Econ 104: Chapter 10

In the short run, the price level is determined solely by aggregate supply

False

If the economy were at its potential output level, which of the following would not be true?

Frictional unemployment would be zero.

If the economy were at its potential output level, which of the following would not be true?

The actual unemployment rate would be greater than the natural rate.

If wages are flexible, the long-run aggregate supply curve is vertical.

True

Real wages are nominal wages adjusted for price changes.

Truw

In Exhibit 11-2, a contractionary gap would be represented by the distance

Y1 - Y2

An expansionary gap is equal to

actual short-run output minus potential output

The graph in Exhibit 11-7 shows a(n)

decrease in short-run aggregate supply

If the actual price level is less than the expected price level reflected in long-term contracts,

firms will find production less profitable than they had expected and will decrease the quantity of output supplied

Fixed resource prices help explain why firms

increase output in the short run when the price level increases

A rising price level in the short run may create an incentive for firms to increase production because

profits will increase

If the price level rises by 4 percent and the nominal wage rises 6 percent, the real wage

rises by 2 percent

If the actual price level in Exhibit 11-2 exceeds the expected price level, then

the actual unemployment rate is below the natural rate

In the long run, the economy will produce at potential output if

wages and prices are sufficiently flexible