Question 1

Suppose an expansionary gap is closed in the long run by firms' actions.How will output level and price level be affected?

Accepted Answer

A)  Output will decrease and price level will increase. 
B)  Output will increase and price level will decrease. 
C)  Output will increase and price level will increase. 
D)  Output will decrease and price level will decrease. 
A)  Output will decrease and price level will increase. 
B)  Output will increase and price level will decrease. 
C)  Output will increase and price level will increase. 
D)  Output will decrease and price level will decrease.

Question 2

Suppose government does NOT intervene in the economy.How would an expansionary gap be closed in the long run?

Accepted Answer

A)  by a rightward shift of the short-run aggregate supply curve 
B)  by a leftward shift of the short-run aggregate supply curve 
C)  by a movement to the right along a fixed short-run aggregate supply curve 
D)  by a movement to the left along a fixed short-run aggregate supply curve 
A)  by a rightward shift of the short-run aggregate supply curve 
B)  by a leftward shift of the short-run aggregate supply curve 
C)  by a movement to the right along a fixed short-run aggregate supply curve 
D)  by a movement to the left along a fixed short-run aggregate supply curve

Question 3

Suppose the price level rises by 4 percent and the nominal wage rises 6 percent.How is the real wage affected?

Accepted Answer

A)  It falls by 2 percent. 
B)  It falls by 10 percent. 
C)  It rises by 2 percent. 
D)  It rises by 10 percent. 
A)  It falls by 2 percent. 
B)  It falls by 10 percent. 
C)  It rises by 2 percent. 
D)  It rises by 10 percent.

Question 4

-Refer to the graph in the exhibit.What does the graph illustrate regarding aggregate supply?

Accepted Answer

A)  an increase in short-run aggregate supply 
B)  an increase in long-run aggregate supply 
C)  a decrease in short-run aggregate supply 
D)  a decrease in long-run aggregate supply 
A)  an increase in short-run aggregate supply 
B)  an increase in long-run aggregate supply 
C)  a decrease in short-run aggregate supply 
D)  a decrease in long-run aggregate supply

Question 5

Which of the following is fixed in the short run but NOT in the long run?

Accepted Answer

A)  output 
B)  quantity of goods and services demanded 
C)  all input prices 
D)  at least one input price 
A)  output 
B)  quantity of goods and services demanded 
C)  all input prices 
D)  at least one input price

Question 6

Given the aggregate demand curve, what effects would a beneficial supply shock have on output and price level?

Accepted Answer

A)  Output would decrease, and the price level would increase. 
B)  Output would decrease, and the price level would decrease. 
C)  Output would increase, and the price level would decrease. 
D)  Output would increase, and the price level would increase. 
A)  Output would decrease, and the price level would increase. 
B)  Output would decrease, and the price level would decrease. 
C)  Output would increase, and the price level would decrease. 
D)  Output would increase, and the price level would increase.

Question 7

Suppose that the actual price level and the expected price level are initially equal, and that the expected price level rises.Which of the following will occur over the long run?

Accepted Answer

A)  The economy will move rightward along the short-run aggregate supply curve. 
B)  The economy will move leftward 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. 
A)  The economy will move rightward along the short-run aggregate supply curve. 
B)  The economy will move leftward 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.

Question 8

Which of the following can alter the potential level of output?

Accepted Answer

A)  changes in the actual price level 
B)  changes in the expected price level 
C)  changes in real GDP 
D)  changes in a nation's stock of capital 
A)  changes in the actual price level 
B)  changes in the expected price level 
C)  changes in real GDP 
D)  changes in a nation's stock of capital

Question 9

Which of the following best characterizes prices in the long run, but NOT in the short run?

Accepted Answer

A)  All prices are flexible. 
B)  Prices are NOT flexible. 
C)  Some resource prices are fixed. 
D)  Only input prices are flexible. 
A)  All prices are flexible. 
B)  Prices are NOT flexible. 
C)  Some resource prices are fixed. 
D)  Only input prices are flexible.

Question 10

In the short run, suppose the economy is operating below potential output and the aggregate supply curve shifts outward.What will be the effects on price level and output?

Accepted Answer

A)  Price level will decrease, and output will increase. 
B)  Price level will decrease, and output will decrease. 
C)  Price level will increase, and output will increase. 
D)  Price level will increase, and output will decrease. 
A)  Price level will decrease, and output will increase. 
B)  Price level will decrease, and output will decrease. 
C)  Price level will increase, and output will increase. 
D)  Price level will increase, and output will decrease.

