Question 1

The long-run aggregate supply curve is _____.

Accepted Answer

A)  downward sloping 
B)  upward sloping 
C)  vertical 
D)  horizontal 
A)  downward sloping 
B)  upward sloping 
C)  vertical 
D)  horizontal

Question 2

According to the new classical economists, long-run equilibrium can be attained in a relatively short time period, such as a year or two.

Accepted Answer

A) True 
 B)False

Question 3

When an economy is producing at a point on its production possibility frontier:

Accepted Answer

A)  it is not utilizing all the resources available for production. 
B)  it is producing at its potential GDP. 
C)  monetary policy needs to be used to bring the economy to full employment. 
D)  taxes need to be increased to slow the economy. 
A)  it is not utilizing all the resources available for production. 
B)  it is producing at its potential GDP. 
C)  monetary policy needs to be used to bring the economy to full employment. 
D)  taxes need to be increased to slow the economy.

Question 4

According to the quantity theory of money:

Accepted Answer

A)  there is a direct relationship between money supply and the price level. 
B)  money supply is negatively related to output. 
C)  the velocity of circulation of money in an economy is not stable. 
D)  the long-run aggregate supply schedule is positively sloped. 
A)  there is a direct relationship between money supply and the price level. 
B)  money supply is negatively related to output. 
C)  the velocity of circulation of money in an economy is not stable. 
D)  the long-run aggregate supply schedule is positively sloped.

Question 5

For businesses, it is important to consider the future path of interest rates because:

Accepted Answer

A)  businesses use borrowed funds to leverage their ﬁnancial returns. 
B)  businesses use equity to leverage their ﬁnancial returns. 
C)  they affect the long-run level of unemployment in an economy. 
D)  businesses use borrowed funds to maintain the high salaries of managers. 
A)  businesses use borrowed funds to leverage their ﬁnancial returns. 
B)  businesses use equity to leverage their ﬁnancial returns. 
C)  they affect the long-run level of unemployment in an economy. 
D)  businesses use borrowed funds to maintain the high salaries of managers.

Question 6

Which of the following is true for an economy that has experienced a temporary supply shock?

Accepted Answer

A)  The supply shock is likely to have shifted the short-run aggregate supply curve to the right. 
B)  There is likely to be a fall in inﬂationary expectations in the economy. 
C)  Short-run macroeconomic equilibrium will consist of lower GDP and higher inﬂation. 
D)  The central bank is likely to reduce interest rates to bring the inﬂation rate down. 
A)  The supply shock is likely to have shifted the short-run aggregate supply curve to the right. 
B)  There is likely to be a fall in inﬂationary expectations in the economy. 
C)  Short-run macroeconomic equilibrium will consist of lower GDP and higher inﬂation. 
D)  The central bank is likely to reduce interest rates to bring the inﬂation rate down.

Question 7

Since falling prices beneﬁt customers, deﬂation is always considered to be good for an economy.

Accepted Answer

A) True 
 B)False

Question 8

The downward slope of the Phillips curve implies that:

Accepted Answer

A)  monetary policy is more appropriate than ?scal policy in controlling in?ation. 
B)  it is not possible for the economy to achieve full employment. 
C)  policy makers face a trade-off between unemployment and in?ation. 
D)  it is possible to maintain high levels of employment at low and stable price levels. 
A)  monetary policy is more appropriate than ?scal policy in controlling in?ation. 
B)  it is not possible for the economy to achieve full employment. 
C)  policy makers face a trade-off between unemployment and in?ation. 
D)  it is possible to maintain high levels of employment at low and stable price levels.

Question 9

If nominal wages and prices both double, then _____.

Accepted Answer

A)  the real wage will increase 
B)  the level of employment will remain unchanged 
C)  ﬁrms will hire more workers 
D)  the supply of labour will decrease 
A)  the real wage will increase 
B)  the level of employment will remain unchanged 
C)  ﬁrms will hire more workers 
D)  the supply of labour will decrease

Question 10

With a constant nominal wage, a higher-than-expected level of inﬂation in an economy _____.

