Question 1

In a self-regulating economy, a recessionary gap will be eliminated by falling wages which will shift the SRAS curve to the right.

Accepted Answer

A) True 
 B)False

Question 2

When the economy is producing the level of output equal to natural Real GDP, the unemployment rate is equal to

Accepted Answer

A) zero. 
B) the natural unemployment rate. 
C) the frictional unemployment rate. 
D) the structural unemployment rate. 
A) zero. 
B) the natural unemployment rate. 
C) the frictional unemployment rate. 
D) the structural unemployment rate.

Question 3

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 4

Exhibit 9-6
  
-Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, it follows that

Accepted Answer

A) there is a surplus of labor in the labor market. 
B) the economy is currently on its institutional PPF. 
C) the economy is currently in an inflationary gap. 
D) the labor market is in equilibrium. 
E) the actual unemployment rate is below the natural unemployment rate. 
A) there is a surplus of labor in the labor market. 
B) the economy is currently on its institutional PPF. 
C) the economy is currently in an inflationary gap. 
D) the labor market is in equilibrium. 
E) the actual unemployment rate is below the natural unemployment rate.

Question 5

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

Accepted Answer

A) wages must be relatively high. 
B) the labor market must always be in equilibrium. 
C) the interest rate must be above its equilibrium level. 
D) wages must be flexible in both an upward and downward direction. 
E) none of the above 
A) wages must be relatively high. 
B) the labor market must always be in equilibrium. 
C) the interest rate must be above its equilibrium level. 
D) wages must be flexible in both an upward and downward direction. 
E) none of the above

Question 6

If the current unemployment rate is less than the natural unemployment rate, then the economy is

Accepted Answer

A) in long-run equilibrium. 
B) in an inflationary gap. 
C) in a recessionary gap. 
D) producing at full employment. 
E) b and d 
A) in long-run equilibrium. 
B) in an inflationary gap. 
C) in a recessionary gap. 
D) producing at full employment. 
E) b and d

Question 7

If the SRAS curve intersects the AD curve to the left of Natural Real GDP, the economy is

Accepted Answer

A) in a recessionary gap. 
B) at Natural Real GDP. 
C) in an inflationary gap. 
D) at full-employment Real GDP. 
A) in a recessionary gap. 
B) at Natural Real GDP. 
C) in an inflationary gap. 
D) at full-employment Real GDP.

Question 8

Using the aggregate demand and aggregate supply (AD-SRAS) framework, explain how a large-scale natural disaster would be expected to impact the economy. Discuss how an economist who believes the economy is self-regulating would view the longer term impact of such a disaster, and whether they would advocate the need for government intervention.

Accepted Answer

A large-scale natural disaster represent

Question 9

The frictional unemployment rate is 1.5 percent, the structural unemployment rate is 3.4 percent, and the economy's current unemployment rate is 4.9 percent. 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 10

According to the classical theorists, it is impossible to have a

Accepted Answer

A) surplus of a particular product. 
B) shortage of a particular product. 
C) decrease in the demand for a product. 
D) decrease in the supply of a product. 
E) general overproduction of products. 
A) surplus of a particular product. 
B) shortage of a particular product. 
C) decrease in the demand for a product. 
D) decrease in the supply of a product. 
E) general overproduction of products.

Question 11

An economy that is operating on its institutional production possibilities frontier is operating at its natural unemployment rate.

Accepted Answer

A) True 
 B)False

Question 12

When there is a recessionary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual) unemployment rate is __________ the natural unemployment rate.

Accepted Answer

A) greater than; less than 
B) greater than; greater than 
C) greater than; equal to 
D) less than; greater than 
E) less than; less than 
A) greater than; less than 
B) greater than; greater than 
C) greater than; equal to 
D) less than; greater than 
E) less than; less than

Question 13

Which of the following is consistent with the classical position on wages and prices?

Accepted Answer

A) Wages and prices are inflexible in the downward direction, but not in the upward direction. 
B) Wages are inflexible in the downward direction, but prices are flexible. 
C) Wages and prices are flexible. 
D) Prices are inflexible in the downward direction, but wages are flexible. 
A) Wages and prices are inflexible in the downward direction, but not in the upward direction. 
B) Wages are inflexible in the downward direction, but prices are flexible. 
C) Wages and prices are flexible. 
D) Prices are inflexible in the downward direction, but wages are flexible.

Question 14

Describe the difference between business-cycle macroeconomics and economic-growth macroeconomics.

Accepted Answer

Business-cycle macroeconomics involves c

Question 15

Business-cycle macroeconomics involves changes in Real GDP around a ____________ LRAS curve, while economic-growth macroeconomics deals with increases in Real GDP resulting from a ______________ LRAS curve.

Accepted Answer

A) rightward-shifting; fixed 
B) fixed; leftward shifting 
C) leftward shifting; fixed 
D) fixed; rightward-shifting 
A) rightward-shifting; fixed 
B) fixed; leftward shifting 
C) leftward shifting; fixed 
D) fixed; rightward-shifting

Question 16

Which of the following statements is true?

Accepted Answer

A) If current Real GDP is greater than Natural Real GDP, the economy is in a recessionary gap. 
B) If current Real GDP is less than Natural Real GDP, the economy is in long-run equilibrium. 
C) Wages are flexible if the economy is self-regulating. 
D) Wages rise but prices remain constant in long-run equilibrium. 
E) All economists believe the economy is self-regulating. 
A) If current Real GDP is greater than Natural Real GDP, the economy is in a recessionary gap. 
B) If current Real GDP is less than Natural Real GDP, the economy is in long-run equilibrium. 
C) Wages are flexible if the economy is self-regulating. 
D) Wages rise but prices remain constant in long-run equilibrium. 
E) All economists believe the economy is self-regulating.

Question 17

Exhibit 9-5
  
-Refer to Exhibit 9-5. Point G on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at which point(s) on graph (1)?

Accepted Answer

A) I or J 
B) K 
C) L or M 
D) I or L 
E) J or M 
A) I or J 
B) K 
C) L or M 
D) I or L 
E) J or M

Question 18

For saving to increase, consumption must decrease, ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 9-1
  
-Refer to Exhibit 9-1. The economy is currently producing Q1. An economist who believes wages are flexible in the downward direction would most likely argue that

Accepted Answer

A) it is likely the economy will soon move to point B. 
B) it is likely the economy will soon move to point A. 
C) it is not likely the economy will move to point A without government intervention. 
D) Real GDP will soon take a downturn. 
A) it is likely the economy will soon move to point B. 
B) it is likely the economy will soon move to point A. 
C) it is not likely the economy will move to point A without government intervention. 
D) Real GDP will soon take a downturn.

Question 20

Exhibit 9-4
  
-Refer to Exhibit 9-4. Assume the economy is currently in long-run equilibrium with the price level equal to P3. If foreigners begin to buy more U.S. goods, the economy will, in the short run, move to price level equal to _________ and Real GDP equal to _________?

Accepted Answer

A) P2; Q4. 
B) P3; Q3. 
C) P4; Q2. 
D) P4; Q4. 
E) P5; Q3. 
A) P2; Q4. 
B) P3; Q3. 
C) P4; Q2. 
D) P4; Q4. 
E) P5; Q3.

Exam 9: Classical Macroeconomics and the Self Regulating Economy

In a self-regulating economy, a recessionary gap will be eliminated by falling wages which will shift the SRAS curve to the right.

When the economy is producing the level of output equal to natural Real GDP, the unemployment rate is equal to

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

Exhibit 9-6 -Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, it follows that

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

If the current unemployment rate is less than the natural unemployment rate, then the economy is

If the SRAS curve intersects the AD curve to the left of Natural Real GDP, the economy is

The frictional unemployment rate is 1.5 percent, the structural unemployment rate is 3.4 percent, and the economy's current unemployment rate is 4.9 percent. The economy is in

According to the classical theorists, it is impossible to have a

An economy that is operating on its institutional production possibilities frontier is operating at its natural unemployment rate.

When there is a recessionary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual) unemployment rate is __________ the natural unemployment rate.

Which of the following is consistent with the classical position on wages and prices?

Describe the difference between business-cycle macroeconomics and economic-growth macroeconomics.

Business-cycle macroeconomics involves changes in Real GDP around a ____________ LRAS curve, while economic-growth macroeconomics deals with increases in Real GDP resulting from a ______________ LRAS curve.

Which of the following statements is true?

Exhibit 9-5 -Refer to Exhibit 9-5. Point G on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at which point(s) on graph (1)?

For saving to increase, consumption must decrease, ceteris paribus.

Exhibit 9-1 -Refer to Exhibit 9-1. The economy is currently producing Q1. An economist who believes wages are flexible in the downward direction would most likely argue that

Exhibit 9-4 -Refer to Exhibit 9-4. Assume the economy is currently in long-run equilibrium with the price level equal to P3. If foreigners begin to buy more U.S. goods, the economy will, in the short run, move to price level equal to _________ and Real GDP equal to _________?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II 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

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice 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

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

When there is a recessionary gap, (actual) Real GDP is Natural Real GDP, and the (actual) unemployment rate is the natural unemployment rate.

Business-cycle macroeconomics involves changes in Real GDP around a LRAS curve, while economic-growth macroeconomics deals with increases in Real GDP resulting from a __ LRAS curve.

Exhibit 9-1 -Refer to Exhibit 9-1. The economy is currently producing Q₁. An economist who believes wages are flexible in the downward direction would most likely argue that

Exhibit 9-4 -Refer to Exhibit 9-4. Assume the economy is currently in long-run equilibrium with the price level equal to P₃. If foreigners begin to buy more U.S. goods, the economy will, in the short run, move to price level equal to _ and Real GDP equal to _?