Deck 26: Bringing in the Supply Side: Unemployment and Inflation

Question 1

Higher wages mean higher production costs and lower profits at any given selling price.

Answer 1

True

Question 2

Supply-side economics concerns itself with the interaction between demand and supply, the price level, and real GDP.

Answer 2

True

Question 3

Like the supply curve for individual goods and services, the aggregate supply curve slopes upward and to the right.

Answer 3

True

Question 4

Improvements in productivity shift the aggregate supply curve outward.

Question 5

A change in the aggregate price level moves the economy along a given aggregate supply curve.

Question 6

A higher expected price level would shift the short-run aggregate supply curve to the left, and a lower expected price level would shift the short-run aggregate supply curve to the right.

Question 7

The recessions of the 1970s are often attributed to an increase in oil prices.

Question 8

Wages are the major element of cost in the economy accounting for about 70 percent of all input costs.

Question 9

The aggregate supply curve slopes upward because as price rises, the quantity of output supplied rises.

Question 10

Stagflation is the typical result of adverse shifts in the aggregate supply curve.

Question 11

The money wage rate has little effect on the supply curve. It mainly affects the aggregate demand curve.

Question 12

The aggregate supply curve is shifted to the right (outward) by a decrease in the price of any input to the production process.

Question 13

The aggregate supply curve shows how much the nation's businesses are willing and able to produce at each price level.

Question 14

Demand-side changes explain everything about stagflation.

Question 15

An increase in the price level causes the aggregate supply curve to shift to another supply schedule.

Question 16

Productivity is the amount of output produced by a unit of input.

Question 17

Profit per unit can be expressed as price − cost per unit.

Question 18

Holding wages constant, any increase in productivity will decrease business costs, improve profitability, and encourage more production.

Question 19

The aggregate supply curve is the relationship between the price level and the quantity of real GDP purchased.

Question 20

The equilibrium price level and the equilibrium level of real GDP are jointly determined by the intersection of the economy's aggregate supply and aggregate demand schedules.

Question 21

If short-run equilibrium GDP is above potential GDP, prices will eventually rise.

Question 22

For any given growth rate of aggregate supply, a faster growth rate of aggregate demand will lead to more inflation and faster growth of real output.

Question 23

Inflationary GDP is the amount by which equilibrium real GDP falls short of the full employment level of GDP.

Question 24

Stagflation is inflation that occurs while the economy is growing slowly or having a recession.

Question 25

The economy does have a self-correcting mechanism that tends to eliminate either unemployment or inflation and tends to act slowly and unevenly.

Question 26

An inflationary gap exists when consumers and businesses are demanding more output than the economy is capable of producing at full employment.

Question 27

In our modern economy, the adjustment process necessary to eliminate a recessionary gap is very rapid.

Question 28

When equilibrium GDP is greater than potential GDP, jobs are plentiful and labor is in great demand.

Question 29

College graduates looking for jobs were less fortunate in 2010 than graduates in 2018.

Question 30

When equilibrium GDP is below potential GDP, jobs are plentiful and unemployment is low.

Question 31

If aggregate demand is $2,000 billion and aggregate supply is $2,300 billion, the price level will rise.

Question 32

Recessionary gaps are associated with output below potential and high unemployment rates.

Question 33

Recessionary gap is the amount by which the equilibrium level of real GDP exceeds potential GDP.

Question 34

A period of stagflation is part of the normal aftermath of a period of excessive aggregate demand.

Question 35

Inflation reduces the multiplier effect by reducing consumers' wealth and purchasing power.

Question 36

A recessionary gap exists when aggregate demand is above the full employment level of output.

Question 37

A vertical aggregate supply curve increases the size of the multiplier effect.

Question 38

When OPEC cut energy production in 1973, the aggregate supply curve shifted outward.

Question 39

Aggregate supply grows over time because of growing consumer and government spending.

Question 40

A decrease in the availability of an important major resource such as oil shifts aggregate supply left.

Question 41

Over time, aggregate demand and aggregate supply grow by the same amount.

Question 42

The typical results of an adverse supply shock are lower output and higher inflation.

Question 43

In the period from 1996 to 2000, the U.S. economy experienced the unusual combination of

A) high unemployment and high inflation.
B) high unemployment and low inflation.
C) low unemployment and high inflation.
D) low unemployment and low inflation.

Question 44

The combination of high unemployment and high inflation is termed

A) reflation.
B) stagflation.
C) depression.
D) unflation.

Question 45

Which of the following would cause stagflation?

A) Aggregate demand shifts left.
B) Aggregate demand shifts right.
C) Aggregate supply shifts left.
D) Aggregate supply shifts right.

Question 46

From 2005 to 2006, the U.S. economy experienced significant inflation because the aggregate demand curve shifted outward more than the aggregate supply curve shifted outward.

Question 47

Stagflation exists when prices rise and output falls.

Question 48

In the mid-1970s, the price of oil rose dramatically. This

A) shifted aggregate supply left.
B) caused the U.S. prices to fall.
C) shifted aggregate supply right.
D) All of these responses are correct..

Question 49

When the expenditure schedule is too high, the result is a(n)

A) unemployment surplus.
B) inflationary gap.
C) recessionary gap.
D) budgetary gap.

Question 50

If the data show that periods of high economic growth rate are accompanied by high inflation rates, then changes in aggregate demand are the primary source of economic fluctuations.

Question 51

Stabilization policy may be necessary to slow down the speed of the adjustment process.

Question 52

Economists generally assume that there is a short-run trade-off between

A) output and employment.
B) inflation and employment.
C) deflation and unemployment.
D) inflation and unemployment.
E) output and growth.

Question 53

Inflation can be caused either by rapid growth rate of aggregate demand or by sluggish growth of aggregate supply.

Question 54

Recessionary gap arises when

A) inventory stock falls.
B) government spending increases.
C) when the general price level increases.
D) there is less spending than desired.

Question 55

As long as the multiplier process is working, firms will meet additional demand without raising prices.

Question 56

Stagflation may follow an inflationary boom.

Question 57

If the economy experiences inflation and economic growth, this means that aggregate demand grows by more than aggregate supply.

Question 58

The existence of an inflationary gap or an recessionary gap depends on the

A) aggregate supply only.
B) expenditure schedule.
C) leakages schedule.
D) injections schedule.
E) aggregate demand and aggregate supply schedules.

Question 59

An increase in the nominal wage shifts the aggregate supply inward.

Question 60

When the expenditure schedule is too low, the result is a(n)

A) unemployment surplus.
B) inflationary gap.
C) recessionary gap.
D) budgetary gap.

Question 61

Quantity supplied of all goods and services at different price levels is known as

A) aggregate supply.
B) aggregate demand.
C) productivity.
D) All of these responses are correct.

Question 62

The aggregate supply curve normally

A) slopes downward and to the right due to higher resource prices.
B) has a horizontal slope equal to zero.
C) is very steep in the lower portion and flatter in the upper portion.
D) slopes upward to the right due to short-run fixed costs of production.

Question 63

As a result of the war in Afghanistan, the population of Afghanistan as well as their capital stock was reduced. This can be illustrated by the aggregate supply curve

A) shifting outward.
B) becoming flatter.
C) shifting inward.
D) becoming more elastic.

Question 64

Which of the following shifts short-run aggregate supply right?

A) An increase in the minimum wage
B) An increase in immigration from abroad
C) An increase in the price of oil
D) An increase in the actual price level

Question 65

The major cost of production in the economy is

A) interest expense.
B) capital costs.
C) rents.
D) profits.
E) wages.

Question 66

As the U.S. labor force grows and the nation's capital stock is augmented by investment, the

A) price level will rise.
B) aggregate supply curve shifts inward.
C) aggregate supply curve shifts outward.
D) aggregate supply curve becomes steeper.

Question 67

If profit per unit equals (price − cost per unit) and costs are temporarily fixed, then the aggregate supply curve will have

A) a basic "U" shape.
B) a negative slope.
C) a positive slope.
D) All of these responses are correct.

Question 68

The concept of aggregate supply refers to a

A) fixed number of output.
B) list of products demanded.
C) schedule of output.
D) schedule of production costs.

Question 69

If resource prices are fixed and the selling price rises, then

A) profits will decrease.
B) profits will increase.
C) profits will remain constant.
D) both profits and output will decrease.

Question 70

The slope of the aggregate supply curve increases as output increases because

A) the cost of resource use increases as potential is reached.
B) consumers are willing to pay more as output expands.
C) firms substitute capital for labor as prices increase.
D) firms substitute capital for labor as capacity is reached.

Question 71

The model of aggregate demand and aggregate supply explains the relation between

A) price and quantity of a particular good.
B) unemployment and real output.
C) wages and unemployment rate.
D) real GDP and the price level.

Question 72

The aggregate supply curve slopes

A) downward because firms can sell more at lower prices.
B) downward because firms can hire more workers at lower prices.
C) upward because firms want to hire more workers at higher wage levels.
D) upward because firms can hire workers at fixed wages for short-run periods.

Question 73

A statement issued by the president's economic advisors stating that growth can continue without price increases indicates that they believe the relevant aggregate supply curve is

A) vertical.
B) horizontal.
C) downward sloping.
D) upward sloping.

Question 74

The aggregate supply curve is

A) generally flatter as the level of resource use rises.
B) never vertical, even at full employment.
C) relatively flat at low levels of output.
D) relatively steep at low levels of output.

Question 75

The slope of the aggregate supply curve is

A) perfectly vertical.
B) perfectly horizontal.
C) upward.
D) downward.

Question 76

A decrease in the price of resources will cause the aggregate supply curve to

A) shift outward.
B) shift inward.
C) become flatter.
D) become steeper.

Question 77

A decrease in the nominal wage will cause the aggregate supply curve to

A) shift outward. .
B) shift inward.
C) become flatter
D) become steeper. .

Question 78

To calculate a firm's per unit of output profit, it is necessary to subtract

A) price from cost per unit.
B) price from resource costs.
C) cost per unit from product price.
D) cost per unit from cost of resources.

Question 79

For most firms in the economy, the largest part of factor costs is the cost of

A) labor.
B) capital.
C) property and machinery.
D) land and natural resources.

Question 80

A company succumbs to a wage increase demand without any changes in the productivity of labor, price of the product, and the total output sold. Which of the following would happen?

A) Total revenue of the company will fall.
B) Investment by the company will increase.
C) Profit per unit of the product will fall.
D) Average profit per unit will increase.