Question 1

Potential output depends on all of the following except one. Which is the exception?

Accepted Answer

A)  the supply of labor
B)  labor productivity
C)  household choices regarding labor and leisure
D)  the technology in current use
E)  the number of consumers in the market E

Question 2

Suppose that between 2004 and 2014, Jack's salary increased from $100,000 to $200,000 per year and the price index increased from 100 to 300 during the same period. Which of the following statements best describes Jack's situation?

Accepted Answer

A)  his real income and money income have both increased
B)  his real income increased and money income decreased
C)  his real income and money income both decreased
D)  his real income decreased and money income increased
E)  his real income and money income remained unchanged

Question 3

An increase in the federal minimum wage would shift the long-run aggregate supply curve inward (to the left).

Accepted Answer

A) True 
 B)False

Question 4

Whether aggregate supply shifts quickly or slowly to restore equilibrium at potential output depends crucially on

Accepted Answer

A)  how quickly planned investment spending adjusts to changes in population growth
B)  how quickly planned consumption spending adjusts to changes in the price level and nominal wages
C)  how quickly technology changes to increase aggregate supply
D)  whether the economy is experiencing a contractionary gap or an expansionary gap
E)  how quickly real wages adjust to restore full employment in the labor market

Question 5

Which of the following is true about real and nominal wages?

Accepted Answer

A)  In periods of low inflation, real wages are constant and nominal wages decline.
B)  If the price level is high, real wages will fall.
C)  If the price level is high, nominal wages will fall.
D)  If there is inflation, real wages will change if nominal wages are constant.
E)  If there is a constant inflation rate, real wages will not change unless nominal wages do.

Question 6

Which of the following occurs as macroeconomic output expands in the short run?

Accepted Answer

A)  the nominal cost of labor increases
B)  the demand for nonlabor resources increases
C)  equipment wears out faster
D)  the nominal cost per unit of output rises
E)  All of the answers are correct

Question 7

An expansionary gap is closed in the long run by a(n)

Accepted Answer

A)  rightward shift of the short-run aggregate supply curve
B)  leftward shift of the short-run aggregate supply curve
C)  movement to the right along a fixed short-run aggregate supply curve
D)  increase in aggregate demand
E)  decrease in aggregate demand

Question 8

The theory that the longer the unemployment rate remains above the natural rate, the higher will be the natural rate, is known as

Accepted Answer

A)  hysteresis
B)  hysterical analysis
C)  historical analysis
D)  histoplasmosis
E)  hypoglycemia

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

In the short run, if the economy is operating below potential output and if the aggregate supply curve shifts outward, then the price level will

Accepted Answer

A)  decrease and output will increase
B)  increase and output will decrease
C)  decrease and output will decrease
D)  increase and output will increase
E)  increase and output will remain unchanged

Question 11

Exhibit 11-4
 
-Exhibit 11-4 shows that the

Accepted Answer

A)  expansionary gap has been closed
B)  contractionary gap has been closed
C)  potential level of real GDP has risen
D)  potential level of real GDP has fallen
E)  economy will experience deflation E

Question 12

Because nominal wages fall slowly, the supply-side adjustments needed to close a contractionary gap may take very long.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 11-9
 
-The movement shown in Exhibit 11-9 could be caused by

Accepted Answer

A)  government policies to increase demand
B)  weather conditions causing worldwide crop failures
C)  an attempt by key resource producers to monopolize supply
D)  an increase in taxation or a decrease in government spending
E)  an increase in labor productivity

Question 14

Fixed resource prices help explain why firms

Accepted Answer

A)  increase output in the short run when the price level increases
B)  keep production levels constant in the short run when the price level decreases
C)  sell output in the short run at fixed prices
D)  increase output in the long run when the price level increases
E)  decrease production when nominal wages fall in the long run A

Question 15

If the price level turns out to be higher than expected,

Accepted Answer

A)  businesses increase production
B)  the potential output level increases
C)  initially, the short-run aggregate supply curve shifts rightward; later, there is an upward movement along that curve
D)  initially, the short-run aggregate supply curve shifts rightward; later, there is a downward movement along that curve
E)  a contractionary gap develops

Question 16

Suppose firms are continually surprised by higher-than-expected price levels. Which of the following might be true?

Accepted Answer

A)  the consumer price index will rise
B)  potential output will increase
C)  potential output will decrease
D)  actual output will be less than potential output in the long run
E)  actual output will exceed potential output in the short run

Question 17

Exhibit 11-6
 1 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" class="answers-bank-image d-inline" rel="preload" >
-In Exhibit 11-6, the distance between Y1 and Y2 is called

Accepted Answer

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

Question 18

Real wages are nominal wages adjusted for price changes.

Accepted Answer

A) True 
 B)False

Question 19

In the short run, the price level is determined solely by aggregate supply.

Accepted Answer

A) True 
 B)False

Question 20

In constructing a short-run aggregate supply curve, we assume that the goal of business is to

Accepted Answer

A)  maximize sales revenue
B)  maximize profit
C)  maximize growth in assets
D)  maximize growth in sales
E)  minimize cost

Exam 12: Aggregate Supply

Potential output depends on all of the following except one. Which is the exception?

Correct AnswerverifiedE

Suppose that between 2004 and 2014, Jack's salary increased from $100,000 to $200,000 per year and the price index increased from 100 to 300 during the same period. Which of the following statements best describes Jack's situation?

Correct AnswerverifiedShow Answer

An increase in the federal minimum wage would shift the long-run aggregate supply curve inward (to the left).

Correct AnswerverifiedShow Answer

Whether aggregate supply shifts quickly or slowly to restore equilibrium at potential output depends crucially on

Correct AnswerverifiedShow Answer

Which of the following is true about real and nominal wages?

Correct AnswerverifiedShow Answer

Which of the following occurs as macroeconomic output expands in the short run?

Correct AnswerverifiedShow Answer

An expansionary gap is closed in the long run by a(n)

Correct AnswerverifiedShow Answer

The theory that the longer the unemployment rate remains above the natural rate, the higher will be the natural rate, is known as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the short run, if the economy is operating below potential output and if the aggregate supply curve shifts outward, then the price level will

Correct AnswerverifiedShow Answer

Exhibit 11-4 -Exhibit 11-4 shows that the

Correct AnswerverifiedE

Because nominal wages fall slowly, the supply-side adjustments needed to close a contractionary gap may take very long.

Correct AnswerverifiedShow Answer

Exhibit 11-9 -The movement shown in Exhibit 11-9 could be caused by

Correct AnswerverifiedShow Answer

Fixed resource prices help explain why firms

Correct AnswerverifiedA

If the price level turns out to be higher than expected,

Correct AnswerverifiedShow Answer

Suppose firms are continually surprised by higher-than-expected price levels. Which of the following might be true?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Real wages are nominal wages adjusted for price changes.

Correct AnswerverifiedShow Answer

In the short run, the price level is determined solely by aggregate supply.

Correct AnswerverifiedShow Answer

In constructing a short-run aggregate supply curve, we assume that the goal of business is to

Correct AnswerverifiedShow Answer

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E

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E

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A

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

Correct Answer
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