Question 1

Exhibit 9-1
  
-Refer to Exhibit 9-1.The economy is currently producing Q1.At this level of Real GDP,the economy is in a(n)

Accepted Answer

A)  inflationary gap. 
B)  recessionary gap. 
C)  unemployment gap. 
D)  high Real GDP gap. 
E)  none of the above 
A)  inflationary gap. 
B)  recessionary gap. 
C)  unemployment gap. 
D)  high Real GDP gap. 
E)  none of the above

Question 2

Business-cycle macroeconomics involves increases in Real GDP that result from a rightward-shifting LRAS curve.

Accepted Answer

A) True 
 B)False

Question 3

In a self-regulating economy,wages will fall and prices will rise when there is an inflationary gap.

Accepted Answer

A) True 
 B)False

Question 4

A recessionary gap exists if (actual)Real GDP is __________ Natural Real GDP.

Accepted Answer

A)  less than 
B)  greater than 
C)  equal to 
D)  b and c 
E)  none of the above 
A)  less than 
B)  greater than 
C)  equal to 
D)  b and c 
E)  none of the above

Question 5

Exhibit 9-5
  
-Refer to Exhibit 9-5.Picture an AD curve intersecting an SRAS curve at Point J on graph (1). Which point(s)would this correspond to on graph (2)?

Accepted Answer

A)  A or B 
B)  C 
C)  E or F 
D)  F 
E)  G 
A)  A or B 
B)  C 
C)  E or F 
D)  F 
E)  G

Question 6

Exhibit 9-5
  
-Refer to Exhibit 9-5.Assume that the economy starts off at point A on graph (2)with an effective minimum wage law in place.After inflation erodes the purchasing power of the minimum wage,the economy is likely to move to a point such as

Accepted Answer

A)  B. 
B)  G. 
C)  F. 
D)  C. 
E)  None of the above, because the minimum wage has no influence on the amount of goods produced. 
A)  B. 
B)  G. 
C)  F. 
D)  C. 
E)  None of the above, because the minimum wage has no influence on the amount of goods produced.

Question 7

If the natural unemployment rate is 7 percent and the current unemployment rate is 5 percent,then the economy is

Accepted Answer

A)  producing more Real GDP than it does at full employment. 
B)  in a recessionary gap. 
C)  producing less Real GDP than it does at full employment. 
D)  a and b 
E)  b and c 
A)  producing more Real GDP than it does at full employment. 
B)  in a recessionary gap. 
C)  producing less Real GDP than it does at full employment. 
D)  a and b 
E)  b and c

Question 8

Exhibit 9-3
  
-Refer to Exhibit 9-3.The economy is in short-run equilibrium and has an inflationary gap at point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E. 
A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E.

Question 9

Some economists believe the economy is self-regulating.What does this mean?

Accepted Answer

A)  It means the economy can remove itself from recessionary and inflationary gaps and produce at Natural Real GDP. 
B)  It means the economy is always in long-run equilibrium producing Natural Real GDP. 
C)  It means that inflationary gaps naturally change into recessionary gaps. 
D)  It means that recessionary gaps naturally change into inflationary gaps. 
E)  c and d 
A)  It means the economy can remove itself from recessionary and inflationary gaps and produce at Natural Real GDP. 
B)  It means the economy is always in long-run equilibrium producing Natural Real GDP. 
C)  It means that inflationary gaps naturally change into recessionary gaps. 
D)  It means that recessionary gaps naturally change into inflationary gaps. 
E)  c and d

Question 10

If an economy's institutional production possibilities frontier (institutional PPF)shifts rightward,the economy's

Accepted Answer

A)  natural unemployment rate rises. 
B)  natural unemployment rate falls. 
C)  Natural Real GDP declines. 
D)  physical PPF shifts leftward. 
E)  physical PPF shifts rightward. 
A)  natural unemployment rate rises. 
B)  natural unemployment rate falls. 
C)  Natural Real GDP declines. 
D)  physical PPF shifts leftward. 
E)  physical PPF shifts rightward.

Question 11

If the current unemployment rate is equal to the natural unemployment rate,then current Real GDP is

Accepted Answer

A)  greater than Natural Real GDP. 
B)  equal to Natural Real GDP. 
C)  equal to the Real GDP produced at full employment. 
D)  less than Natural Real GDP. 
E)  b and c 
A)  greater than Natural Real GDP. 
B)  equal to Natural Real GDP. 
C)  equal to the Real GDP produced at full employment. 
D)  less than Natural Real GDP. 
E)  b and c

Question 12

The frictional unemployment rate is 2.5 percent,the structural unemployment rate is 3.1 percent,and the current unemployment rate (in the economy)is 5.6.The economy is in

Accepted Answer

A)  an inflationary gap producing more than Natural Real GDP. 
B)  a recessionary gap producing more than Natural Real GDP. 
C)  an inflationary gap producing Natural Real GDP. 
D)  a recessionary gap producing less than Natural Real GDP. 
E)  long-run equilibrium. 
A)  an inflationary gap producing more than Natural Real GDP. 
B)  a recessionary gap producing more than Natural Real GDP. 
C)  an inflationary gap producing Natural Real GDP. 
D)  a recessionary gap producing less than Natural Real GDP. 
E)  long-run equilibrium.

Question 13

According to Say's law,

Accepted Answer

A)  the demand curve is negatively sloped. 
B)  the supply curve is positively sloped. 
C)  supply creates its own demand. 
D)  economic units should produce those goods for which they are low-opportunity-cost producers. 
A)  the demand curve is negatively sloped. 
B)  the supply curve is positively sloped. 
C)  supply creates its own demand. 
D)  economic units should produce those goods for which they are low-opportunity-cost producers.

