Question 1

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

Accepted Answer

A)  a basic "U" shape. 
B)  a negative slope. 
C)  a positive slope. 
D)  All of the above could be correct. 
A)  a basic "U" shape. 
B)  a negative slope. 
C)  a positive slope. 
D)  All of the above could be correct.

Question 2

When economists refer to the economy's self-correcting mechanism, they are referring to the fact that the

Accepted Answer

A)  economy will react automatically to a recessionary gap through inflation. 
B)  economy will react automatically to an inflationary gap through deflation. 
C)  economy will react automatically to an inflationary gap through inflation. 
D)  simple multiplier is greater than the complex multiplier. 
A)  economy will react automatically to a recessionary gap through inflation. 
B)  economy will react automatically to an inflationary gap through deflation. 
C)  economy will react automatically to an inflationary gap through inflation. 
D)  simple multiplier is greater than the complex multiplier.

Question 3

Figure 10-8
  
-Figure 10-8 describes which of the following periods in the U.S.?

Accepted Answer

A)  1930s 
B)  1973-1975 
C)  late 1990s 
D)  2007-2009 
A)  1930s 
B)  1973-1975 
C)  late 1990s 
D)  2007-2009

Question 4

The underlying cause of inflation is

Accepted Answer

A)  labor unions demanding higher wages. 
B)  businesses charging higher prices. 
C)  government raising taxes. 
D)  increasing aggregate demand. 
A)  labor unions demanding higher wages. 
B)  businesses charging higher prices. 
C)  government raising taxes. 
D)  increasing aggregate demand.

Question 5

The investment and capital spending boom of the late 1990s most likely resulted in a(n)

Accepted Answer

A)  increase in aggregate supply. 
B)  decrease in aggregate supply. 
C)  steeper aggregate supply curve. 
D)  flatter aggregate supply curve. 
A)  increase in aggregate supply. 
B)  decrease in aggregate supply. 
C)  steeper aggregate supply curve. 
D)  flatter aggregate supply curve.

Question 6

For a given growth rate in aggregate supply, slower growth in aggregate demand will lead to lower inflation.

Accepted Answer

A) True 
 B)False

Question 7

Table 10-1
 $\begin{array}{ccc}
\text { Aggregate Quantity }&\text { Aggregate Quantity }\
\begin{array}{c}
\text { Demanded } \
\text { (billions) }
\end{array} & \begin{array}{c}
\text { Supplied } \
\text { (billions) }
\end{array} & \begin{array}{c}
\text { Price } \
\text { Level }
\end{array} \
\hline \$ 3500 & \$ 2900 & 65 \
3400 & 3000 & 75 \
3350 & 3150 & 90 \
3250 & 3250 & 110 \
3100 & 3400 & 130
\end{array}$
-In Table 10-1, if full employment occurs at $3,400 billion, then

Accepted Answer

A)  the economy experiences a recessionary gap of $75 billion. 
B)  the economy experiences a recessionary gap of $150 billion. 
C)  the economy experiences an inflationary gap of $75 billion. 
D)  the economy experiences an inflationary gap of $150 billion. 
A)  the economy experiences a recessionary gap of $75 billion. 
B)  the economy experiences a recessionary gap of $150 billion. 
C)  the economy experiences an inflationary gap of $75 billion. 
D)  the economy experiences an inflationary gap of $150 billion.

Question 8

Figure 10-9
  
-Figure 10-9 describes which of the following periods in the U.S.?

Accepted Answer

A)  1930s 
B)  1973-1975 
C)  late 1990s 
D)  2007-2009 
A)  1930s 
B)  1973-1975 
C)  late 1990s 
D)  2007-2009

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

An economist who claims that an increase in government spending would result mainly in a higher price level believes the economy is operating where

Accepted Answer

A)  the MPC is small. 
B)  the MPC is large. 
C)  aggregate supply curve is flat. 
D)  aggregate supply curve is steep. 
A)  the MPC is small. 
B)  the MPC is large. 
C)  aggregate supply curve is flat. 
D)  aggregate supply curve is steep.

Question 12

A common error of business managers is to blame inflation on

Accepted Answer

A)  consumer spending. 
B)  rising wages. 
C)  rising prices. 
D)  rising interest rates. 
E)  rising unemployment. 
A)  consumer spending. 
B)  rising wages. 
C)  rising prices. 
D)  rising interest rates. 
E)  rising unemployment.

