Question 1

Consider the AD/AS macro model.An important asymmetry in the behaviour of the AS curve is that

Accepted Answer

The AS curve's behaviour is asymmetric because it responds differently to positive and negative output gaps. Negative output gaps may persist for a while without leading to significant decreases in wages and prices, whereas positive output gaps lead more quickly to increases in wages and prices. This means that the economy may experience longer periods of low inflation without causing significant changes in wages and prices, while the opposite is true for periods of high inflation.

Question 2

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.  TABLE 24-1 Refer to Table 24-1.Which of the following statements best describes the situation facing Economy B?

Accepted Answer

Potential output for Economy B is $340 billion. However, the actual GDP is $320 billion. Therefore, there is a recessionary gap of $20 billion. The slow falling of wages indicates that the labor market is adjusting to the recessionary gap.

Question 3

Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a ________ in the price level and ________ in national output.

Accepted Answer

A steep AS curve means that there is limited spare capacity in the economy, so any increase in demand (shift to the right in AD) will lead to a large increase in the price level. However, the increase in output will be relatively small due to the limited spare capacity. Therefore, the correct answer is C) large increase in the price level and a small increase in national output.

Question 4

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.  TABLE 24-1 Refer to Table 24-1.Which of the following statements explains why wages are rising in Economy E?

Accepted Answer

In Economy E, there is an inflationary gap as the actual GDP is above the potential output. This generates excess demand for labour, which causes wages to rise. This is because firms need to attract workers to produce more output, and thus they are willing to pay higher wages to do so.

Question 5

Consider an AD/AS model in long-run equilibrium.An output gap,caused by a leftward shift of the AD curve,will be eliminated if

Accepted Answer

In long-run equilibrium, the economy is operating at the natural level of output, where the AD and AS intersect at the potential GDP. If there is a leftward shift of the AD curve, causing an output gap, the economy is producing below the potential GDP. To eliminate the output gap and return to the natural level of output, factor prices (including wages) need to adjust downwards to lower the input costs for firms. This will shift the AS curve to the right, increasing output and reducing prices until the economy returns to potential GDP. Alternatively, prices could rise quickly, but that wouldn't eliminate the output gap, as prices would be rising while output remains below potential. Real national income decreasing wouldn't help either as it would deepen the output gap.

Question 6

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level increases.We can conclude that ________ has increased and there is now a(n)________ gap.

Accepted Answer

A decrease in unemployment rate and an increase in price level suggest an increase in aggregate demand, which has put pressure on prices and led to inflation. The economy is no longer in a long-run macroeconomic equilibrium, and the output gap is now positive, indicating an inflationary gap. Option A is incorrect because an increase in aggregate supply would lead to a decrease in the price level and an increase in output. Option C is incorrect because a decrease in aggregate supply would lead to both an increase in price level and decrease in output. Option B is also incorrect because a decrease in aggregate demand would lead to a decrease in real output and an increase in unemployment, resulting in a recessionary gap.

Question 7

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.  TABLE 24-1 Refer to Table 24-1.How is the adjustment asymmetry demonstrated when comparing Economy A to Economy E?

Accepted Answer

The adjustment asymmetry is demonstrated when comparing Economy A to Economy E because the size of the output gap is the same in both economies, but wages are falling more slowly in A than they are rising in E. This suggests that adjustment is asymmetric, with adjustments toward potential output taking longer in A than in E.

Question 8

An adjustment "asymmetry" in aggregate supply is

Accepted Answer

An adjustment asymmetry in aggregate supply refers to the difference in speed of a rightward shift versus a leftward shift when wages adjust to output gaps. Specifically, it is the idea that when there is an increase in demand for goods and services, wages and prices may not adjust as quickly as when there is a decrease in demand. This leads to a slower adjustment and a temporary decrease in output levels. This asymmetry is reflected in the AS curve, which tends to be steeper in the short run, reflecting a slower adjustment to changes in demand.

Question 9

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.  TABLE 24-1 Refer to Table 24-1.In which economy is there the most unused capacity?

Accepted Answer

The answer of The table below shows data for five...

Question 10

An economy may not quickly and automatically eliminate a recessionary output gap because wages

Accepted Answer

Wages tend to be sticky downward, meaning they do not adjust quickly in response to changes in the demand for labour. This can make it difficult for the economy to quickly eliminate a recessionary output gap. As a result, unemployment may remain high and output may remain below potential for an extended period of time.

Question 11

Consider the AD/AS macro model.A permanent demand shock that causes equilibrium output to rise above potential output will

Accepted Answer

In the long run, the economy will adjust through the self-correcting mechanisms of the AD/AS model such as changes in wages, prices, and interest rates, resulting in a return to potential output and a negation of the demand shock. Therefore, the economy will not experience an endless cycle of price rises and increases in unemployment, nor will it always reverse itself or result in a lower price level than before the shock. The AD/AS model assumes a flexible price level, which allows for these adjustments to occur in the long run.

Question 12

Consider the AD/AS macro model.Why do we say that the wage-adjustment process is asymmetrical?

Accepted Answer

The wage-adjustment process is asymmetrical because wages rise quickly in a boom but fall slowly during a slump. This is because employers are reluctant to reduce wages during a slump, as it may reduce worker morale and productivity, and instead choose to lay off workers. On the other hand, during a boom, employers may be more willing to raise wages to attract and retain workers.

Question 13

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level increases.We can conclude that ________ has decreased and there is now a(n)________ gap.

Accepted Answer

The answer of Suppose the economy is initially in a...

Question 14

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases.We can conclude that ________ has increased and there is now a(n)________ gap.

Accepted Answer

Aggregate supply has increased, leading to a decrease in the price level and an increase in employment. This indicates an inflationary gap.

Question 15

Suppose the following conditions are present in the economy: - firms are facing lower-than normal sales and have reduced output
-there is an excess supply of labour and firms are starting to reduce their workforces
Which of the following statements describes the adjustment that will happen in the AD/AS macro model?

Accepted Answer

The answer of Suppose the following conditions are present in...

Question 16

Consider the AD/AS macro model.An important asymmetry in the behaviour of aggregate supply is the

Accepted Answer

The asymmetry in aggregate supply refers to the fact that factor prices may adjust at different speeds in response to positive and negative output gaps. For example, in a recession, firms may be slow to reduce wages and prices, while in an inflationary period, they may be quicker to increase prices. This leads to different shapes for the short-run aggregate supply curve depending on whether the output gap is positive or negative. Therefore, option E is the best choice as it specifically addresses this asymmetry.

Question 17

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level decreases.We can conclude that ________ has decreased and there is now a(n)________ gap.

Accepted Answer

When the unemployment rate increases and the price level decreases, it indicates that aggregate demand has decreased, leading to a recessionary gap. This is because a decrease in aggregate demand results in lower overall spending, which reduces production and increases unemployment, while also putting downward pressure on prices.

Question 18

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion.  TABLE 24-1 Refer to Table 24-1.Consider Economy E.Which of the following best describes the positions of the aggregate demand and aggregate supply curves in this economy?

Accepted Answer

The answer of The table below shows data for five...

Question 19

Suppose the following conditions are present in the economy: - firms are increasing output to meet rising demand for their goods
- workers are able to demand higher wages as firms try to bid workers away from other firms
Which of the following statements describes the adjustment that will happen in the AD/AS macro model?

Accepted Answer

The answer of Suppose the following conditions are present in...

Question 20

"The level of potential output,Y*,acts like an anchor for the level of real GDP." Which of the following best explains this statement?

Accepted Answer

The statement suggests that following an AD or AS shock, there is a tendency for real GDP to revert back to the level of potential output (Y*). This is because the adjustment of factor prices, such as wages and interest rates, helps to bring the economy back to its potential output level. Option A best explains this concept.

