Question 1

In the long run, the aggregate demand curve determines the price level.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 11-4  
-The graph in Exhibit 11-4, when aggregate supply is AS, the equilibrium output and price level will be Y2 and P2.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is true of the short-run aggregate supply curve?

Accepted Answer

A) It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant. 
B) It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant. 
C) It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant. 
D) It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant. 
E) It displays an inverse relationship between the price level and real GDP. 
A) It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant. 
B) It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant. 
C) It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant. 
D) It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant. 
E) It displays an inverse relationship between the price level and real GDP.

Question 4

Supply shocks are unexpected events that affect aggregate supply.

Accepted Answer

A) True 
 B)False

Question 5

The situation in which actual output exceeds potential output

Accepted Answer

A) is impossible because all resources are employed to produce potential output 
B) is possible only in times of high unemployment 
C) is possible only if the unemployment rate is negative 
D) is possible only in the long run 
E) creates pressure for inflation 
A) is impossible because all resources are employed to produce potential output 
B) is possible only in times of high unemployment 
C) is possible only if the unemployment rate is negative 
D) is possible only in the long run 
E) creates pressure for inflation

Question 6

Wage agreements may cause costs to be __________ flexible than prices so that __________ in the price level cause __________ in aggregate quantity supplied.

Accepted Answer

A) more; decreases; decreases 
B) more; increases; decreases 
C) less; increases; decreases 
D) less; decreases; increases 
E) less; decreases; decreases 
A) more; decreases; decreases 
B) more; increases; decreases 
C) less; increases; decreases 
D) less; decreases; increases 
E) less; decreases; decreases

Question 7

When the economy is at its potential output level, which of the following is not true?

Accepted Answer

A) Firms' and workers' expectations about the price level are realized. 
B) The nominal wage is a good measure of the expected real wage. 
C) The unemployment rate is about 4 to 6 percent. 
D) The economy is producing the maximum output it can produce in short periods of time; however, such a fast pace could not be maintained for long. 
E) The actual price level equals the expected price level. 
A) Firms' and workers' expectations about the price level are realized. 
B) The nominal wage is a good measure of the expected real wage. 
C) The unemployment rate is about 4 to 6 percent. 
D) The economy is producing the maximum output it can produce in short periods of time; however, such a fast pace could not be maintained for long. 
E) The actual price level equals the expected price level.

Question 8

Exhibit 11-5  
-If the economy is at point M in Exhibit 11-5,

Accepted Answer

A) the actual price level is lower than expected with a $200 billion expansionary gap 
B) the actual price level is lower than expected with a $200 billion contractionary gap 
C) the actual price level is higher than expected with a $200 billion contractionary gap 
D) the actual price level is higher than expected with a $200 billion expansionary gap 
E) the economy is in equilibrium in the short run and the long run 
A) the actual price level is lower than expected with a $200 billion expansionary gap 
B) the actual price level is lower than expected with a $200 billion contractionary gap 
C) the actual price level is higher than expected with a $200 billion contractionary gap 
D) the actual price level is higher than expected with a $200 billion expansionary gap 
E) the economy is in equilibrium in the short run and the long run

Question 9

As an expansionary gap is closed in the long run by firms' actions,

Accepted Answer

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

Question 10

During recessions, workers resist efforts to reduce nominal wages because

Accepted Answer

A) they believe wage reductions are inefficient 
B) they care more about nominal wages than about real wages 
C) they worry that they will not qualify for unemployment benefits 
D) they would rather be unemployed than accept a lower nominal wage 
E) of the difficulty of coordinating wage cuts on a large scale 
A) they believe wage reductions are inefficient 
B) they care more about nominal wages than about real wages 
C) they worry that they will not qualify for unemployment benefits 
D) they would rather be unemployed than accept a lower nominal wage 
E) of the difficulty of coordinating wage cuts on a large scale

Question 11

When the expected price level falls below the actual price level, firms

Accepted Answer

A) increase production in the short run 
B) decrease production in the short run 
C) maintain production in the short run but increase prices 
D) maintain production in the short run but decrease prices 
E) decrease production and lower prices in the short run 
A) increase production in the short run 
B) decrease production in the short run 
C) maintain production in the short run but increase prices 
D) maintain production in the short run but decrease prices 
E) decrease production and lower prices in the short run

Question 12

Given a downward-sloping aggregate demand curve, if short-run aggregate supply increases, real GDP must increase and nominal GDP must fall.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) a rise in energy prices 
B) a drop in the actual price level 
C) workers opting for more leisure time and less time on the job 
D) a level of investment spending that is less than depreciation of the capital stock 
E) a technological breakthrough with widespread practical applications that occurs in the microcomputer industry 
A) a rise in energy prices 
B) a drop in the actual price level 
C) workers opting for more leisure time and less time on the job 
D) a level of investment spending that is less than depreciation of the capital stock 
E) a technological breakthrough with widespread practical applications that occurs in the microcomputer industry

