Question 1

If the expected price level exceeds the actual price level, then
A)potential output falls
B)real GDP may fall below potential output
C)potential output increases
D)nominal wages increase
E)the inflation rate accelerates

Accepted Answer

The answer of If the expected price level exceeds the...

Question 2

Suppose that the actual and expected price levels are initially equal, and that the expected price level rises. Which of the following will occur over the long run? (Hint: Recall the actual price level is on the vertical axis.)
A)The economy will move rightward along the short-run aggregate supply curve.
B)The economy will move leftward along the short-run aggregate supply curve.
C)The short-run aggregate supply curve will shift to the right.
D)The short-run aggregate supply curve will shift to the left.
E)The short-run aggregate supply curve will become flatter.

Accepted Answer

If the expected price level rises, firms will initially increase output to meet the higher demand for goods and services. This will cause production costs, such as wages and raw materials, to rise, shifting the short-run aggregate supply curve to the left. In the long run, prices and wages will also adjust, causing the short-run aggregate supply curve to shift further to the left until it intersects the long-run aggregate supply curve at the natural rate of output. Therefore, the correct answer is D.

Question 3

Wage agreements may cause costs to be __________ flexible than prices so that __________ in the price level cause __________ in aggregate quantity supplied.
A)more; decreases; decreases
B)more; increases; decreases
C)less; increases; decreases
D)less; decreases; increases
E)less; decreases; decreases

Accepted Answer

The answer of Wage agreements may cause costs to be...

Question 4

If the expected price level exceeds the actual price level, then firms will
A)expand output hoping that prices will rise
B)expand output if workers suffer from money illusion
C)expand output if some resource prices are fixed by contracts
D)reduce output if some resource prices are fixed by contracts
E)reduce output if workers suffer from money illusion

Accepted Answer

If the expected price level exceeds the actual price level, it means that some resource prices are fixed by contracts, so firms will reduce output to avoid losing profit.

Question 5

A contractionary gap may be closed in the long run by a(n)
A)rightward shift of the short-run aggregate supply curve
B)leftward shift of the short-run aggregate supply curve
C)rightward movement along a fixed short-run aggregate supply curve
D)decrease in aggregate demand
E)increase in aggregate demand

Accepted Answer

The answer of A contractionary gap may be closed in...

Question 6

Which of the following would be evidence that a contractionary gap exists?
A)Rapid deflation during a period in which plant capacity utilization is below average.
B)A steady price level and a 5 percent unemployment rate.
C)Help wanted advertising lower than usual, and the consumer price index lower than expected.
D)Inflation has risen markedly and the Dow Jones average is at record levels.
E)The number of new unemployment claims has skyrocketed and the price level is rising.

Accepted Answer

The answer of Which of the following would be evidence...

Question 7

Exhibit 11-7
 
-The movement in Exhibit 11-7 could be caused by
A)a decrease in the real wage
B)an increase in the economy's capital stock
C)the actions of a cartel of resource suppliers
D)a decrease in consumer spending
E)an increase in labor productivity

Accepted Answer

The answer of Exhibit 11-7
 
-The movement in Exhibit 11-7...

Question 8

As actual output falls below the potential level, which of the following must be true?
A)more resources become unemployed
B)prices remain constant
C)real GDP rises
D)nominal GDP remains constant
E)production rises

Accepted Answer

If actual output falls below the potential level, there will be a surplus of labor resources, leading to an increase in unemployment. Therefore, choice A is the best answer. Prices may or may not remain constant, and both real GDP and nominal GDP will decrease if actual output is below potential. Production will also decrease.

Question 9

As a contractionary gap is closed in the long run,
A)the inflation rate increases and unemployment decreases
B)output increases and the price level decreases
C)both output and the price level increase
D)both output and the price level decrease
E)the inflation rate decreases and unemployment increases

Accepted Answer

As the contractionary gap closes in the long run, output increases due to increased investment and productivity, but the price level decreases due to decreased demand for goods and services. Therefore, B is the correct choice.

Question 10

Exhibit 11-6 -In Exhibit 11-6, at income level Y₁ A)potential output is less than actual output B)there is an expansionary gap C)the price level will rise D)aggregate supply will fall to restore equilibrium E)the actual unemployment rate is greater than the natural rate of unemployment

Accepted Answer

The answer of Exhibit 11-6
 
-In Exhibit 11-6, at income...

Question 11

In the short run, real and nominal GDP will both decrease whenever
A)aggregate demand decreases, but not always when aggregate supply decreases
B)aggregate supply decreases, but not always when aggregate demand decreases
C)either aggregate demand or supply decreases
D)aggregate supply decreases
E)aggregate supply decreases along a constant aggregate demand curve

Accepted Answer

The answer of In the short run, real and nominal...

Question 12

If the expected price level exceeds the actual price level,
A)firms increase production in the short run
B)firms decrease production in the short run
C)firms maintain production in the short run but increase prices
D)firms maintain production in the short run but decrease prices
E)firms increase production and raise prices in the short run

Accepted Answer

The answer of If the expected price level exceeds the...

Question 13

Which of the following is true of a contractionary gap?
A)It develops when the expected price level is less than the actual price level.
B)In the long run, this gap will close when resource suppliers negotiate lower resource payments.
C)It measures the amount by which actual output is greater than the economy's potential output.
D)In the long run, this gap will close when the short-run aggregate supply curve shifts rightward.
E)In the long run, this gap will close when the aggregate demand curve shifts rightward.

Accepted Answer

A contractionary gap occurs when actual output is below potential output. In the long run, resource suppliers will negotiate lower resource payments which will lead to a decrease in production costs, encouraging firms to increase their production and ultimately closing the contractionary gap.

