Question 1

If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year, which of the following is correct?

Accepted Answer

A) real wages increase by 2 percent per year 
B) real wages increase by 3 percent per year 
C) real wages decrease by 3 percent per year 
D) real wages decrease by 2 percent per year 
E) real wages remain constant 
A) real wages increase by 2 percent per year 
B) real wages increase by 3 percent per year 
C) real wages decrease by 3 percent per year 
D) real wages decrease by 2 percent per year 
E) real wages remain constant

Question 2

Which of the following supply shocks would shift the long-run aggregate supply curve outward?

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 3

During a recession,

Accepted Answer

A) unemployment is below the natural rate 
B) actual output is above potential output 
C) both unemployment and the price level are too high 
D) contractionary gaps may persist if wages are not very flexible 
E) expansionary gaps may persist if wages are not very flexible 
A) unemployment is below the natural rate 
B) actual output is above potential output 
C) both unemployment and the price level are too high 
D) contractionary gaps may persist if wages are not very flexible 
E) expansionary gaps may persist if wages are not very flexible

Question 4

The long-run equilibrium price level is the price level the economy is expected to reach when the

Accepted Answer

A) economy produces its potential output 
B) Fed has stabilized interest rates 
C) federal budget is balanced 
D) discount rate equals the prime rate 
E) inflation rate is zero 
A) economy produces its potential output 
B) Fed has stabilized interest rates 
C) federal budget is balanced 
D) discount rate equals the prime rate 
E) inflation rate is zero

Question 5

If the price level turns out to be higher than expected,

Accepted Answer

A) businesses increase production 
B) the potential output level increases 
C) initially, the short-run aggregate supply curve shifts rightward; later, there is an upward movement along that curve 
D) initially, the short-run aggregate supply curve shifts rightward; later, there is a downward movement along that curve 
E) a contractionary gap develops 
A) businesses increase production 
B) the potential output level increases 
C) initially, the short-run aggregate supply curve shifts rightward; later, there is an upward movement along that curve 
D) initially, the short-run aggregate supply curve shifts rightward; later, there is a downward movement along that curve 
E) a contractionary gap develops

Question 6

Which of the following would be evidence that a contractionary gap exists?

Accepted Answer

A) Rapid deflation during a period in which plant capacity utilization is below average. 
B) A steady price level and a 5 percent unemployment rate. 
C) Help wanted advertising lower than usual, and the consumer price index lower than expected. 
D) Inflation has risen markedly and the Dow Jones average is at record levels. 
E) The number of new unemployment claims has skyrocketed and the price level is rising. 
A) Rapid deflation during a period in which plant capacity utilization is below average. 
B) A steady price level and a 5 percent unemployment rate. 
C) Help wanted advertising lower than usual, and the consumer price index lower than expected. 
D) Inflation has risen markedly and the Dow Jones average is at record levels. 
E) The number of new unemployment claims has skyrocketed and the price level is rising.

Question 7

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 short-run supply curve will shift to SRS109 and the expansionary gap will be eliminated 
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 short-run supply curve will shift to SRS109 and the expansionary gap will be eliminated 
E) the economy is in equilibrium in the short run and the long run

Question 8

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

Accepted Answer

A) The actual unemployment rate would equal the natural rate. 
B) There would be some cyclical unemployment. 
C) There would be some seasonal unemployment. 
D) There would be some frictional unemployment. 
E) There would be some structural unemployment. 
A) The actual unemployment rate would equal the natural rate. 
B) There would be some cyclical unemployment. 
C) There would be some seasonal unemployment. 
D) There would be some frictional unemployment. 
E) There would be some structural unemployment.

Question 9

Suppose that the actual and expected price levels are initially equal, and that the expected price level falls. Which of the following will occur over the long run? (Hint: Recall the actual price level is on the vertical axis.)

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. 
E) The short-run aggregate supply curve will become flatter. 
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. 
E) The short-run aggregate supply curve will become flatter.

