Question 1

The fact that some resource prices are fixed by contracts help explain why firms:

Accepted Answer

A)  increase output in the short run when the price level increases. 
B)  keep production levels constant in the short run when the price level decreases. 
C)  sell output in the short run at fixed prices. 
D)  increase output in the long run when the price level increases. 
E)  decrease production when nominal wages fall in the long run. 
A)  increase output in the short run when the price level increases. 
B)  keep production levels constant in the short run when the price level decreases. 
C)  sell output in the short run at fixed prices. 
D)  increase output in the long run when the price level increases. 
E)  decrease production when nominal wages fall in the long run.

Question 2

Suppose an economy is initially in long-run equilibrium and it then experiences a supply shock in the form of exceptionally high energy prices. Which of these will be true in this economy?

Accepted Answer

A)  The short-run aggregate supply curve will shift leftward, and the long-run supply curve will shift rightward. 
B)  The short-run aggregate supply curve and the long-run supply curve will shift rightward. 
C)  The short-run aggregate supply curve will not shift, and the long-run aggregate supply curve will shift rightward. 
D)  The short-run aggregate supply curve will shift rightward, but the long-run aggregate supply curve will not shift. 
E)  The short-run aggregate supply curve and the long-run supply curve will shift leftward. 
A)  The short-run aggregate supply curve will shift leftward, and the long-run supply curve will shift rightward. 
B)  The short-run aggregate supply curve and the long-run supply curve will shift rightward. 
C)  The short-run aggregate supply curve will not shift, and the long-run aggregate supply curve will shift rightward. 
D)  The short-run aggregate supply curve will shift rightward, but the long-run aggregate supply curve will not shift. 
E)  The short-run aggregate supply curve and the long-run supply curve will shift leftward.

Question 3

If the actual price level is lower than the expected price level, the economy will contract in the short run.

Accepted Answer

A) True 
 B)False

Question 4

In the long run, the price level is determined by aggregate supply.

Accepted Answer

A) True 
 B)False

Question 5

If the price level increases by 5 percent and the nominal wage increases by 3.5 percent, the real wage will decrease by 1.5 percent.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is true in the short run but not in the long run?

Accepted Answer

A)  Actual output is equal to potential output. 
B)  Actual output can exceed potential output. 
C)  Structural unemployment can exist. 
D)  Frictional unemployment can exist. 
E)  Real and nominal GDP can differ. 
A)  Actual output is equal to potential output. 
B)  Actual output can exceed potential output. 
C)  Structural unemployment can exist. 
D)  Frictional unemployment can exist. 
E)  Real and nominal GDP can differ.

Question 7

Which of these is not a beneficial supply shock?

Accepted Answer

A)  An abundant harvest that increases food supplies 
B)  The discovery of natural resources 
C)  Reductions in business taxes 
D)  Technological advances 
E)  Establishment of the Occupational Safety and Health Administration (OSH
A)  
A)  An abundant harvest that increases food supplies 
B)  The discovery of natural resources 
C)  Reductions in business taxes 
D)  Technological advances 
E)  Establishment of the Occupational Safety and Health Administration (OSH
A)

Question 8

Given implicit or explicit resource price agreements, if the actual price level is below the expected price level, the:

Accepted Answer

A)  economy will move rightward along the short-run aggregate supply curve. 
B)  economy will move leftward along the short-run aggregate supply curve. 
C)  short-run aggregate supply curve will shift to the left. 
D)  long-run aggregate supply curve will become steeper. 
E)  short-run aggregate supply curve will become flatter. 
A)  economy will move rightward along the short-run aggregate supply curve. 
B)  economy will move leftward along the short-run aggregate supply curve. 
C)  short-run aggregate supply curve will shift to the left. 
D)  long-run aggregate supply curve will become steeper. 
E)  short-run aggregate supply curve will become flatter.

