Question 1

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 2

To calculate a firm's per unit of output profit, it is necessary to subtract

Accepted Answer

A) price from cost per unit. 
B) price from resource costs. 
C) cost per unit from product price. 
D) cost per unit from cost of resources. 
A) price from cost per unit. 
B) price from resource costs. 
C) cost per unit from product price. 
D) cost per unit from cost of resources.

Question 3

A recessionary gap exists 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 4

Figure 10-7
  
-Which of the panels in Figure 10-7 shows an economic recession caused by primarily by a change aggregate demand?

Accepted Answer

A) Panel (
A)  
B) Panel (
B)  
C) Panel (
C)  
D) Panel (
D)  
A) Panel (
A)  
B) Panel (
B)  
C) Panel (
C)  
D) Panel (
D)

Question 5

Decreasing profit margins indicate a need to increase production in an economy.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Figure 10-4
  
-In Figure 10-4, if full employment occurs at an output level of 4,000 and the economy is currently at an output level of 5,000 then we can expect a(n)

Accepted Answer

A) increase in autonomous consumer spending that shifts the aggregate demand curve to the left. 
B) increase in wages that will shift the aggregate supply curve to the left. 
C) decrease in investment spending that shifts the aggregate demand curve to the left. 
D) decrease in wages that will shift the aggregate supply curve to the left. 
A) increase in autonomous consumer spending that shifts the aggregate demand curve to the left. 
B) increase in wages that will shift the aggregate supply curve to the left. 
C) decrease in investment spending that shifts the aggregate demand curve to the left. 
D) decrease in wages that will shift the aggregate supply curve to the left.

Question 8

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 9

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 10

An inflationary gap will exist when

Accepted Answer

A) aggregate demand grows more slowly than aggregate supply. 
B) there is downward pressure on prices. 
C) expenditures are not equal to aggregate demand. 
D) equilibrium GDP is greater than full employment GDP. 
A) aggregate demand grows more slowly than aggregate supply. 
B) there is downward pressure on prices. 
C) expenditures are not equal to aggregate demand. 
D) equilibrium GDP is greater than full employment GDP.

Question 11

The slope of the aggregate supply curve is

Accepted Answer

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

Question 12

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 13

The existence of an inflationary gap or an recessionary gap depends on the

Accepted Answer

A) aggregate supply only. 
B) expenditure schedule. 
C) leakages schedule. 
D) injections schedule. 
E) aggregate demand and aggregate supply schedules. 
A) aggregate supply only. 
B) expenditure schedule. 
C) leakages schedule. 
D) injections schedule. 
E) aggregate demand and aggregate supply schedules.

Question 14

Figure 10-6
  
-In Figure 10-6, which graph best illustrates an adverse supply shock accompanied by an increase in government spending?

Accepted Answer

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

Question 15

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 16

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 17

GDP in excess of potential GDP will shift the aggregate supply curve to the left and the price level will increase.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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 20

An inflationary gap exists when consumers and businesses are demanding more output than the economy is capable of producing at full employment.

Accepted Answer

A) True 
 B)False

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

When equilibrium GDP is below potential GDP, jobs are

To calculate a firm's per unit of output profit, it is necessary to subtract

A recessionary gap exists when

Figure 10-7 -Which of the panels in Figure 10-7 shows an economic recession caused by primarily by a change aggregate demand?

Decreasing profit margins indicate a need to increase production in an economy.

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

Figure 10-4 -In Figure 10-4, if full employment occurs at an output level of 4,000 and the economy is currently at an output level of 5,000 then we can expect a(n)

An inflationary gap will occur when

An equilibrium point beyond a potential GDP is termed as

An inflationary gap will exist when

The slope of the aggregate supply curve is

The existence of an inflationary gap should cause

The existence of an inflationary gap or an recessionary gap depends on the

Figure 10-6 -In Figure 10-6, which graph best illustrates an adverse supply shock accompanied by an increase in government spending?

Recessionary gaps usually lead to

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

GDP in excess of potential GDP will shift the aggregate supply curve to the left and the price level will increase.

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

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

An inflationary gap exists when consumers and businesses are demanding more output than the economy is capable of producing at full employment.

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