Question 1

Actual output can exceed an economy's potential in both the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is true in the short run?

Accepted Answer

A)  The aggregate supply curve is horizontal. 
B)  The aggregate supply curve is vertical. 
C)  Per-unit costs do not increase as much as output prices when the price level rises. 
D)  An increase in price per unit results in a decrease in profit per unit for firms. 
E)  Firms' total costs of production decrease as output expands beyond the potential level. 
A)  The aggregate supply curve is horizontal. 
B)  The aggregate supply curve is vertical. 
C)  Per-unit costs do not increase as much as output prices when the price level rises. 
D)  An increase in price per unit results in a decrease in profit per unit for firms. 
E)  Firms' total costs of production decrease as output expands beyond the potential level.

Question 3

Exhibit 10.2
  
-Refer to Exhibit 10.2, which shows the short-run aggregate supply curve of an economy. When real GDP is Y₂, _____

Accepted Answer

A)  potential output is greater than actual output. 
B)  there is a recessionary gap. 
C)  the price level is likely to fall. 
D)  the actual unemployment rate is less than the natural rate of unemployment. 
E)  aggregate demand is likely to increase to restore equilibrium. 
A)  potential output is greater than actual output. 
B)  there is a recessionary gap. 
C)  the price level is likely to fall. 
D)  the actual unemployment rate is less than the natural rate of unemployment. 
E)  aggregate demand is likely to increase to restore equilibrium.

Question 4

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

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 5

Which of these changes is observed in an economy when a recessionary gap is closed in the long run?

Accepted Answer

A)  an increase in the inflation rate and a decrease in the unemployment rate 
B)  an increase in the level of output and a decrease in the price level 
C)  an increase in both the rate of output and the price level 
D)  a decrease in both the rate of output and the price level 
E)  a decrease in the inflation rate and an increase in the unemployment rate 
A)  an increase in the inflation rate and a decrease in the unemployment rate 
B)  an increase in the level of output and a decrease in the price level 
C)  an increase in both the rate of output and the price level 
D)  a decrease in both the rate of output and the price level 
E)  a decrease in the inflation rate and an increase in the unemployment rate

Question 6

Exhibit 10.1
  
-Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. What happens to short run aggregate supply if prices are lower than expected?

Accepted Answer

A)  SRAS shifts right. 
B)  SRAS shifts left. 
C)  There is an upward movement along SRAS to Y₃. 
D)  There is a downward movement along SRAS to Y₂. 
E)  Nothing happens in the short run. 
A)  SRAS shifts right. 
B)  SRAS shifts left. 
C)  There is an upward movement along SRAS to Y₃. 
D)  There is a downward movement along SRAS to Y₂. 
E)  Nothing happens in the short run.

Question 7

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level becomes higher due to some change in economic conditions. Which of the following will occur eventually?

Accepted Answer

A)  The economy will move upward along the short-run aggregate supply curve. 
B)  The economy will move downward along the short-run aggregate supply curve. 
C)  The short-run aggregate supply curve will shift to the right. 
D)  The short-run aggregate supply curve will shift to the left. 
E)  The short-run aggregate supply curve will become flatter. 
A)  The economy will move upward along the short-run aggregate supply curve. 
B)  The economy will move downward along the short-run aggregate supply curve. 
C)  The short-run aggregate supply curve will shift to the right. 
D)  The short-run aggregate supply curve will shift to the left. 
E)  The short-run aggregate supply curve will become flatter.

Question 8

How much is the output gap if short-run output is $20.0 trillion and potential output is $21.0 trillion?

Accepted Answer

A)  $20.0 trillion 
B)  +$1.0 trillion 
C)  -$1 trillion 
D)  -$0.1 trillion 
E)  $0 
A)  $20.0 trillion 
B)  +$1.0 trillion 
C)  -$1 trillion 
D)  -$0.1 trillion 
E)  $0

Question 9

The potential output of an economy is the level of output produced when the _____

Accepted Answer

A)  real wage equals the nominal wage. 
B)  price level is constant. 
C)  expected real wage equals the nominal wage. 
D)  seasonal unemployment rate is zero. 
E)  expected price level equals the actual price level. 
A)  real wage equals the nominal wage. 
B)  price level is constant. 
C)  expected real wage equals the nominal wage. 
D)  seasonal unemployment rate is zero. 
E)  expected price level equals the actual price level.

