Question 1

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

Accepted Answer

A) The aggregate supply curve does not move, but the economy moves along the curve. 
B) The aggregate supply curve 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) The aggregate supply curve shifts inward or outward depending on whether the input prices rise or fall. 
A) The aggregate supply curve does not move, but the economy moves along the curve. 
B) The aggregate supply curve 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) The aggregate supply curve shifts inward or outward depending on whether the input prices rise or fall.

Question 2

The aggregate supply curve slopes

Accepted Answer

A) downward because firms can sell more at lower prices. 
B) downward because firms can hire more workers at lower prices. 
C) upward because firms want to hire more workers at higher wage levels. 
D) upward because firms can hire workers at fixed wages for short-run periods. 
A) downward because firms can sell more at lower prices. 
B) downward because firms can hire more workers at lower prices. 
C) upward because firms want to hire more workers at higher wage levels. 
D) upward because firms can hire workers at fixed wages for short-run periods.

Question 3

An equilibrium point beyond a potential GDP is termed as

Accepted Answer

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

Question 4

Table 10-1  
-In Table 10-1, what is the equilibrium level of real output and the equilibrium price?

Accepted Answer

A) $3,100 real output and a price of 75 
B) $3,250 real output and a price of 110 
C) $3,350 real output and a price of 90 
D) $3,400 real output and a price of 75 
A) $3,100 real output and a price of 75 
B) $3,250 real output and a price of 110 
C) $3,350 real output and a price of 90 
D) $3,400 real output and a price of 75

Question 5

Figure 10-1
​  
-If the price level in Figure 10-1 were 110,

Accepted Answer

A) inventories would be accumulating. 
B) firms would have to lower their prices. 
C) aggregate quantity demanded would equal aggregate quantity supplied. 
D) shortages of goods would exist. 
A) inventories would be accumulating. 
B) firms would have to lower their prices. 
C) aggregate quantity demanded would equal aggregate quantity supplied. 
D) shortages of goods would exist.

Question 6

A period of stagflation is part of the normal aftermath of a period of excessive aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

Table 10-1  
-In Table 10-1, if full employment occurs at $3,100 billion, then

Accepted Answer

A) the economy experiences a recessionary gap of $150 billion. 
B) the economy experiences a recessionary gap of $300 billion. 
C) the economy experiences an inflationary gap of $150 billion. 
D) the economy experiences an inflationary gap of $300 billion. 
A) the economy experiences a recessionary gap of $150 billion. 
B) the economy experiences a recessionary gap of $300 billion. 
C) the economy experiences an inflationary gap of $150 billion. 
D) the economy experiences an inflationary gap of $300 billion.

Question 8

Stagflation is the typical result of adverse shifts in the aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 9

The combination of high unemployment and high inflation is termed

Accepted Answer

A) reflation. 
B) stagflation. 
C) depression. 
D) unflation. 
A) reflation. 
B) stagflation. 
C) depression. 
D) unflation.

Question 10

When the expenditure schedule is too low, the result is a(n)

Accepted Answer

A) unemployment surplus. 
B) inflationary gap. 
C) recessionary gap. 
D) budgetary gap. 
A) unemployment surplus. 
B) inflationary gap. 
C) recessionary gap. 
D) budgetary gap.

Question 11

What is meant by an economy's self-correcting mechanism? Explain the process through which self-correcting mechanism reduces inflationary gap.

Accepted Answer

The economy's self-correcting mechanism

Question 12

Why is a period of stagflation part of the normal aftermath of a period of excessive aggregate demand?

Accepted Answer

When aggregate demand is excessive, the

Question 13

Figure 10-5  
-In Figure 10-5, which graph best illustrates the situation of an economy reacting to a recessionary gap by reducing resource cost levels?

