Question 1

One explanation for the persistently high unemployment rates in Europe during the 1990s is

Accepted Answer

A) hysteria over downsizing 
B) the persistently high price levels there 
C) legislation that makes it difficult to lay off workers in Europe 
D) a continuing recession that lasted most of the decade 
E) that the natural rate of unemployment is too low in Europe 
A) hysteria over downsizing 
B) the persistently high price levels there 
C) legislation that makes it difficult to lay off workers in Europe 
D) a continuing recession that lasted most of the decade 
E) that the natural rate of unemployment is too low in Europe

Question 2

A nominal wage is

Accepted Answer

A) not above the legal minimum 
B) always above the legal minimum 
C) measured in terms of goods and services it can buy 
D) measured in current dollars rather than in constant dollars 
E) measured in constant dollars rather than in current dollars 
A) not above the legal minimum 
B) always above the legal minimum 
C) measured in terms of goods and services it can buy 
D) measured in current dollars rather than in constant dollars 
E) measured in constant dollars rather than in current dollars

Question 3

The expected price level is significant because

Accepted Answer

A) it is the equilibrium price level in the short run 
B) it determines the actual price level in the short run 
C) it determines the actual price level in the long run 
D) firms and resource owners make long-term agreements based on the expected price level 
E) the difference between the expected and actual price levels is equal to the actual inflation rate 
A) it is the equilibrium price level in the short run 
B) it determines the actual price level in the short run 
C) it determines the actual price level in the long run 
D) firms and resource owners make long-term agreements based on the expected price level 
E) the difference between the expected and actual price levels is equal to the actual inflation rate

Question 4

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

Accepted Answer

A) 110 
B) 120 
C) 130 
D) 140 
E) 150 
A) 110 
B) 120 
C) 130 
D) 140 
E) 150

Question 5

Which of the following types of unemployment can exist in an economy that is at its potential output level?

Accepted Answer

A) cyclical unemployment only 
B) structural unemployment only 
C) frictional, cyclical, and seasonal unemployment only 
D) frictional, seasonal, and structural unemployment only 
E) there will be no unemployment in an economy that is at the potential output level 
A) cyclical unemployment only 
B) structural unemployment only 
C) frictional, cyclical, and seasonal unemployment only 
D) frictional, seasonal, and structural unemployment only 
E) there will be no unemployment in an economy that is at the potential output level

Question 6

If the expected price level exceeds the actual price level, then firms will

Accepted Answer

A) expand output hoping that prices will rise 
B) expand output if workers suffer from money illusion 
C) expand output if some resource prices are fixed by contracts 
D) reduce output if some resource prices are fixed by contracts 
E) reduce output if workers suffer from money illusion 
A) expand output hoping that prices will rise 
B) expand output if workers suffer from money illusion 
C) expand output if some resource prices are fixed by contracts 
D) reduce output if some resource prices are fixed by contracts 
E) reduce output if workers suffer from money illusion

Question 7

In the short run, there is a positive relationship between

Accepted Answer

A) inflation and unemployment 
B) inflation and real GDP 
C) the actual price level and aggregate quantity supplied 
D) the actual price level and unemployment 
E) the actual price level and consumption spending 
A) inflation and unemployment 
B) inflation and real GDP 
C) the actual price level and aggregate quantity supplied 
D) the actual price level and unemployment 
E) the actual price level and consumption spending

Question 8

Suppose that the real wage remained unchanged between year 1 and 2 but the nominal wage was $20 in year 1 and $18 in year 2. What is true about the price level?

Accepted Answer

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

Question 9

Exhibit 11-1
  
-Given aggregate demand and aggregate supply schedule #2 in Exhibit 11-1, the equilibrium output level and price level are

Accepted Answer

A) output $7.0, price level 110 
B) output $6.5, price level 120 
C) output $6.0, price level 130 
D) output $5.5, price level 140 
E) output $5.0, price level 150 
A) output $7.0, price level 110 
B) output $6.5, price level 120 
C) output $6.0, price level 130 
D) output $5.5, price level 140 
E) output $5.0, price level 150

Question 10

Floods in the Midwest that diminish farm output would shift the aggregate supply curve outward (to the right).

Accepted Answer

A) True 
 B)False

Question 11

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 be greater than 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) There would be some structural unemployment. 
A) The actual unemployment rate would be greater than 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) There would be some structural unemployment.

