Question 1

Exhibit 9-1
 1.At this level of Real GDP,the economy is in a(n)  A)  inflationary gap. B)  recessionary gap. C)  unemployment gap. D)  high Real GDP gap. E)  none of the above" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 9-1.The economy is currently producing Q1.At this level of Real GDP,the economy is in a(n)

Accepted Answer

A)   inflationary gap.
B)   recessionary gap.
C)   unemployment gap.
D)   high Real GDP gap.
E)   none of the above

Question 2

Business-cycle macroeconomics involves increases in Real GDP that result from a rightward-shifting LRAS curve.

Accepted Answer

A) True 
 B)False

Question 3

A recessionary gap exists if (actual) Real GDP is __________ Natural Real GDP.

Accepted Answer

A)   less than
B)   greater than
C)   equal to
D)   b and c
E)   none of the above

Question 4

If the natural unemployment rate is 7 percent and the current unemployment rate is 5 percent,then the economy is

Accepted Answer

A)   producing more Real GDP than it does at full employment.
B)   in a recessionary gap.
C)   producing less Real GDP than it does at full employment.
D)   a and b
E)   b and c

Question 5

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

Accepted Answer

A)   wages must be flexible in an upward direction, but not in a downward direction.
B)   the economy must always be operating on its institutional production possibilities frontier.
C)   wages must be flexible in a downward direction, but not in an upward direction.
D)   interest rates must be flexible in the credit market.
E)   none of the above

Question 6

Exhibit 9-3
 
-Refer to Exhibit 9-3.If the economy is in short-run equilibrium at point A,

Accepted Answer

A)   the (actual)  unemployment rate is less than the natural unemployment rate.
B)   the (actual)  unemployment rate is equal to the natural unemployment rate.
C)   the (actual)  unemployment rate is greater than the natural unemployment rate.
D)   the relationship between the (actual)  unemployment rate and the natural unemployment rate cannot be determined from the available information.

Question 7

In a self-regulating economy,wages will fall and prices will rise when there is an inflationary gap.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 9-3
 
-Refer to Exhibit 9-3.The economy is in short-run equilibrium and has an inflationary gap at point

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.
E)   E.

Question 9

According to Say's law,

Accepted Answer

A)   the demand curve is negatively sloped.
B)   the supply curve is positively sloped.
C)   supply creates its own demand.
D)   economic units should produce those goods for which they are low-opportunity-cost producers.

Question 10

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

Accepted Answer

A)   natural unemployment rate rises.
B)   natural unemployment rate falls.
C)   Natural Real GDP declines.
D)   physical PPF shifts leftward.
E)   physical PPF shifts rightward.

Question 11

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

Accepted Answer

A)   greater than Natural Real GDP.
B)   equal to Natural Real GDP.
C)   equal to the Real GDP produced at full employment.
D)   less than Natural Real GDP.
E)   b and c

Question 12

Exhibit 9-5
 
-Refer to Exhibit 9-5.Picture an AD curve intersecting an SRAS curve at Point J on graph (1) . Which point(s) would this correspond to on graph (2) ?

Accepted Answer

A)   A or B
B)   C
C)   E or F
D)   F
E)   G

Question 13

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

A)   an inflationary gap producing more than Natural Real GDP.
B)   a recessionary gap producing more than Natural Real GDP.
C)   an inflationary gap producing Natural Real GDP.
D)   a recessionary gap producing less than Natural Real GDP.
E)   long-run equilibrium.

Question 14

When the economy is producing Real GDP at a level at which the LRAS curve intersects the AD curve the economy is

Accepted Answer

A)   in a recessionary gap.
B)   in long-run equilibrium.
C)   in an inflationary gap.
D)   operating at less than full-employment output.

Question 15

If the natural unemployment rate is 5.5 percent,then the economy is in an inflationary gap when the actual unemployment rate is

Accepted Answer

A)   more than 5.5 percent.
B)   less than 5.5 percent.
C)   0 percent.
D)   5.5 percent.

Question 16

In the long run,changes in aggregate demand will affect the level of Real GDP (but not the price level)in a self-regulating economy.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the economy's short-run equilibrium point is to the left of the Natural Real GDP.Which of the following is true?

Accepted Answer

A)   The economy is in an inflationary gap.
B)   The economy is in a recessionary gap.
C)   The economy is in long-run equilibrium.
D)   This situation is actually impossible.

Question 18

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

Accepted Answer

A)   It means the economy can remove itself from recessionary and inflationary gaps and produce at Natural Real GDP.
B)   It means the economy is always in long-run equilibrium producing Natural Real GDP.
C)   It means that inflationary gaps naturally change into recessionary gaps.
D)   It means that recessionary gaps naturally change into inflationary gaps.
E)   c and d

Question 19

An inflationary gap exists when AD and SRAS

Accepted Answer

A)   fail to intersect.
B)   intersect to the right of Natural Real GDP.
C)   intersect to the left of Natural Real GDP.
D)   both have a positive slope.

Question 20

Exhibit 9-5
 
-Refer to Exhibit 9-5.Assume that the economy starts off at point A on graph (2) with an effective minimum wage law in place.After inflation erodes the purchasing power of the minimum wage,the economy is likely to move to a point such as

Accepted Answer

A)   B.
B)   G.
C)   F.
D)   C.
E)   None of the above, because the minimum wage has no influence on the amount of goods produced.

Exam 9: Classical Macroeconomics and the Self Regulating Economy

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

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Exhibit 9-5 -Refer to Exhibit 9-5.Picture an AD curve intersecting an SRAS curve at Point J on graph (1) . Which point(s) would this correspond to on graph (2) ?

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When the economy is producing Real GDP at a level at which the LRAS curve intersects the AD curve the economy is

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Exhibit 9-1 -Refer to Exhibit 9-1.The economy is currently producing Q1.At this level of Real GDP,the economy is in a(n)

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If the natural unemployment rate is 5.5 percent,then the economy is in an inflationary gap when the actual unemployment rate is

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A recessionary gap exists if (actual) Real GDP is __________ Natural Real GDP.

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

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Exhibit 9-3 -Refer to Exhibit 9-3.The economy is in short-run equilibrium and has an inflationary gap at point

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

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If the natural unemployment rate is 7 percent and the current unemployment rate is 5 percent,then the economy is

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Business-cycle macroeconomics involves increases in Real GDP that result from a rightward-shifting LRAS curve.

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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

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An inflationary gap exists when AD and SRAS

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Suppose the economy's short-run equilibrium point is to the left of the Natural Real GDP.Which of the following is true?

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According to Say's law,

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In a self-regulating economy,wages will fall and prices will rise when there is an inflationary gap.

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Exhibit 9-5 -Refer to Exhibit 9-5.Assume that the economy starts off at point A on graph (2) with an effective minimum wage law in place.After inflation erodes the purchasing power of the minimum wage,the economy is likely to move to a point such as

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

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Exhibit 9-3 -Refer to Exhibit 9-3.If the economy is in short-run equilibrium at point A,

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In the long run,changes in aggregate demand will affect the level of Real GDP (but not the price level)in a self-regulating economy.

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Exhibit 9-1 -Refer to Exhibit 9-1.The economy is currently producing Q₁.At this level of Real GDP,the economy is in a(n)

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