Question 1

An increase in the money wage rate will cause the aggregate supply curve to shift

Accepted Answer

A)   outward, which means the quantity supplied at any price level decreases.
B)   outward, which means the quantity supplied at any price level increases.
C)   inward, which means the quantity supplied at any price level increases.
D)   inward, which means the quantity supplied at any price level decreases.E) A) and D)
F) None of the above

Question 2

A decrease in the availability of an important major resource such as oil shifts aggregate supply left.

Accepted Answer

A) True 
 B)False

Question 3

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.E) C) and D)
F) B) and D)

Question 4

A company succumbs to a wage increase demand without any changes in the productivity of labor, price of the product, and the total output sold. Which of the following would happen?

Accepted Answer

A)   Total revenue of the company will fall.
B)   Investment by the company will increase.
C)   Profit per unit of the product will fall.
D)   Average profit per unit will increase.E) A) and B)
F) A) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Aggregate supply grows over time because of growing consumer and government spending.

Accepted Answer

A) True 
 B)False

Question 7

Wages are the major element of cost in the economy accounting for about 70 percent of all input costs.

Accepted Answer

A) True 
 B)False

Question 8

The aggregate supply curve is shifted to the right (outward) by a decrease in the price of any input to the production process.

Accepted Answer

A) True 
 B)False

Question 9

Figure 10-1

If the price level in Figure 10-1 were 100,

Accepted Answer

A)   firms would have to lower their prices.
B)   inventories would be accumulating.
C)   shortages of goods would exist.
D)   aggregate quantity demanded would exceed aggregate quantity supplied.
E)   both c and d would occur.F) A) and D)
G) All of the above

Question 10

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)   -4E) A) and C)
F) C) and D)

Question 11

The typical movement of the aggregate supply curve resulting from an increase in productivity is that it

Accepted Answer

A)   shifts inward and becomes flatter.
B)   shifts inward.
C)   shifts outward.
D)   becomes flatter.
E)   becomes steeper.F) C) and D)
G) A) and B)

Question 12

Discuss some of the arguments that help explain why wages and prices rarely fall in a modern economy.

Accepted Answer

Institutional factors such as minimum wa...

Question 13

At levels of output close to full employment, the aggregate supply curve is probably

Accepted Answer

A)   very flat.
B)   very steep.
C)   sloped downward.
D)   perfectly elastic.E) C) and D)
F) A) and B)

Question 14

If the MPC of an economy is 0.90 and the economy has a horizontal aggregate supply curve, then an increase in investment spending of $50 million will increase total income by

Accepted Answer

A)   $50 million.
B)   more than $50 million but less than $500 million.
C)   $500 million.
D)   more than $500 million.E) B) and C)
F) A) and C)

Question 15

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

Accepted Answer

A) True 
 B)False  False

Question 16

Stagflation exists when prices rise and output falls.

Accepted Answer

A) True 
 B)False  True

Question 17

What causes the aggregate supply curve to have an upward slope in the short run, but a vertical slope in the long run?

Accepted Answer

When there is substantial unemployment i...

Question 18

Self-correcting mechanism reveals that

Accepted Answer

A)   real wages will increase if there is an increase in price.
B)   nominal wages will fall if there is inflationary gap.
C)   nominal wages will increase if there is recessionary gap.
D)   in the long run economy will be in equilibrium at potential GDP.E) None of the above
F) A) and C)

Question 19

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.E) A) and B)
F) A) and C) C

Question 20

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.E) A) and D)
F) A) and B)

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

An increase in the money wage rate will cause the aggregate supply curve to shift

Correct AnswerverifiedShow Answer

A decrease in the availability of an important major resource such as oil shifts aggregate supply left.

Correct AnswerverifiedShow Answer

The aggregate supply curve slopes

Correct AnswerverifiedShow Answer

A company succumbs to a wage increase demand without any changes in the productivity of labor, price of the product, and the total output sold. Which of the following would happen?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Aggregate supply grows over time because of growing consumer and government spending.

Correct AnswerverifiedShow Answer

Wages are the major element of cost in the economy accounting for about 70 percent of all input costs.

Correct AnswerverifiedShow Answer

The aggregate supply curve is shifted to the right (outward) by a decrease in the price of any input to the production process.

Correct AnswerverifiedShow Answer

Figure 10-1 If the price level in Figure 10-1 were 100,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The typical movement of the aggregate supply curve resulting from an increase in productivity is that it

Correct AnswerverifiedShow Answer

Discuss some of the arguments that help explain why wages and prices rarely fall in a modern economy.

Correct AnswerverifiedInstitutional factors such as minimum wa...View AnswerShow Answer

At levels of output close to full employment, the aggregate supply curve is probably

Correct AnswerverifiedShow Answer

If the MPC of an economy is 0.90 and the economy has a horizontal aggregate supply curve, then an increase in investment spending of $50 million will increase total income by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedFalse

Stagflation exists when prices rise and output falls.

Correct AnswerverifiedTrue

What causes the aggregate supply curve to have an upward slope in the short run, but a vertical slope in the long run?

Correct AnswerverifiedWhen there is substantial unemployment i...View AnswerShow Answer

Self-correcting mechanism reveals that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

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Institutional factors such as minimum wa...
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False

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True

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When there is substantial unemployment i...
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C

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