Question 10

Exhibit 10.1
  
-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. In this Exhibit, a recessionary gap would be represented by the distance between _____

Accepted Answer

A)  Y₁ and Y₂. 
B)  Y₁ and Y₃. 
C)  Y₂ and Y₃. 
D)  P₃ and P₁. 
E)  P₃ and P₂. 
A)  Y₁ and Y₂. 
B)  Y₁ and Y₃. 
C)  Y₂ and Y₃. 
D)  P₃ and P₁. 
E)  P₃ and P₂.

Question 11

Exhibit 10.2
  
-Refer to Exhibit 10.2, which shows the short-run aggregate supply curve of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n) _____

Accepted Answer

A)  increase in short-run aggregate supply. 
B)  decrease in short-run aggregate supply. 
C)  decrease in potential output. 
D)  increase in potential output. 
E)  rightward shift of the aggregate demand curve. 
A)  increase in short-run aggregate supply. 
B)  decrease in short-run aggregate supply. 
C)  decrease in potential output. 
D)  increase in potential output. 
E)  rightward shift of the aggregate demand curve.

Question 12

Which of these is most likely to reduce the potential output of an economy?

Accepted Answer

A)  an increase in the size of the labor force 
B)  a deterioration in the quality of the labor force 
C)  a decrease in the cost of using computers 
D)  a decrease in the price level 
E)  an increase in the price level 
A)  an increase in the size of the labor force 
B)  a deterioration in the quality of the labor force 
C)  a decrease in the cost of using computers 
D)  a decrease in the price level 
E)  an increase in the price level

Question 13

Exhibit 10.3
  
-Refer to Exhibit 10.3, which shows an aggregate demand-aggregate supply model. Which of these situations will be experienced by the economy as it moves from point e to point e'?

Accepted Answer

A)  an expansionary gap 
B)  a decline in potential GDP 
C)  overutilization of resources 
D)  deflation 
E)  cost-push inflation 
A)  an expansionary gap 
B)  a decline in potential GDP 
C)  overutilization of resources 
D)  deflation 
E)  cost-push inflation

Question 14

If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will _____

Accepted Answer

A)  increase by 3 percent per year. 
B)  increase by 5 percent per year. 
C)  increase by 2 percent per year. 
D)  decrease by 5 percent per year. 
E)  decrease by 3 percent per year. 
A)  increase by 3 percent per year. 
B)  increase by 5 percent per year. 
C)  increase by 2 percent per year. 
D)  decrease by 5 percent per year. 
E)  decrease by 3 percent per year.

Question 15

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 16

What is the relationship between wages and the supply of labor?

Accepted Answer

A)  The higher the wage, other things constant, the more labor supplied. 
B)  The higher the wage, other things constant, the less labor supplied. 
C)  The higher the wage, other things constant, firms hire more workers. 
D)  The higher the wage, other things constant, firms hire fewer workers. 
E)  There is no relationship between wages and labor. 
A)  The higher the wage, other things constant, the more labor supplied. 
B)  The higher the wage, other things constant, the less labor supplied. 
C)  The higher the wage, other things constant, firms hire more workers. 
D)  The higher the wage, other things constant, firms hire fewer workers. 
E)  There is no relationship between wages and labor.

Question 17

Exhibit 10.1
  
-Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At Y₂, _____

Accepted Answer

A)  output levels are at the economy's potential. 
B)  output levels are more than the economy's potential. 
C)  unemployment is at the natural rate. 
D)  unemployment is higher than the natural rate. 
E)  unemployment is lower than the natural rate. 
A)  output levels are at the economy's potential. 
B)  output levels are more than the economy's potential. 
C)  unemployment is at the natural rate. 
D)  unemployment is higher than the natural rate. 
E)  unemployment is lower than the natural rate.

