Question 1

When the expenditure schedule is too high, 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 2

Figure 10-3
  
-In Figure 10-3, both graphs (a) and (b) indicate that the economy is experiencing a(n)

Accepted Answer

A) recessionary gap of RE. 
B) recessionary gap of RG. 
C) inflationary gap of RG. 
D) inflationary gap of RE. 
A) recessionary gap of RE. 
B) recessionary gap of RG. 
C) inflationary gap of RG. 
D) inflationary gap of RE.

Question 3

The Japanese economy has been consistently weak throughout the 1990s.This has caused a slight deflation, illustrating the

Accepted Answer

A) negligible cost of eliminating inflation. 
B) very slow operation of the economy's self-correcting mechanism. 
C) tendency of inflation to accelerate during recessions. 
D) rapidity with which inflation can be stopped. 
A) negligible cost of eliminating inflation. 
B) very slow operation of the economy's self-correcting mechanism. 
C) tendency of inflation to accelerate during recessions. 
D) rapidity with which inflation can be stopped.

Question 4

Using aggregate demand and aggregate supply analysis, explain why increases in oil did not lead to stagflation in 2006-2008 but did lead to stagflation in the 1970s and early 1980s.

Accepted Answer

In the 1970s the increases in oil prices

Question 5

The aggregate supply curve normally

Accepted Answer

A) slopes downward and to the right due to higher resource prices. 
B) has a horizontal slope equal to zero. 
C) is very steep in the lower portion and flatter in the upper portion. 
D) slopes upward to the right due to short-run fixed costs of production. 
A) slopes downward and to the right due to higher resource prices. 
B) has a horizontal slope equal to zero. 
C) is very steep in the lower portion and flatter in the upper portion. 
D) slopes upward to the right due to short-run fixed costs of production.

Question 6

When equilibrium GDP is greater than potential GDP, jobs are plentiful and labor is in great demand.

Accepted Answer

A) True 
 B)False

Question 7

-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 8

Wage decreases lead to a decrease in aggregate quantity supplied.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Figure 10-7
  
-Refer to Figure 10-7.Which of the diagrams in Figure 10-7 represents a decrease in consumer spending combined with a positive supply shock?

Accepted Answer

A) Panels (
A)  & (
B)  
B) Panels (
C)  & (
D)  
C) Panels (
A)  & (
C)  
D) Panels (
B)  & (
D)  
A) Panels (
A)  & (
B)  
B) Panels (
C)  & (
D)  
C) Panels (
A)  & (
C)  
D) Panels (
B)  & (
D)

Question 11

When the inflationary gap is finally eliminated, a long-run equilibrium is established with a ____ price level and with GDP ____ potential GDP.

Accepted Answer

A) higher; equal to 
B) higher; greater than 
C) lower; equal to 
D) lower; greater than 
A) higher; equal to 
B) higher; greater than 
C) lower; equal to 
D) lower; greater than

Question 12

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 13

Figure 10-4
  
-In Figure 10-4, if full employment occurs at 5,000 and the price level is currently 130, then we can expect the

Accepted Answer

A) aggregate supply curve to shift to the left until a new equilibrium is established at an output level of 4,000. 
B) aggregate demand curve to shift to the right until a new equilibrium is established at an output level of 6,000. 
C) the price level to fall to 110. 
D) aggregate demand to shift to the left and aggregate supply to shift to the right until the price level reaches 130. 
A) aggregate supply curve to shift to the left until a new equilibrium is established at an output level of 4,000. 
B) aggregate demand curve to shift to the right until a new equilibrium is established at an output level of 6,000. 
C) the price level to fall to 110. 
D) aggregate demand to shift to the left and aggregate supply to shift to the right until the price level reaches 130.

Question 14

The aggregate supply curve will shift to the left if

Accepted Answer

A) energy prices fall. 
B) technology and productivity increase in the economy. 
C) the capital stock of the economy increases. 
D) the money wage rate increases. 
A) energy prices fall. 
B) technology and productivity increase in the economy. 
C) the capital stock of the economy increases. 
D) the money wage rate increases.

Question 15

Stagflation may follow an inflationary boom.

Accepted Answer

A) True 
 B)False

Question 16

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 17

If the price level does not fall or only falls very slowly, then the result will be a prolonged period of

Accepted Answer

A) inflation whenever supply increases. 
B) production below potential GDP. 
C) production above potential GDP. 
D) rapid price increases when demand changes. 
A) inflation whenever supply increases. 
B) production below potential GDP. 
C) production above potential GDP. 
D) rapid price increases when demand changes.

Question 18

Stabilization policy may be necessary to modify or counteract volatile changes in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 19

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 20

The aggregate demand and aggregate supply curve intersect

Accepted Answer

A) at potential GDP. 
B) below potential GDP. 
C) above potential GDP. 
D) at a point which may or may not be equal to potential GDP. 
A) at potential GDP. 
B) below potential GDP. 
C) above potential GDP. 
D) at a point which may or may not be equal to potential GDP.

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

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

Figure 10-3 -In Figure 10-3, both graphs (a) and (b) indicate that the economy is experiencing a(n)

The Japanese economy has been consistently weak throughout the 1990s.This has caused a slight deflation, illustrating the

Using aggregate demand and aggregate supply analysis, explain why increases in oil did not lead to stagflation in 2006-2008 but did lead to stagflation in the 1970s and early 1980s.

The aggregate supply curve normally

When equilibrium GDP is greater than potential GDP, jobs are plentiful and labor is in great demand.

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

Wage decreases lead to a decrease in aggregate quantity supplied.

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?

Figure 10-7 -Refer to Figure 10-7.Which of the diagrams in Figure 10-7 represents a decrease in consumer spending combined with a positive supply shock?

When the inflationary gap is finally eliminated, a long-run equilibrium is established with a ____ price level and with GDP ____ potential GDP.

The usual results of an adverse supply shock are

Figure 10-4 -In Figure 10-4, if full employment occurs at 5,000 and the price level is currently 130, then we can expect the

The aggregate supply curve will shift to the left if

Stagflation may follow an inflationary boom.

Aggregate supply is defined as

If the price level does not fall or only falls very slowly, then the result will be a prolonged period of

Stabilization policy may be necessary to modify or counteract volatile changes in aggregate demand.

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

The aggregate demand and aggregate supply curve intersect

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: the Price System

The Shortcomings of Free Markets

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

Is Useconomic Leadership Threatened

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

He 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

Filters

When the inflationary gap is finally eliminated, a long-run equilibrium is established with a price level and with GDP potential GDP.