Question 1

Demand-side changes explain everything about stagflation.

Accepted Answer

A) True 
 B)False

Question 2

The principal way in which an economy self-corrects from an inflationary gap is through

Accepted Answer

A)  deflation, which increases purchasing power. 
B)  inflation, which reduces purchasing power. 
C)  disinflation, which maintains purchasing power. 
D)  price level decreases, which stimulate production. 
A)  deflation, which increases purchasing power. 
B)  inflation, which reduces purchasing power. 
C)  disinflation, which maintains purchasing power. 
D)  price level decreases, which stimulate production.

Question 3

In response to the demands of environmentalists, large sections of timberlands are put off limits to logging.What effect will this have on the aggregate supply curve?

Accepted Answer

A)  Shift it outward. 
B)  Shift it inward. 
C)  Move the economy up along the curve. 
D)  Move the economy down along the curve. 
A)  Shift it outward. 
B)  Shift it inward. 
C)  Move the economy up along the curve. 
D)  Move the economy down along the curve.

Question 4

Aggregate supply is defined as

Accepted Answer

A)  how much the economy can produce at zero unemployment. 
B)  an amount of output the economy will produce at full employment. 
C)  the relationship between the expenditures schedule and the leakages schedule. 
D)  the relationship between the price level and the quantity of real GDP supplied. 
A)  how much the economy can produce at zero unemployment. 
B)  an amount of output the economy will produce at full employment. 
C)  the relationship between the expenditures schedule and the leakages schedule. 
D)  the relationship between the price level and the quantity of real GDP supplied.

Question 5

A consequence of an inflationary gap is ____ as output begins to decrease and prices continue to increase.

Accepted Answer

A)  stagflation 
B)  reflation 
C)  disinflation 
D)  perflation 
A)  stagflation 
B)  reflation 
C)  disinflation 
D)  perflation

Question 6

Increases in the price of imported oil in 2011 led to a leftward shift of the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 7

Recessionary gaps usually lead to

Accepted Answer

A)  structural unemployment. 
B)  cyclical unemployment. 
C)  seasonal unemployment. 
D)  frictional unemployment. 
A)  structural unemployment. 
B)  cyclical unemployment. 
C)  seasonal unemployment. 
D)  frictional unemployment.

Question 8

Input prices are fixed for a period of time and this causes firms to increase production as prices increase.

Accepted Answer

A) True 
 B)False

Question 9

If the prices of inputs changes, what will happen to the aggregate supply curve?

Accepted Answer

A)  It does not move but the economy moves along the curve. 
B)  It depends on whether the input prices rise or fall. 
C)  The curve will become flatter or steeper depending on whether the input prices rise or fall. 
D)  It shifts inward or outward depending on whether the input prices rise or fall. 
A)  It does not move but the economy moves along the curve. 
B)  It depends on whether the input prices rise or fall. 
C)  The curve will become flatter or steeper depending on whether the input prices rise or fall. 
D)  It shifts inward or outward depending on whether the input prices rise or fall.

Question 10

A recessionary gap exists when aggregate demand is above the full employment level of output.

Accepted Answer

A) True 
 B)False

Question 11

The usual results of an adverse supply shock are

Accepted Answer

A)  a rise in prices and a fall in output. 
B)  a fall in prices and a rise in output. 
C)  increased growth and lower inflation. 
D)  higher net exports. 
A)  a rise in prices and a fall in output. 
B)  a fall in prices and a rise in output. 
C)  increased growth and lower inflation. 
D)  higher net exports.

Question 12

The years 2002 through 2007 can be described as a period of

Accepted Answer

A)  falling output accompanied by increasing inflation. 
B)  falling output accompanied by decreasing inflation. 
C)  rising output accompanied by increasing inflation. 
D)  rising output accompanied by decreasing inflation. 
A)  falling output accompanied by increasing inflation. 
B)  falling output accompanied by decreasing inflation. 
C)  rising output accompanied by increasing inflation. 
D)  rising output accompanied by decreasing inflation.