Question 10

During a recession, output is

Accepted Answer

A) above potential and unemployment is below the natural rate 
B) above potential and unemployment is above the natural rate 
C) below potential and unemployment is below the natural rate 
D) below potential and unemployment is above the natural rate 
E) below potential and the price level is below the natural level 
A) above potential and unemployment is below the natural rate 
B) above potential and unemployment is above the natural rate 
C) below potential and unemployment is below the natural rate 
D) below potential and unemployment is above the natural rate 
E) below potential and the price level is below the natural level

Question 11

A coordination failure occurs when

Accepted Answer

A) production on a factory floor is disorganized 
B) customers regularly trip over loose welcome mats at stores 
C) employers and employees fail to reach an agreement to increase nominal wages, employment, and an expansionary gap 
D) an economy is at full employment 
E) employers and employees fail to reach an agreement to reduce nominal wages, unemployment, and a contractionary gap 
A) production on a factory floor is disorganized 
B) customers regularly trip over loose welcome mats at stores 
C) employers and employees fail to reach an agreement to increase nominal wages, employment, and an expansionary gap 
D) an economy is at full employment 
E) employers and employees fail to reach an agreement to reduce nominal wages, unemployment, and a contractionary gap

Question 12

Firms __________ output as long as the revenue from additional production __________ the cost of that production.

Accepted Answer

A) expand, is less than 
B) contract, is less than 
C) contract, exceeds 
D) expand, exceeds 
E) expand, is equal to 
A) expand, is less than 
B) contract, is less than 
C) contract, exceeds 
D) expand, exceeds 
E) expand, is equal to

Question 13

If the actual price level is less than the expected price level reflected in long-term contracts, firm owners will find production more profitable than they had expected.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 11-2  
-In Exhibit 11-2, if P1 is the prevailing price level, then

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 
E) potential output is less than the actual level of output 
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 
E) potential output is less than the actual level of output

Question 15

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 16

In the short run, but not in the long run,

Accepted Answer

A) output is fixed 
B) prices are fixed 
C) prices can change but output is fixed 
D) some resource prices are fixed 
E) the aggregate supply curve is vertical 
A) output is fixed 
B) prices are fixed 
C) prices can change but output is fixed 
D) some resource prices are fixed 
E) the aggregate supply curve is vertical

Question 17

Actual output falls below potential output

Accepted Answer

A) during a recession 
B) when aggregate demand exceeds aggregate supply 
C) when the natural rate of unemployment exceeds the actual rate of unemployment 
D) when the natural rate of unemployment is zero 
E) when short run aggregate supply exceeds long run aggregate supply 
A) during a recession 
B) when aggregate demand exceeds aggregate supply 
C) when the natural rate of unemployment exceeds the actual rate of unemployment 
D) when the natural rate of unemployment is zero 
E) when short run aggregate supply exceeds long run aggregate supply

Question 18

The natural rate of unemployment includes frictional, cyclical, and structural unemployment.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 11-2  
-If the actual price level in Exhibit 11-2 exceeds the expected price level, then

Accepted Answer

A) equilibrium output might be Y2 in the short run 
B) equilibrium output might be Y1 in the short run 
C) equilibrium output might be Y3 in the short run 
D) potential output is greater than actual output 
E) unemployment is above the natural rate 
A) equilibrium output might be Y2 in the short run 
B) equilibrium output might be Y1 in the short run 
C) equilibrium output might be Y3 in the short run 
D) potential output is greater than actual output 
E) unemployment is above the natural rate

Question 20

The long-run aggregate supply curve is vertical because potential real GDP is determined by resource availabilities and productivities.

Accepted Answer

A) True 
 B)False

Exam 11: Aggregate Supply

If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year, which of the following is correct?

Which of the following supply shocks would shift the long-run aggregate supply curve outward?

During a recession,

The long-run equilibrium price level is the price level the economy is expected to reach when the

If the price level turns out to be higher than expected,

Which of the following would be evidence that a contractionary gap exists?

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

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

Suppose that the actual and expected price levels are initially equal, and that the expected price level falls. Which of the following will occur over the long run? (Hint: Recall the actual price level is on the vertical axis.)

During a recession, output is

A coordination failure occurs when

Firms __________ output as long as the revenue from additional production __________ the cost of that production.

If the actual price level is less than the expected price level reflected in long-term contracts, firm owners will find production more profitable than they had expected.

Exhibit 11-2 -In Exhibit 11-2, if P1 is the prevailing price level, then

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

In the short run, but not in the long run,

Actual output falls below potential output

The natural rate of unemployment includes frictional, cyclical, and structural unemployment.

Exhibit 11-2 -If the actual price level in Exhibit 11-2 exceeds the expected price level, then

The long-run aggregate supply curve is vertical because potential real GDP is determined by resource availabilities and productivities.

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

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

The Algebra of Demand-Side Equilibrium

International Trade

International Finance

Economic Development

National Income Accounts

Understanding Graphs

Variable Net Exports

Variable Net Exports Revisited

Filters

Firms output as long as the revenue from additional production the cost of that production.

Exhibit 11-2 -In Exhibit 11-2, if P₁ is the prevailing price level, then