Question 1

In the long run, a decrease in aggregate demand will cause a(n)

Accepted Answer

A) decrease in price and output levels 
B) increase in price and output levels 
C) increase in the price level and a decrease in output 
D) decrease in the price level and an increase in output 
E) decrease in the price level and no change in output 
A) decrease in price and output levels 
B) increase in price and output levels 
C) increase in the price level and a decrease in output 
D) decrease in the price level and an increase in output 
E) decrease in the price level and no change in output

Question 2

CEO Carmen Ngouri must choose between laying off some workers or cutting nominal wages for all workers. She will likely decide on the layoff because

Accepted Answer

A) layoffs damage worker morale more than pay cuts do 
B) pay cuts decrease labor turnover 
C) layoffs reduce productivity 
D) the workers prefer a pay cut so that all workers can stay employed 
E) the damage from layoffs is brief and limited because laid off workers are soon gone 
A) layoffs damage worker morale more than pay cuts do 
B) pay cuts decrease labor turnover 
C) layoffs reduce productivity 
D) the workers prefer a pay cut so that all workers can stay employed 
E) the damage from layoffs is brief and limited because laid off workers are soon gone

Question 3

If the price level rises by 5 percent and the nominal wage rises 3 percent, the real wage

Accepted Answer

A) falls by 2 percent 
B) falls by 8 percent 
C) rises by 2 percent 
D) rises by 8 percent 
E) remains constant 
A) falls by 2 percent 
B) falls by 8 percent 
C) rises by 2 percent 
D) rises by 8 percent 
E) remains constant

Question 4

Exhibit 11-10  
-The movement in Exhibit 11-10 could be caused by a(n)

Accepted Answer

A) decrease in the size of the labor force 
B) decrease in the price level 
C) positive level of net investment 
D) increase in autonomous consumption 
E) decrease in autonomous consumption 
A) decrease in the size of the labor force 
B) decrease in the price level 
C) positive level of net investment 
D) increase in autonomous consumption 
E) decrease in autonomous consumption

Question 5

A contractionary gap may be closed in the long run by a(n)

Accepted Answer

A) rightward shift of the short-run aggregate supply curve 
B) leftward shift of the short-run aggregate supply curve 
C) rightward movement along a fixed short-run aggregate supply curve 
D) decrease in aggregate demand 
E) increase in aggregate demand 
A) rightward shift of the short-run aggregate supply curve 
B) leftward shift of the short-run aggregate supply curve 
C) rightward movement along a fixed short-run aggregate supply curve 
D) decrease in aggregate demand 
E) increase in aggregate demand

Question 6

Exhibit 11-9  
-The graph in Exhibit 11-9 shows a(n)

Accepted Answer

A) increase in short-run aggregate supply 
B) increase in long-run aggregate supply 
C) decrease in short-run aggregate supply 
D) decrease in long-run aggregate supply 
E) decrease in aggregate quantity demanded 
A) increase in short-run aggregate supply 
B) increase in long-run aggregate supply 
C) decrease in short-run aggregate supply 
D) decrease in long-run aggregate supply 
E) decrease in aggregate quantity demanded

Question 7

Throughout the 1990s,

Accepted Answer

A) unemployment rates were higher in Europe than in the United States 
B) unemployment rates fell in Europe and rose in the United States 
C) unemployment rates in Europe rose because of the decade-long recession there 
D) unemployment rates fell in Europe 
E) the unemployment rate rose in the United States 
A) unemployment rates were higher in Europe than in the United States 
B) unemployment rates fell in Europe and rose in the United States 
C) unemployment rates in Europe rose because of the decade-long recession there 
D) unemployment rates fell in Europe 
E) the unemployment rate rose in the United States

Question 8

If wages are flexible, the long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 9

Given the aggregate demand curve, an adverse supply shock would

Accepted Answer

A) increase output and the price level 
B) decrease output and the price level 
C) increase output and decrease the price level 
D) decrease output and increase the price level 
E) cause no change in output or the price level 
A) increase output and the price level 
B) decrease output and the price level 
C) increase output and decrease the price level 
D) decrease output and increase the price level 
E) cause no change in output or the price level

Question 10

Which of the following would shift the LRAS curve to the left?

Accepted Answer

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

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The main effect of an increase in the 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 13

If the economy were at its potential output level, which of the following would not be true?

Accepted Answer

A) The actual unemployment rate would equal the natural rate. 
B) The labor market would be in equilibrium. 
C) There would be some seasonal unemployment. 
D) There would be some frictional unemployment. 
E) Structural unemployment would be equal to zero. 
A) The actual unemployment rate would equal the natural rate. 
B) The labor market would be in equilibrium. 
C) There would be some seasonal unemployment. 
D) There would be some frictional unemployment. 
E) Structural unemployment would be equal to zero.

Question 14

Which of the following is not assumed to be constant along a short-run aggregate supply curve?

