ECON Chapter 10 Pearson

Choose the statement about the business cycle that is correct. A. The business cycle occurs because aggregate demand and​ short-run aggregate supply fluctuate but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP. Your answer is correct.B. The gap between the price level at full employment and the price level at an above​ full-employment equilibrium is the inflationary gap. C. In a business​ cycle, real GDP shows steady growth and steady inflation. D. The business cycle moves from a below​ full-employment equilibrium to an above​ full-employment equilibrium to a​ full-employment equilibrium.

A. The business cycle occurs because aggregate demand and​ short-run aggregate supply fluctuate but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP.

Choose the correct statement about the LAS curve. A. The LAS shifts rightward when the SAS curve shifts rightward and shifts leftward when the SAS curve shifts leftward. B. Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises. C. The LAS curve is vertical because potential GDP is independent of the price level. Your answer is correct. D. The LAS curve shifts rightward when the money wage rate falls.

C. The LAS curve is vertical because potential GDP is independent of the price level. Your answer is correct.

Choose the correct statement. A. In the short​ run, a rise in the price level brings no change in the quantity of real GDP supplied. B. The SAS curve shifts rightward when the price level falls. C. Along the SAS​ curve, the real wage rate and the price level change by the same percentage. D. The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its​ full-employment equilibrium level.

D. The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its​ full-employment equilibrium level.

Which of the following statements about the Keynesian view of the macroeconomy is ​incorrect?

Technological change is the most significant influence on both aggregate demand and aggregate supply.

Examples of monetary policy that decrease aggregate demand include​ ______.

a decrease in the quantity of money and an increase in interest rates

At arrow 1 in the​ graph, the economy is in​ ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the​ ______ of the LAS curve. At arrow​ 2, the economy is in​ ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the​ ______ of the LAS curve.

a​ below; left an​ above; right

A business cycle can be described by the following​ sequence: ​ ______ equilibrium,​ ______ equilibrium,​ ______ equilibrium.

below​ full-employment; full-employment; above​ full-employment

An increase in potential GDP increases​ ______.

both​ long-run aggregate supply and​ short-run aggregate supply

Aggregate demand decreases if monetary policy​ ______ the quantity of money and​ ______ interest rates.

decreases; increases

Aggregate demand decreases if expected future​ income, inflation, or profits​ ______. And aggregate demand decreases if fiscal policy​ ______ government expenditure.

decrease​; decreases

A rise in the money wage rate​ ______.

does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level

Aggregate demand decreases if fiscal policy​ ______ taxes or​ ______ transfer payments.

increases; decreases

Aggregate demand decreases if the exchange rate​ ______ or foreign income ​______.

increases; decreases

Stagflation​ ______.

is a combination of recession and inflation

Long-run macroeconomic equilibrium​ ______.

occurs when real GDP equals potential​ GDP, and the LAS​, SAS​, and AD curves intersect

An international substitution effect arises because when the U.S. price level​ rises, _______.

people spend less on the more expensive​ U.S.-made items and they spend more on the less expensive​ foreign-made items

The quantity of real GDP supplied depends on the​ _______.

quantity of labor​ employed, the quantity of physical and human​ capital, and the state of technology

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______.

the LAS curve​; does not change

When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______.

the SAS​ curve; increases

High inflation accompanies economic growth when​ ______.

the quantity of money increases rapidly

When firms are unable to meet the demand for their​ output, _____. Prices​ _____.

the quantity of real GDP demanded is greater than the quantity of real GDP​ supplied; rise

A​ ______ macroeconomist believes that business cycle fluctuations are the efficient responses of a​ well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change. A​ ______ macroeconomist believes that the​ short-run aggregate supply curve is horizontal at a fixed price level.

New classical; new Keynesian