Question 1

If an economy's institutional production possibilities frontier (institutional PPF)shifts rightward,the economy's

Accepted Answer

The answer of If an economy's institutional production possibilities frontier...

Question 2

If the economy is self-regulating and in a recessionary gap,what happens?

Accepted Answer

In a self-regulating economy experiencing a recessionary gap, wages tend to fall due to the surplus of labor. This decrease in wages reduces production costs, causing the short-run aggregate supply (SRAS) curve to shift rightward. As a result, the price level falls, and Real GDP increases as the economy moves back towards its long-run equilibrium.

Question 3

Which of the following is not consistent with a self-regulating economy?

Accepted Answer

All of the options are consistent with a self-regulating economy. In a self-regulating economy, the market forces of supply and demand determine prices and wages. In times of surplus, such as excess labor, wages will fall as workers compete for fewer jobs. Conversely, in times of shortage, such as an abundance of job openings, wages will rise as companies compete for the best workers. This flexibility helps keep the economy stable and self-regulating.

Question 4

A necessary condition for a money economy to be self-regulating is that

Accepted Answer

Interest rates must be flexible in the credit market to allow for the self-regulation of a money economy, as this flexibility helps balance savings and investments, influencing overall economic activity.

Question 5

A necessary condition for the economy to be self-regulating is that

Accepted Answer

Flexible wages in both an upward and downward direction allow for the labor market to adjust to changes in supply and demand. This allows the economy to self-regulate by naturally correcting imbalances without the need for external intervention.

Question 6

If the economy is self-regulating and current Real GDP is less than Natural Real GDP,the economy is operating __________ the natural unemployment rate and wages will __________.

Accepted Answer

The answer of If the economy is self-regulating and current...

Question 7

Exhibit 9-5 
-The frictional unemployment rate is 2.5 percent,the structural unemployment rate is 3.1 percent,and the economy's current unemployment rate is 5.6 percent.The economy is in

Accepted Answer

The answer of Exhibit 9-5 
-The frictional unemployment rate is...

Question 8

If the economy is self-regulating and in a recessionary gap,

Accepted Answer

A recessionary gap is a situation where actual output is below potential output, causing unemployment and underutilization of resources. In a self-regulating economy, the market forces of supply and demand will eventually lead to a reduction in wages and prices, which will increase aggregate demand and close the recessionary gap. Therefore, choice A is the best answer.

Question 9

If the economy is in long-run equilibrium,

Accepted Answer

In long-run equilibrium, there is no tendency for prices or wages to change because the economy is producing at its potential level of output, known as Natural Real GDP. Therefore, neither prices nor wages will change (choice B) and the economy is producing at its potential level (choice C).

Question 10

If the economy is self-regulating and in an inflationary gap,

Accepted Answer

In an inflationary gap, demand exceeds supply, leading to upward pressure on both wages and prices as employers compete for workers and consumers compete for goods.

Question 11

If the economy is operating at a point beyond its institutional production possibilities frontier (institutional PPF),then the economy is

Accepted Answer

The answer of If the economy is operating at a...

Question 12

Exhibit 9-5 
-The structural unemployment rate is 2.3 percent,the frictional unemployment rate is 2.4 percent,and the economy's current unemployment rate is 4.1 percent.The economy is in

Accepted Answer

The answer of Exhibit 9-5 
-The structural unemployment rate is...

Question 13

If the economy is self-regulating and current Real GDP is greater than Natural Real GDP,the economy is operating __________ the natural unemployment rate and wages will soon __________.

Accepted Answer

The answer of If the economy is self-regulating and current...

Question 14

Suppose the natural unemployment rate is 5 percent.Which of the following observations is consistent with an economy that is self-regulating?

Accepted Answer

The natural unemployment rate represents the rate of unemployment that exists when the labor market is in equilibrium, meaning there is neither a shortage nor a surplus of labor. If the unemployment rate in the economy is always above or below 5 percent, it would suggest that the market is not self-regulating. Option D is incorrect because it suggests that wages start to rise in response to high unemployment, which is inconsistent with the assumption that the economy is self-regulating at the natural unemployment rate. Option E is incorrect because it suggests that wages start to fall when unemployment is low, which would also be inconsistent with the natural rate assumption. Option C is the correct choice because it recognizes that there is a tendency for the economy to move toward the natural rate of unemployment when it is not already there.

Question 15

Which of the following statements is true?

Accepted Answer

Option A is incorrect because if current Real GDP is greater than Natural Real GDP, it means that the economy is producing above its potential, which indicates an inflationary gap, not a recessionary gap.
Option B is incorrect because in long-run equilibrium, current Real GDP is equal to Natural Real GDP, not less than it.
Option D is incorrect because in long-run equilibrium, both wages and prices are flexible and adjust to changes in demand and supply, leading to a constant price level.
Option E is incorrect because not all economists believe the economy is self-regulating. Some believe in government intervention to stabilize the economy. 
Option C is correct because if wages are flexible, they will adjust to changes in demand and supply, leading to automatic stabilization of the economy without government intervention.

Question 16

Which of the following statements is false?

Accepted Answer

The statement "The economy is operating at full employment if it is producing more than Natural Real GDP" is false. Full employment occurs when the economy is producing at the natural Real GDP level, which corresponds with the natural unemployment rate. If the economy produces more than the natural Real GDP, it indicates that it is operating beyond its productive capacity and will lead to inflationary pressures.

Question 17

Exhibit 9-5 
-The structural unemployment rate is 1.3 percent,the frictional unemployment rate is 2.1 percent,and the economy's current unemployment rate is 4.9 percent.The economy is in

Accepted Answer

The natural rate of unemployment is the sum of structural and frictional unemployment, which is 3.4% (1.3% + 2.1%). Since the current unemployment rate is 4.9%, which is higher than the natural rate, the economy is producing less than its potential output, indicating a recessionary gap.

Question 18

If the economy is self-regulating,then it follows that

Accepted Answer

If the economy is self-regulating, it means that it has built-in mechanisms to correct any imbalances that may occur. In the case of recessionary and inflationary gaps, the self-regulating mechanism would lead to temporary states as the market corrects itself over time. As a result, wages would be expected to fall in a recessionary gap and rise in an inflationary gap. Therefore, options A, B, and C are all true if the economy is self-regulating.

Question 19

Exhibit 9-5 
-If the economy is producing Natural Real GDP,then the

Accepted Answer

When the economy is producing at its Natural Real GDP, it is considered to be at full employment, which means the current unemployment rate equals the natural unemployment rate. This does not imply a 0% unemployment rate but rather the existence of frictional and structural unemployment without cyclical unemployment.

Question 20

Exhibit 9-5 
-Some economists believe the economy is self-regulating.What does this mean?

Accepted Answer

Economists who believe in the self-regulating nature of the economy argue that market forces will automatically adjust to eliminate inflationary or recessionary gaps, leading to production at the Natural Real GDP level. Therefore, the best choice is A, which states this definition. Choices B, C, D, and E are incorrect because they do not accurately describe the concept of self-regulation in the economy.

Quiz 9: Classical Macroeconomics and the Self-Regulating Economy

If an economy's institutional production possibilities frontier (institutional PPF) shifts rightward,the economy's

If the economy is self-regulating and in a recessionary gap,what happens?

Which of the following is not consistent with a self-regulating economy?

A necessary condition for a money economy to be self-regulating is that

A necessary condition for the economy to be self-regulating is that

If the economy is self-regulating and current Real GDP is less than Natural Real GDP,the economy is operating the natural unemployment rate and wages will .

Exhibit 9-5 -The frictional unemployment rate is 2.5 percent,the structural unemployment rate is 3.1 percent,and the economy's current unemployment rate is 5.6 percent.The economy is in

If the economy is self-regulating and in a recessionary gap,

If the economy is in long-run equilibrium,

If the economy is self-regulating and in an inflationary gap,

If the economy is operating at a point beyond its institutional production possibilities frontier (institutional PPF) ,then the economy is

Exhibit 9-5 -The structural unemployment rate is 2.3 percent,the frictional unemployment rate is 2.4 percent,and the economy's current unemployment rate is 4.1 percent.The economy is in

If the economy is self-regulating and current Real GDP is greater than Natural Real GDP,the economy is operating the natural unemployment rate and wages will soon .

Suppose the natural unemployment rate is 5 percent.Which of the following observations is consistent with an economy that is self-regulating?

Which of the following statements is true?

Which of the following statements is false?

Exhibit 9-5 -The structural unemployment rate is 1.3 percent,the frictional unemployment rate is 2.1 percent,and the economy's current unemployment rate is 4.9 percent.The economy is in

If the economy is self-regulating,then it follows that

Exhibit 9-5 -If the economy is producing Natural Real GDP,then the

Exhibit 9-5 -Some economists believe the economy is self-regulating.What does this mean?