MACRO

The diagram below shows the production possibilities curve for the production of peaches and apples in Fruitland. Between points X and Y on the PPC, the opportunity cost of one unit of peaches is which of the following? A. 2 units of apples B. 1 unit of apples C. 2 units of peaches D. 1 unit of peaches E. 10 units of apples

(10- 8)/ (5 -3) = 1 B. 1 unit of apples

Which of the following will cause an increase in the equilibrium real interest rate? * (A) An increase in investment demand (B) An increase in national saving (C) An increase in the government budget surplus (D) A decrease in the government budget deficit (E) The purchase of government bonds by the central bank

(A) An increase in investment demand An increase in investment demand increases the demand for loanable funds which increase the real interest rate.

Which of the following shifts the money demand curve to the right? * (A) An increase in the price level (B) A decrease in the price level (C) An increase in interest rates (D) A decrease in interest rates (E) A decrease in the nominal gross domestic product

(A) An increase in the price level An increase in the price level will increase the demand formoney because people will need more money to pay for goods andservices. An increase in the demand for money shifts the demandcurve to the right. (Ch. 13)

Which of the following would best explain a decline in potential gross domestic product? * (A) Negative net investment (B) The discovery of vast new oil deposits (C) A lower price level (D) A decrease in the infant mortality rate (E) A decrease in wages and profits

(A) Negative net investment If investment is negative then capital stock for future production of goods declines and lowers potential GDP.

14. Which of the following statements about inflation is true? * (A) The expected inflation rate is the difference between nominal and real interest rates. (B) Low expected inflation rates lead to high inflation rates. (C) Lenders lose from expected inflation. (D) Lenders gain from unexpected inflation. (E) Workers lose from expected inflation.

(A) The expected inflation rate is the difference between nominal and real interest rates. Real interest rate = nominal interest rate - expected inflation rate.Therefore, if you rewrite the equation then expected inflation rate = nominal interest rate - real interest rate.

As nations specialize in production and trade in international markets, they can expect which of the following domestic Improvements? * I. Allocation of domestic resources II. Standard of living III. Self-sufficiency (A) I only (B) II only (C) III only (D) I and II only (E) I, II, and III

(D) I and II only

Which of the following would be true if the actual rate of inflation were less than the expected rate of inflation? * (A) Inflation had been underpredicted. (B) The real interest rate had exceeded the nominal interest rate. (C) The real interest rate had been negative. (D) People who borrowed funds at the nominal interest rate during this time period would lose. (E) The economy would expand because of the increased investment and spending.

(D) People who borrowed funds at the nominal interest rate during this time period would lose. Lenders (creditors) are hurt by inflation as they are paid back with cheaper dollars (dollars with reduced purchasing power). Borrowers are helped by inflation since they pack with cheaper dollars so if inflation is lower than expected then borrowers are hurt.

If businesses become optimistic about the profitability of investments in an economy, which of the following will happen in the loanable funds market in the short run? * (A) The supply and demand for loanable funds will increase. (B) The supply and demand for loanable funds will decrease. (C) The demand for loanable funds by the private sector will decrease. (D) The real interest rate will increase. (E) The real interest rate will decrease.

(D) The real interest rate will increase. Business optimism will cause Investment (business spending by taking out loans for capital equipment) to increase. This increased demand for loanable funds will increase real interest rates. (Ch. 12)

The diagram above shows two demand curves for video games identified as D1 and D2Which of the following changes will most likely result in a movement from point X to point Y along the demand curve D1 ? On line it goes X then Y, Y is below X A. A decrease in the number of buyers B. A decrease in the price of video games C. A decrease in the expected future price of video games D. An increase in the negative effects of video games on players E. An increase in the use of video games for educational purposes

A. A decrease in the number of buyers

Which of the following statements about inflation is true? * (A) The expected inflation rate is the difference between nominal and real interest rates. (B) Low expected inflation rates lead to high inflation rates. (C) Lenders lose from expected inflation. (D) Lenders gain from unexpected inflation. (E) Workers lose from expected inflation.

(A) The expected inflation rate is the difference between nominal and real interest rates. Real interest rate = nominal interest rate - expected inflation rate.Therefore, if you rewrite the equation then expected inflation rate = nominal interest rate - real interest rate.

