by the available factors of production in the economy. A shift to the right indicates an increase in the potential output of the economy. In this case, prices do not cause a shift in the LRAS curve to the right. Prices affect the short-run aggregate supply (SRAS) curve, not the LRAS curve. The LRAS curve is influenced by factors such as new sources, education, technological advances, and employment, as they increase the productive capacity of the economy.

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  • 17. 

    True or False.Supply side policies can be divided into two categories: Market Oriented Policies and Interventionists Policies.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Supply side policies can indeed be divided into two categories: Market Oriented Policies and Interventionist Policies. Market-oriented policies aim to create a favorable environment for businesses to operate and encourage competition, such as reducing taxes and regulations. Interventionist policies, on the other hand, involve direct government intervention in the economy, such as subsidies or investment in infrastructure. Therefore, the statement "Supply side policies can be divided into two categories: Market Oriented Policies and Interventionists Policies" is true.

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  • 18. 

    Which of the following is a market oriented supply side policy:

    • A.

      Reduction in Income Taxes

    • B.

      Reductions in Corporate Taxes

    • C.

      Deregulation

    • D.

      Answers A & B

    • E.

      All of the above

    Correct Answer
    E. All of the above
    Explanation
    All of the options mentioned (reduction in income taxes, reductions in corporate taxes, and deregulation) are market-oriented supply-side policies. These policies aim to stimulate economic growth and investment by reducing government intervention and allowing market forces to operate more freely. Reduction in income taxes puts more money in the hands of individuals, encouraging consumption and investment. Reductions in corporate taxes incentivize businesses to invest and expand. Deregulation removes unnecessary restrictions and regulations on businesses, promoting competition and innovation. Therefore, all of these policies align with a market-oriented approach.

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  • 19. 

    If people work harder and make more money it is possible that they will have to pay ______ taxes on the higher levels of income.

    • A.

      Less

    • B.

      Lower

    • C.

      Higher

    • D.

      Equal

    Correct Answer
    C. Higher
    Explanation
    If people work harder and make more money, it is likely that their income will fall into a higher tax bracket. This means that they will have to pay a higher percentage of their income in taxes. Therefore, the correct answer is "higher."

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  • 20. 

    It can be argued that a government set minimum wage keeps the price of labour above its ______________________.

    • A.

      Normal value

    • B.

      Free market level

    • C.

      Minimal value

    Correct Answer
    B. Free market level
    Explanation
    A government-set minimum wage ensures that the price of labor remains above its free market level. In a free market, wages are determined by the supply and demand for labor. However, without a minimum wage, employers may take advantage of the situation and pay very low wages to workers. This can lead to exploitation and unfair labor practices. By setting a minimum wage, the government ensures that workers receive a fair wage that is above the level that would be determined by the free market forces alone.

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  • 21. 

    Which of the following is a government's way to actively encourage growth?

    • A.

      Invest & Save

    • B.

      Research & Development

    • C.

      Education & Training

    • D.

      Options B & C

    • E.

      All of the above

    Correct Answer
    D. Options B & C
    Explanation
    The government actively encourages growth through research and development and education and training. Research and development promotes innovation and technological advancements, which drive economic growth. Education and training ensure a skilled workforce, which is essential for a productive economy. By investing in these areas, the government creates an environment that fosters growth and development. Therefore, options B and C are the correct answer.

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  • 22. 

    What does R & D stand for?

    • A.

      Research and Development

    • B.

      Renew and Develop

    Correct Answer
    A. Research and Development
    Explanation
    R&D stands for Research and Development. This term is commonly used to refer to the activities that a company or organization undertakes in order to innovate, create new products, improve existing products, or develop new technologies. Research involves the investigation and exploration of new ideas and concepts, while development focuses on the practical application and implementation of those ideas. R&D is crucial for companies to stay competitive and drive innovation in their respective industries.

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  • 23. 

    In order to produce more, firms will have to provide _________ to workers to produce a larger amount. Choose the more correct answer.

    • A.

      Snacks

    • B.

      Breaks

    • C.

      Incentives

    • D.

      Higher wages

    Correct Answer
    C. Incentives
    Explanation
    In order to produce more, firms will have to provide incentives to workers to produce a larger amount. Incentives can come in various forms such as bonuses, rewards, or recognition for achieving higher production targets. By offering incentives, firms motivate their workers to increase their productivity and output, ultimately leading to a larger amount of production.

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  • 24. 

    True or false. Governments can actively encourage R&D by firms by offering tax incentives.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Governments can actively encourage research and development (R&D) by firms by offering tax incentives. This means that governments can provide tax breaks or deductions to companies that engage in R&D activities. By doing so, governments aim to incentivize firms to invest more in R&D, which can lead to innovation, technological advancements, and economic growth. Tax incentives can help reduce the financial burden on companies and make R&D activities more attractive and feasible.

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  • 25. 

    True or False. Market oriented supply side policies are a sale of public, government owned firms to the private sector. 

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Market oriented supply side policies involve the sale of public, government-owned firms to the private sector. This is done to promote competition, efficiency, and innovation in the market. By privatizing these firms, the government aims to reduce its role in the economy and allow market forces to determine their operations. This can lead to increased productivity, investment, and economic growth. Therefore, the statement "Market oriented supply side policies are a sale of public, government-owned firms to the private sector" is true.

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