Question 13

When equilibrium GDP is below potential GDP, jobs are

Accepted Answer

A)  plentiful and unemployment is low. 
B)  plentiful and unemployment is high. 
C)  scarce and unemployment is high. 
D)  scarce and unemployment is low. 
A)  plentiful and unemployment is low. 
B)  plentiful and unemployment is high. 
C)  scarce and unemployment is high. 
D)  scarce and unemployment is low.

Question 14

Assume an economy with an upward-sloping aggregate supply curve and an MPC of .80.An increase in investment spending of $50 billion will most likely increase total income by

Accepted Answer

A)  $200 billion. 
B)  $40 billion. 
C)  more than $200 billion. 
D)  more than $50 billion but less than $250 billion. 
A)  $200 billion. 
B)  $40 billion. 
C)  more than $200 billion. 
D)  more than $50 billion but less than $250 billion.

Question 15

"Stagflation" refers to the unwelcome combination of

Accepted Answer

A)  inflation and rising prices. 
B)  deflation and unemployment. 
C)  inflation and unemployment. 
D)  inflation and expansion. 
A)  inflation and rising prices. 
B)  deflation and unemployment. 
C)  inflation and unemployment. 
D)  inflation and expansion.

Question 16

What would be the likely result of a recessionary gap? If this leads to a fall in the nominal wage what impact it would have on the aggregate supply curve and on recessionary gap?

Accepted Answer

With equilibrium GDP below potential GDP

Question 17

Discuss some of the arguments that help explain why wages and prices rarely fall in a modern economy.

Accepted Answer

Institutional factors such as minimum wa

Question 18

Resource prices are fixed for some period of time because

Accepted Answer

A)  some workers enter into long-term contracts. 
B)  firms purchase raw materials on set-price contracts. 
C)  many workers get pay increases only once a year. 
D)  All of the above are correct. 
A)  some workers enter into long-term contracts. 
B)  firms purchase raw materials on set-price contracts. 
C)  many workers get pay increases only once a year. 
D)  All of the above are correct.

Question 19

The fact that severe fluctuations in inflation and unemployment are socially undesirable helps make the case for

Accepted Answer

A)  a "hands off" policy by the government. 
B)  fixed prices and wages. 
C)  active government stabilization policy. 
D)  restrictions on imports from low wage countries. 
A)  a "hands off" policy by the government. 
B)  fixed prices and wages. 
C)  active government stabilization policy. 
D)  restrictions on imports from low wage countries.

Question 20

Figure 10-5
  
-In Figure 10-5, which graph best illustrates the situation of an economy reacting to an inflationary gap through an increase in wage levels?

Accepted Answer

A)  (1) 
B)  (2) 
C)  (3) 
D)  (4) 
A)  (1) 
B)  (2) 
C)  (3) 
D)  (4)

Exam 27: Bringing in the Supply Side: Unemployment and Inflation?

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

When economists refer to the economy's self-correcting mechanism, they are referring to the fact that the

Figure 10-8 -Figure 10-8 describes which of the following periods in the U.S.?

The underlying cause of inflation is

The investment and capital spending boom of the late 1990s most likely resulted in a(n)

For a given growth rate in aggregate supply, slower growth in aggregate demand will lead to lower inflation.

Table 10-1 Aggregate Quantity Aggregate Quantity Demanded (billions) Supplied (billions) Price Level \ 3500 \ 2900 65 3400 3000 75 3350 3150 90 3250 3250 110 3100 3400 130 -In Table 10-1, if full employment occurs at $3,400 billion, then

Figure 10-9 -Figure 10-9 describes which of the following periods in the U.S.?

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

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

An economist who claims that an increase in government spending would result mainly in a higher price level believes the economy is operating where

A common error of business managers is to blame inflation on

When equilibrium GDP is below potential GDP, jobs are

Assume an economy with an upward-sloping aggregate supply curve and an MPC of .80.An increase in investment spending of $50 billion will most likely increase total income by

"Stagflation" refers to the unwelcome combination of

What would be the likely result of a recessionary gap? If this leads to a fall in the nominal wage what impact it would have on the aggregate supply curve and on recessionary gap?

Discuss some of the arguments that help explain why wages and prices rarely fall in a modern economy.

Resource prices are fixed for some period of time because

The fact that severe fluctuations in inflation and unemployment are socially undesirable helps make the case for

Figure 10-5 -In Figure 10-5, which graph best illustrates the situation of an economy reacting to an inflationary gap through an increase in wage levels?

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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