Question 1

Suppose Venezuela experiences economic expansion in 2013, yet its unemployment rate is 15 percent, and economists have estimated that the natural rate of unemployment in Venezuela is also approximately 15 percent. All else equal, if this is the case, what will tend to happen in the Venezuelan economy over time?
A) Wages and prices will fall.
B) Wages and prices will rise.
C) Wages will rise and prices will fall.
D) Wages and prices will remain close to their current levels.

Accepted Answer

If Venezuela is experiencing economic expansion with an unemployment rate equal to its natural rate, it suggests that the output gap is zero, meaning that there is neither inflationary nor deflationary pressure on the economy. Therefore, wages and prices are likely to remain close to their current levels over time.

Question 2

-Refer to Figure 15.2. The economy is at full employment and the unemployment rate is at the natural rate at point
A) a.
B) b.
C) c.
D) d.

Accepted Answer

The answer of 
-Refer to Figure 15.2. The economy is...

Question 3

-Refer to Figure 15.2. Output is likely to rise and prices are likely to fall if the economy is at point
A) a.
B) b.
C) c.
D) d.

Accepted Answer

Point a is likely on the left of the long-run aggregate supply curve, indicating that the economy is below full employment output, leading to an increase in output and a decrease in prices as the economy moves towards equilibrium.

Question 4

-Refer to Figure 15.2. Adjustment from a short-run equilibrium to the long-run equilibrium is represented by a movement from point ________ to point ________.
A) b; e
B) c; b
C) b; c
D) c; d

Accepted Answer

The answer of 
-Refer to Figure 15.2. Adjustment from a...

Question 5

-Refer to Figure 15.2. An increase in wages is represented by a movement from point ________ to point ________.
A) c; d
B) c; b
C) a; b
D) e; a

Accepted Answer

An increase in wages typically shifts the labor supply curve to the left or upwards, indicating that at each wage level, workers are willing to supply less labor (or demand higher wages for the same amount of labor). This is represented by a movement from a lower point on a given labor supply curve to a higher point on the same curve, such as moving from point c to point b, assuming the typical upward slope of the labor supply curve in response to higher wages.

Question 6

Suppose Venezuela experiences economic expansion in 2013, yet its unemployment rate is 15 percent, and economists have estimated that the natural rate of unemployment in Venezuela is also approximately 15 percent.. If this is the case, then for the Venezuelan economy in 2013,
A) actual output is significantly above potential output.
B) potential output is significantly above actual output.
C) actual output is roughly equal to potential output.
D) None of the above are correct because there is no relationship between actual output and potential output in the short run.

Accepted Answer

If the natural rate of unemployment in Venezuela is approximately 15 percent, then the economy is likely operating at its potential output level, given that there are no significant supply-side constraints on the economy. Therefore, if the economy experiences an economic expansion, actual output will increase but would likely still be roughly equal to potential output since the unemployment rate remains at 15 percent.

Question 7

Consider an aggregate demand / aggregate supply diagram. The intersection of the relatively flat, upward-sloping aggregate supply curve and the aggregate demand curve determines the
A) short-run levels of prices and output.
B) short-run and long-run levels of prices and output.
C) long-run levels of prices and output.
D) short-run level of prices and the long-run level of output.

Accepted Answer

The intersection of the relatively flat, upward-sloping aggregate supply curve and the aggregate demand curve determines the short-run levels of prices and output. In the short run, the economy can produce more output by increasing the utilization of existing resources, resulting in a relatively flat aggregate supply curve. However, in the long run, the economy reaches its full potential output, and the aggregate supply curve becomes steeper. Therefore, the intersection of the aggregate demand and a steep aggregate supply curve determines the long-run levels of prices and output.

Question 8

-Refer to Figure 15.2. The unemployment rate is below the natural rate at point
A) a.
B) b.
C) c.
D) d.

Accepted Answer

The answer of 
-Refer to Figure 15.2. The unemployment rate...

Question 9

-Refer to Figure 15.2. Adjustment from a short-run equilibrium to the long-run equilibrium is represented by a movement from point ________ to point ________.
A) a; e
B) a; c
C) e; b
D) a; b

Accepted Answer

In the context of economic models, moving from a short-run equilibrium to a long-run equilibrium typically involves adjustments that restore full employment or potential output. Point 'a' represents the short-run equilibrium, and point 'b' represents the long-run equilibrium where the economy is at full employment.

Question 10

If the unemployment rate is below the natural rate, then we expect to see
A) falling wages, causing the short-run aggregate supply curve to shift up.
B) falling wages, causing the short-run aggregate supply curve to shift down.
C) increasing wages, causing the short-run aggregate supply curve to shift up.
D) increasing wages, causing the short-run aggregate supply curve to shift down.

Accepted Answer

When the unemployment rate is below the natural rate, it means that the labor market is tight with a shortage of workers. This leads to increasing wages as firms compete with each other to lure employees. Increased wages lead to higher production costs for firms, causing the short-run aggregate supply curve to shift up.

Question 11

-Refer to Figure 15.2. The unemployment rate is above the natural rate at point
A) a.
B) b.
C) c.
D) d.

Accepted Answer

The unemployment rate is above the natural rate when the economy is in a recession, which is represented by point a.

Question 12

-Refer to Figure 15.2. Output is likely to fall and prices are likely to rise if the economy is at point
A) a.
B) b.
C) c.
D) d.

Accepted Answer

At point c, the economy is operating at full capacity or beyond, which typically leads to inflationary pressures as demand outstrips supply, causing prices to rise. If efforts are made to reduce inflation, such as increasing interest rates or decreasing government spending, output is likely to fall.

