Question 1

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)  There would be some frictional unemployment.
E)  Structural unemployment would be equal to zero.F) A) and B)
G) A) and C)

Question 2

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 goneF) A) and B)
G) C) and D)

Question 3

The nominal wage represents

Accepted Answer

A)  the quantity of goods and services a worker can purchase in exchange for work time
B)  the dollar value of the goods and services a worker can purchase in exchange for work time
C)  real wages minus taxes paid on wages
D)  the most accurate measure for comparing employee standard of living across time
E)  real wages divided by the price levelF) A) and E)
G) A) and D)

Question 4

As a contractionary gap is closed in the long run,

Accepted Answer

A)  the inflation rate increases and unemployment decreases
B)  output increases and the price level decreases
C)  both output and the price level increase
D)  both output and the price level decrease
E)  the inflation rate decreases and unemployment increasesF) C) and E)
G) A) and D)

Question 5

Which of the following would shift the LRAS curve to the left?

Accepted Answer

A)  an increase in the size of the labor force
B)  a reduction in the quality of the labor force
C)  a reduction in the cost of using computers
D)  a decrease in the price level
E)  an increase in the price levelF) C) and D)
G) A) and B)

Question 6

Exhibit 11-9 
-The graph in Exhibit 11-9 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 C)

Question 7

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 constantF) A) and C)
G) All of the above

Question 8

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 consumptionF) A) and D)
G) A) and C)

Question 9

If wages are flexible, the long-run aggregate supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 10

In the short run, if the economy is operating below potential output and if the aggregate supply curve shifts outward, then the price level will

Accepted Answer

A)  decrease and output will increase
B)  increase and output will decrease
C)  decrease and output will decrease
D)  increase and output will increase
E)  increase and output will remain unchangedF) None of the above
G) A) and D)

Question 11

A contractionary gap may be 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)  increase in aggregate demandF) C) and D)
G) A) and E)

Question 12

Throughout the 1990s,

Accepted Answer

A)  unemployment rates were higher in Europe than in the United States
B)  unemployment rates fell in Europe and rose in the United States
C)  unemployment rates in Europe rose because of the decade-long recession there
D)  unemployment rates fell in Europe
E)  the unemployment rate rose in the United StatesF) A) and B)
G) A) and C)

Question 13

At the potential level of output, there is no seasonal unemployment.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 11-6 
-In Exhibit 11-6, long-run equilibrium would be established by

Accepted Answer

A)  an increase in short-run aggregate supply to remove the expansionary gap
B)  a decrease in short-run aggregate supply to remove the expansionary gap
C)  a decrease in short-run aggregate supply to remove the contractionary gap
D)  an increase in short-run aggregate supply to remove the contractionary gap
E)  a leftward shift of the aggregate demand curveF) A) and E)
G) C) and D)

Question 15

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 curveF) A) and B)
G) A) and C)

Question 16

Given the aggregate demand curve, an adverse supply shock would

Accepted Answer

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

Question 17

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 stockF) B) and D)
G) A) and C)

Question 18

In the long run, a decrease in aggregate demand will cause a(n)

Accepted Answer

A)  decrease in price and output levels
B)  increase in price and output levels
C)  increase in the price level and a decrease in output
D)  decrease in the price level and an increase in output
E)  decrease in the price level and no change in outputF) None of the above
G) A) and C)

Question 19

The main effect of an increase in the capital stock is a(n)

Accepted Answer

A)  rightward shift of the long-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 price and output levelsF) A) and E)
G) B) and D)

Question 20

Exhibit 11-3 2 A) potential output is greater than actual output B) there is a contractionary gap C) the price level will fall D) the actual unemployment rate equals the natural rate of unemployment E) aggregate supply will increase to restore equilibrium" class="answers-bank-image d-inline" rel="preload" >
-In Exhibit 11-3, at income level Y2

Accepted Answer

A)  potential output is greater than actual output
B)  there is a contractionary gap
C)  the price level will fall
D)  the actual unemployment rate equals the natural rate of unemployment
E)  aggregate supply will increase to restore equilibriumF) B) and E)
G) B) and D)

Exam 11: Aggregate Supply

Exhibit 11-6 -In Exhibit 11-6, long-run equilibrium would be established by

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

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In the long run, a decrease in aggregate demand will cause a(n)

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

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As a contractionary gap is closed in the long run,

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At the potential level of output, there is no seasonal unemployment.

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The main effect of an increase in the capital stock is a(n)

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Which of the following would shift the LRAS curve to the left?

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

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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

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The nominal wage represents

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Exhibit 11-9 -The graph in Exhibit 11-9 shows a(n)

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Exhibit 11-3 -In Exhibit 11-3, at income level Y2

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

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If wages are flexible, the long-run aggregate supply curve is vertical.

Correct AnswerverifiedShow Answer

In the short run, if the economy is operating below potential output and if the aggregate supply curve shifts outward, then the price level will

Correct AnswerverifiedShow Answer

Throughout the 1990s,

Correct AnswerverifiedShow Answer

A contractionary gap may be closed in the long run by a(n)

Correct AnswerverifiedShow Answer

Given the aggregate demand curve, an adverse supply shock would

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

Correct AnswerverifiedShow Answer

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Exhibit 11-3 -In Exhibit 11-3, at income level Y₂

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