Question 1

Wage rates are typically flexible upward but "sticky" downward.

Accepted Answer

A) True 
 B)False

Question 2

A recessionary gap is usually closed in the long run by a(n) :

Accepted Answer

A)   rightward shift of the short-run aggregate supply curve.
B)   leftward shift of the short-run aggregate supply curve.
C)   rightward movement along a fixed short-run aggregate supply curve.
D)   decrease in aggregate demand.
E)   leftward movement along a fixed short-run aggregate supply curve.

Question 3

The figure below shows the short-run aggregate supply curve of an economy. If the actual price level exceeds the expected price level, then:
2 in the short run. B)  equilibrium output is likely to be Y1 in the short run. C)  equilibrium output is likely to be Y3 in the short run. D)  potential output is greater than actual output. E)  unemployment is above the natural rate." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

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

Question 4

When the economy produces its potential output, _____ is zero.

Accepted Answer

A)   frictional unemployment
B)   cyclical unemployment
C)   seasonal unemployment
D)   structural unemployment
E)   disguised unemployment

Question 5

Which of the following is true of the short-run aggregate supply curve?

Accepted Answer

A)   It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant.
B)   It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant.
C)   It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant.
D)   It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.
E)   It shows an inverse relationship between the price level and real GDP.

Question 6

The figure shows the determination of the equilibrium price level and real GDP in an aggregate demand-aggregate supply model. Which of the following economic changes is depicted by a movement from point e to point e'?

Accepted Answer

A)   An increase in short-run aggregate supply
B)   An increase in long-run aggregate supply
C)   A decrease in short-run aggregate supply
D)   A decrease in long-run aggregate supply
E)   An increase in the aggregate quantity demanded

Question 7

The short-run aggregate supply curve shows a(n) :

Accepted Answer

A)   direct relationship between the expected price level and nominal GDP supplied.
B)   inverse relationship between the actual price level and real GDP supplied.
C)   direct relationship between the actual price level and nominal GDP supplied.
D)   direct relationship between the actual price level and real GDP supplied.
E)   inverse relationship between the expected price level and real GDP supplied.

Question 8

The short run is a period of time during which:

Accepted Answer

A)   there is an expansionary gap that cannot be corrected using the passive approach.
B)   actual output equals potential output.
C)   there is a recessionary gap that cannot be corrected through discretionary policy.
D)   resource buyers and sellers cannot adjust fully to changes in the price level.
E)   resource buyers and sellers can adjust fully to changes in the price level.

Question 9

The short-run equilibrium output in the economy described by the figure given below is Y1.

Accepted Answer

A) True 
 B)False

Question 10

In constructing the short-run aggregate supply curve, we define the short run as the period in which:

Accepted Answer

A)   the price level is constant.
B)   output is fixed.
C)   profit is constant.
D)   the costs of some resources are fixed.
E)   the economic growth rate is less than 4 percent.

Question 11

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 the aggregate quantity supplied.
D)   the actual price level and unemployment.
E)   the actual price level and consumption spending.

Question 12

The main effect of a decrease in the stock of capital is a(n) :

Accepted Answer

A)   rightward shift of the short-run aggregate supply curve.
B)   rightward shift of the aggregate demand curve.
C)   leftward shift of the long-run aggregate supply curve.
D)   leftward shift of the aggregate demand curve.
E)   increase in the price and output levels.

Question 13

Given the aggregate demand curve, a beneficial supply shock will:

Accepted Answer

A)   increase potential output and the price level.
B)   decrease potential output and the price level.
C)   increase potential output and decrease the price level.
D)   decrease potential output and increase the price level.
E)   cause no change in potential output or the price level.

Question 14

Which of these is an advantage of long-term contracts in resource markets?

Accepted Answer

A)   Long-term contracts decrease the duration of recessionary gaps.
B)   Long-term contracts reduce unemployment below its natural rate.
C)   Long-term contracts help avoid recession in an economy.
D)   Long-term contracts increase the flexibility of nominal wages.
E)   Long-term contracts reduce the average cost of negotiation.

Question 15

An economy's potential level of output can be altered by changes in:

Accepted Answer

A)   the actual price level.
B)   the expected price level.
C)   aggregate demand.
D)   real GDP.
E)   its stock of capital.

Question 16

Actual output can exceed the economy's potential both in the short run and the long run.

Accepted Answer

A) True 
 B)False

Question 17

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.

Question 18

The figure below shows the short-run aggregate supply curve of an economy. In this figure, an expansionary gap would be represented by the distance between:
2and Y1. B)  Y3and Y1. C)  Y2and Y3. D)  P2and P1. E)  P2and P3." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   Y2and Y1.
B)   Y3and Y1.
C)   Y2and Y3.
D)   P2and P1.
E)   P2and P3.

Question 19

The figure below shows the determination of the equilibrium price level and real GDP in an aggregate demand-aggregate supply model. The movement shown in this figure is most likely to be caused by:

Accepted Answer

A)   a decrease in the real wage.
B)   an increase in the economy's capital stock.
C)   the actions of a labor union.
D)   a decrease in consumer spending.
E)   an increase in labor productivity.

Question 20

Which of the following changes best represents the effect of the oil embargo (a shut-off of oil from certain OPEC countries)  of the 1970s on the U.S.?

Accepted Answer

A)   A leftward shift of the long-run aggregate supply curve
B)   A rightward shift of the long-run aggregate supply curve
C)   A leftward shift of the aggregate demand curve
D)   A rightward shift of the aggregate demand curve
E)   A rightward movement along a given aggregate demand curve

Exam 10: Aggregate Supply

A recessionary gap is usually closed in the long run by a(n) :

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The figure below shows the short-run aggregate supply curve of an economy. If the actual price level exceeds the expected price level, then:

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Actual output can exceed the economy's potential both in the short run and the long run.

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When the economy produces its potential output, _____ is zero.

Correct AnswerverifiedShow Answer

The figure shows the determination of the equilibrium price level and real GDP in an aggregate demand-aggregate supply model. Which of the following economic changes is depicted by a movement from point e to point e'?

Correct AnswerverifiedShow Answer

The figure below shows the short-run aggregate supply curve of an economy. In this figure, an expansionary gap would be represented by the distance between:

Correct AnswerverifiedShow Answer

Which of these is an advantage of long-term contracts in resource markets?

Correct AnswerverifiedShow Answer

The figure below shows the determination of the equilibrium price level and real GDP in an aggregate demand-aggregate supply model. The movement shown in this figure is most likely to be caused by:

Correct AnswerverifiedShow Answer

Stagflation is defined as:

Correct AnswerverifiedShow Answer

In the short run, there is a positive relationship between:

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An economy's potential level of output can be altered by changes in:

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The short-run aggregate supply curve shows a(n) :

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The short run is a period of time during which:

Correct AnswerverifiedShow Answer

Wage rates are typically flexible upward but "sticky" downward.

Correct AnswerverifiedShow Answer

Which of the following is true of the short-run aggregate supply curve?

Correct AnswerverifiedShow Answer

In constructing the short-run aggregate supply curve, we define the short run as the period in which:

Correct AnswerverifiedShow Answer

Given the aggregate demand curve, a beneficial supply shock will:

Correct AnswerverifiedShow Answer

The short-run equilibrium output in the economy described by the figure given below is Y1.

Correct AnswerverifiedShow Answer

Which of the following changes best represents the effect of the oil embargo (a shut-off of oil from certain OPEC countries) of the 1970s on the U.S.?

Correct AnswerverifiedShow Answer

The main effect of a decrease in the stock of capital is a(n) :

Correct AnswerverifiedShow Answer

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The short-run equilibrium output in the economy described by the figure given below is Y₁.

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