Question 1

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 horizontal. 
C) The actual price level and the expected price level are equal. 
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 horizontal. 
C) The actual price level and the expected price level are equal. 
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 2

If the expected price level falls below the actual price level,

Accepted Answer

A) the inflation rate must be negative 
B) the inflation rate must be positive 
C) production becomes less attractive to firms 
D) production becomes more attractive to firms 
E) the short-run aggregate supply curve is negatively sloped 
A) the inflation rate must be negative 
B) the inflation rate must be positive 
C) production becomes less attractive to firms 
D) production becomes more attractive to firms 
E) the short-run aggregate supply curve is negatively sloped

Question 3

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 4

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

Accepted Answer

A) output is fixed 
B) prices can change but the level of output is fixed 
C) some resource prices are fixed 
D) prices are fixed but the output level can change 
E) both prices and output are fixed 
A) output is fixed 
B) prices can change but the level of output is fixed 
C) some resource prices are fixed 
D) prices are fixed but the output level can change 
E) both prices and output are fixed

Question 5

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 6

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 7

CEO Carmen Ngouri must choose between laying off some workers or cutting nominal wages for all workers.She will likely decide on the layoff because

Accepted Answer

A) layoffs damage worker morale more than pay cuts do 
B) pay cuts decrease labor turnover 
C) layoffs reduce productivity 
D) the workers prefer a pay cut so that all workers can stay employed 
E) the damage from layoffs is brief and limited because laid off workers are soon gone 
A) layoffs damage worker morale more than pay cuts do 
B) pay cuts decrease labor turnover 
C) layoffs reduce productivity 
D) the workers prefer a pay cut so that all workers can stay employed 
E) the damage from layoffs is brief and limited because laid off workers are soon gone

Question 8

Which of the following occurs as macroeconomic output expands in the short run?

Accepted Answer

A) the nominal cost of labor increases 
B) the demand for nonlabor resources increases 
C) equipment wears out faster 
D) the nominal cost per unit of output rises 
E) All of the answers are correct 
A) the nominal cost of labor increases 
B) the demand for nonlabor resources increases 
C) equipment wears out faster 
D) the nominal cost per unit of output rises 
E) All of the answers are correct

Question 9

Exhibit 10-12  
-Consider Exhibit 10-12.Aggregate demand is represented by AD0 and the aggregate supply is AS120 since the expected price level is 120.Which of the following describes the current situation for this economy?

Accepted Answer

A) an expansionary gap exists 
B) a recessionary gap exists 
C) a long-run equilibrium exists 
D) an employment gap exists 
E) an economic growth gap exists 
A) an expansionary gap exists 
B) a recessionary gap exists 
C) a long-run equilibrium exists 
D) an employment gap exists 
E) an economic growth gap exists

Question 10

Aggregate supply expresses the relationship between

Accepted Answer

A) the price level in the economy and the aggregate output firms will produce,other things constant 
B) the price level and the aggregate amount people will buy at that price level 
C) the price level and the potential amount of output that could be produced 
D) the quantity of output that will be produced and sold in one year 
E) the actual output and the potential output of the economy 
A) the price level in the economy and the aggregate output firms will produce,other things constant 
B) the price level and the aggregate amount people will buy at that price level 
C) the price level and the potential amount of output that could be produced 
D) the quantity of output that will be produced and sold in one year 
E) the actual output and the potential output of the economy

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 equal the natural rate. 
B) The labor market would be in equilibrium. 
C) There would be some seasonal unemployment. 
D) Frictional unemployment would be zero. 
E) There would be some structural unemployment. 
A) The actual unemployment rate would equal the natural rate. 
B) The labor market would be in equilibrium. 
C) There would be some seasonal unemployment. 
D) Frictional unemployment would be zero. 
E) There would be some structural unemployment.

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

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 14

Which of the following would cause the short-run aggregate supply curve to shift leftward?

Accepted Answer

A) a drop 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) new investment spending that is greater than depreciation of the capital stock 
E) a technological breakthrough with widespread practical applications that occurs in the microcomputer industry 
A) a drop 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) new investment spending that is greater than depreciation of the capital stock 
E) a technological breakthrough with widespread practical applications that occurs in the microcomputer industry

Question 15

A wage in dollars measured by the goods and services the dollars buy is called the

Accepted Answer

A) real wage 
B) imaginary wage 
C) inflationary wage 
D) nominal wage 
E) normal wage 
A) real wage 
B) imaginary wage 
C) inflationary wage 
D) nominal wage 
E) normal wage

Question 16

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 17

Exhibit 10-8  
-If the economy is at point H in Exhibit 10-8,there is a(n)

Accepted Answer

A) expansionary gap of $300 billion (i.e.,$0.3 trillion) 
B) contractionary gap of $300 billion 
C) contractionary gap of 10 
D) expansionary gap of 20 
E) expansionary gap of 10 
A) expansionary gap of $300 billion (i.e.,$0.3 trillion) 
B) contractionary gap of $300 billion 
C) contractionary gap of 10 
D) expansionary gap of 20 
E) expansionary gap of 10

Question 18

Among the reasons firms find it profitable to expand output in the short run when the price level is rising faster than expected is that

Accepted Answer

A) all firms' costs are contractually fixed 
B) prices for firms' output are rising with the price level 
C) firms are interested in minimizing cost per unit,not total profits 
D) all firms' costs are variable 
E) the quantity of resources available to the economy is fixed 
A) all firms' costs are contractually fixed 
B) prices for firms' output are rising with the price level 
C) firms are interested in minimizing cost per unit,not total profits 
D) all firms' costs are variable 
E) the quantity of resources available to the economy is fixed

Question 19

Exhibit 10-3  
-Consider Exhibit 10-3.In this situation,long-run equilibrium would be established by a(n)

Accepted Answer

A) increase of short-run aggregate supply to close the expansionary gap 
B) decrease of short-run aggregate supply to close the expansionary gap 
C) decrease of short-run aggregate supply to close the contractionary gap 
D) increase of short-run aggregate supply to close the contractionary gap 
E) rightward shift of the aggregate demand curve 
A) increase of short-run aggregate supply to close the expansionary gap 
B) decrease of short-run aggregate supply to close the expansionary gap 
C) decrease of short-run aggregate supply to close the contractionary gap 
D) increase of short-run aggregate supply to close the contractionary gap 
E) rightward shift of the aggregate demand curve

Question 20

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

Exam 11: Aggregate Supply

Which of the following is true in the long run?

If the expected price level falls below the actual price level,

The long-run aggregate supply curve is represented by

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

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

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

CEO Carmen Ngouri must choose between laying off some workers or cutting nominal wages for all workers.She will likely decide on the layoff because

Which of the following occurs as macroeconomic output expands in the short run?

Exhibit 10-12 -Consider Exhibit 10-12.Aggregate demand is represented by AD0 and the aggregate supply is AS120 since the expected price level is 120.Which of the following describes the current situation for this economy?

Aggregate supply expresses the relationship between

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

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

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

Which of the following would cause the short-run aggregate supply curve to shift leftward?

A wage in dollars measured by the goods and services the dollars buy is called the

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

Exhibit 10-8 -If the economy is at point H in Exhibit 10-8,there is a(n)

Among the reasons firms find it profitable to expand output in the short run when the price level is rising faster than expected is that

Exhibit 10-3 -Consider Exhibit 10-3.In this situation,long-run equilibrium would be established by a(n)

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

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

Exhibit 10-12 -Consider Exhibit 10-12.Aggregate demand is represented by AD₀ and the aggregate supply is AS₁₂₀ since the expected price level is 120.Which of the following describes the current situation for this economy?