Question 11

Suppose a hands-off government policy is in place.Why might a recessionary gap persist?

Accepted Answer

A)  because wages are flexible 
B)  because of excessive government spending 
C)  because of a decrease in aggregate supply 
D)  because wages are NOT very flexible 
A)  because wages are flexible 
B)  because of excessive government spending 
C)  because of a decrease in aggregate supply 
D)  because wages are NOT very flexible

Question 12

Suppose a recessionary gap is closed in the long run, by means of a passive policy.How will output and price level be affected?

Accepted Answer

A)  Output will increase, and price level will increase. 
B)  Output will increase, and price level will decrease. 
C)  Output will decrease, and price level will increase. 
D)  Output will decrease, and price level will decrease. 
A)  Output will increase, and price level will increase. 
B)  Output will increase, and price level will decrease. 
C)  Output will decrease, and price level will increase. 
D)  Output will decrease, and price level will decrease.

Question 13

Suppose the economy is producing below its potential output level.Which of the following characterizes the unemployment situation?

Accepted Answer

A)  The actual unemployment rate would equal the natural rate. 
B)  No cyclical unemployment would occur. 
C)  Structural unemployment would be equal to zero. 
D)  Some cyclical unemployment would occur. 
A)  The actual unemployment rate would equal the natural rate. 
B)  No cyclical unemployment would occur. 
C)  Structural unemployment would be equal to zero. 
D)  Some cyclical unemployment would occur.

Question 14

Which of the following would shift the long-run aggregate supply curve to the right?

Accepted Answer

A)  a decline in the length of the average workweek 
B)  an improvement in technology 
C)  a drought 
D)  an increase in aggregate demand 
A)  a decline in the length of the average workweek 
B)  an improvement in technology 
C)  a drought 
D)  an increase in aggregate demand

Question 15

Suppose that the real wage remained the same from year 1 to 2, but the nominal wage increased from $20 to $24.How was the price level affected?

Accepted Answer

A)  It rose by 25 percent. 
B)  It rose by 20 percent. 
C)  It fell by 20 percent. 
D)  It fell by 10 percent. 
A)  It rose by 25 percent. 
B)  It rose by 20 percent. 
C)  It fell by 20 percent. 
D)  It fell by 10 percent.

Question 16

Suppose nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year.How will real wages be affected?

Accepted Answer

A)  Real wages will increase by 2 percent per year. 
B)  Real wages will increase by 3 percent per year. 
C)  Real wages will decrease by 2 percent per year. 
D)  Real wages will decrease by 3 percent per year. 
A)  Real wages will increase by 2 percent per year. 
B)  Real wages will increase by 3 percent per year. 
C)  Real wages will decrease by 2 percent per year. 
D)  Real wages will decrease by 3 percent per year.

Question 17

Suppose governments adopted a hands-off policy to the economy and a recessionary gap occurred.Which of the following could, in theory, overcome this gap in the long run?

Accepted Answer

A)  The only way for the gap to close is for the nominal wage to rise. 
B)  Such a gap could be closed if the nominal wage grew more slowly over time than the price level. 
C)  Only a strong reduction in aggregate demand could close the gap. 
D)  Inflation eventually ends such gaps. 
A)  The only way for the gap to close is for the nominal wage to rise. 
B)  Such a gap could be closed if the nominal wage grew more slowly over time than the price level. 
C)  Only a strong reduction in aggregate demand could close the gap. 
D)  Inflation eventually ends such gaps.

Question 18

-Refer to the graph in the exhibit.Suppose P₁ is the prevailing price level.Which of the following best describes the situation?

Accepted Answer

A)  There is an expansionary gap. 
B)  The price level will decrease. 
C)  The expected price level is the same as the actual price level. 
D)  The unemployment rate is below the natural unemployment rate. 
A)  There is an expansionary gap. 
B)  The price level will decrease. 
C)  The expected price level is the same as the actual price level. 
D)  The unemployment rate is below the natural unemployment rate.

Question 19

Which of the following best describes the long run in terms of aggregate supply?

Accepted Answer

A)  The long-run aggregate supply curve is horizontal. 
B)  The long-run aggregate supply curve is vertical. 
C)  The long-run aggregate supply slopes upwards, but is NOT vertical. 
D)  The long-run aggregate supply slopes downwards. 
A)  The long-run aggregate supply curve is horizontal. 
B)  The long-run aggregate supply curve is vertical. 
C)  The long-run aggregate supply slopes upwards, but is NOT vertical. 
D)  The long-run aggregate supply slopes downwards.

