Question 1

Which of the following supply shocks will shift the long-run aggregate supply curve outward?

Accepted Answer

A)  An increase in business taxes 
B)  An increase in gasoline taxes 
C)  An increase in the cost of raw materials 
D)  An increase in the amount and cost of government regulation 
E)  An increase in agricultural output 
A)  An increase in business taxes 
B)  An increase in gasoline taxes 
C)  An increase in the cost of raw materials 
D)  An increase in the amount and cost of government regulation 
E)  An increase in agricultural output

Question 2

Which of the following is true of a recessionary gap?

Accepted Answer

A)  It develops when the expected price level is less than the actual price level. 
B)  In the long run, this gap closes when resource suppliers negotiate lower resource payments. 
C)  It measures the amount by which actual output is greater than the economy's potential output. 
D)  In the long run, this gap closes when the short-run aggregate supply curve shifts rightward. 
E)  In the long run, this gap closes when the aggregate demand curve shifts rightward. 
A)  It develops when the expected price level is less than the actual price level. 
B)  In the long run, this gap closes when resource suppliers negotiate lower resource payments. 
C)  It measures the amount by which actual output is greater than the economy's potential output. 
D)  In the long run, this gap closes when the short-run aggregate supply curve shifts rightward. 
E)  In the long run, this gap closes when the aggregate demand curve shifts rightward.

Question 3

The main effect of an increase in capital stock is a(n):

Accepted Answer

A)  rightward shift of the long-run aggregate supply curve. 
B)  rightward shift of the aggregate demand curve. 
C)  leftward shift of the long-run aggregate supply curve. 
D)  leftward shift of the aggregate demand curve. 
E)  increase in price and output levels. 
A)  rightward shift of the long-run aggregate supply curve. 
B)  rightward shift of the aggregate demand curve. 
C)  leftward shift of the long-run aggregate supply curve. 
D)  leftward shift of the aggregate demand curve. 
E)  increase in price and output levels.

Question 4

The figure below shows the determination of the equilibrium price level and real GDP in an aggregate demand-aggregate supply model. If the economy is at point H, there is a(n):

Accepted Answer

A)  expansionary gap of $300 billion. 
B)  recessionary gap of $300 billion. 
C)  recessionary gap of $10 billion. 
D)  expansionary gap of $20 billion. 
E)  expansionary gap of $10 billion. 
A)  expansionary gap of $300 billion. 
B)  recessionary gap of $300 billion. 
C)  recessionary gap of $10 billion. 
D)  expansionary gap of $20 billion. 
E)  expansionary gap of $10 billion.

Question 5

Which of these is true of the expected price level in a labor market?

Accepted Answer

A)  It is the equilibrium price level in the short run. 
B)  It determines the actual price level in the short run. 
C)  It determines the actual price level in the long run. 
D)  It allows firms and resource owners to make long-term wage agreements. 
E)  The difference between the expected and actual price levels is equal to the actual inflation rate. 
A)  It is the equilibrium price level in the short run. 
B)  It determines the actual price level in the short run. 
C)  It determines the actual price level in the long run. 
D)  It allows firms and resource owners to make long-term wage agreements. 
E)  The difference between the expected and actual price levels is equal to the actual inflation rate.

Question 6

Workers usually negotiate compensation in terms of the nominal wage because wage agreements are based on expected price levels.

Accepted Answer

A) True 
 B)False

Question 7

Which of these does not hold true if an economy is simultaneously in long-run and short-run equilibrium?

Accepted Answer

A)  The actual price level equals the expected price level. 
B)  Aggregate quantity supplied equals potential output. 
C)  Aggregate quantity demanded equals potential output. 
D)  Aggregate quantity supplied equals aggregate quantity demanded. 
E)  Aggregate demand curve is horizontal at the potential output level. 
A)  The actual price level equals the expected price level. 
B)  Aggregate quantity supplied equals potential output. 
C)  Aggregate quantity demanded equals potential output. 
D)  Aggregate quantity supplied equals aggregate quantity demanded. 
E)  Aggregate demand curve is horizontal at the potential output level.

Question 8

The international oil price hike by OPEC was an adverse supply shock faced by the U.S. in the 1970s.

Accepted Answer

A) True 
 B)False

Question 9

The figure below shows the short-run aggregate supply curve of an economy. If P3 is the price level prevailing in the economy, _____.

Accepted Answer

A)  there is an expansionary gap. 
B)  there is a recessionary gap. 
C)  the price level will rise. 
D)  the actual unemployment rate is above the natural rate. 
E)  potential output is greater than actual output. 
A)  there is an expansionary gap. 
B)  there is a recessionary gap. 
C)  the price level will rise. 
D)  the actual unemployment rate is above the natural rate. 
E)  potential output is greater than actual output.