Accepted Answer

A)  will lead to a fall in real wages 
B)  will lead to a fall in employment 
C)  will reduce short-run output 
D)  will reduce the level of potential GDP 
A)  will lead to a fall in real wages 
B)  will lead to a fall in employment 
C)  will reduce short-run output 
D)  will reduce the level of potential GDP

Question 11

Consider an economy that is in short-run and long-run equilibrium. If there is a drop in consumer con?dence, how will this impact the equilibrium? Explain diagrammatically.

Accepted Answer

A drop in consumer and busines

Question 12

Which of the following groups of economists believe that policy stimulus is likely to lead to an over- correction of the economy?

Accepted Answer

A)  Gradual monetarists. 
B)  Mercantilists. 
C)  Extreme Keynesian economists. 
D)  Moderate Keynesian economists. 
A)  Gradual monetarists. 
B)  Mercantilists. 
C)  Extreme Keynesian economists. 
D)  Moderate Keynesian economists.

Question 13

In which of the following cases is the Bank of England likely to keep interest rates low?

Accepted Answer

A)  If the Bank anticipates GDP to fall below its target. 
B)  If the current rate of inﬂation is very high. 
C)  If interest rates in other leading economies is low. 
D)  If actual GDP exceeds potential GDP. 
A)  If the Bank anticipates GDP to fall below its target. 
B)  If the current rate of inﬂation is very high. 
C)  If interest rates in other leading economies is low. 
D)  If actual GDP exceeds potential GDP.

Question 14

The actual GDP for an economy is:

Accepted Answer

A)  the level of output that is produced using only domestic factors of production. 
B)  the same as the short-run equilibrium GDP. 
C)  the total value of goods and services in the economy, after adjusting for prices. 
D)  the level of output that is not determined by prices or wages. 
A)  the level of output that is produced using only domestic factors of production. 
B)  the same as the short-run equilibrium GDP. 
C)  the total value of goods and services in the economy, after adjusting for prices. 
D)  the level of output that is not determined by prices or wages.

Question 15

In the long run, _____ the level of output produced in an economy.

Accepted Answer

A)  the production possibility frontier does not have any impact on 
B)  the level of in?ation determines 
C)  nominal wages determine 
D)  neither price nor wages have any impact on 
A)  the production possibility frontier does not have any impact on 
B)  the level of in?ation determines 
C)  nominal wages determine 
D)  neither price nor wages have any impact on

Question 16

The long run aggregate supply curve shows that prices are constant at any level of output, and is therefore horizontal.

Accepted Answer

A) True 
 B)False

Question 17

In which of the following cases can business managers expect an increase in interest rates?

Accepted Answer

A)  When actual inﬂation is substantially lower than target inﬂation. 
B)  When actual inﬂation is substantially higher than target inﬂation. 
C)  When actual GDP is lower than potential GDP. 
D)  When actual GDP is equal to potential GDP. 
A)  When actual inﬂation is substantially lower than target inﬂation. 
B)  When actual inﬂation is substantially higher than target inﬂation. 
C)  When actual GDP is lower than potential GDP. 
D)  When actual GDP is equal to potential GDP.

Question 18

According to the short-run Phillips curve, an increase in government spending aimed at reducing unemployment will lead to:

Accepted Answer

A)  an increase in the rate of inﬂation. 
B)  an increase in the level of potential GDP. 
C)  a government budget surplus. 
D)  a decline in aggregate demand. 
A)  an increase in the rate of inﬂation. 
B)  an increase in the level of potential GDP. 
C)  a government budget surplus. 
D)  a decline in aggregate demand.

Question 19

If wage growth is greater than inﬂation, then workers actually become cheaper to hire and their value increases.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is likely to occur if the actual rate of inﬂation is lower than the expected rate of inﬂation?

Accepted Answer

A)  Real wages in the economy will fall. 
B)  The level of output will increase. 
C)  Workers will negotiate higher nominal wage agreements. 
D)  Firms will reduce employment and hire fewer workers. 
A)  Real wages in the economy will fall. 
B)  The level of output will increase. 
C)  Workers will negotiate higher nominal wage agreements. 
D)  Firms will reduce employment and hire fewer workers.

The long-run aggregate supply curve is _____.

According to the new classical economists, long-run equilibrium can be attained in a relatively short time period, such as a year or two.

When an economy is producing at a point on its production possibility frontier:

According to the quantity theory of money:

For businesses, it is important to consider the future path of interest rates because:

Which of the following is true for an economy that has experienced a temporary supply shock?

Since falling prices beneﬁt customers, deﬂation is always considered to be good for an economy.

The downward slope of the Phillips curve implies that:

If nominal wages and prices both double, then _____.

With a constant nominal wage, a higher-than-expected level of inﬂation in an economy _____.

Consider an economy that is in short-run and long-run equilibrium. If there is a drop in consumer con?dence, how will this impact the equilibrium? Explain diagrammatically.

Which of the following groups of economists believe that policy stimulus is likely to lead to an over- correction of the economy?

In which of the following cases is the Bank of England likely to keep interest rates low?

The actual GDP for an economy is:

In the long run, _____ the level of output produced in an economy.

The long run aggregate supply curve shows that prices are constant at any level of output, and is therefore horizontal.

In which of the following cases can business managers expect an increase in interest rates?

According to the short-run Phillips curve, an increase in government spending aimed at reducing unemployment will lead to:

If wage growth is greater than inﬂation, then workers actually become cheaper to hire and their value increases.

Which of the following is likely to occur if the actual rate of inﬂation is lower than the expected rate of inﬂation?

Economics for Business

Consumers in the Marketplace

Firms in the Marketplace

Markets in Action

Market Structure and Firm Performance

Strategic Rivalry

Growth Strategies

Governing Business

Introduction to the Macroeconomy

Measuring Macroeconomic Variables and Policy Issues

Expenditure and Fiscal Policy

Money, Banking and Interest

Supply-Side Policies and Economic Growth

Exchange Rates and the Balance of Payments

Globalization

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Exam 13: Inflation, Output and Economic Policy

The long-run aggregate supply curve is _____.

According to the new classical economists, long-run equilibrium can be attained in a relatively short time period, such as a year or two.

When an economy is producing at a point on its production possibility frontier:

According to the quantity theory of money:

For businesses, it is important to consider the future path of interest rates because:

Which of the following is true for an economy that has experienced a temporary supply shock?

Since falling prices beneﬁt customers, deﬂation is always considered to be good for an economy.

The downward slope of the Phillips curve implies that:

If nominal wages and prices both double, then _____.

With a constant nominal wage, a higher-than-expected level of inﬂation in an economy _____.

Consider an economy that is in short-run and long-run equilibrium. If there is a drop in consumer con?dence, how will this impact the equilibrium? Explain diagrammatically.

Which of the following groups of economists believe that policy stimulus is likely to lead to an over- correction of the economy?

In which of the following cases is the Bank of England likely to keep interest rates low?

The actual GDP for an economy is:

In the long run, _____ the level of output produced in an economy.

The long run aggregate supply curve shows that prices are constant at any level of output, and is therefore horizontal.

In which of the following cases can business managers expect an increase in interest rates?

According to the short-run Phillips curve, an increase in government spending aimed at reducing unemployment will lead to:

If wage growth is greater than inﬂation, then workers actually become cheaper to hire and their value increases.

Which of the following is likely to occur if the actual rate of inﬂation is lower than the expected rate of inﬂation?

Economics for Business

Consumers in the Marketplace

Firms in the Marketplace

Markets in Action

Market Structure and Firm Performance

Strategic Rivalry

Growth Strategies

Governing Business

Introduction to the Macroeconomy

Measuring Macroeconomic Variables and Policy Issues

Expenditure and Fiscal Policy

Money, Banking and Interest

Supply-Side Policies and Economic Growth

Exchange Rates and the Balance of Payments

Globalization

Filters