The graph below shows the demand for and supply of a good. If the market price is P1, then * P1 is price celling (A) there is a shortage, and the price will rise (B) there is a shortage, and the price will fall (C) there is a surplus, and the price will rise (D) there is a surplus, and the price will fall (E) demand will decrease and supply will Increase

(A) there is a shortage, and the price will rise The graph shows a price ceiling being implemented to protect the consumer from a high equilibrium price in the market. If you trace along the dotted line which is the price ceiling, you will see the quantity demanded is larger than the quantity supplied, thus leading to a shortage of product as consumers like lower prices whereas producers make less at the lower price. In response to the shortage, prices will eventually be driven up to the equilibrium market price.

33. Which of the following is true about inflationary expectations? * (A) The actual unemployment rate equals the natural rate of unemployment if the actual inflation rate exceeds the expected inflation rate. (B) The actual unemployment rate equals the natural rate of unemployment when wages fully adjust to expected inflation. (C) Expectations are always correct in the short run. (D) The actual inflation rate is always equal to the expected inflation rate because of labor contracts. (E) The natural rate of unemployment equals the inflation rate when the actual inflation rate equals the expected inflation rate.

(B) The actual unemployment rate equals the natural rate of unemployment when wages fully adjust to expected inflation. When workers fully expect inflation then they adjust their behavior and the actual unemployment rate will equal the natural rate of the unemployment rate in the long-run. The two unemployment rates are not the same when there are "unexpected" changes in inflation. (Ch. 7, 14)

Which of the following accurately describes the federal funds rate? * (A) The interest rate that banks charge state governments (B) The interest rate that banks charge other banks for overnight loans (C) The interest rate that banks pay on long-term savings (D) The interest rate on personal loans (E) The interest rate on government bonds

(B) The interest rate that banks charge other banks for overnight loans The interest rate that banks charge other banks for overnight loans is the federal funds rate whereas the discount rate is what the Fed charges a bank for a loan.

A country can have an increased surplus in its balance of trade as a result of * (A) an increase in domestic inflation (B) declining imports and rising exports (C) higher tariffs imposed by its trading partners (D) an increase in financial capital inflow (E) an appreciating currency

(B) declining imports and rising exports Balance of trade = exports - imports so an increase in exports a decrease in imports would cause a trade surplus. (Ch. 6)

The demand curve for money shifts to the right when * (A) the nominal interest rate decreases (B) the nominal gross domestic product increases (C) the real gross domestic product decreases (D) inflation decreases (E) the velocity of money increases

(B) the nominal gross domestic product increases Nominal GDP is the same as national income so when income goes up people demand more money for transactions.

Which of the following statements concerning economic growth is true? * (A) If the population is growing faster than potential output, real gross domestic product per capita will definitely increase. (B) with long-run economic growth, there is an increase in aggregate supply. (C) The gap between rich and poor must widen with long-run economic growth. (D) Increasing potential output necessarily increases the economic welfare of the average citizen. (E) Long-run economic growth is only possible with demand management policies.

(B) with long-run economic growth, there is an increase in aggregate supply. The definition of long-run economic growth is an increase in full potential GDP, or an increase in aggregate supply.

For Arthur's graduation gift, Arthur's grandmother gives him a choice: he can receive $1,000 today or $1,050 one year from today. At what annual interest rate would Arthur be indifferent to choosing between the two options? * (A) 50% (B) 10% (C) 5% (D) 2.5% (E) 0.5%

(C) 5% (1,050 - 1,000)/1,000 x 100 = 5%

12. An increase in the equilibrium nominal interest rate could be caused by which of the following changes? * (A) An increase in the monetary base (B) An increase in the money supply (C) An increase in real income (D) A decrease in the amount of cash the public wants to hold (E) A decrease in the price level

(C) An increase in real income An increase in real income increases the demand for money and the equilibrium nominal interest rate.

Which of the following will lower the prices of a country's outstanding government bonds? * (A) An open-market purchase of government bonds by the country's central bank (B) A decrease in the required reserve ratio for the country's commercial banks (C) An outflow of financial capital to other countries (D) A decrease in the country's government spending (E) A decrease in inflationary expectations in the country

(C) An outflow of financial capital to other countries Interest rates and bond prices are inversely related (move in opposite directions). If financial capital leaves a country then real interest rates will increase as supply of loanable funds shifts left or decreases. Bond prices will then decrease with the rise in interest rates.

Which of the following is most likely to increase the real interest rate in Country Z? * (A) Country Z's central bank purchases government securities from banks and citizens. (B) Country Z reduces government expenditures. (C) Country Z is viewed as having increased political and economic risk. (D) Country Z's citizens increase their savings in anticipation of needed retirement income. (E) Country Z introduces a tax on consumption goods.

