Macro Economics

The short-run aggregate supply curve represents circumstances where: both input and output prices are fixed. both input and output prices are flexible. input prices are fixed, but output prices are flexible. input prices are flexible, but output prices are fixed.

input prices are fixed, but output prices are flexible.

Graphically, cost-push inflation is shown as a: leftward shift of the AD curve. rightward shift of the AS curve. leftward shift of the AS curve. rightward shift of the AD curve.

leftward shift of the AS curve.

Other things equal, an improvement in productivity will: increase the equilibrium price level. shift the aggregate supply curve to the left. shift the aggregate supply curve to the right. shift the aggregate demand curve to the left.

shift the aggregate supply curve to the right.

The aggregate supply curve: is explained by the interest rate, real-balances, and foreign purchases effects. gets steeper as the economy moves from the top of the curve to the bottom of the curve. shows the various amounts of real output that businesses will produce at each price level. is downsloping because real purchasing power increases as the price level falls.

shows the various amounts of real output that businesses will produce at each price level.

The aggregate supply curve (short run): slopes downward and to the right. graphs as a vertical line. slopes upward and to the right. graphs as a horizontal line.

slopes upward and to the right.

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: the money supply has declined. the price level is inflexible downward and a recession has occurred. cost-push inflation has occurred. productivity has declined.

the price level is inflexible downward and a recession has occurred.

(Consider This) The ratchet effect is the tendency of: the price level to increase but not to decrease. nominal GDP to increase more rapidly than real GDP. real interest rates to fall more rapidly than nominal interest rates. consumption to rise year after year regardless of what happens to disposable income.

the price level to increase but not to decrease.

In which of the following sets of circumstances can we confidently expect inflation? Aggregate supply and aggregate demand both increase. Aggregate supply and aggregate demand both decrease. Aggregate supply decreases and aggregate demand increases. Aggregate supply increases and aggregate demand decreases.

Aggregate supply decreases and aggregate demand increases.

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. The per-unit cost of production in this economy is: $0.05. $0.10. $0.50. $1.00.

$0.10.

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the per-unit cost of production will rise by about: 100 percent. 50 percent. 40 percent. 30 percent.

30 percent.

In the diagram, the economy's immediate-short-run AS curve is line ______, its short-run AS curve is _____, and its long-run AS curve is line ______. 1; 2; 4 1; 2; 3 2; 3; 4 3; 2; 1

3; 2; 1

Efficiency wages are: above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages. wage payments necessary to compensate workers for unpleasant or risky work conditions. usually less than market wages. relevant to macroeconomics because they explain rightward shifts in aggregate demand.

above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

Menu costs: increase during recession. decrease during recession. are the costs to firms of changing prices and communicating them to customers. are sunk costs and therefore should be disregarded.

are the costs to firms of changing prices and communicating them to customers.

The economy's long-run aggregate supply curve: slopes upward and to the right. is vertical. is horizontal. slopes downward and to the right.

is vertical.

Graphically, demand-pull inflation is shown as a: rightward shift of the AD curve along an upsloping AS curve. leftward shift of the AS curve along a downsloping AD curve. leftward shift of the AS curve along an upsloping AD curve. rightward shift of the AD curve along a downsloping AS curve.

rightward shift of the AD curve along an upsloping AS curve.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. Given an increase in input price from $4 to $6, we would expect the aggregate: supply curve to shift to the left. supply curve to shift to the right. demand curve to shift to the left. supply and demand curves to both remain unchanged.

supply curve to shift to the left.

Answer the question on the basis of the following information. An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. Refer to the information. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the aggregate: supply curve would shift to the left. supply curve would shift to the right. demand curve would shift to the left. demand curve would shift to the right.

supply curve would shift to the left.

The equilibrium price level and level of real output occur where: real output is at its highest possible level. exports equal imports. the price level is at its lowest level. the aggregate demand and supply curves intersect.

the aggregate demand and supply curves intersect.

Per-unit production cost is: real output divided by inputs. total input cost divided by units of output. units of output divided by total input cost. a determinant of aggregate demand.

total input cost divided by units of output.

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of: the foreign purchases effect. inflexible product prices. wage contracts. the wealth effect.

wage contracts.

Other things equal, a reduction in personal and business taxes can be expected to: increase aggregate demand and decrease aggregate supply. increase both aggregate demand and aggregate supply. decrease both aggregate demand and aggregate supply. decrease aggregate demand and increase aggregate supply.

increase both aggregate demand and aggregate supply.

The economy's long-run AS curve assumes that wages and other resource prices: eventually rise and fall to match upward or downward changes in the price level. are flexible upward but inflexible downward. rise and fall more rapidly than the price level. are relatively inflexible both upward and downward.

eventually rise and fall to match upward or downward changes in the price level.

Prices and wages tend to be: flexible both upward and downward. inflexible both upward and downward. flexible downward, but inflexible upward. flexible upward, but inflexible downward.

flexible upward, but inflexible downward.

Productivity measures: real output per unit of input. per-unit production costs. the changes in real wealth caused by price level changes. the amount of capital goods used per worker.

real output per unit of input.

The fear of unwanted price wars may explain why many firms are reluctant to: reduce wages when a decline in aggregate demand occurs. reduce prices when a decline in aggregate demand occurs. expand production capacity when an increase in aggregate demand occurs. provide wage increases when labor productivity rises.

reduce prices when a decline in aggregate demand occurs.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: reduce per-unit production costs. reduce worker morale and work effort, and thus lower productivity. increase the firms' cost of raising financial capital. reduce the demands for their products.

reduce worker morale and work effort, and thus lower productivity.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question on the basis of this information. Refer to the information. All else being equal, if the price of each input increased from $4 to $6, productivity would: fall from 2 to 3. fall from .50 to .33. rise from 1 to 2. remain unchanged.

remain unchanged.