Question 10

An expansionary gap in the short-run results in:

Accepted Answer

A)  lower resource prices in the long run. 
B)  unemployment in the long run. 
C)  a recessionary gap in the long run. 
D)  cost-push inflation in the long run. 
E)  demand-pull inflation in the long run. 
A)  lower resource prices in the long run. 
B)  unemployment in the long run. 
C)  a recessionary gap in the long run. 
D)  cost-push inflation in the long run. 
E)  demand-pull inflation in the long run.

Question 11

Identify the correct statement.

Accepted Answer

A)  In periods of low inflation, real wages are constant but nominal wages decline. 
B)  If the price level increases, real wages will increase. 
C)  If the price level increases, nominal wages will fall. 
D)  In periods of high inflation, real wages change even if nominal wages remain constant. 
E)  If the inflation rate is high, real wages and nominal wages change by the same amount. 
A)  In periods of low inflation, real wages are constant but nominal wages decline. 
B)  If the price level increases, real wages will increase. 
C)  If the price level increases, nominal wages will fall. 
D)  In periods of high inflation, real wages change even if nominal wages remain constant. 
E)  If the inflation rate is high, real wages and nominal wages change by the same amount.

Question 12

Which of the following is true in the long run?

Accepted Answer

A)  The aggregate demand curve determines the level of potential output. 
B)  The long-run aggregate supply curve is horizontal. 
C)  The actual price level and the expected price level are equal. 
D)  Cyclical unemployment is between 5 percent and 6 percent. 
E)  The price level is determined entirely by the long-run aggregate supply curve. 
A)  The aggregate demand curve determines the level of potential output. 
B)  The long-run aggregate supply curve is horizontal. 
C)  The actual price level and the expected price level are equal. 
D)  Cyclical unemployment is between 5 percent and 6 percent. 
E)  The price level is determined entirely by the long-run aggregate supply curve.

Question 13

In 2009, actual output in the U.S. was 4.7 percent below the potential output. This implies that the:

Accepted Answer

A)  unemployment in the U.S. was below its natural rate. 
B)  poverty level in the U.S. was below average. 
C)  there was a recessionary gap in this economy. 
D)  there was an expansionary gap in this economy. 
E)  there was an excess demand in this economy. 
A)  unemployment in the U.S. was below its natural rate. 
B)  poverty level in the U.S. was below average. 
C)  there was a recessionary gap in this economy. 
D)  there was an expansionary gap in this economy. 
E)  there was an excess demand in this economy.

Question 14

A nominal wage is:

Accepted Answer

A)  always equal to the legal minimum wage. 
B)  the same as the efficiency wage. 
C)  measured in terms of the amount of goods and services it can purchase. 
D)  measured in current dollars rather than in constant dollars. 
E)  measured in constant dollars rather than in current dollars. 
A)  always equal to the legal minimum wage. 
B)  the same as the efficiency wage. 
C)  measured in terms of the amount of goods and services it can purchase. 
D)  measured in current dollars rather than in constant dollars. 
E)  measured in constant dollars rather than in current dollars.

Question 15

When actual output increases the potential output, _____.

Accepted Answer

A)  more resources become unemployed. 
B)  prices remain constant. 
C)  prices tend to increase. 
D)  nominal GDP decreases. 
E)  resource prices decrease. 
A)  more resources become unemployed. 
B)  prices remain constant. 
C)  prices tend to increase. 
D)  nominal GDP decreases. 
E)  resource prices decrease.

Question 16

In a particular year, if the price level rises by 4 percent and the nominal wage of workers rises by 6 percent, we can conclude that the real wage has:

Accepted Answer

A)  fallen by 2 percent. 
B)  fallen by 10 percent. 
C)  increased by 2 percent. 
D)  increased by 10 percent. 
E)  remained constant. 
A)  fallen by 2 percent. 
B)  fallen by 10 percent. 
C)  increased by 2 percent. 
D)  increased by 10 percent. 
E)  remained constant.

Question 17

Suppose the real wage of a worker remains unchanged between Year 1 and Year 2 but the nominal wage decreases from $20 in Year 1 to $18 in Year 2. This implies that the price level has:

Accepted Answer

A)  increased by 20 percent. 
B)  increased by 25 percent. 
C)  remained unchanged. 
D)  fallen by 10 percent. 
E)  fallen by 20 percent. 
A)  increased by 20 percent. 
B)  increased by 25 percent. 
C)  remained unchanged. 
D)  fallen by 10 percent. 
E)  fallen by 20 percent.

