Question 1

Stagflation exists when prices rise and output falls.

Accepted Answer

A) True 
 B)False  True

Question 2

A recessionary gap exists when aggregate demand is above the full employment level of output.

Accepted Answer

A) True 
 B)False  False

Question 3

According to Baumol and Blinder, does the U.S. economy have a self-correcting mechanism?

Accepted Answer

A)  No, there is no such thing in reality. 
B)  Yes, and it works very rapidly. 
C)  Yes, and it works very slowly. 
D)  No, unless the aggregate supply curve is perfectly flat. 
A)  No, there is no such thing in reality. 
B)  Yes, and it works very rapidly. 
C)  Yes, and it works very slowly. 
D)  No, unless the aggregate supply curve is perfectly flat. C

Question 4

Figure 10-6
 
In Figure 10-6, which graph best illustrates an adverse supply shock accompanied by an increase in government spending?

Accepted Answer

A)  -1 
B)  -2 
C)  -3 
D)  -4 
A)  -1 
B)  -2 
C)  -3 
D)  -4

Question 5

Aggregate supply grows over time because of growing consumer and government spending.

Accepted Answer

A) True 
 B)False

Question 6

If the MPC of an economy is 0.90 and the economy has a horizontal aggregate supply curve, then an increase in investment spending of $50 million will increase total income by

Accepted Answer

A)  $50 million. 
B)  more than $50 million but less than $500 million. 
C)  $500 million. 
D)  more than $500 million. 
A)  $50 million. 
B)  more than $50 million but less than $500 million. 
C)  $500 million. 
D)  more than $500 million.

Question 7

What is the principal reason that economists give for the existence of deflationary and inflationary gaps?

Accepted Answer

A)  Wages are flexible in the short run. 
B)  Wages are flexible in the long run. 
C)  Wages are fixed in the long run. 
D)  Wages are fixed in the short run. 
A)  Wages are flexible in the short run. 
B)  Wages are flexible in the long run. 
C)  Wages are fixed in the long run. 
D)  Wages are fixed in the short run.

Question 8

At levels of output close to full employment, the aggregate supply curve is probably

Accepted Answer

A)  very flat. 
B)  very steep. 
C)  sloped downward. 
D)  perfectly elastic. 
A)  very flat. 
B)  very steep. 
C)  sloped downward. 
D)  perfectly elastic.

Question 9

The aggregate supply curve slopes

Accepted Answer

A)  downward because firms can sell more at lower prices. 
B)  downward because firms can hire more workers at lower prices. 
C)  upward because firms want to hire more workers at higher wage levels. 
D)  upward because firms can hire workers at fixed wages for short-run periods. 
A)  downward because firms can sell more at lower prices. 
B)  downward because firms can hire more workers at lower prices. 
C)  upward because firms want to hire more workers at higher wage levels. 
D)  upward because firms can hire workers at fixed wages for short-run periods.

Question 10

Self-correcting mechanism reveals that

Accepted Answer

A)  real wages will increase if there is an increase in price. 
B)  nominal wages will fall if there is inflationary gap. 
C)  nominal wages will increase if there is recessionary gap. 
D)  in the long run economy will be in equilibrium at potential GDP. 
A)  real wages will increase if there is an increase in price. 
B)  nominal wages will fall if there is inflationary gap. 
C)  nominal wages will increase if there is recessionary gap. 
D)  in the long run economy will be in equilibrium at potential GDP.

Question 11

Discuss some of the arguments that help explain why wages and prices rarely fall in a modern economy.

Accepted Answer

Institutional factors such as minimum wa

Question 12

What causes the aggregate supply curve to have an upward slope in the short run, but a vertical slope in the long run?

Accepted Answer

When there is substantial unemployment i

Question 13

Figure 10-1
 
If the price level in Figure 10-1 were 100,

Accepted Answer

A)  firms would have to lower their prices. 
B)  inventories would be accumulating. 
C)  shortages of goods would exist. 
D)  aggregate quantity demanded would exceed aggregate quantity supplied. 
E)  both c and d would occur. 
A)  firms would have to lower their prices. 
B)  inventories would be accumulating. 
C)  shortages of goods would exist. 
D)  aggregate quantity demanded would exceed aggregate quantity supplied. 
E)  both c and d would occur.

Question 14

A decrease in the availability of an important major resource such as oil shifts aggregate supply left.

Accepted Answer

A) True 
 B)False

Question 15

If the data show that periods of high economic growth rate are accompanied by high inflation rates, then changes in aggregate demand are the primary source of economic fluctuations.

Accepted Answer

A) True 
 B)False

Question 16

Wages are the major element of cost in the economy accounting for about 70 percent of all input costs.

Accepted Answer

A) True 
 B)False

Question 17

A company succumbs to a wage increase demand without any changes in the productivity of labor, price of the product, and the total output sold. Which of the following would happen?

Accepted Answer

A)  Total revenue of the company will fall. 
B)  Investment by the company will increase. 
C)  Profit per unit of the product will fall. 
D)  Average profit per unit will increase. 
A)  Total revenue of the company will fall. 
B)  Investment by the company will increase. 
C)  Profit per unit of the product will fall. 
D)  Average profit per unit will increase.

Question 18

The typical movement of the aggregate supply curve resulting from an increase in productivity is that it

Accepted Answer

A)  shifts inward and becomes flatter. 
B)  shifts inward. 
C)  shifts outward. 
D)  becomes flatter. 
E)  becomes steeper. 
A)  shifts inward and becomes flatter. 
B)  shifts inward. 
C)  shifts outward. 
D)  becomes flatter. 
E)  becomes steeper.

Question 19

The aggregate supply curve is shifted to the right (outward) by a decrease in the price of any input to the production process.

Accepted Answer

A) True 
 B)False

Question 20

An increase in the money wage rate will cause the aggregate supply curve to shift

Accepted Answer

A)  outward, which means the quantity supplied at any price level decreases. 
B)  outward, which means the quantity supplied at any price level increases. 
C)  inward, which means the quantity supplied at any price level increases. 
D)  inward, which means the quantity supplied at any price level decreases. 
A)  outward, which means the quantity supplied at any price level decreases. 
B)  outward, which means the quantity supplied at any price level increases. 
C)  inward, which means the quantity supplied at any price level increases. 
D)  inward, which means the quantity supplied at any price level decreases.

Exam 26: Bringing in the Supply Side: Unemployment and Inflation

Stagflation exists when prices rise and output falls.

A recessionary gap exists when aggregate demand is above the full employment level of output.

According to Baumol and Blinder, does the U.S. economy have a self-correcting mechanism?

Figure 10-6 In Figure 10-6, which graph best illustrates an adverse supply shock accompanied by an increase in government spending?

Aggregate supply grows over time because of growing consumer and government spending.

If the MPC of an economy is 0.90 and the economy has a horizontal aggregate supply curve, then an increase in investment spending of $50 million will increase total income by

What is the principal reason that economists give for the existence of deflationary and inflationary gaps?

At levels of output close to full employment, the aggregate supply curve is probably

The aggregate supply curve slopes

Self-correcting mechanism reveals that

Discuss some of the arguments that help explain why wages and prices rarely fall in a modern economy.

What causes the aggregate supply curve to have an upward slope in the short run, but a vertical slope in the long run?

Figure 10-1 If the price level in Figure 10-1 were 100,

A decrease in the availability of an important major resource such as oil shifts aggregate supply left.

If the data show that periods of high economic growth rate are accompanied by high inflation rates, then changes in aggregate demand are the primary source of economic fluctuations.

Wages are the major element of cost in the economy accounting for about 70 percent of all input costs.

A company succumbs to a wage increase demand without any changes in the productivity of labor, price of the product, and the total output sold. Which of the following would happen?

The typical movement of the aggregate supply curve resulting from an increase in productivity is that it

The aggregate supply curve is shifted to the right (outward) by a decrease in the price of any input to the production process.

An increase in the money wage rate will cause the aggregate supply curve to shift

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

Contemporary Issues in the Us Economy

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