Question 14

In the long run,changes in aggregate demand will affect the level of Real GDP (but not the price level)in a self-regulating economy.

Accepted Answer

A) True 
 B)False

Question 15

If the natural unemployment rate is 5.5 percent,then the economy is in an inflationary gap when the actual unemployment rate is

Accepted Answer

A)  more than 5.5 percent. 
B)  less than 5.5 percent. 
C)  0 percent. 
D)  5.5 percent. 
A)  more than 5.5 percent. 
B)  less than 5.5 percent. 
C)  0 percent. 
D)  5.5 percent.

Question 16

Exhibit 9-3
  
-Refer to Exhibit 9-3.If the economy is in short-run equilibrium at point A,

Accepted Answer

A)  the (actual) unemployment rate is less than the natural unemployment rate. 
B)  the (actual) unemployment rate is equal to the natural unemployment rate. 
C)  the (actual) unemployment rate is greater than the natural unemployment rate. 
D)  the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be determined from the available information. 
A)  the (actual) unemployment rate is less than the natural unemployment rate. 
B)  the (actual) unemployment rate is equal to the natural unemployment rate. 
C)  the (actual) unemployment rate is greater than the natural unemployment rate. 
D)  the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be determined from the available information.

Question 17

An inflationary gap exists when AD and SRAS

Accepted Answer

A)  fail to intersect. 
B)  intersect to the right of Natural Real GDP. 
C)  intersect to the left of Natural Real GDP. 
D)  both have a positive slope. 
A)  fail to intersect. 
B)  intersect to the right of Natural Real GDP. 
C)  intersect to the left of Natural Real GDP. 
D)  both have a positive slope.

Question 18

When the economy is producing Real GDP at a level at which the LRAS curve intersects the AD curve the economy is

Accepted Answer

A)  in a recessionary gap. 
B)  in long-run equilibrium. 
C)  in an inflationary gap. 
D)  operating at less than full-employment output. 
A)  in a recessionary gap. 
B)  in long-run equilibrium. 
C)  in an inflationary gap. 
D)  operating at less than full-employment output.

Question 19

Suppose the economy's short-run equilibrium point is to the left of the Natural Real GDP.Which of the following is true?

Accepted Answer

A)  The economy is in an inflationary gap. 
B)  The economy is in a recessionary gap. 
C)  The economy is in long-run equilibrium. 
D)  This situation is actually impossible. 
A)  The economy is in an inflationary gap. 
B)  The economy is in a recessionary gap. 
C)  The economy is in long-run equilibrium. 
D)  This situation is actually impossible.

Question 20

A necessary condition for a money economy to be self-regulating is that

Accepted Answer

A)  wages must be flexible in an upward direction, but not in a downward direction. 
B)  the economy must always be operating on its institutional production possibilities frontier. 
C)  wages must be flexible in a downward direction, but not in an upward direction. 
D)  interest rates must be flexible in the credit market. 
E)  none of the above 
A)  wages must be flexible in an upward direction, but not in a downward direction. 
B)  the economy must always be operating on its institutional production possibilities frontier. 
C)  wages must be flexible in a downward direction, but not in an upward direction. 
D)  interest rates must be flexible in the credit market. 
E)  none of the above

Exam 9: Classical Macroeconomics and the Self Regulating Economy

Exhibit 9-1 -Refer to Exhibit 9-1.The economy is currently producing Q1.At this level of Real GDP,the economy is in a(n)

Business-cycle macroeconomics involves increases in Real GDP that result from a rightward-shifting LRAS curve.

In a self-regulating economy,wages will fall and prices will rise when there is an inflationary gap.

A recessionary gap exists if (actual)Real GDP is __________ Natural Real GDP.

Exhibit 9-5 -Refer to Exhibit 9-5.Picture an AD curve intersecting an SRAS curve at Point J on graph (1). Which point(s)would this correspond to on graph (2)?

Exhibit 9-5 -Refer to Exhibit 9-5.Assume that the economy starts off at point A on graph (2)with an effective minimum wage law in place.After inflation erodes the purchasing power of the minimum wage,the economy is likely to move to a point such as

If the natural unemployment rate is 7 percent and the current unemployment rate is 5 percent,then the economy is

Exhibit 9-3 -Refer to Exhibit 9-3.The economy is in short-run equilibrium and has an inflationary gap at point

Some economists believe the economy is self-regulating.What does this mean?

If an economy's institutional production possibilities frontier (institutional PPF)shifts rightward,the economy's

If the current unemployment rate is equal to the natural unemployment rate,then current Real GDP is

The frictional unemployment rate is 2.5 percent,the structural unemployment rate is 3.1 percent,and the current unemployment rate (in the economy)is 5.6.The economy is in

According to Say's law,

In the long run,changes in aggregate demand will affect the level of Real GDP (but not the price level)in a self-regulating economy.

If the natural unemployment rate is 5.5 percent,then the economy is in an inflationary gap when the actual unemployment rate is

Exhibit 9-3 -Refer to Exhibit 9-3.If the economy is in short-run equilibrium at point A,

An inflationary gap exists when AD and SRAS

When the economy is producing Real GDP at a level at which the LRAS curve intersects the AD curve the economy is

Suppose the economy's short-run equilibrium point is to the left of the Natural Real GDP.Which of the following is true?

A necessary condition for a money economy to be self-regulating is that

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Interest, Rent, and Profit

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

Exhibit 9-1 -Refer to Exhibit 9-1.The economy is currently producing Q₁.At this level of Real GDP,the economy is in a(n)