Question 18

The potential output of an economy is _____

Accepted Answer

A)  the output level at which inflation is very high. 
B)  the output level at which nominal GDP is equal to real GDP. 
C)  less than the full-employment rate of output. 
D)  the output level at which total unemployment is zero. 
E)  also referred to as the natural rate of output. 
A)  the output level at which inflation is very high. 
B)  the output level at which nominal GDP is equal to real GDP. 
C)  less than the full-employment rate of output. 
D)  the output level at which total unemployment is zero. 
E)  also referred to as the natural rate of output.

Question 19

At the potential level of output, there is no seasonal unemployment.

Accepted Answer

A) True 
 B)False

Question 20

If the actual price level is less than the expected price level reflected in long-term contracts, _____

Accepted Answer

A)  firms will find production more profitable in the short run than they had expected and will decrease the quantity of output supplied. 
B)  firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied. 
C)  firms will find production more profitable in the short run than they had expected and will increase the quantity of output supplied. 
D)  resource owners will earn higher returns in the short run than they had expected and will decrease the quantity of resources supplied. 
E)  unemployment will increase in the short run as firms will substitute labor with capital. 
A)  firms will find production more profitable in the short run than they had expected and will decrease the quantity of output supplied. 
B)  firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied. 
C)  firms will find production more profitable in the short run than they had expected and will increase the quantity of output supplied. 
D)  resource owners will earn higher returns in the short run than they had expected and will decrease the quantity of resources supplied. 
E)  unemployment will increase in the short run as firms will substitute labor with capital.

Actual output can exceed an economy's potential in both the short run and the long run.

Which of the following is true in the short run?

Exhibit 10.2 -Refer to Exhibit 10.2, which shows the short-run aggregate supply curve of an economy. When real GDP is Y₂, _____

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

Which of these changes is observed in an economy when a recessionary gap is closed in the long run?

Exhibit 10.1 -Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. What happens to short run aggregate supply if prices are lower than expected?

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level becomes higher due to some change in economic conditions. Which of the following will occur eventually?

How much is the output gap if short-run output is $20.0 trillion and potential output is $21.0 trillion?

The potential output of an economy is the level of output produced when the _____

Exhibit 10.1 -Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. In this Exhibit, a recessionary gap would be represented by the distance between _____

Exhibit 10.2 -Refer to Exhibit 10.2, which shows the short-run aggregate supply curve of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n) _____

Which of these is most likely to reduce the potential output of an economy?

Exhibit 10.3 -Refer to Exhibit 10.3, which shows an aggregate demand-aggregate supply model. Which of these situations will be experienced by the economy as it moves from point e to point e'?

If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will _____

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

What is the relationship between wages and the supply of labor?

Exhibit 10.1 -Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At Y₂, _____

The potential output of an economy is _____

At the potential level of output, there is no seasonal unemployment.

If the actual price level is less than the expected price level reflected in long-term contracts, _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

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.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

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Exam 10: Aggregate Supply.

Actual output can exceed an economy's potential in both the short run and the long run.

Which of the following is true in the short run?

Exhibit 10.2 -Refer to Exhibit 10.2, which shows the short-run aggregate supply curve of an economy. When real GDP is Y₂, _____

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

Which of these changes is observed in an economy when a recessionary gap is closed in the long run?

Exhibit 10.1 -Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. What happens to short run aggregate supply if prices are lower than expected?

Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level becomes higher due to some change in economic conditions. Which of the following will occur eventually?

How much is the output gap if short-run output is $20.0 trillion and potential output is $21.0 trillion?

The potential output of an economy is the level of output produced when the _____

Exhibit 10.1 -Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. In this Exhibit, a recessionary gap would be represented by the distance between _____

Exhibit 10.2 -Refer to Exhibit 10.2, which shows the short-run aggregate supply curve of an economy. If the economy is currently producing at Y₂, long-run equilibrium will most likely be established by a(n) _____

Which of these is most likely to reduce the potential output of an economy?

Exhibit 10.3 -Refer to Exhibit 10.3, which shows an aggregate demand-aggregate supply model. Which of these situations will be experienced by the economy as it moves from point e to point e'?

If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will _____

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

What is the relationship between wages and the supply of labor?

Exhibit 10.1 -Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. At Y₂, _____

The potential output of an economy is _____

At the potential level of output, there is no seasonal unemployment.

If the actual price level is less than the expected price level reflected in long-term contracts, _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

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.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters