Question 1

When the actual GDP equals the full-employment level of GDP, the

Accepted Answer

When the actual GDP equals the full-employment level of GDP, it implies that the economy is producing at its potential, which is also the long-run equilibrium level of output. At this point, the aggregate demand equals the aggregate supply and there is no upward or downward pressure on the price level. Therefore, the expected inflation would be stable at its long-run rate. The aggregate supply curve is constrained by the scarcity of resources, as producing beyond the full-employment level would require more inputs than are available.

Question 2

Which of the following is necessarily true when an economy is in long-run equilibrium?

Accepted Answer

In long-run equilibrium, the economy will have adjusted to its potential output level, which is the maximum sustainable output level given the available resources and technology. At this level, there is no cyclical unemployment, meaning the actual rate of unemployment equals the natural rate of unemployment, which represents the frictional and structural unemployment in the economy. This also means that there is no need for inflationary or deflationary policy measures, as prices have adjusted to the long-run equilibrium level. Therefore, choices A, B, and D are incorrect.

Question 3

An unanticipated increase in the level of prices in the goods and services market, which results in a temporary reduction in real wage rates, will

Accepted Answer

The answer of An unanticipated increase in the level of...

Question 4

When the actual rate of unemployment is less than the natural rate of unemployment, the economy

Accepted Answer

When the actual rate of unemployment is less than the natural rate of unemployment, it means that the economy is operating at a level of unemployment below its long-run potential. As a result, the economy is operating at an output greater than its long-run potential, which could lead to an increase in inflation and other economic problems in the long run.

Question 5

From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent. When inflation is constant for an extended period, which of the following is most likely?

Accepted Answer

When inflation is constant for an extended period, people tend to correctly anticipate the actual inflation rate, and the Phillips Curve relationship between inflation and unemployment holds true. This leads to the actual rate of unemployment approaching the natural rate of unemployment. Therefore, choice A is the correct answer.

Question 6

The actual rate of unemployment will be greater than the natural rate of unemployment when

Accepted Answer

The natural rate of unemployment is the rate that exists when the economy is producing at its potential output level. If the actual output is less than the economy's potential output, this indicates a recession and will typically lead to higher unemployment than the natural rate due to a decrease in demand for labor. Therefore, the actual rate of unemployment will be greater than the natural rate of unemployment when the actual output is less than the economy's potential output.

Question 7

An unanticipated reduction in the level of prices in the goods and services market, which results in a temporary increase in real wage rates, will

Accepted Answer

The answer of An unanticipated reduction in the level of...

Question 8

Other things constant, a decrease in aggregate demand will lead to

Accepted Answer

The answer of Other things constant, a decrease in aggregate...

Question 9

Other things constant, a decrease in aggregate demand will

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The answer of Other things constant, a decrease in aggregate...

Question 10

Which of the following will most likely cause a decrease in short-run aggregate supply in the goods and services market?

Accepted Answer

An increase in resource prices will most likely cause a decrease in short-run aggregate supply as it will increase the cost of production for firms, leading to a decrease in their willingness and ability to supply goods and services. A) is incorrect as an increase in the productivity of labor will most likely increase short-run aggregate supply. B) is incorrect as a reduction in the price of crude oil will most likely increase short-run aggregate supply as it will reduce production costs for firms. D) is incorrect as favorable weather conditions in agricultural areas will most likely increase short-run aggregate supply as it will increase agricultural output.

Question 11

An unexpected sharp reduction in inflation will most likely result in

Accepted Answer

An unexpected sharp reduction in inflation is likely to cause a decline in real output as firms will experience a drop in revenue due to lower prices. As a result, firms may cut back production leading to temporary unemployment until equilibrium is restored. This is supported by the Phillips curve which suggests a tradeoff between inflation and unemployment in the short run. However, in the long run, the natural rate of unemployment is not affected by changes in inflation.

Question 12

Which of the following will always be true when an economy is in long-run equilibrium?

Accepted Answer

Long-run equilibrium is defined as a period of time when an economy is operating at its potential output and the unemployment rate is at its natural rate. In this situation, the output of the economy will correspond with the full-employment output, which means that all available resources are being used efficiently, and the economy is producing the maximum sustainable output. A and B are incorrect options because in the long-run, prices can increase or decrease, and actual output will not exceed the potential output. C is incorrect because the actual rate of unemployment will be equal to the natural rate in the long-run equilibrium.

Question 13

Other things constant, an increase in resource prices will

Accepted Answer

An increase in resource prices will increase the cost of producing goods and services, which will lead to a higher price level. As a result, firms will have to charge higher prices to maintain their profit margins, which leads to inflation.

Question 14

Within the framework of the AD/AS model, when the current price level in the goods and services market is above the level anticipated at the time decision makers agreed to long-term resource contracts,

Accepted Answer

The answer of Within the framework of the AD/AS model,...

Question 15

When an economy is in long run equilibrium,

Accepted Answer

Long run equilibrium is defined as the state where all markets in the economy are in balance, and there is no excess supply or demand. This means that the economy is producing at its potential output level, and the actual unemployment rate is equal to the natural rate of unemployment, which is the rate at which the labor market is in equilibrium. Therefore, (D) is the correct answer. The other options are not necessarily true in a long run equilibrium.

Question 16

When prices in the goods and services market are below the level anticipated,

Accepted Answer

When prices in the goods and services market are below the level anticipated, it means that demand for goods and services is lower than expected. This will lead to a decrease in output as firms will produce less to match the lower demand. As a result, output will temporarily fall short of the economy's long-run potential.

Question 17

Other things constant, a decrease in resource prices will lead to

Accepted Answer

A decrease in resource prices leads to lower production costs for firms, which results in increased profits. As a result, firms are likely to increase production, leading to an increase in short-run aggregate supply.

Question 18

The resource market involves transactions dealing with

Accepted Answer

The resource market involves transactions dealing with labor services, natural resources, and physical capital, such as machinery and equipment. Natural resources refer to materials such as oil, minerals, and land, while labor services refer to the skills and efforts of workers. Physical capital includes tools, machinery, and equipment used in production. The resource market does not involve financial services or the buying and selling of final goods and services.

Question 19

Which of the following will most likely result from an unexpected increase in prices that decreases real wages and resource prices?

Accepted Answer

The answer of Which of the following will most likely...

Question 20

When an economy operates at its long-run potential output level,

Accepted Answer

When an economy operates at its long-run potential output level, the natural and actual rates of unemployment will be equal. This means that there is no cyclical unemployment, only frictional and structural unemployment, which are the types of unemployment that make up the natural rate of unemployment.

Quiz 9: A : an Introduction to Basic Macroeconomic Markets