(C) Country Z is viewed as having increased political and economic risk. During a risky political and economic times, people will withdraw their funds from banks and place them in countries where there is less risk. This depletes the supply of loanable funds in the country undergoing instability and raises the real interest rate.

Which of the following is true about a country's national debt? * (A) It is the sum of the country's trade deficit and government budget deficit. (B) It increases when gross domestic product increases. (C) It increases when the country's government has a budget deficit. (D) It decreases when the country's exports exceed its imports. (E) It decreases when national savings decrease.

(C) It increases when the country's government has a budget deficit. Each fiscal year, when a country's government spends morethan it collects in tax revenues, it runs a budget deficit. Thegovernment often borrows funds to finance its deficit. The nationaldebt grows as the government runs deficits year over year. The national debt is calculated by adding all the deficits and surpluses over the years. (Ch. 4)

Which of the following best describes the nominal interest rate on a mortgage loan that a bank offers to a customer? * (A) It is the real interest rate divided by the price level. (B) It is the real interest rate minus the expected inflation rate. (C) It is the interest rate charged by the bank. (D) It is the interest rate charged by the bank minus the expected inflation rate. (E) It is the interest rate charged by the bank minus the interest rate the bank pays to its depositors.

(C) It is the interest rate charged by the bank. The nominal interest rate is the unadjusted, stated rate of interest charged by the bank, independent of any expected changes in the price level.

Which of the following is a defining characteristic of a fractional reserve banking system? * (A) The existence of a central bank with a monopoly on money creation (B) The use of paper money backed by a commodity such as gold or silver (C) The fact that banks retain an amount of bank reserves that is less than the amount of customer demand deposits (D) The requirement that banks maintain a certain percentage of their reserves as a deposit in an account at the central bank (E) The regulations that separate investment banking from commercial banking

(C) The fact that banks retain an amount of bank reserves that is less than the amount of customer demand deposits Our banking system is called a fractional reserve banking system because banks are required to keep a fraction of deposits in reserve in their vaults and the rest (excess reserves) can be lent out.

Which of the following measures the opportunity cost of holding currency? * (A) The nominal wage rate (B) The increase in the demand for money (C) The forgone interest on alternative assets (D) The ability to access currency to meet unexpected expenses (E) The average income tax rates

(C) The forgone interest on alternative assets When one holds money instead of depositing it in the bank then the opportunity cost is the interest that could have been earned in the bank account. (Ch. 12)

. Assuming no government policies, which of the following will occur in the long run if the actual unemployment rate exceeds the natural rate of unemployment? * (A) Prices will increase. (B) Unemployment will increase. (C) Wages will fall. (D) Aggregate demand will increase. (E) Long-run aggregate supply will decrease.

(C) Wages will fall. Since the actual unemployment rate exceeds the natural rateof unemployment, the economy is experiencing a recessionaryoutput gap. If there is no active policy action to correct themacroeconomic condition, in the long run nominal wages will fall,causing the short-run aggregate supply curve to shift to the rightuntil the economy returns back to potential output. (Ch. 11)

Assume that the United States current account balance is zero. If the United States dollar appreciates against the Japanese yen, then demand for United States exports will * (A) increase and result in a deficit in the United States financial account (B) increase and result in a surplus in the United States financial account (C) decrease and result in a surplus in the United States financial account (D) decrease and result in a deficit in the United States financial account (E) remain unchanged because the surplus in the current account will be offset by the deficit in the financial account

(C) decrease and result in a surplus in the United States financial account The appreciating dollar will make United States goods andservices relatively expensive to Japanese buyers, and Japanese demandfor United States goods and services will decrease. United States exports to Japan will decrease, but United States imports from Japan will increase because of the appreciating dollar, resulting in an increase in the United States trade deficit with respect to Japan. This will lead to a deficit in the United States current account and a surplus in the UnitedStates capital and financial account. (Ch. 5, 6)

An increase in the money supply will result in an increase in * (A) output in the short run and in the long run (B) inflation in the short run and an increase in output in the long run (C) inflation in the short run and no change in output in the long run (D) output in the long run but not in the short run (E) output in the long run and no change in inflation in the short run