Question 9

If global pollution causes climatic changes that permanently harm crop production worldwide, aggregate supply and demand analysis would lead us to expect:

Accepted Answer

A)  an increase in the price level. 
B)  a decrease in the price level. 
C)  rightward shifts of the aggregate demand and aggregate supply curves. 
D)  a leftward shift of the aggregate demand curve. 
E)  an increase in the potential level of real GDP. 
A)  an increase in the price level. 
B)  a decrease in the price level. 
C)  rightward shifts of the aggregate demand and aggregate supply curves. 
D)  a leftward shift of the aggregate demand curve. 
E)  an increase in the potential level of real GDP.

Question 10

The amount by which actual output falls short of potential output is called:

Accepted Answer

A)  a deadweight loss. 
B)  real GDP. 
C)  a recessionary gap. 
D)  the full-employment output. 
E)  an expansionary gap. 
A)  a deadweight loss. 
B)  real GDP. 
C)  a recessionary gap. 
D)  the full-employment output. 
E)  an expansionary gap.

Question 11

The nominal wage represents:

Accepted Answer

A)  the wage measured in terms of the quantity of goods and services a worker can purchase with it. 
B)  the wage measured in terms of the dollar value of the goods and services a worker can purchase with it. 
C)  the real wage from which personal taxes has been deducted. 
D)  the standard of living of workers across time. 
E)  the change in real wage brought about by changes in aggregate supply. 
A)  the wage measured in terms of the quantity of goods and services a worker can purchase with it. 
B)  the wage measured in terms of the dollar value of the goods and services a worker can purchase with it. 
C)  the real wage from which personal taxes has been deducted. 
D)  the standard of living of workers across time. 
E)  the change in real wage brought about by changes in aggregate supply.

Question 12

The actual price level is assumed to be constant along a given short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 13

The figure below shows the short-run aggregate supply of an economy. Which of the following is likely to be true if the actual price level in this figure exceeds the expected price level?

Accepted Answer

A)  Equilibrium output will be Y2 in the short run. 
B)  Equilibrium output will be Y1 in the short run. 
C)  The actual unemployment rate is below the natural rate. 
D)  Potential output is greater than actual output. 
E)  The actual price level is less than the equilibrium price level. 
A)  Equilibrium output will be Y2 in the short run. 
B)  Equilibrium output will be Y1 in the short run. 
C)  The actual unemployment rate is below the natural rate. 
D)  Potential output is greater than actual output. 
E)  The actual price level is less than the equilibrium price level.

Question 14

The aggregate demand-aggregate supply model shows that closing an expansionary gap involves deflation and closing a recessionary gap involves inflation.

Accepted Answer

A) True 
 B)False

Question 15

A failure in coordination between workers and employers is most likely to cause an expansionary gap.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the real wage remains unchanged between Year 1 and Year 2 but the nominal wage increases from $20 to $24. Based on this information, we can conclude that the price level has:

Accepted Answer

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

Question 17

An expansionary gap generally creates inflationary pressure in an economy.

Accepted Answer

A) True 
 B)False

Question 18

When the economy's actual price level exceeds the expected price level in the short run:

Accepted Answer

A)  the real wages of workers decline. 
B)  the nominal wages of workers increase. 
C)  firms decrease output below the potential level. 
D)  the economy produces the natural rate of output. 
E)  cyclical unemployment in the economy falls to zero. 
A)  the real wages of workers decline. 
B)  the nominal wages of workers increase. 
C)  firms decrease output below the potential level. 
D)  the economy produces the natural rate of output. 
E)  cyclical unemployment in the economy falls to zero.

Question 19

The figure below shows short-run equilibrium in an aggregate demand-aggregate supply model. If the economy is currently producing Y1 level of output, long-run equilibrium will be established if:

Accepted Answer

A)  the short-run aggregate supply curve shifts to the right to remove the expansionary gap. 
B)  the short-run aggregate supply curve shifts to the left to remove the expansionary gap. 
C)  the short-run aggregate supply curve shifts to the left to remove the recessionary gap. 
D)  the short-run aggregate supply curve shifts to the right to remove the recessionary gap. 
E)  there is a leftward shift of the aggregate demand curve. 
A)  the short-run aggregate supply curve shifts to the right to remove the expansionary gap. 
B)  the short-run aggregate supply curve shifts to the left to remove the expansionary gap. 
C)  the short-run aggregate supply curve shifts to the left to remove the recessionary gap. 
D)  the short-run aggregate supply curve shifts to the right to remove the recessionary gap. 
E)  there is a leftward shift of the aggregate demand curve.

