Question 1

How is it possible for the economy to have a recessionary gap?

Accepted Answer

A) Equilibrium is at a GDP level below full employment. 
B) Equilibrium is at a GDP level equal to full employment. 
C) Equilibrium is at a GDP level above full employment. 
D) GDP is rising at full employment. 
E) GDP is falling at full employment. 
A) Equilibrium is at a GDP level below full employment. 
B) Equilibrium is at a GDP level equal to full employment. 
C) Equilibrium is at a GDP level above full employment. 
D) GDP is rising at full employment. 
E) GDP is falling at full employment.

Question 2

In our modern economy, the adjustment process necessary to eliminate a recessionary gap is very rapid.

Accepted Answer

A) True 
 B)False

Question 3

Labor contracts often fix wages for more than one year.

Accepted Answer

A) True 
 B)False

Question 4

If scientific research produces a technological breakthrough in the production of computer memory, then

Accepted Answer

A) business costs will increase, profits will fall, and production will decrease. 
B) business costs will fall, but profits will also fall, and production will decrease. 
C) business costs will fall, profits will improve, and production will increase. 
D) profits will increase, allowing businesses to cut back production. 
A) business costs will increase, profits will fall, and production will decrease. 
B) business costs will fall, but profits will also fall, and production will decrease. 
C) business costs will fall, profits will improve, and production will increase. 
D) profits will increase, allowing businesses to cut back production.

Question 5

The only factor that can cause movement along the aggregate supply curve is the

Accepted Answer

A) labor force. 
B) capital stock. 
C) availability of resources. 
D) price level. 
E) All of the above are correct. 
A) labor force. 
B) capital stock. 
C) availability of resources. 
D) price level. 
E) All of the above are correct.

Question 6

The slope of the aggregate supply curve increases as output increases because

Accepted Answer

A) the cost of resource-use increases as potential is reached. 
B) consumers are willing to pay more as output expands. 
C) firms substitute capital for labor as prices increase. 
D) firms substitute capital for labor as capacity is reached. 
A) the cost of resource-use increases as potential is reached. 
B) consumers are willing to pay more as output expands. 
C) firms substitute capital for labor as prices increase. 
D) firms substitute capital for labor as capacity is reached.

Question 7

An improvement in productivity will usually increase profits.

Accepted Answer

A) True 
 B)False

Question 8

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 9

If the data show that periods of high economic growth rate accompanied by high inflation rates, then changes in aggregate demand are the primary source of economic fluctuations.

Accepted Answer

A) True 
 B)False

Question 10

One complication in the process of reducing inflation by creating recessions is that the price level

Accepted Answer

A) adjusts more quickly to recessionary gaps than to inflationary gaps. 
B) does not apply as it does in inflationary gaps. 
C) always rises. 
D) rarely falls. 
A) adjusts more quickly to recessionary gaps than to inflationary gaps. 
B) does not apply as it does in inflationary gaps. 
C) always rises. 
D) rarely falls.

Question 11

Economists generally assume that there is a short-run trade-off between

Accepted Answer

A) output and employment. 
B) inflation and employment. 
C) deflation and unemployment. 
D) inflation and unemployment. 
E) output and growth. 
A) output and employment. 
B) inflation and employment. 
C) deflation and unemployment. 
D) inflation and unemployment. 
E) output and growth.

Question 12

Using the aggregate demand/aggregate supply model, explain the difference in the employment prospects of the graduates of 2007 and 2009.

Accepted Answer

The graduates of 2007 were facing an eco

Question 13

Increases in productivity are caused by

Accepted Answer

A) better education and training of the labor force. 
B) higher levels of literacy. 
C) improvements in technology. 
D) All of the above are correct. 
A) better education and training of the labor force. 
B) higher levels of literacy. 
C) improvements in technology. 
D) All of the above are correct.

Question 14

According to Baumol and Blinder, does the U.S.economy have a self-correcting mechanism?

Accepted Answer

A) No, there is no such thing in reality. 
B) Yes, and it works very rapidly. 
C) Yes, and it works very slowly. 
D) No, unless the aggregate supply curve is perfectly flat. 
A) No, there is no such thing in reality. 
B) Yes, and it works very rapidly. 
C) Yes, and it works very slowly. 
D) No, unless the aggregate supply curve is perfectly flat.

Question 15

Figure 10-5
  
-In Figure 10-5, which graph best illustrates the situation of an economy with high unemployment that experiences an increase in investment spending?

Accepted Answer

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

Question 16

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 17

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 18

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)

Question 19

Which of the following is evidence of an inflationary gap?

Accepted Answer

A) very long lines at employment agencies 
B) very short waiting times for product delivery 
C) very low sales figures 
D) very long search times for people looking for jobs 
E) very low unemployment rates 
A) very long lines at employment agencies 
B) very short waiting times for product delivery 
C) very low sales figures 
D) very long search times for people looking for jobs 
E) very low unemployment rates

Question 20

Figure 10-5
  
-In Figure 10-5, which graph best illustrates the situation of an economy near full employment that experiences an increase in autonomous consumer spending?

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

How is it possible for the economy to have a recessionary gap?

In our modern economy, the adjustment process necessary to eliminate a recessionary gap is very rapid.

Labor contracts often fix wages for more than one year.

If scientific research produces a technological breakthrough in the production of computer memory, then

The only factor that can cause movement along the aggregate supply curve is the

The slope of the aggregate supply curve increases as output increases because

An improvement in productivity will usually increase profits.

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

If the data show that periods of high economic growth rate accompanied by high inflation rates, then changes in aggregate demand are the primary source of economic fluctuations.

One complication in the process of reducing inflation by creating recessions is that the price level

Economists generally assume that there is a short-run trade-off between

Using the aggregate demand/aggregate supply model, explain the difference in the employment prospects of the graduates of 2007 and 2009.

Increases in productivity are caused by

According to Baumol and Blinder, does the U.S.economy have a self-correcting mechanism?

Figure 10-5 -In Figure 10-5, which graph best illustrates the situation of an economy with high unemployment that experiences an increase in investment spending?

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

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

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?

Which of the following is evidence of an inflationary gap?

Figure 10-5 -In Figure 10-5, which graph best illustrates the situation of an economy near full employment that experiences an increase in autonomous consumer spending?

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

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