EXAM 2-MACRO

Within the AD/AS model, how does an economy adjust from an output beyond its long-run capacity as a result of an unanticipated increase in aggregate demand?

Resource prices and real interest rates will rise causing output to fall back to its long-run sustainable rate

When is the economy considered to be at full employment?

When the rate of cyclical unemployment is zero.

Which of the following events will leave GDP unchanged?

You purchase 100 shares of Wal-Mart stock.

If expected inflation is constant and the nominal interest rate increased 3 percentage points, the real interest rate would

increase 3 percentage points

The expansionary phase of the business cycle is characterized by

increasing real output and declining unemployment.

If an unanticipated reduction in aggregate demand throws a market economy into a recession,

lower real resource prices and interest rates will act as a stabilizing force and direct the economy back to its full employment potential.

When the actual rate of unemployment is less than the natural rate of unemployment, the economy

operates at an output greater than its long-run potential.

If nominal GDP increased 2 percent during a year, while real GDP increased 4 percent, the

price level must have decreased approximately 2 percent compared to the prior year.

When full employment is present,

the actual rate of unemployment will equal the natural rate.

If net exports are negative, then

there will be net capital inflow, so American assets bought by foreigners are greater than foreign assets bought by Americans.

When the economy is operating at an output rate less than full-employment capacity,

weak demand for investment will place downward pressure on real interest rates.

Which of the following will most likely occur in the United States as the result of an unexpected rapid growth in real income in Canada and Mexico?

An increase in aggregate demand and output in the short run.

Which of the following will occur if the British pound appreciates relative to most other currencies?

British net exports will fall and AD will decrease.

A professor of economics gets a $100 a month raise. She figures that even with her new monthly salary she will be unable to buy as many goods and services as she could 12 months ago. Given this scenario, which of the following is true?

Her real salary has fallen and her nominal salary has risen.

When output is greater than the economy's long-run capacity, which of the following is most likely to occur?

Increases in real interest rates and real resource prices.

Why is GDP not a perfect measure of welfare?

It treats a dollar spent on candy bars the same as a dollar spent on education

How will increased usage of the Internet by employers and employees influence the job search process?

It will make job-related information less costly and, therefore, tend to reduce the rate of unemployment.

In computing GDP, why are market prices used to value final goods and services?

Market prices reflect the values of goods and services to the buyer.

As the dollar appreciates, which of the following is most likely to occur?

More Americans will travel abroad

As the dollar depreciates, which of the following is most likely to occur?

More foreigners will visit the United States.

A large grain crop resulting from favorable weather conditions would shift which of the following curves?

Only short-run aggregate supply.

The amount of U.S. exports purchased by the rest of the world is primarily determined by which of the following?

Real disposable income in other nations

Which of the following is necessarily true when an economy is in long-run equilibrium?

The actual rate of unemployment equals the natural rate of unemployment.

Which of the following is true when an economy is operating at its full employment rate of output?

The actual rate of unemployment will equal the natural rate.

Which of the following is true if the actual price level is lower than the expected price level reflected in long-term contracts?

The actual rate of unemployment will exceed the natural rate of unemployment.

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run.

Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?

The real figures will reflect changes in the quantity of output and not changes in the general level of prices.

When the economy is operating at an output rate below its full-employment level, the

actual level of unemployment will exceed the natural rate of unemployment.

The recessionary phase of the business cycle is characterized by

decreasing real output and increasing unemployment.

After a particular loan has been paid off, neither the borrower nor the lender has lost purchasing power. Therefore, it must be true that actual inflation was

equal to expected inflation.