Question 18

An adverse supply shock generally decreases the price level and the real GDP.

Accepted Answer

A) True 
 B)False

Question 19

The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P1 is the price level prevailing in the economy, it implies that:

Accepted Answer

A)  there is an expansionary gap. 
B)  the price level will decrease. 
C)  the actual unemployment rate is equal to the natural unemployment rate. 
D)  the actual unemployment rate is below the natural unemployment rate. 
E)  the actual rate of output is more than the potential output. 
A)  there is an expansionary gap. 
B)  the price level will decrease. 
C)  the actual unemployment rate is equal to the natural unemployment rate. 
D)  the actual unemployment rate is below the natural unemployment rate. 
E)  the actual rate of output is more than the potential output.

Question 20

If resource suppliers and demanders find out that the actual price level exceeds the expected price level, they will take corrective actions that will:

Accepted Answer

A)  cause the economy to move away from the potential output level. 
B)  raise the unemployment level above the natural rate of unemployment. 
C)  shift the aggregate demand curve of an economy. 
D)  shift the short-run aggregate supply curve of an economy. 
E)  lower the actual price level. 
A)  cause the economy to move away from the potential output level. 
B)  raise the unemployment level above the natural rate of unemployment. 
C)  shift the aggregate demand curve of an economy. 
D)  shift the short-run aggregate supply curve of an economy. 
E)  lower the actual price level.

Which of the following supply shocks will shift the long-run aggregate supply curve outward?

Which of the following is true of a recessionary gap?

The main effect of an increase in capital stock is a(n):

The figure below shows the determination of the equilibrium price level and real GDP in an aggregate demand-aggregate supply model. If the economy is at point H, there is a(n):

Which of these is true of the expected price level in a labor market?

Workers usually negotiate compensation in terms of the nominal wage because wage agreements are based on expected price levels.

Which of these does not hold true if an economy is simultaneously in long-run and short-run equilibrium?

The international oil price hike by OPEC was an adverse supply shock faced by the U.S. in the 1970s.

The figure below shows the short-run aggregate supply curve of an economy. If P₃ is the price level prevailing in the economy, _____.

An expansionary gap in the short-run results in:

Identify the correct statement.

Which of the following is true in the long run?

In 2009, actual output in the U.S. was 4.7 percent below the potential output. This implies that the:

A nominal wage is:

When actual output increases the potential output, _____.

In a particular year, if the price level rises by 4 percent and the nominal wage of workers rises by 6 percent, we can conclude that the real wage has:

Suppose the real wage of a worker remains unchanged between Year 1 and Year 2 but the nominal wage decreases from $20 in Year 1 to $18 in Year 2. This implies that the price level has:

An adverse supply shock generally decreases the price level and the real GDP.

The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P₁ is the price level prevailing in the economy, it implies that:

If resource suppliers and demanders find out that the actual price level exceeds the expected price level, they will take corrective actions that will:

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters

Exam 10: Aggregate Supply

Which of the following supply shocks will shift the long-run aggregate supply curve outward?

Which of the following is true of a recessionary gap?

The main effect of an increase in capital stock is a(n):

The figure below shows the determination of the equilibrium price level and real GDP in an aggregate demand-aggregate supply model. If the economy is at point H, there is a(n):

Which of these is true of the expected price level in a labor market?

Workers usually negotiate compensation in terms of the nominal wage because wage agreements are based on expected price levels.

Which of these does not hold true if an economy is simultaneously in long-run and short-run equilibrium?

The international oil price hike by OPEC was an adverse supply shock faced by the U.S. in the 1970s.

The figure below shows the short-run aggregate supply curve of an economy. If P3 is the price level prevailing in the economy, _____.

An expansionary gap in the short-run results in:

Identify the correct statement.

Which of the following is true in the long run?

In 2009, actual output in the U.S. was 4.7 percent below the potential output. This implies that the:

A nominal wage is:

When actual output increases the potential output, _____.

In a particular year, if the price level rises by 4 percent and the nominal wage of workers rises by 6 percent, we can conclude that the real wage has:

Suppose the real wage of a worker remains unchanged between Year 1 and Year 2 but the nominal wage decreases from $20 in Year 1 to $18 in Year 2. This implies that the price level has:

An adverse supply shock generally decreases the price level and the real GDP.

The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P1 is the price level prevailing in the economy, it implies that:

If resource suppliers and demanders find out that the actual price level exceeds the expected price level, they will take corrective actions that will:

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters

The figure below shows the short-run aggregate supply curve of an economy. If P₃ is the price level prevailing in the economy, _____.

The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P₁ is the price level prevailing in the economy, it implies that: