Econ Chapter 10

The term full-employment unemployment rate refers to:

The unemployment rate that occurs when an economy's real GDP is equal to its potential output

When the economy adjusts to a recessionary gap, wages and other input prices

fall, which shifts aggregate supply to the right, restoring potential GDP

If the MPC of an economy is 0.80, an increase in investment spending by $100 million will increase total income by _____, if the effects of change in price level are ignored.

$500 million

_____ is likely to lead to growth in an economy without an increase in price levels?

A proportionate increase in aggregate demand and aggregate supply

In which of the following economies is the self-correcting mechanism expected to be very rapid?

An economy with flexible prices

_____ are the likely results of an adverse supply shock.

An increase in prices and a decrease in output

The short-run aggregate supply curve shows:

Changes in output in an economy as the price level changes, holding all other determinants of real GDP constant

Which of the following does not shift the aggregate supply curve?

Increases in government spending

Identify from the following the statement that correctly describes the effect of inflation on the oversimplified multiplier.

It decreases the multiplier by decreasing consumer spending.

Which of the following best defines the phenomenon of stagflation?

It is the conjunction of economic stagnation and inflation.

Identify the correct statement about the shape of the aggregate supply curve.

It slopes upward because prices of some inputs are fixed only in the short run.

Which of the following is true of the years 2002 through mid-2008 in the United States?

Output and price level rose throughout the period

Which is not a reason why the aggregate supply curve slopes upward?

The higher selling prices for goods and services, the lower the costs.

The term potential output (or potential GDP) refers to:

The quantity of output produced when the price level is the same as firms and workers expected when they agreed on input prices and wages

Which of the following are assumed to remain unchanged along a given short-run aggregate supply curve? Check all that apply

The technology available to firms Institutions, such as patent laws and tax systems, that make up the "rules of the game" Input prices

Which of the following is likely to happen if the aggregate quantity demanded exceeds aggregate quantity supplied in an economy?

There will be an unplanned depletion of inventories, causing firms to raise prices.

Considering the aggregate demand and aggregate supply curve model, which of the following is not true?

Where aggregate supply and aggregate demand cross, the economy will be at potential output.

If the price level in the economy is below the equilibrium price level, _____.

aggregate quantity demanded will exceed aggregate quantity supplied

A positive supply shock can occur when

aggregate supply increases as global oil prices fall.

The Middle East conflict that raised oil prices between 2002 and 2008 caused the _____ curve to shift _____ in the United States during that period.

aggregate supply; inward

An improvement in the level of technology in an economy will result in

an outward shift of the aggregate supply curve.

During a recession, wages do not adjust quickly because

businesses may find it harder to retain their best workers.

During periods of high inflation, net exports of a country _____.

decrease as imports increase

An economic expansion accompanied by high inflation can most likely be attributed to a(n) _____, everything else remaining unchanged.

increase in aggregate demand

An increase in the wage rates in an economy is most likely to lead to a(n)

inward shift of the aggregate supply curve

A decrease in the price of energy in an economy is likely to result in a(n)

inward shift of the aggregate supply curve.

The short-run aggregate supply curve

is upward sloping.

A slower growth rate of aggregate demand with aggregate supply growth will lead to

less inflation and slow growth.

If the MPC in an economy with an upward-sloping aggregate supply curve is 0.80, an increase in investment spending by $20 billion will most likely increase total income by an amount

less than $100 billion.

If investment spending increases by $20 million and the MPC is 0.75, we should expect the overall impact to be ______ than ______, which is the change in national income using the oversimplified multiplier.

less, $80 million

An increase in an economy's productivity will result in a(n)

outward shift of the aggregate supply curve.

To adjust to an inflationary gap, the economy will experience some

stagflation from a leftward shift of the aggregate supply curve.

If the price level is above the equilibrium price level, _____.

there would be an excess supply of goods in the market

A firm's per unit profit can be calculated using the equation,

unit profit equals price minus unit cost.

Most economists reason that an economy adjusts to inflationary and recessionary gaps slowly because _____ are fixed in the short run.

wages

When the economy is experiencing an inflationary gap, the aggregate supply curve

will shift to the left as nominal wages increase, which induces inflation and restores potential output.