Quiz 24: From the Short Run to the Long Run: the Adjustment of Factor Prices

Consider the AD/AS macro model.An important asymmetry in the behaviour of the AS curve is that

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion. TABLE 24-1 Refer to Table 24-1.Which of the following statements best describes the situation facing Economy B?

Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a in the price level and in national output.

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion. TABLE 24-1 Refer to Table 24-1.Which of the following statements explains why wages are rising in Economy E?

Consider an AD/AS model in long-run equilibrium.An output gap,caused by a leftward shift of the AD curve,will be eliminated if

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level increases.We can conclude that has increased and there is now a(n) gap.

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion. TABLE 24-1 Refer to Table 24-1.How is the adjustment asymmetry demonstrated when comparing Economy A to Economy E?

An adjustment "asymmetry" in aggregate supply is

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion. TABLE 24-1 Refer to Table 24-1.In which economy is there the most unused capacity?

An economy may not quickly and automatically eliminate a recessionary output gap because wages

Consider the AD/AS macro model.A permanent demand shock that causes equilibrium output to rise above potential output will

Consider the AD/AS macro model.Why do we say that the wage-adjustment process is asymmetrical?

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level increases.We can conclude that has decreased and there is now a(n) gap.

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases.We can conclude that has increased and there is now a(n) gap.

Consider the AD/AS macro model.An important asymmetry in the behaviour of aggregate supply is the

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level decreases.We can conclude that has decreased and there is now a(n) gap.

"The level of potential output,Y*,acts like an anchor for the level of real GDP." Which of the following best explains this statement?

Quiz 24: From the Short Run to the Long Run: the Adjustment of Factor Prices

Consider the AD/AS macro model.An important asymmetry in the behaviour of the AS curve is that

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion. TABLE 24-1 Refer to Table 24-1.Which of the following statements best describes the situation facing Economy B?

Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a ________ in the price level and ________ in national output.

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion. TABLE 24-1 Refer to Table 24-1.Which of the following statements explains why wages are rising in Economy E?

Consider an AD/AS model in long-run equilibrium.An output gap,caused by a leftward shift of the AD curve,will be eliminated if

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level increases.We can conclude that ________ has increased and there is now a(n) ________ gap.

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion. TABLE 24-1 Refer to Table 24-1.How is the adjustment asymmetry demonstrated when comparing Economy A to Economy E?

An adjustment "asymmetry" in aggregate supply is

The table below shows data for five economies of similar size.Real GDP is measured in billions of dollars.Assume that potential output for each economy is $340 billion. TABLE 24-1 Refer to Table 24-1.In which economy is there the most unused capacity?

An economy may not quickly and automatically eliminate a recessionary output gap because wages

Consider the AD/AS macro model.A permanent demand shock that causes equilibrium output to rise above potential output will

Consider the AD/AS macro model.Why do we say that the wage-adjustment process is asymmetrical?

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level increases.We can conclude that ________ has decreased and there is now a(n) ________ gap.

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases.We can conclude that ________ has increased and there is now a(n) ________ gap.

Consider the AD/AS macro model.An important asymmetry in the behaviour of aggregate supply is the

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level decreases.We can conclude that ________ has decreased and there is now a(n) ________ gap.

"The level of potential output,Y*,acts like an anchor for the level of real GDP." Which of the following best explains this statement?

Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a in the price level and in national output.

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level increases.We can conclude that has increased and there is now a(n) gap.

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level increases.We can conclude that has decreased and there is now a(n) gap.

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate decreases and the price level decreases.We can conclude that has increased and there is now a(n) gap.

Suppose the economy is initially in a long-run macroeconomic equilibrium.A shock then hits the economy and we observe that the unemployment rate increases and the price level decreases.We can conclude that has decreased and there is now a(n) gap.