Question 1

Which of the following would be evidence that a contractionary gap exists?

Accepted Answer

A)  Rapid deflation during a period in which plant capacity utilization is below average.
B)  A steady price level and a 5 percent unemployment rate.
C)  Help wanted advertising lower than usual,and the consumer price index lower than expected.
D)  Inflation has risen markedly and the Dow Jones average is at record levels.
E)  The number of new unemployment claims has skyrocketed and the price level is rising.F) D) and E)
G) None of the above

Question 2

If the actual price level turns out to be lower than expected,

Accepted Answer

A)  resource suppliers lose because they receive lower real incomes
B)  potential output rises
C)  potential output falls
D)  firms earn greater profits because their costs decrease
E)  the unemployment rate will probably riseF) A) and B)
G) A) and E)

Question 3

The situation in which actual output exceeds potential output

Accepted Answer

A)  is impossible because all resources are employed to produce potential output
B)  is possible only in times of high unemployment
C)  is possible only if the unemployment rate is negative
D)  is possible only in the long run
E)  creates pressure for inflationF) A) and C)
G) B) and D)

Question 4

Which of the following is true in the long run?

Accepted Answer

A)  The aggregate supply curve is the key determinant of the level of potential output.
B)  The long-run aggregate supply curve is horizontal.
C)  The actual price level is less 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.F) B) and C)
G) B) and E)

Question 5

Given the aggregate demand curve,an increase in the supply of a productive resource will

Accepted Answer

A)  increase output but leave prices unchanged
B)  decrease both output and prices
C)  increase the price level and decrease output
D)  decrease the price level and increase output
E)  increase the price level but leave output unchangedF) A) and E)
G) B) and D)

Question 6

Exhibit 10-2 2 in the short run B) equilibrium output might be Y1 in the short run C) equilibrium output might be Y3 in the short run D) potential output is less than actual output E) unemployment is below the natural rate" class="answers-bank-image d-inline" rel="preload" >
-If the actual price level in Exhibit 10-2 is lower than the expected price level,then

Accepted Answer

A)  equilibrium output might be Y2 in the short run
B)  equilibrium output might be Y1 in the short run
C)  equilibrium output might be Y3 in the short run
D)  potential output is less than actual output
E)  unemployment is below the natural rateF) C) and D)
G) C) and E)

Question 7

Which of the following is true of an expansionary gap?

Accepted Answer

A)  It develops when the expected price level exceeds the actual price level.
B)  In the long run,this gap will close when resource suppliers negotiate lower resource payments.
C)  It measures the amount by which actual output falls short of the economy's potential.
D)  In the long run,this gap will close when the short-run aggregate supply curve shifts rightward.
E)  In the long run,this gap will close when resource suppliers negotiate higher resource payments.F) B) and C)
G) A) and B)

Question 8

Aggregate supply is the relationship between aggregate demand and the quantities of aggregate output firms are willing and able to produce,other things constant.

Accepted Answer

A) True 
 B)False

Question 9

If the actual price level is higher than the expected price level,the economy will expand in the short run.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following supply shocks would shift the aggregate supply curve inward?

Accepted Answer

A)  a decrease in business taxes
B)  a decrease in gasoline taxes
C)  a decrease in the cost of raw materials
D)  a decrease in agricultural output
E)  a decrease in the amount and cost of government regulationF) C) and E)
G) A) and B)

Question 11

Exhibit 10-4 
-The graph in Exhibit 10-4 shows a(n)

Accepted Answer

A)  increase in short-run aggregate supply
B)  increase in long-run aggregate supply
C)  decrease in short-run aggregate supply
D)  decrease in long-run aggregate supply
E)  decrease in aggregate quantity demandedF) C) and D)
G) A) and E)

Question 12

Exhibit 10-5 
-If the economy is at point M in Exhibit 10-5,

Accepted Answer

A)  the actual price level is lower than expected with a $200 billion expansionary gap
B)  the actual price level is lower than expected with a $200 billion contractionary gap
C)  the actual price level is higher than expected with a $200 billion contractionary gap
D)  the actual price level is higher than expected with a $200 billion expansionary gap
E)  the economy is in equilibrium in the short run and the long runF) D) and E)
G) A) and D)

Question 13

During a recession,output is

Accepted Answer

A)  above potential and unemployment is below the natural rate
B)  above potential and unemployment is above the natural rate
C)  below potential and unemployment is below the natural rate
D)  below potential and unemployment is above the natural rate
E)  below potential and the price level is below the natural levelF) A) and C)
G) C) and E)

Question 14

If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year,which of the following is correct?

Accepted Answer

A)  real wages increase by 2 percent per year
B)  real wages increase by 3 percent per year
C)  real wages decrease by 3 percent per year
D)  real wages decrease by 2 percent per year
E)  real wages remain constantF) B) and E)
G) A) and B)

Question 15

If the price level turns out to be lower than expected,

Accepted Answer

A)  businesses cut back production
B)  the potential output level decreases
C)  initially,the short-run aggregate supply curve shifts leftward; later,there is a downward movement along that curve
D)  initially,the short-run aggregate supply curve shifts leftward; later,there is an upward movement along that curve
E)  an expansionary gap developsF) A) and B)
G) C) and E)

Question 16

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 17

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 outwardF) B) and D)
G) D) and E)

Question 18

If the economy is simultaneously in long-run and short-run equilibrium,which of the following is not true?

Accepted Answer

A)  The actual price level equals the expected price level.
B)  Aggregate quantity supplied equals potential output.
C)  Aggregate quantity demanded equals potential output.
D)  Aggregate quantity supplied equals aggregate quantity demanded.
E)  The aggregate demand curve is horizontal at the potential output level.F) B) and E)
G) A) and B)

Question 19

Which of the following is true of a beneficial supply shock?

Accepted Answer

A)  It could lead to a lower price level.
B)  If the economy were initially in equilibrium,such a shock would create a contractionary gap.
C)  It will permanently decrease the economy's price level.
D)  It will cause the aggregate demand curve to shift rightward.
E)  It will cause the aggregate demand curve to shift leftward.F) All of the above
G) A) and B)

Question 20

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.F) A) and B)
G) A) and E)

Exam 11: Aggregate Supply

Exhibit 10-2 -If the actual price level in Exhibit 10-2 is lower than the expected price level,then

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Which of the following is true of an expansionary gap?

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Given the aggregate demand curve,an increase in the supply of a productive resource will

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If the economy is simultaneously in long-run and short-run equilibrium,which of the following is not true?

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If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year,which of the following is correct?

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The situation in which actual output exceeds potential output

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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?

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If the actual price level is higher than the expected price level,the economy will expand in the short run.

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Exhibit 10-5 -If the economy is at point M in Exhibit 10-5,

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If the price level turns out to be lower than expected,

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Which of the following is true in the long run?

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Which of the following is true of a beneficial supply shock?

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Exhibit 10-4 -The graph in Exhibit 10-4 shows a(n)

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During a recession,output is

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Aggregate supply is the relationship between aggregate demand and the quantities of aggregate output firms are willing and able to produce,other things constant.

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Which of the following would be evidence that a contractionary gap exists?

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If the actual price level turns out to be lower than expected,

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A beneficial supply shock would shift the

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Which of the following supply shocks would shift the aggregate supply curve inward?

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

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