Question 20

Which of the following characterizes the relationship between wages and inflation?

Accepted Answer

A)  During periods of low inflation, real wages are constant and nominal wages decline. 
B)  During periods of high inflation, real wages increase more than nominal wages. 
C)  During periods of inflation, real wages will change if nominal wages are constant. 
D)  During periods with a constant inflation rate, real wages will NOT change unless nominal wages do. 
A)  During periods of low inflation, real wages are constant and nominal wages decline. 
B)  During periods of high inflation, real wages increase more than nominal wages. 
C)  During periods of inflation, real wages will change if nominal wages are constant. 
D)  During periods with a constant inflation rate, real wages will NOT change unless nominal wages do.

Suppose an expansionary gap is closed in the long run by firms' actions.How will output level and price level be affected?

Suppose government does NOT intervene in the economy.How would an expansionary gap be closed in the long run?

Suppose the price level rises by 4 percent and the nominal wage rises 6 percent.How is the real wage affected?

-Refer to the graph in the exhibit.What does the graph illustrate regarding aggregate supply?

Which of the following is fixed in the short run but NOT in the long run?

Given the aggregate demand curve, what effects would a beneficial supply shock have on output and price level?

Suppose that the actual price level and the expected price level are initially equal, and that the expected price level rises.Which of the following will occur over the long run?

Which of the following can alter the potential level of output?

Which of the following best characterizes prices in the long run, but NOT in the short run?

In the short run, suppose the economy is operating below potential output and the aggregate supply curve shifts outward.What will be the effects on price level and output?

Suppose a hands-off government policy is in place.Why might a recessionary gap persist?

Suppose a recessionary gap is closed in the long run, by means of a passive policy.How will output and price level be affected?

Suppose the economy is producing below its potential output level.Which of the following characterizes the unemployment situation?

Which of the following would shift the long-run aggregate supply curve to the right?

Suppose that the real wage remained the same from year 1 to 2, but the nominal wage increased from $20 to $24.How was the price level affected?

Suppose nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year.How will real wages be affected?

Suppose governments adopted a hands-off policy to the economy and a recessionary gap occurred.Which of the following could, in theory, overcome this gap in the long run?

-Refer to the graph in the exhibit.Suppose P₁ is the prevailing price level.Which of the following best describes the situation?

Which of the following best describes the long run in terms of aggregate supply?

Which of the following characterizes the relationship between wages and inflation?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy in an Open Economy

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

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Exam 11: Aggregate Supply

Suppose an expansionary gap is closed in the long run by firms' actions.How will output level and price level be affected?

Suppose government does NOT intervene in the economy.How would an expansionary gap be closed in the long run?

Suppose the price level rises by 4 percent and the nominal wage rises 6 percent.How is the real wage affected?

-Refer to the graph in the exhibit.What does the graph illustrate regarding aggregate supply?

Which of the following is fixed in the short run but NOT in the long run?

Given the aggregate demand curve, what effects would a beneficial supply shock have on output and price level?

Suppose that the actual price level and the expected price level are initially equal, and that the expected price level rises.Which of the following will occur over the long run?

Which of the following can alter the potential level of output?

Which of the following best characterizes prices in the long run, but NOT in the short run?

In the short run, suppose the economy is operating below potential output and the aggregate supply curve shifts outward.What will be the effects on price level and output?

Suppose a hands-off government policy is in place.Why might a recessionary gap persist?

Suppose a recessionary gap is closed in the long run, by means of a passive policy.How will output and price level be affected?

Suppose the economy is producing below its potential output level.Which of the following characterizes the unemployment situation?

Which of the following would shift the long-run aggregate supply curve to the right?

Suppose that the real wage remained the same from year 1 to 2, but the nominal wage increased from $20 to $24.How was the price level affected?

Suppose nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year.How will real wages be affected?

Suppose governments adopted a hands-off policy to the economy and a recessionary gap occurred.Which of the following could, in theory, overcome this gap in the long run?

-Refer to the graph in the exhibit.Suppose P₁ is the prevailing price level.Which of the following best describes the situation?

Which of the following best describes the long run in terms of aggregate supply?

Which of the following characterizes the relationship between wages and inflation?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Fiscal Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy in an Open Economy

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

Filters