Accepted Answer

A) the actual price level 
B) the state of technology 
C) the size and quality of the labor force 
D) the expected price level 
E) the size and quality of the capital stock 
A) the actual price level 
B) the state of technology 
C) the size and quality of the labor force 
D) the expected price level 
E) the size and quality of the capital stock

Question 15

In the short run, if the economy is operating below potential output and if the aggregate supply curve shifts outward, then the price level will

Accepted Answer

A) decrease and output will increase 
B) increase and output will decrease 
C) decrease and output will decrease 
D) increase and output will increase 
E) increase and output will remain unchanged 
A) decrease and output will increase 
B) increase and output will decrease 
C) decrease and output will decrease 
D) increase and output will increase 
E) increase and output will remain unchanged

Question 16

Exhibit 11-6  
-In Exhibit 11-6, long-run equilibrium would be established by

Accepted Answer

A) an increase in short-run aggregate supply to remove the expansionary gap 
B) a decrease in short-run aggregate supply to remove the expansionary gap 
C) a decrease in short-run aggregate supply to remove the contractionary gap 
D) an increase in short-run aggregate supply to remove the contractionary gap 
E) a leftward shift of the aggregate demand curve 
A) an increase in short-run aggregate supply to remove the expansionary gap 
B) a decrease in short-run aggregate supply to remove the expansionary gap 
C) a decrease in short-run aggregate supply to remove the contractionary gap 
D) an increase in short-run aggregate supply to remove the contractionary gap 
E) a leftward shift of the aggregate demand curve

Question 17

Exhibit 11-3  
-In Exhibit 11-3, at income level Y2

Accepted Answer

A) potential output is greater than actual output 
B) there is a contractionary gap 
C) the price level will fall 
D) the actual unemployment rate equals the natural rate of unemployment 
E) aggregate supply will increase to restore equilibrium 
A) potential output is greater than actual output 
B) there is a contractionary gap 
C) the price level will fall 
D) the actual unemployment rate equals the natural rate of unemployment 
E) aggregate supply will increase to restore equilibrium

Question 18

The nominal wage represents

Accepted Answer

A) the quantity of goods and services a worker can purchase in exchange for work time 
B) the dollar value of the goods and services a worker can purchase in exchange for work time 
C) real wages minus taxes paid on wages 
D) the most accurate measure for comparing employee standard of living across time 
E) real wages divided by the price level 
A) the quantity of goods and services a worker can purchase in exchange for work time 
B) the dollar value of the goods and services a worker can purchase in exchange for work time 
C) real wages minus taxes paid on wages 
D) the most accurate measure for comparing employee standard of living across time 
E) real wages divided by the price level

Question 19

Suppose this year's inflation rate is 4 percent, which is greater than the 2 percent everyone expected. Which of the following is true?

Accepted Answer

A) real GDP will increase 
B) the unemployment rate will probably rise 
C) potential output will remain the same 
D) the short-run aggregate supply curve will shift to the right 
E) there will be a leftward movement along a given short-run aggregate supply curve 
A) real GDP will increase 
B) the unemployment rate will probably rise 
C) potential output will remain the same 
D) the short-run aggregate supply curve will shift to the right 
E) there will be a leftward movement along a given short-run aggregate supply curve

Question 20

As a contractionary gap is closed in the long run,

Accepted Answer

A) the inflation rate increases and unemployment decreases 
B) output increases and the price level decreases 
C) both output and the price level increase 
D) both output and the price level decrease 
E) the inflation rate decreases and unemployment increases 
A) the inflation rate increases and unemployment decreases 
B) output increases and the price level decreases 
C) both output and the price level increase 
D) both output and the price level decrease 
E) the inflation rate decreases and unemployment increases

Exam 11: Aggregate Supply

In the long run, a decrease in aggregate demand will cause a(n)

CEO Carmen Ngouri must choose between laying off some workers or cutting nominal wages for all workers. She will likely decide on the layoff because

If the price level rises by 5 percent and the nominal wage rises 3 percent, the real wage

Exhibit 11-10 -The movement in Exhibit 11-10 could be caused by a(n)

A contractionary gap may be closed in the long run by a(n)

Exhibit 11-9 -The graph in Exhibit 11-9 shows a(n)

Throughout the 1990s,

If wages are flexible, the long-run aggregate supply curve is vertical.

Given the aggregate demand curve, an adverse supply shock would

Which of the following would shift the LRAS curve to the left?

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

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

If the economy were at its potential output level, which of the following would not be true?

Which of the following is not assumed to be constant along a short-run aggregate supply curve?

In the short run, if the economy is operating below potential output and if the aggregate supply curve shifts outward, then the price level will

Exhibit 11-6 -In Exhibit 11-6, long-run equilibrium would be established by

Exhibit 11-3 -In Exhibit 11-3, at income level Y2

The nominal wage represents

Suppose this year's inflation rate is 4 percent, which is greater than the 2 percent everyone expected. Which of the following is true?

As a contractionary gap is closed in the long run,

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand Supply and Markets

Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure

Aggregate Expenditure and Aggregate Demand

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

The Algebra of Income and Expenditure

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Macro Policy Debate: Active or Passive

The Algebra of Demand-Side Equilibrium

International Trade

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National Income Accounts

Understanding Graphs

Variable Net Exports

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Exhibit 11-3 -In Exhibit 11-3, at income level Y₂