Question 12

The theory that the longer the unemployment rate remains above the natural rate, the higher will be the natural rate, is known as

Accepted Answer

A) hysteresis 
B) hysterical analysis 
C) historical analysis 
D) histoplasmosis 
E) hypoglycemia 
A) hysteresis 
B) hysterical analysis 
C) historical analysis 
D) histoplasmosis 
E) hypoglycemia

Question 13

The short run is a period of time

Accepted Answer

A) when there is an expansionary gap and firms run their plants only for short periods 
B) of one year or less 
C) when there is a contractionary gap 
D) during which resource buyers and sellers cannot adjust fully to changes in the price level 
E) when resource buyers and sellers can adjust fully to changes in the price level 
A) when there is an expansionary gap and firms run their plants only for short periods 
B) of one year or less 
C) when there is a contractionary gap 
D) during which resource buyers and sellers cannot adjust fully to changes in the price level 
E) when resource buyers and sellers can adjust fully to changes in the price level

Question 14

The long-run aggregate supply curve is represented by

Accepted Answer

A) an upward-sloping line 
B) a downward-sloping line 
C) a vertical line 
D) a horizontal line 
E) any of the above; it depends on the relationship between the actual and the expected price level 
A) an upward-sloping line 
B) a downward-sloping line 
C) a vertical line 
D) a horizontal line 
E) any of the above; it depends on the relationship between the actual and the expected price level

Question 15

In the long run, the economy will produce at potential output if

Accepted Answer

A) workers mistakenly believe that nominal wages equal real wages 
B) expectations are the same in the long and short run 
C) wages and prices are sufficiently flexible 
D) the price level is high 
E) the price level is low 
A) workers mistakenly believe that nominal wages equal real wages 
B) expectations are the same in the long and short run 
C) wages and prices are sufficiently flexible 
D) the price level is high 
E) the price level is low

Question 16

Exhibit 11-3  
-Consider Exhibit 11-3. The short-run equilibrium output is Y1.

Accepted Answer

A) True 
 B)False

Question 17

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 not accurate. 
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 its maximum sustainable output. 
E) The actual price level equals the expected price level. 
A) Firms' and workers' expectations about the price level are not accurate. 
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 its maximum sustainable output. 
E) The actual price level equals the expected price level.

Question 18

Because nominal wages fall slowly, the supply-side adjustments needed to close a contractionary gap may take very long.

Accepted Answer

A) True 
 B)False

Question 19

Given the long-run aggregate supply curve, the aggregate demand curve determines

Accepted Answer

A) the price level and the output level 
B) the price level but not the output level 
C) the output level but not the price level 
D) neither the price level nor the output level 
E) the income level but not the output level 
A) the price level and the output level 
B) the price level but not the output level 
C) the output level but not the price level 
D) neither the price level nor the output level 
E) the income level but not the output level

Question 20

Potential output is the amount produced when

Accepted Answer

A) firms' and workers' expectations about the price level are realized 
B) the actual price level is higher than workers expected 
C) firms and workers have the same expectations about the price level 
D) the actual price level remains constant 
E) the actual price level is higher than firms expected 
A) firms' and workers' expectations about the price level are realized 
B) the actual price level is higher than workers expected 
C) firms and workers have the same expectations about the price level 
D) the actual price level remains constant 
E) the actual price level is higher than firms expected

Exam 11: Aggregate Supply

One explanation for the persistently high unemployment rates in Europe during the 1990s is

A nominal wage is

The expected price level is significant because

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

Which of the following types of unemployment can exist in an economy that is at its potential output level?

If the expected price level exceeds the actual price level, then firms will

In the short run, there is a positive relationship between

Suppose that the real wage remained unchanged between year 1 and 2 but the nominal wage was $20 in year 1 and $18 in year 2. What is true about the price level?

Exhibit 11-1 -Given aggregate demand and aggregate supply schedule #2 in Exhibit 11-1, the equilibrium output level and price level are

Floods in the Midwest that diminish farm output would shift the aggregate supply curve outward (to the right).

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

The theory that the longer the unemployment rate remains above the natural rate, the higher will be the natural rate, is known as

The short run is a period of time

The long-run aggregate supply curve is represented by

In the long run, the economy will produce at potential output if

Exhibit 11-3 -Consider Exhibit 11-3. The short-run equilibrium output is Y1.

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

Because nominal wages fall slowly, the supply-side adjustments needed to close a contractionary gap may take very long.

Given the long-run aggregate supply curve, the aggregate demand curve determines

Potential output is the amount produced when

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Introduction to Macroeconomics

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Exhibit 11-3 -Consider Exhibit 11-3. The short-run equilibrium output is Y₁.