Question 13

-Refer to Figure 15.2. A movement from point c to point b would be the result of the
A) unemployment rate being higher than the natural rate, causing wages to rise.
B) unemployment rate being higher than the natural rate, causing wages to fall.
C) natural rate being higher than the unemployment rate, causing wages to rise.
D) natural rate being higher than the unemployment rate, causing wages to fall.

Accepted Answer

The answer of 
-Refer to Figure 15.2. A movement from...

Question 14

-Refer to Figure 15.2. A movement from point a to point b would be the result of the
A) unemployment rate exceeding the natural rate, causing wages to rise.
B) unemployment rate exceeding the natural rate, causing wages to fall.
C) natural rate exceeding the unemployment rate, causing wages to rise.
D) natural rate exceeding the unemployment rate, causing wages to fall.

Accepted Answer

A movement from point a to point b suggests a decrease in wages, which occurs when the unemployment rate exceeds the natural rate, leading to downward pressure on wages.

Question 15

Suppose Venezuela experiences economic expansion in 2013, yet its unemployment rate is 15 percent. All else equal, if this unemployment rate is above the natural rate of unemployment, what will tend to happen over time?
A) Wages and prices will fall.
B) Wages and prices will rise.
C) Wages will rise and prices will fall.
D) Wages will fall and prices will rise.

Accepted Answer

The answer of Suppose Venezuela experiences economic expansion in 2013,...

Question 16

If GDP is above potential output, then we expect to see
A) increasing wages, causing the short-run aggregate supply curve to shift up.
B) increasing wages, causing the short-run aggregate supply curve to shift down.
C) falling wages, causing the short-run aggregate supply curve to shift up.
D) falling wages, causing the short-run aggregate supply curve to shift down.

Accepted Answer

When GDP is above potential output, it indicates an overheated economy where demand for labor is high, leading to increasing wages. This increase in production costs causes the short-run aggregate supply curve to shift up (left), as it becomes more expensive for firms to produce at every price level.

Question 17

-Refer to Figure 15.2. A decrease in wages is represented by a movement from point ________ to point ________.
A) d; c
B) c; b
C) a; b
D) a; e

Accepted Answer

A decrease in wages would typically cause a movement along the demand curve for labor from a point with a higher wage to a point with a lower wage, reflecting a decrease in the cost of labor and potentially an increase in the quantity of labor demanded.

Question 18

If GDP is ________ potential output, adjustment to the long-run equilibrium requires that output rises and prices ________.
A) above; rise
B) above; fall
C) below; rise
D) below; fall

Accepted Answer

The answer of If GDP is ________ potential output, adjustment...

Question 19

Suppose Venezuela experiences economic growth in 2013, yet its unemployment rate is 15 percent, which is above the South American average. This indicates that Venezuela's 2013 output is
A) below potential output.
B) above potential output.
C) above actual output.
D) below actual output.

Accepted Answer

The unemployment rate being above the South American average suggests that there is still unused labor in the economy, indicating that actual output is below potential output. Therefore, even if there is economic growth, it is not at its full potential.

Question 20

If GDP is ________ potential output, adjustment to the long-run equilibrium requires that output falls and prices ________.
A) above; rise
B) above; fall
C) below; rise
D) below; fall

Accepted Answer

When GDP is above potential output, it indicates an overheated economy. To adjust to long-run equilibrium, output must decrease, and prices typically rise due to inflationary pressures.

Quiz 15: Modern Macroeconomics: From the Short Run to the Long Run

-Refer to Figure 15.2. The economy is at full employment and the unemployment rate is at the natural rate at point

-Refer to Figure 15.2. Output is likely to rise and prices are likely to fall if the economy is at point

-Refer to Figure 15.2. Adjustment from a short-run equilibrium to the long-run equilibrium is represented by a movement from point to point .

-Refer to Figure 15.2. An increase in wages is represented by a movement from point to point .

Suppose Venezuela experiences economic expansion in 2013, yet its unemployment rate is 15 percent, and economists have estimated that the natural rate of unemployment in Venezuela is also approximately 15 percent.. If this is the case, then for the Venezuelan economy in 2013,

Consider an aggregate demand / aggregate supply diagram. The intersection of the relatively flat, upward-sloping aggregate supply curve and the aggregate demand curve determines the

-Refer to Figure 15.2. The unemployment rate is below the natural rate at point

-Refer to Figure 15.2. Adjustment from a short-run equilibrium to the long-run equilibrium is represented by a movement from point to point .

If the unemployment rate is below the natural rate, then we expect to see

-Refer to Figure 15.2. The unemployment rate is above the natural rate at point

-Refer to Figure 15.2. Output is likely to fall and prices are likely to rise if the economy is at point

-Refer to Figure 15.2. A movement from point c to point b would be the result of the

-Refer to Figure 15.2. A movement from point a to point b would be the result of the

Suppose Venezuela experiences economic expansion in 2013, yet its unemployment rate is 15 percent. All else equal, if this unemployment rate is above the natural rate of unemployment, what will tend to happen over time?

If GDP is above potential output, then we expect to see

-Refer to Figure 15.2. A decrease in wages is represented by a movement from point to point .

If GDP is potential output, adjustment to the long-run equilibrium requires that output rises and prices .

Suppose Venezuela experiences economic growth in 2013, yet its unemployment rate is 15 percent, which is above the South American average. This indicates that Venezuela's 2013 output is

If GDP is potential output, adjustment to the long-run equilibrium requires that output falls and prices .