Question 13

When equilibrium GDP is below potential GDP, jobs are plentiful and unemployment is low.

Accepted Answer

A) True 
 B)False

Question 14

What is the principal reason that economists give for the existence of deflationary and inflationary gaps?

Accepted Answer

A)  Wages are flexible in the short run. 
B)  Wages are flexible in the long run. 
C)  Wages are fixed in the long run. 
D)  Wages are fixed in the short run. 
A)  Wages are flexible in the short run. 
B)  Wages are flexible in the long run. 
C)  Wages are fixed in the long run. 
D)  Wages are fixed in the short run.

Question 15

A period of stagflation is the normal aftermath of a period of

Accepted Answer

A)  excess aggregate supply. 
B)  deficient aggregate demand. 
C)  excess aggregate demand. 
D)  high unemployment rates. 
A)  excess aggregate supply. 
B)  deficient aggregate demand. 
C)  excess aggregate demand. 
D)  high unemployment rates.

Question 16

One of the justifications of government stabilization policy is that it may

Accepted Answer

A)  increase the fluctuations in inflation and employment. 
B)  increase the multiplier effect of changes in autonomous spending. 
C)  increase the volatility of economic variables. 
D)  reduce the severity of inflation and unemployment. 
A)  increase the fluctuations in inflation and employment. 
B)  increase the multiplier effect of changes in autonomous spending. 
C)  increase the volatility of economic variables. 
D)  reduce the severity of inflation and unemployment.

Question 17

Why is it possible that the economy will not self-correct out of a recessionary gap?

Accepted Answer

Unlike the case of an inflationary gap,

Question 18

What does inflation do to the value of the oversimplified multiplier?

Accepted Answer

A)  Inflation increases the value of the multiplier above the value of the oversimplified formula. 
B)  Inflation does not change the value of the multiplier. 
C)  Inflation decreases the value of the multiplier below the value of the oversimplified formula. 
D)  Inflation increases the value of the multiplier unless the level of unemployment also rises. 
A)  Inflation increases the value of the multiplier above the value of the oversimplified formula. 
B)  Inflation does not change the value of the multiplier. 
C)  Inflation decreases the value of the multiplier below the value of the oversimplified formula. 
D)  Inflation increases the value of the multiplier unless the level of unemployment also rises.

Question 19

Many economists describe the 2007-2009 period in the United States as being a condition of a(n)

Accepted Answer

A)  deflationary gap. 
B)  recessionary gap. 
C)  inflationary gap. 
D)  reflationary gap. 
A)  deflationary gap. 
B)  recessionary gap. 
C)  inflationary gap. 
D)  reflationary gap.

Question 20

A price level lower than equilibrium will cause quantity supplied to exceed quantity demanded.

Accepted Answer

A) True 
 B)False

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

Demand-side changes explain everything about stagflation.

The principal way in which an economy self-corrects from an inflationary gap is through

In response to the demands of environmentalists, large sections of timberlands are put off limits to logging.What effect will this have on the aggregate supply curve?

Aggregate supply is defined as

A consequence of an inflationary gap is ____ as output begins to decrease and prices continue to increase.

Increases in the price of imported oil in 2011 led to a leftward shift of the aggregate supply curve.

Recessionary gaps usually lead to

Input prices are fixed for a period of time and this causes firms to increase production as prices increase.

If the prices of inputs changes, what will happen to the aggregate supply curve?

A recessionary gap exists when aggregate demand is above the full employment level of output.

The usual results of an adverse supply shock are

The years 2002 through 2007 can be described as a period of

When equilibrium GDP is below potential GDP, jobs are plentiful and unemployment is low.

What is the principal reason that economists give for the existence of deflationary and inflationary gaps?

A period of stagflation is the normal aftermath of a period of

One of the justifications of government stabilization policy is that it may

Why is it possible that the economy will not self-correct out of a recessionary gap?

What does inflation do to the value of the oversimplified multiplier?

Many economists describe the 2007-2009 period in the United States as being a condition of a(n)

A price level lower than equilibrium will cause quantity supplied to exceed quantity demanded.

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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