Question 20

Which of the following does not influence the position of the long-run aggregate supply curve?

Accepted Answer

A)  The quantity of raw materials available for production 
B)  The quantity of capital used in production 
C)  The quality of the labor force 
D)  The actual price level 
E)  The size of the labor force 
A)  The quantity of raw materials available for production 
B)  The quantity of capital used in production 
C)  The quality of the labor force 
D)  The actual price level 
E)  The size of the labor force

The fact that some resource prices are fixed by contracts help explain why firms:

Suppose an economy is initially in long-run equilibrium and it then experiences a supply shock in the form of exceptionally high energy prices. Which of these will be true in this economy?

If the actual price level is lower than the expected price level, the economy will contract in the short run.

In the long run, the price level is determined by aggregate supply.

If the price level increases by 5 percent and the nominal wage increases by 3.5 percent, the real wage will decrease by 1.5 percent.

Which of the following is true in the short run but not in the long run?

Which of these is not a beneficial supply shock?

Given implicit or explicit resource price agreements, if the actual price level is below the expected price level, the:

If global pollution causes climatic changes that permanently harm crop production worldwide, aggregate supply and demand analysis would lead us to expect:

The amount by which actual output falls short of potential output is called:

The nominal wage represents:

The actual price level is assumed to be constant along a given short-run aggregate supply curve.

The figure below shows the short-run aggregate supply of an economy. Which of the following is likely to be true if the actual price level in this figure exceeds the expected price level?

The aggregate demand-aggregate supply model shows that closing an expansionary gap involves deflation and closing a recessionary gap involves inflation.

A failure in coordination between workers and employers is most likely to cause an expansionary gap.

Suppose the real wage remains unchanged between Year 1 and Year 2 but the nominal wage increases from $20 to $24. Based on this information, we can conclude that the price level has:

An expansionary gap generally creates inflationary pressure in an economy.

When the economy's actual price level exceeds the expected price level in the short run:

The figure below shows short-run equilibrium in an aggregate demand-aggregate supply model. If the economy is currently producing Y₁ level of output, long-run equilibrium will be established if:

Which of the following does not influence the position of the long-run aggregate supply curve?

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

The fact that some resource prices are fixed by contracts help explain why firms:

Suppose an economy is initially in long-run equilibrium and it then experiences a supply shock in the form of exceptionally high energy prices. Which of these will be true in this economy?

If the actual price level is lower than the expected price level, the economy will contract in the short run.

In the long run, the price level is determined by aggregate supply.

If the price level increases by 5 percent and the nominal wage increases by 3.5 percent, the real wage will decrease by 1.5 percent.

Which of the following is true in the short run but not in the long run?

Which of these is not a beneficial supply shock?

Given implicit or explicit resource price agreements, if the actual price level is below the expected price level, the:

If global pollution causes climatic changes that permanently harm crop production worldwide, aggregate supply and demand analysis would lead us to expect:

The amount by which actual output falls short of potential output is called:

The nominal wage represents:

The actual price level is assumed to be constant along a given short-run aggregate supply curve.

The figure below shows the short-run aggregate supply of an economy. Which of the following is likely to be true if the actual price level in this figure exceeds the expected price level?

The aggregate demand-aggregate supply model shows that closing an expansionary gap involves deflation and closing a recessionary gap involves inflation.

A failure in coordination between workers and employers is most likely to cause an expansionary gap.

Suppose the real wage remains unchanged between Year 1 and Year 2 but the nominal wage increases from $20 to $24. Based on this information, we can conclude that the price level has:

An expansionary gap generally creates inflationary pressure in an economy.

When the economy's actual price level exceeds the expected price level in the short run:

The figure below shows short-run equilibrium in an aggregate demand-aggregate supply model. If the economy is currently producing Y1 level of output, long-run equilibrium will be established if:

Which of the following does not influence the position of the long-run aggregate supply curve?

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 short-run equilibrium in an aggregate demand-aggregate supply model. If the economy is currently producing Y₁ level of output, long-run equilibrium will be established if: