Question 1

If the current unemployment rate is less than the natural unemployment rate,then the economy is

Accepted Answer

The answer of If the current unemployment rate is less...

Question 2

If the current Real GDP is less than Natural Real GDP,then the economy is

Accepted Answer

When the current Real GDP is less than Natural Real GDP, it indicates that the economy is not producing at its full potential, leading to a recessionary gap. This situation can also be consistent with short-run equilibrium, where the economy has adjusted to a temporary situation but is not in its long-run equilibrium state.

Question 3

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

Accepted Answer

Economists who believe in self-regulating economy argue that the economy can automatically adjust to shocks and fluctuations on its own, without the need for government intervention. This means that the economy can move from recessionary or inflationary gaps and produce at its natural rate of output (Natural Real GDP) without any external effort. This self-adjustment mechanism is known as the automatic stabilizers.

Question 4

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

Accepted Answer

The concept of a self-regulating economy suggests that market mechanisms adjust to correct imbalances, meaning recessionary and inflationary gaps are temporary. Wages are expected to fall in a recessionary gap to restore equilibrium (increasing employment) and rise in an inflationary gap to cool down the economy, aligning with options A, B, and C.

Question 5

If the economy is in long-run equilibrium,

Accepted Answer

In long-run equilibrium, the economy is producing at its Natural Real GDP, meaning it is operating at its full potential without cyclical unemployment, and neither prices nor wages are expected to change because the economy is in a state of balance.

Question 6

The frictional unemployment rate is 2.5 percent,the structural unemployment rate is 3.1 percent,and the current unemployment rate (in the economy)is 5.6.The economy is in

Accepted Answer

The answer of The frictional unemployment rate is 2.5 percent,the...

Question 7

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 8

A laissez-faire macroeconomic policy,based on a __________ in self regulating properties of the economy,implies __________ by the government.

Accepted Answer

A laissez-faire macroeconomic policy is based on the belief in self-regulating properties of the economy and therefore implies noninterference by the government.

Question 9

The structural unemployment rate is 2.3 percent,the frictional unemployment rate is 2.4 percent,and the current unemployment rate is 4.1 percent.The economy is in

Accepted Answer

The answer of The structural unemployment rate is 2.3 percent,the...

Question 10

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

Accepted Answer

According to the classical theory, the economy is self-regulating and will adjust to bring itself back to full employment without government intervention. In a recessionary gap, there is insufficient demand to employ all available resources, so wages and prices will fall as businesses reduce production and lay off workers. This reduction in wages and prices will eventually lead to an increase in aggregate demand and bring the economy back to full employment in the long run.

Question 11

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 12

Suppose AD and SRAS intersect to the left of LRAS.Which of the following is true?

Accepted Answer

If AD and SRAS intersect to the left of LRAS, there is a gap between the equilibrium level of output and the potential level of output as represented by LRAS. This means that the economy is producing below its full capacity and resources are not fully utilized. This is known as a recessionary gap.

Question 13

Suppose AD and SRAS intersect to the right of LRAS.Which of the following is true?

Accepted Answer

If AD and SRAS intersect to the right of LRAS, it means that the economy is producing above its potential output, which leads to an increase in prices and eventually inflation. This situation is known as an inflationary gap. Therefore, (B) is the correct answer. (A) would be true if AD and SRAS intersected to the left of LRAS, and (C) would be true if all three curves intersected at the same point. (D) is not a possible answer since it is possible for AD and SRAS to intersect to the right of LRAS, resulting in an inflationary gap.

Question 14

The structural unemployment rate is 1.3 percent,the frictional unemployment rate is 2.1 percent,and the current unemployment rate is 4.9 percent.The economy is in

Accepted Answer

The answer of The structural unemployment rate is 1.3 percent,the...

Question 15

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 16

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 17

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

Accepted Answer

The economy being self-regulating means that it can adjust to changes in supply and demand without government intervention. For this to happen, wages must be flexible in both an upward and downward direction, allowing labor markets to adjust to changes in supply and demand. If wages are inflexible, then the labor market cannot adjust to changes in supply and demand, leading to either a surplus or shortage of labor.

Question 18

If the current unemployment rate is equal to the natural unemployment rate,then current Real GDP is

Accepted Answer

When the current unemployment rate equals the natural unemployment rate, it implies the economy is operating at its full potential or full employment level. Therefore, the current Real GDP is equal to the Natural Real GDP and also equal to the Real GDP produced at full employment.

Question 19

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

If the natural unemployment rate is 5.5 percent,then the economy is at full employment when the actual unemployment rate is

Accepted Answer

Full employment occurs when the actual unemployment rate is equal to the natural unemployment rate, which in this case is 5.5 percent. Therefore, the correct answer is D.

Quiz 9: Classical Macroeconomics and the Self-Regulating Economy