Accepted Answer

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

Question 14

Figure 10-3
​  
-When the economy represented in Figure 10-3 has completed the self-correcting adjustment process, the expenditure line in graph (a) will be

Accepted Answer

A) flatter. 
B) steeper. 
C) higher. 
D) lower. 
E) unchanged. 
A) flatter. 
B) steeper. 
C) higher. 
D) lower. 
E) unchanged.

Question 15

The existence of an inflationary gap should cause

Accepted Answer

A) wages to fall. 
B) prices to fall. 
C) unemployment to rise. 
D) net exports to rise. 
A) wages to fall. 
B) prices to fall. 
C) unemployment to rise. 
D) net exports to rise.

Question 16

The reason that stagflation tends to follow an inflationary gap is that

Accepted Answer

A) output tends to fall even as prices continue to rise as part of the self-correcting mechanism. 
B) government officials tend to overact in controlling inflation. 
C) businesses try to increase profits by raising prices and increasing output. 
D) workers accept pay cuts to maintain employment. 
A) output tends to fall even as prices continue to rise as part of the self-correcting mechanism. 
B) government officials tend to overact in controlling inflation. 
C) businesses try to increase profits by raising prices and increasing output. 
D) workers accept pay cuts to maintain employment.

Question 17

An increase in the nominal wage shifts the aggregate supply inward.

Accepted Answer

A) True 
 B)False

Question 18

A period of stagflation can be considered as part of the normal aftermath of a

Accepted Answer

A) decrease in aggregate demand. 
B) period of high unemployment. 
C) period of low unemployment. 
D) period of inward shifting aggregate demand. 
A) decrease in aggregate demand. 
B) period of high unemployment. 
C) period of low unemployment. 
D) period of inward shifting aggregate demand.

Question 19

An inflationary gap will occur when

Accepted Answer

A) real GDP exceeds nominal GDP. 
B) nominal GDP exceeds real GDP. 
C) real GDP exceeds potential GDP. 
D) potential GDP exceeds real GDP 
A) real GDP exceeds nominal GDP. 
B) nominal GDP exceeds real GDP. 
C) real GDP exceeds potential GDP. 
D) potential GDP exceeds real GDP

Question 20

If short-run equilibrium GDP is above potential GDP, prices will eventually rise.

Accepted Answer

A) True 
 B)False

Exam 26: Bringing in the Supply Side: Unemployment and Inflation

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

The aggregate supply curve slopes

An equilibrium point beyond a potential GDP is termed as

Table 10-1 -In Table 10-1, what is the equilibrium level of real output and the equilibrium price?

Figure 10-1 ​ -If the price level in Figure 10-1 were 110,

A period of stagflation is part of the normal aftermath of a period of excessive aggregate demand.

Table 10-1 -In Table 10-1, if full employment occurs at $3,100 billion, then

Stagflation is the typical result of adverse shifts in the aggregate supply curve.

The combination of high unemployment and high inflation is termed

When the expenditure schedule is too low, the result is a(n)

What is meant by an economy's self-correcting mechanism? Explain the process through which self-correcting mechanism reduces inflationary gap.

Why is a period of stagflation part of the normal aftermath of a period of excessive aggregate demand?

Figure 10-5 -In Figure 10-5, which graph best illustrates the situation of an economy reacting to a recessionary gap by reducing resource cost levels?

Figure 10-3 ​ -When the economy represented in Figure 10-3 has completed the self-correcting adjustment process, the expenditure line in graph (a) will be

The existence of an inflationary gap should cause

The reason that stagflation tends to follow an inflationary gap is that

An increase in the nominal wage shifts the aggregate supply inward.

A period of stagflation can be considered as part of the normal aftermath of a

An inflationary gap will occur when

If short-run equilibrium GDP is above potential GDP, prices will eventually rise.

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

Figure 10-1 -If the price level in Figure 10-1 were 110,

Figure 10-3 -When the economy represented in Figure 10-3 has completed the self-correcting adjustment process, the expenditure line in graph (a) will be