Question 1

An adverse supply shock would shift the

Accepted Answer

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

Question 2

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 3

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 4

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 5

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 6

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 7

Which of the following is true in the long run?

Accepted Answer

A) The aggregate demand curve determines the level of potential output. 
B) The long-run aggregate supply curve is vertical. 
C) The actual price level is greater than the expected price level. 
D) Cyclical unemployment is between 5 percent and 6 percent. 
E) The price level is determined entirely by the long-run aggregate supply curve. 
A) The aggregate demand curve determines the level of potential output. 
B) The long-run aggregate supply curve is vertical. 
C) The actual price level is greater than the expected price level. 
D) Cyclical unemployment is between 5 percent and 6 percent. 
E) The price level is determined entirely by the long-run aggregate supply curve.

Question 8

Stagflation is defined as

Accepted Answer

A) decreased output accompanied by a higher price level 
B) decreased output accompanied by a lower price level 
C) increased output accompanied by a lower price level 
D) increased output accompanied by a higher price level 
E) stagnation in the rate of inflation (i.e., no appreciable change in the rate of inflation for a year or more) 
A) decreased output accompanied by a higher price level 
B) decreased output accompanied by a lower price level 
C) increased output accompanied by a lower price level 
D) increased output accompanied by a higher price level 
E) stagnation in the rate of inflation (i.e., no appreciable change in the rate of inflation for a year or more)

Question 9

If a contractionary gap exists and resource prices are not flexible downward, the short-run aggregate supply curve will

Accepted Answer

A) shift leftward to return the economy to its potential output 
B) shift rightward to return the economy to its potential output 
C) not shift leftward to return the economy to its potential output 
D) not shift rightward to return the economy to its potential output 
E) become the long-run aggregate supply curve 
A) shift leftward to return the economy to its potential output 
B) shift rightward to return the economy to its potential output 
C) not shift leftward to return the economy to its potential output 
D) not shift rightward to return the economy to its potential output 
E) become the long-run aggregate supply curve

Question 10

Exhibit 11-2
  
-In Exhibit 11-2, if P3 is the prevailing price level, then

Accepted Answer

A) the expected price level is less than the actual price level 
B) there is a contractionary gap 
C) the price level will rise 
D) the actual unemployment rate is above the natural rate 
E) potential output is greater than actual output 
A) the expected price level is less than the actual price level 
B) there is a contractionary gap 
C) the price level will rise 
D) the actual unemployment rate is above the natural rate 
E) potential output is greater than actual output

Question 11

An expansionary gap is equal to

Accepted Answer

A) real GDP minus nominal GDP 
B) nominal GDP minus real GDP 
C) actual short-run output minus potential output 
D) this period's nominal GDP minus last period's nominal GDP 
E) this period's real GDP minus last period's real GDP 
A) real GDP minus nominal GDP 
B) nominal GDP minus real GDP 
C) actual short-run output minus potential output 
D) this period's nominal GDP minus last period's nominal GDP 
E) this period's real GDP minus last period's real GDP

Question 12

If the economy is experiencing an expansionary gap, which of the following will occur in the long run?

Accepted Answer

A) Workers will negotiate nominal wage increases that will shift the SRAS curve to the left. 
B) Workers will negotiate nominal wage increases that will shift the SRAS curve to the right. 
C) Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the right. 
D) Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the left. 
E) Aggregate demand will fall because workers' incomes are rising. 
A) Workers will negotiate nominal wage increases that will shift the SRAS curve to the left. 
B) Workers will negotiate nominal wage increases that will shift the SRAS curve to the right. 
C) Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the right. 
D) Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the left. 
E) Aggregate demand will fall because workers' incomes are rising.

Question 13

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

Accepted Answer

A) unemployment rates have always been high in Europe 
B) the United States has "exported" unemployment through its economic policies 
C) the labor supply in Europe increased faster than labor demand increased 
D) the labor supply in Europe increased while labor demand decreased 
E) European labor demand decreased because of legislation that makes hiring a worker an almost irreversible decision 
A) unemployment rates have always been high in Europe 
B) the United States has "exported" unemployment through its economic policies 
C) the labor supply in Europe increased faster than labor demand increased 
D) the labor supply in Europe increased while labor demand decreased 
E) European labor demand decreased because of legislation that makes hiring a worker an almost irreversible decision

Question 14

Which of the following is true about real and nominal wages?

Accepted Answer

A) The nominal wage will be constant only if the inflation rate is constant. 
B) The real wage will be constant only if the inflation rate is constant. 
C) Changes in the nominal wage will be the same as changes in the real wage only if the price level is constant. 
D) The real wage will be constant only if the price level is constant. 
E) The real wage will be constant only if the nominal wage is constant. 
A) The nominal wage will be constant only if the inflation rate is constant. 
B) The real wage will be constant only if the inflation rate is constant. 
C) Changes in the nominal wage will be the same as changes in the real wage only if the price level is constant. 
D) The real wage will be constant only if the price level is constant. 
E) The real wage will be constant only if the nominal wage is constant.

Question 15

If workers are willing to work more hours when the nominal wage increases, what can be said about the economic rationality of their decision?

Accepted Answer

A) The decision is not economically rational, since it should be based on the real wage only. 
B) The decision could be rational if workers thought that the inflation rate would fall in the future. 
C) The decision could be rational if workers thought that the real wage had fallen. 
D) The decision could be rational if workers thought that the nominal wage and the real wage were equal. 
E) The decision is rational no matter what happens to the real wage. 
A) The decision is not economically rational, since it should be based on the real wage only. 
B) The decision could be rational if workers thought that the inflation rate would fall in the future. 
C) The decision could be rational if workers thought that the real wage had fallen. 
D) The decision could be rational if workers thought that the nominal wage and the real wage were equal. 
E) The decision is rational no matter what happens to the real wage.

Question 16

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

Accepted Answer

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

Question 17

Compensation is usually negotiated in terms of a nominal wage because

Accepted Answer

A) employers want to pay low real wages 
B) workers are concerned only about the nominal wage 
C) firms are concerned only about the nominal wage 
D) wage agreements are based on expected price levels 
E) implicit contracts between workers and employers seldom last longer than three months 
A) employers want to pay low real wages 
B) workers are concerned only about the nominal wage 
C) firms are concerned only about the nominal wage 
D) wage agreements are based on expected price levels 
E) implicit contracts between workers and employers seldom last longer than three months

Question 18

Aggregate supply reflects billions of production decisions made by

Accepted Answer

A) consumers when they decide which products to purchase 
B) households and firms, because they each demand goods and services 
C) the largest firms and largest households 
D) households, which demand resources, and firms, which supply resources 
E) resource suppliers and firms 
A) consumers when they decide which products to purchase 
B) households and firms, because they each demand goods and services 
C) the largest firms and largest households 
D) households, which demand resources, and firms, which supply resources 
E) resource suppliers and firms

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

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

Exam 12: Aggregate Supply

An adverse supply shock would shift the

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

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

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

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

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

Which of the following is true in the long run?

Stagflation is defined as

If a contractionary gap exists and resource prices are not flexible downward, the short-run aggregate supply curve will

Exhibit 11-2 -In Exhibit 11-2, if P3 is the prevailing price level, then

An expansionary gap is equal to

If the economy is experiencing an expansionary gap, which of the following will occur in the long run?

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

Which of the following is true about real and nominal wages?

If workers are willing to work more hours when the nominal wage increases, what can be said about the economic rationality of their decision?

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

Compensation is usually negotiated in terms of a nominal wage because

Aggregate supply reflects billions of production decisions made by

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

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

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

Filters

Exhibit 11-2 -In Exhibit 11-2, if P₃ is the prevailing price level, then

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