Question 14

If the expected price level exceeds the actual price level
A)the inflation rate is negative
B)the inflation rate is positive
C)production becomes less attractive to firms
D)production becomes more attractive to firms
E)the short-run aggregate supply curve is negatively sloped

Accepted Answer

The answer of If the expected price level exceeds the...

Question 15

As a contractionary gap is closed in the long run by firms' actions,
A)nominal and real GDP both decline
B)nominal and real GDP both increase
C)nominal GDP increases but real GDP declines
D)nominal GDP declines but real GDP increases
E)real GDP increases, but nominal GDP can increase, decrease, or remain the same

Accepted Answer

The answer of As a contractionary gap is closed in...

Question 16

Exhibit 11-6
 
-In Exhibit 11-6, long-run equilibrium would be established by
A)an increase in short-run aggregate supply to remove the expansionary gap
B)a decrease in short-run aggregate supply to remove the expansionary gap
C)a decrease in short-run aggregate supply to remove the contractionary gap
D)an increase in short-run aggregate supply to remove the contractionary gap
E)a leftward shift of the aggregate demand curve

Accepted Answer

In Exhibit 11-6, there is a contractionary gap where the short-run equilibrium output is below the long-run equilibrium output. To reach long-run equilibrium, short-run aggregate supply needs to increase to shift the short-run equilibrium output to the long-run equilibrium output. Therefore, choice D is the correct answer because an increase in short-run aggregate supply would remove the contractionary gap and establish long-run equilibrium.

Question 17

Exhibit 11-7
 
-The graph in Exhibit 11-7 shows a(n)
A)increase in short-run aggregate supply
B)increase in long-run aggregate supply
C)decrease in short-run aggregate supply
D)decrease in long-run aggregate supply
E)increase in aggregate quantity demanded

Accepted Answer

The answer of Exhibit 11-7
 
-The graph in Exhibit 11-7...

Question 18

Exhibit 11-6 -In Exhibit 11-6, the distance between Y₁ and Y₂ is called A)an expansionary gap B)a contractionary gap C)an increase in potential output D)a decrease in potential output E)the natural rate of unemployment

Accepted Answer

The distance between Y₁ and Y₂ represents a contractionary gap, as it indicates a decrease in potential output.

Question 19

The amount by which actual output falls short of potential output is called an expansionary gap.

Accepted Answer

The amount by which actual output falls short of potential output is called a recessionary gap. An expansionary gap occurs when actual output exceeds potential output.

Question 20

If the actual price level turns out to be lower than expected,
A)resource suppliers lose because they receive lower real incomes
B)potential output rises
C)potential output falls
D)firms earn greater profits because their costs decrease
E)the unemployment rate will probably rise

Accepted Answer

The answer of If the actual price level turns out...

Quiz 12: Aggregate Supply

If the expected price level exceeds the actual price level, then

Suppose that the actual and expected price levels are initially equal, and that the expected price level rises. Which of the following will occur over the long run? (Hint: Recall the actual price level is on the vertical axis.)

Wage agreements may cause costs to be flexible than prices so that in the price level cause __ in aggregate quantity supplied.

If the expected price level exceeds the actual price level, then firms will

A contractionary gap may be closed in the long run by a(n)

Which of the following would be evidence that a contractionary gap exists?

Exhibit 11-7 -The movement in Exhibit 11-7 could be caused by

As actual output falls below the potential level, which of the following must be true?

As a contractionary gap is closed in the long run,

Exhibit 11-6 -In Exhibit 11-6, at income level Y₁

In the short run, real and nominal GDP will both decrease whenever

If the expected price level exceeds the actual price level,

Which of the following is true of a contractionary gap?

If the expected price level exceeds the actual price level

As a contractionary gap is closed in the long run by firms' actions,

Exhibit 11-6 -In Exhibit 11-6, long-run equilibrium would be established by

Exhibit 11-7 -The graph in Exhibit 11-7 shows a(n)

Exhibit 11-6 -In Exhibit 11-6, the distance between Y₁ and Y₂ is called

The amount by which actual output falls short of potential output is called an expansionary gap.

If the actual price level turns out to be lower than expected,

Quiz 12: Aggregate Supply

If the expected price level exceeds the actual price level, then

Suppose that the actual and expected price levels are initially equal, and that the expected price level rises. Which of the following will occur over the long run? (Hint: Recall the actual price level is on the vertical axis.)

Wage agreements may cause costs to be __________ flexible than prices so that __________ in the price level cause __________ in aggregate quantity supplied.

If the expected price level exceeds the actual price level, then firms will

A contractionary gap may be closed in the long run by a(n)

Which of the following would be evidence that a contractionary gap exists?

Exhibit 11-7 -The movement in Exhibit 11-7 could be caused by

As actual output falls below the potential level, which of the following must be true?

As a contractionary gap is closed in the long run,

Exhibit 11-6 -In Exhibit 11-6, at income level Y1

In the short run, real and nominal GDP will both decrease whenever

If the expected price level exceeds the actual price level,

Which of the following is true of a contractionary gap?

If the expected price level exceeds the actual price level

As a contractionary gap is closed in the long run by firms' actions,

Exhibit 11-6 -In Exhibit 11-6, long-run equilibrium would be established by

Exhibit 11-7 -The graph in Exhibit 11-7 shows a(n)

Exhibit 11-6 -In Exhibit 11-6, the distance between Y1 and Y2 is called

The amount by which actual output falls short of potential output is called an expansionary gap.

If the actual price level turns out to be lower than expected,

Wage agreements may cause costs to be flexible than prices so that in the price level cause __ in aggregate quantity supplied.

Exhibit 11-6 -In Exhibit 11-6, at income level Y₁

Exhibit 11-6 -In Exhibit 11-6, the distance between Y₁ and Y₂ is called