Question 14

Exhibit 11-7  
-The movement in Exhibit 11-7 could be caused by

Accepted Answer

A) a decrease in the real wage 
B) an increase in the economy's capital stock 
C) the actions of a cartel of resource suppliers 
D) a decrease in consumer spending 
E) an increase in labor productivity 
A) a decrease in the real wage 
B) an increase in the economy's capital stock 
C) the actions of a cartel of resource suppliers 
D) a decrease in consumer spending 
E) an increase in labor productivity

Question 15

If the actual price level exceeds the expected price level reflected in long-term contracts,

Accepted Answer

A) firms will find production more profitable than they had expected and will decrease the quantity of output supplied 
B) firms will find production less profitable than they had expected and will decrease the quantity of output supplied 
C) firms will find production less profitable than they had expected and will increase the quantity of output supplied 
D) resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied 
E) unemployment will decrease 
A) firms will find production more profitable than they had expected and will decrease the quantity of output supplied 
B) firms will find production less profitable than they had expected and will decrease the quantity of output supplied 
C) firms will find production less profitable than they had expected and will increase the quantity of output supplied 
D) resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied 
E) unemployment will decrease

Question 16

Wage rates are typically flexible upward but "sticky" downward.

Accepted Answer

A) True 
 B)False

Question 17

A decrease in the expected price level will shift the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 18

If the economy is simultaneously in long-run and short-run equilibrium, which of the following is not true?

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) The 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) The aggregate demand curve is horizontal at the potential output level.

Question 19

Whether aggregate supply shifts quickly or slowly to restore equilibrium at potential output depends crucially on

Accepted Answer

A) how quickly planned investment spending adjusts to changes in population growth 
B) how quickly planned consumption spending adjusts to changes in the price level and nominal wages 
C) how quickly technology changes to increase aggregate supply 
D) whether the economy is experiencing a contractionary gap or an expansionary gap 
E) how quickly real wages adjust to restore full employment in the labor market 
A) how quickly planned investment spending adjusts to changes in population growth 
B) how quickly planned consumption spending adjusts to changes in the price level and nominal wages 
C) how quickly technology changes to increase aggregate supply 
D) whether the economy is experiencing a contractionary gap or an expansionary gap 
E) how quickly real wages adjust to restore full employment in the labor market

Question 20

Exhibit 11-1
  
-Given aggregate demand and aggregate supply schedule #1 in Exhibit 11-1, the equilibrium level of output is

Accepted Answer

A) $5.0 
B) $5.5 
C) $6.0 
D) $6.5 
E) $7.0 
A) $5.0 
B) $5.5 
C) $6.0 
D) $6.5 
E) $7.0

Exam 11: Aggregate Supply

In the long run, the aggregate demand curve determines the price level.

Exhibit 11-4 -The graph in Exhibit 11-4, when aggregate supply is AS, the equilibrium output and price level will be Y2 and P2.

Which of the following is true of the short-run aggregate supply curve?

Supply shocks are unexpected events that affect aggregate supply.

The situation in which actual output exceeds potential output

Wage agreements may cause costs to be __________ flexible than prices so that __________ in the price level cause __________ in aggregate quantity supplied.

When the economy is at its potential output level, which of the following is not true?

Exhibit 11-5 -If the economy is at point M in Exhibit 11-5,

As an expansionary gap is closed in the long run by firms' actions,

During recessions, workers resist efforts to reduce nominal wages because

When the expected price level falls below the actual price level, firms

Given a downward-sloping aggregate demand curve, if short-run aggregate supply increases, real GDP must increase and nominal GDP must fall.

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

Exhibit 11-7 -The movement in Exhibit 11-7 could be caused by

If the actual price level exceeds the expected price level reflected in long-term contracts,

Wage rates are typically flexible upward but "sticky" downward.

A decrease in the expected price level will shift the short-run aggregate supply curve.

If the economy is simultaneously in long-run and short-run equilibrium, which of the following is not true?

Whether aggregate supply shifts quickly or slowly to restore equilibrium at potential output depends crucially on

Exhibit 11-1 -Given aggregate demand and aggregate supply schedule #1 in Exhibit 11-1, the equilibrium level of output is

The Art and Science of Economic Analysis

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Economic Decision Makers

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Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

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Money and the Financial System

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The Algebra of Demand-Side Equilibrium

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Exhibit 11-4 -The graph in Exhibit 11-4, when aggregate supply is AS, the equilibrium output and price level will be Y₂ and P₂.

Wage agreements may cause costs to be flexible than prices so that in the price level cause __ in aggregate quantity supplied.