Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

A beneficial supply shock would shift the

Accepted Answer

A) long-run and short-run aggregate supply curves inward 
B) short-run aggregate supply curve inward and the long-run aggregate supply curve outward 
C) short-run aggregate supply curve outward but not the long-run aggregate supply curve 
D) long-run aggregate supply curve inward but not the short-run aggregate supply curve 
E) long-run and short-run aggregate supply curves outward 
A) long-run and short-run aggregate supply curves inward 
B) short-run aggregate supply curve inward and the long-run aggregate supply curve outward 
C) short-run aggregate supply curve outward but not the long-run aggregate supply curve 
D) long-run aggregate supply curve inward but not the short-run aggregate supply curve 
E) long-run and short-run aggregate supply curves outward

Question 3

The amount by which actual output falls short of potential output is called an contractionary gap.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that the actual and expected price levels are initially equal, and that the expected price level rises. 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 5

The potential output of an economy is the level of output produced when the

Accepted Answer

A) real wage equals the nominal wage 
B) price level is constant 
C) expected real wage equals the inflation rate 
D) expected price level equals the unemployment rate 
E) expected price level equals the actual price level 
A) real wage equals the nominal wage 
B) price level is constant 
C) expected real wage equals the inflation rate 
D) expected price level equals the unemployment rate 
E) expected price level equals the actual price level

Question 6

The real wage represents the

Accepted Answer

A) quantity of goods and services a worker can purchase in exchange for work time 
B) dollar value of the goods and services a worker can purchase in exchange for working 
C) nominal wage minus taxes paid on wages 
D) actual amount of income a worker receives after deductions for such things as taxes, insurance, and the like 
E) nominal wage times the price level 
A) quantity of goods and services a worker can purchase in exchange for work time 
B) dollar value of the goods and services a worker can purchase in exchange for working 
C) nominal wage minus taxes paid on wages 
D) actual amount of income a worker receives after deductions for such things as taxes, insurance, and the like 
E) nominal wage times the price level

Question 7

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 8

The various output levels produced at different price levels is reflected in the

Accepted Answer

A) short-run aggregate supply curve 
B) aggregate demand curve 
C) labor demand curve 
D) labor supply curve 
E) production possibilities frontier 
A) short-run aggregate supply curve 
B) aggregate demand curve 
C) labor demand curve 
D) labor supply curve 
E) production possibilities frontier

Question 9

A rising price level in the short run may create an incentive for firms to increase production because

Accepted Answer

A) costs of production will increase 
B) total sales revenue will decrease 
C) profits will increase 
D) costs of production will increase faster than total revenue 
E) output prices are generally not fixed by contract whereas resource prices are 
A) costs of production will increase 
B) total sales revenue will decrease 
C) profits will increase 
D) costs of production will increase faster than total revenue 
E) output prices are generally not fixed by contract whereas resource prices are

Question 10

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 its maximum sustainable output. 
E) The actual price level is greater than 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 its maximum sustainable output. 
E) The actual price level is greater than the expected price level.

Question 11

Exhibit 11-4
  
-The shift from AS to AS' in Exhibit 11-4 would occur when the actual price level is higher than expectations.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 11-1
  
-Given aggregate demand and aggregate supply schedule #3 in Exhibit 11-1, the equilibrium level of output 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 $5.0, price level 150 
E) output $5.5, price level 140 
A) output $7.0, price level 110 
B) output $6.5, price level 120 
C) output $6.0, price level 130 
D) output $5.0, price level 150 
E) output $5.5, price level 140

Question 13

Exhibit 11-11
  
-Refer to Exhibit 11-11. Which point represents short-run equilibrium?

Accepted Answer

A) a 
B) b 
C) c 
D) d 
E) e 
A) a 
B) b 
C) c 
D) d 
E) e

Question 14

The expected price level is assumed to be constant along a given short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

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 18

The actual price level is assumed to be constant along a given short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 19

Increases in the costs of production will shift the short-run aggregate supply curve to the left.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that the real wage remained unchanged between year 1 and 2 but the nominal wage increased from $20 to $24. 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.

Exam 12: Aggregate Supply

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

A beneficial supply shock would shift the

The amount by which actual output falls short of potential output is called an contractionary gap.

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

The potential output of an economy is the level of output produced when the

The real wage represents the

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.)

The various output levels produced at different price levels is reflected in the

A rising price level in the short run may create an incentive for firms to increase production because

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

Exhibit 11-4 -The shift from AS to AS' in Exhibit 11-4 would occur when the actual price level is higher than expectations.

Exhibit 11-1 -Given aggregate demand and aggregate supply schedule #3 in Exhibit 11-1, the equilibrium level of output and price level are

Exhibit 11-11 -Refer to Exhibit 11-11. Which point represents short-run equilibrium?

The expected price level is assumed to be constant along a given short-run aggregate supply curve.

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.

The long-run aggregate supply curve is represented by

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

The actual price level is assumed to be constant along a given short-run aggregate supply curve.

Increases in the costs of production will shift the short-run aggregate supply curve to the left.

Suppose that the real wage remained unchanged between year 1 and 2 but the nominal wage increased from $20 to $24. What is true about the price level?

The Art and Science of Economic Analysis

Understanding Graphs-Appendix

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

Aaggregate Expenditure and Agregate Demand

Aggregate Expenditure and Aggregate Demand

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

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