(C) inflation in the short run and no change in output in the long run Feedback Assuming the economy is in long-run equilibrium when the money supply increased, interest rates will decrease causing investment to increase and AD to increase. There will be an increase in the price level in the short run, but the economy will return back to full-employment output in the long run at a higher price level and output does not change as the LRAS is vertical. (Ch. 13)

If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000? * (A) $100,000 (B) $90,333 (C) $10,000 (D) $9,000 (E) $1,000

(D) $9,000 required reserves = 0.10 x $10,000 = $1,000Excess reserves = $10,000 - $1,000 = $9, 000

Which of the following is an example of frictional unemployment? * (A) A former mayor doing volunteer work (B) A factory worker who loses her job because of recession (C) A college student working part-time at the campus bookstore (D) A college graduate interviewing for two available positions (E) An architect whose job is replaced by computer software that designs buildings

(D) A college graduate interviewing for two available positions A college graduate that is interviewing and actively lookingfor a job remains unemployed until making a decision to accept thejob. This is considered frictionally unemployed. (Ch. 7)

Which of the following would best explain an inward shift of the production possibilities curve? * (A) An increase in the labor-force participation rate (B) An increase in the rate of savings (C) A decrease in the quantity of inputs required to produce a unit of output (D) A decrease in the quality of human capital (E) A decrease in the government's budget deficit that leads to lower real interest rates

(D) A decrease in the quality of human capital A decrease in the quantity or quality of any resource (land, labor, or capital) will reduce production possibilities and cause an inward shift of the PPC and LRAS curve.

The real interest rate earned is the * (A) same as the nominal interest rate when inflation is moderate (B) cost of borrowing in current consumer prices (C) cost of borrowing in current producer prices (D) cost of borrowing adjusted for the rate of change in the price level (E) nominal interest rate adjusted for the growth rate of the economy

(D) cost of borrowing adjusted for the rate of change in the price level Real interest rate = nominal interest rate - inflation rate.subtracting inflation is adjusting for change in price levels

An economy's full-employment real output will decrease when * (A) price level increases (B) price level decreases (C) technological change increases labor productivity (D) workers choose shorter weeks to enjoy more leisure time (E) the stock of physical capital is growing at a constant rate

(D) workers choose shorter weeks to enjoy more leisure time A decrease in any resources (land, labor, or capital) will causes output or GDP to decrease. Thus, if workers choose to work less then labor resources are not being fully utilized to produce output causing output to decrease.

Which of the following transactions is included in the financial account of Country X's balance of payments accounts? * (A) A firm in Country X sells robots to a firm in Country A. (B) Country X sends financial aid to Country B. (C) An individual in Country X receives dividend payments from a firm in Country C. (D) An individual in Country X sends money monthly to family members in Country D. (E) An individual in Country X buys new government bonds issued by Country E.

(E) An individual in Country X buys new government bonds issued by Country E. The financial account involves financial assets such as gold, currency, derivatives, special drawing rights, equity, and "bonds." (Ch. 6)

If the interest rate on loans before adjusting for inflation is 9%, and the expected inflation rate is 4%, then which of the following must be true? * (A) Lenders are expected to receive an additional 4% on their loaned funds. (B) Borrowers are expected to pay an additional 4% on their borrowed funds. (C) The expected real interest rate is 9%. (D) The expected real interest rate is 13%. (E) The nominal interest rate is 9%. Correct answer (E) The nominal interest rate is 9%. Feedback The interest rate on loans before adjusting for inflation is the nominal interest rate, which is 9%.

(E) The nominal interest rate is 9%. The interest rate on loans before adjusting for inflation is the nominal interest rate, which is 9%.

Economic growth is best defined as * (A) a reduction in the infant mortality rate (B) a decrease in the unemployment rate (C) an increase in the labor force participation rate (D) a short-run increase in gross domestic product without inflation (E) a sustained increase in real gross domestic product per capita

(E) a sustained increase in real gross domestic product per capita Real GDP per capita is a measurement of the total economic output of a country divided by the number of people and adjusted for inflation. It's used to compare the standard of living between countries and over time.

If the reserve requirement is 10 percent and the central bank sells $10,000 in government bonds on the open market, the money supply will * (A) increase by a maximum of $9,000 (B) increase by a maximum of $90,000 (C) decrease by a maximum of $9,000 (D) decrease by a maximum of $10,000 (E) decrease by a maximum of $100,000

(E) decrease by a maximum of $100,000 money multiplier = 1/reserve requirement = 1/0.10 = 10. 10 x $10,000 = $100, 000

If at full employment, the government wants to increase its spending by $100 billion without increasing inflation in the short run, it must do which of the following? * A. Raise taxes by more than $100 billion. B. Raise taxes by $100 billion. C. Raise taxes by less than $100 billion. D. Lower taxes by $100 billion. E. Lower taxes by less than $100 billion.

A. Raise taxes by more than $100 billion. The spending multiplier is larger than the tax multiplier by 1 so that is why the tax increase must be larger than the government spending increase.

7. Prices below the equilibrium price cause a(n) * A. shortage to develop and drive prices up. B. shortage to develop and drive prices down. C. surplus to develop and drive prices up. D. surplus to develop and drive prices down. E. increase in demand.

A. shortage to develop and drive prices up. A price set below the equilibrium price is called a price ceiling and is instituted usually by the government to protect consumers. Since the price is lowered below the market price, then the quantity demanded rises(as consumers like lower prices), and the quantity supplied decreases (as sellers like higher prices) causing a shortage in the market. This pushes prices up as buyers compete for a good that has become more scarce.

Which of the following changes would cause an economy's aggregate demand curve to shift to the right? * A. An increase in spending on imports B. An increase in autonomous consumption spending C. An increase in interest rates D. A decrease in the money supply E. An increase in the cost of inputs

B. An increase in autonomous consumption spending AD = C + I + G + X - M so if consumption increases then AD increases.

Which of the following is true of a horizontal aggregate supply curve? * A. It is the usual assumption made by classical economists analyzing the long run. B. It suggests that increases in output can occur without increases in price levels. C. It suggests that a shift in the aggregate demand curve will lead to a change in the price level. D. It is likely to occur only in highly industrialized economies. E. It cannot shift, therefore output remains constant.

B. It suggests that increases in output can occur without increases in price levels.

If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of * A. $40.00 B. $100.00 C. $133.33 D. $400.00 E. $500.00

D. $400.00 the spending multiplier is 1/MPS = 1/0.25 = 4. 4 x $100 = $400

An appreciation of the United States dollar on the foreign exchange market could be caused by a decrease in which of the following? * A. United States interest rates B. The United States consumer price index C. Demand for the dollar by United States residents D. Exports from the United States E. The tariff on goods imported into the United States

B. The United States consumer price index The U.S. consumer price index measures inflation so if that is decreasing then prices in the U.S. are decreasing which will cause foreigners to buy more U.S. goods which will cause the demand for the U.S. dollar to increase, which appreciates the dollar relative to foreign currencies.

Using 2010 as the base year, the gross domestic product (GDP) deflator in 2011 was 97. Which of the following must be true? * A. The inflation rate in 2011 was positive. B. The inflation rate in 2011 was negative. C. The inflation rate in 2011 was zero. D. The purchasing power of a dollar decreased by 3 percent. E. The real output increased by 3 percent.

B. The inflation rate in 2011 was negative. The GDP deflator is the ratio between nominal GDP and real GDP×100. Since the GDP deflator in 2011 was less than 100, 2011 prices were falling and therefore the inflation rate in 2011 was negative.

If the central bank holds interest rates constant, an autonomous decrease of $10 million in investment spending will most likely result in * A. a decrease of exactly $10 million in gross domestic product B. a decrease of more than $10 million in gross domestic product C. an increase of $10 million in taxes to offset the decrease in investment D. an increase of $10 million in aggregate supply to offset the decrease in investment E. an increase in the cost of loans for investment purposes

B. a decrease of more than $10 million in gross domestic product

Which of the following is NOT a function of flat money? * A. A standard of deferred payment B. A unit of account C. A source of intrinsic value D. A store of value E. A medium of exchange

C. A source of intrinsic value Flat currency is legal tender whose value is backed by the government that issued it. The U.S. dollar is fiat money, as are the euro and many other major world currencies. This approach differs from money whose value is underpinned by some physical good such as gold or silver, called commodity money.

The diagram below shows two points on the short-run aggregate supply curve. * G is below H Which of the following is demonstrated my a movement from point g to point h? A. A decrease in full employment output B. A decrease in aggregate demand C. An increase in real output due to an increase in the price level D. An increase in real output due to technological change E. An increase in unemployment

C. An increase in real output due to an increase in the price level Movements along the AS curve shows the relationship between price level and output (real GDP).

Assume that the United States current account balance is zero. If the United States dollar appreciates against the Japanese yen, then demand for United States exports will * A. increase and result in a deficit in the United States financial account B. increase and result in a surplus in the United States financial account C. decrease and result in a surplus in the United States financial account D. decrease and result in a deficit in the United States financial account. E. remain unchanged because the surplus in the current account will be offset by the deficit in the financial account

C. decrease and result in a surplus in the United States financial account The appreciating dollar will make United States goods and services relatively expensive to Japanese buyers, and Japanese demand for United States goods and services will decrease. United States exports to Japan will decrease, but United States imports from Japan will increase because of the appreciating dollar, resulting in an increase in the United States trade deficit with respect to Japan. This will lead to a deficit in the United States current account and a surplus in the United States capital and financial account.

Which of the following will cause a movement along the demand curve for chicken, a normal good, resulting in an increase in the quantity demanded? A. An increase in consumers' income B. An increase in the price of fish, a substitute good C. An increase in the price of barbecue sauce, a complementary good D. A decrease in the price of chicken E. A decrease in the number of consumers of chicken

D. A decrease in the price of chicken A decrease in the price of chicken (the good's price) causes a movement along the demand curve, resulting in an increase in the quantity demanded, according to the law of demand.

An increase in a country's current account surplus will result in which of the following in the short run? * A. A decrease in the country's government budget surplus B. A decrease in the country's national savings C. A decrease in the country's financial account deficit D. An increase in the country's net financial capital outflows E. An increase in the country's national debt

D. An increase in the country's net financial capital outflows A current account surplus indicates that a nation is a net lender to the rest of the world. An increase in a country's current account surplus causes a country's financial capital outflows to increase.

Which of the following will shift the aggregate demand curve to the right? * A. A report that corporate earnings were lower than expected B. An increase in interest rates caused by a tightening of monetary policy C. Increased imports caused by appreciation of the dollar D. Increased spending by businesses on computers E. An increase in the government's budget surplus

D. Increased spending by businesses on computers AD = C + I + G + X - M. Spending on computers by businesses is an increase in Investment spending which would increase AD which is shown as a shift to right of the AD curve.

4. Which of the following is an assumption underlying an upward-sloping short-run aggregate supply curve? * A. The economy is experiencing high inflation. B. The economy is at full employment. C. National income is fixed. D. Wages are sticky. E. The velocity of money is constant.

D. Wages are sticky. In the short-run, the aggregate supply curve is upward sloping because some nominal input prices are fixed

Macroeconomics includes the study of A. how an individual firm decides the price of its product. B. the restaurant industry C. how many Dell computers are produced each year D. the national unemployment rate E. how to retrain out of work lumber workers in the Northwest

D. the national unemployment rate

The graph below shows the demand for and supply of a good. If the market price is P1, then * P1 is a price floor A. there is a shortage, and the price will rise B. there is a shortage, and the price will fall C. there is a surplus, and the price will rise D. there is a surplus, and the price will fall E. demand will decrease and supply will increase

D. there is a surplus, and the price will fall The graph shows a price floor being implemented to protect the producer from a low equilibrium price in the market. If you trace along the dotted line which is the price floor, you will see the quantity demanded is smaller than the quantity supplied, thus leading to a surplus of product as supplierslike higher prices whereas consumers buy less at the higher price. To get rid of the surplus, prices will eventually fall back to the equilibrium market price.

Which of the following would cause the short-run aggregate supply curve to shift to the right? * A. An increase in the wage rate B. An increase in the interest rate C. An increase in the natural rate of unemployment D. A decrease in the capital stock E. A decrease in the expected price level

E. A decrease in the expected price level A decrease in expected lower price level will cause AS curve to shift right as expected production costs go down.

When supply decreases, * A. the supply curve shifts to the right. B. equilibrium price and equilibrium quantity both increase. C. equilibrium price and equilibrium quantity both decrease. D. equilibrium price decreases and equilibrium quantity increases. E. equilibrium price increases and equilibrium quantity decreases.

E. equilibrium price increases and equilibrium quantity decreases. A decrease in supply is a shift of the supply curve to the left. If you graph this shift, you will see that the price increases and the quantity of the good decreases as a result if the demand curve remains the same.

According to the business cycle represented in the diagram above, the actual rate of unemployment equals the natural rate of unemployment when the economy is A. in expansion B. n contraction C. at the peak D.at the trough E. on the potential line

E. on the potential line Actual unemployment rate (full-employment) occurs when the economy is operating at full-potential GDP.