Macro Econ Ch 10 Quiz 1-4

The following image shows the initial long-run aggregate supply curve (LRAS) and short-run aggregate supply curve (SRAS), the aggregate demand (AD) curve, and shifts in the LRAS and SRAS curves in an economy. If there is an adverse supply shock, the economy is likely to produce an output equal to:

$20 trillion at a price level of 113.

The following image shows the initial long-run aggregate supply curve (LRAS) and short-run aggregate supply curve (SRAS), the aggregate demand (AD) curve, and shifts in the LRAS and SRAS curves in an economy. If there are technological breakthroughs that make production more efficient, then the economy is likely to produce an output equal to:

$40 trillion at a price level of 111.

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2

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Winona currently earns a nominal wage of $12.00 per hour. Suppose the price of orange juice is $4.00 per gallon. In this case, Winona's real wage, in terms of the amount of orange juice she can buy with her paycheck, is _____ gallons of orange juice per hour.

3

10

4

The following image shows the initial long-run aggregate supply curve (LRAS) and short-run aggregate supply curve (SRAS), the aggregate demand (AD) curve, and shifts in the LRAS and SRAS curves in an economy. Suppose there is an adverse supply shock. Which of the following shifts in SRAS and LRAS are likely to happen?

An adverse supply shock shifts both SRAS and LRAS curves to the left. SRAS shifts to SRAS1 and LRAS shifts to LRAS1.

Which of the following would most likely cause an adverse long-run aggregate supply shock and stagflation?

An oil embargo that significantly reduces oil supply to all industrialized countries. most likely cause an adverse long-run aggregate supply shock and stagflation.

Which of the following statements is true?

Closing an expansionary gap involves inflation and closing a recessionary gap involves deflation.

Which of the following correctly describes a long-run equilibrium?

In the long run equilibrium, aggregate demand equals aggregate supply.

Which of the following increases an economy's potential output?

Institutional changes with defined property rights.

Which of the following is the most likely result of a recessionary gap?

Market forces will lower nominal resource costs

Latasha and her employer both expected inflation to be 3% between 2012 and 2013, so they agreed, in a two-year contract, that she would earn $12.00 per hour in 2012 and $12.36 per hour in 2013. However, suppose inflation between 2012 and 2013 actually turned out to be 6%, not 3%. For example, suppose the price of orange juice rose from $2.40 per gallon to $2.54 per gallon. This means that between 2012 and 2013, Latasha's nominal wageincreased by 3% , and her real wagedecreased by approximately3% .

Percentage Change in Nominal WagePercentage Change in Nominal Wage = = 100×Nominal Wage in 2013−Nominal Wage in 2012Nominal Wage in 2012100×Nominal Wage in 2013−Nominal Wage in 2012Nominal Wage in 2012 = = 100×$12.36−$12.00$12.00100×$12.36−$12.00$12.00 = = 100×$0.36$12.00100×$0.36$12.00 = = 100×0.03100×0.03 = = 3%

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

Real GDP The price level

Which of the following is a reason for the short-run aggregate supply curve of an economy becoming steeper as output increases?

Resources in the economy become scarcer as output increases.

The following image shows the initial long-run aggregate supply curve (LRAS) and short-run aggregate supply curve (SRAS), the aggregate demand (AD) curve, and shifts in the LRAS and SRAS curves in an economy. Suppose there is a technological breakthrough in the economy that makes production more efficient. Which of the following shifts in SRAS and LRAS would result in this scenario?

SRAS shifts to SRAS2 and LRAS shifts to LRAS2.

Which of the following correctly describes an economy's potential output level?

The maximum output level that is sustainable, given available resources, technology, institutional constraints, and production incentives.

The term potential output 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 wagesThe short-run aggregate supply curve shows:

The short-run aggregate supply curve shows:

The short-run aggregate supply curve shows:

The term natural rate of unemployment refers to:

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

Which of the following was observed in the United States during the 1970s, when the economy faced a series of adverse supply shocks?

Total output declined and the price level increased.

The short-run aggregate supply curve shows:

What happens to output in an economy as the actual price level changes, holding all other determinants of real GDP constant

An expansionary gap results in:

a higher price level.

The term "short run" refers to:

a period of time during which some resource prices remain fixed.

The equilibrium price in an economy in the long run depends on the

aggregate demand curve

The following image shows the initial long-run aggregate supply curve (LRAS) and short-run aggregate supply curve (SRAS), the aggregate demand (AD) curve, and shifts in the LRAS and SRAS curves in an economy. At the initial long-run equilibrium, the economy produces an output of: Figure 10.1

b. $30 trillion at a price level of 112.

If aggregate demand turns out to be lower than anticipated, then the short-run equilibrium occurs at an output level _____ potential output. This difference between short-run equilibrium output and potential output is called a(n) _____ gap.

below; recessionary

Actual output of an economy:

can exceed its potential output in the short run but not in the long run

A decline in real wages is required to

close a recessionary gap.

The natural rate of unemployment prevails when

cyclical unemployment is zero

If the price level in an economy increases by 3 percent and the nominal wages increase by 2%, then the real wages:

decrease by 1%

The amount by which short-run output exceeds an economy's potential output is called a(n):

expansionary gap.

Suppose an economy produces an output equal to $500 trillion and the economy's potential output is $490 trillion. The _____ in the economy is _____.

expansionary gap; $10 trillion

Expansionary gap in an economy occurs when _____

he aggregate demand in the economy increases

The real wage in an economy will fall if price _____ the nominal wage.

increases more than

When aggregate production in an economy exceeds its potential output level, it results in

inflationary pressure, causing the short-run aggregate supply curve to shift to the left.

In the long run, there are _____ price level surprises, meaning that the actual price level _____ the anticipated price level.

larger; greater

The more the short-run output exceeds the economy's potential, the _____ the expansionary gap and the _____ the upward pressure on the price level.

larger; greater

The slope of the short-run aggregate supply curve depends on the relationship between the:

marginal cost of production and the real GDP.

The _____ measures a worker's earnings in today's dollars, or the amount on a worker's paycheck, while the _____ measures the wage in constant dollars, or the purchasing power of the worker's earnings.

nominal wage; real wage

If aggregate demand turns out to be higher than what was anticipated in an economy, then the short-run equilibrium occurs at a(n):

output level higher than the potential output.

If the aggregate demand in an economy increases in the long run, _____.

potential output will remain constant and the price level will increase

Suppose an economy is producing an output equal to $670 trillion and the economy's potential output is $685 trillion. The _____ in the economy is _____.

recessionary gap; $15 trillion

Coordination failures in an economy result in:

recessionary gaps

When an economy's output is below its potential level

resource prices decline in markets where prices are flexible

Closing a recessionary gap involves a

rightward shift of the short-run aggregate supply curve

A period of time in which some input prices and wages are fixed A period of time long enough for all input prices and wages to be renegotiated

sHORT RUN LONG RUN

A beneficial supply shock that has a prolonged impact on the economy

shifts the short-run and long-run aggregate supply curves rightward.

In the short run, there is a direct relationship between:

the actual price level and the real GDP supplied, other things remaining constant.

The higher the price level, _____.

the lower the real wage and the less attractive that wage is to workers.

If the firms produce beyond an economy's potential output level, _____.

the nominal cost of labor increases in the short run

If firms and resource suppliers in an economy overestimate the actual price level, _____.

the output and employment fall short of their potential levels in the short run

At higher rates of output, _____.

the per-unit cost of additional output increases

The short-run equilibrium price level and real GDP correspond to the point of intersection between

the short-run aggregate supply curve and the aggregate demand curve.

The natural rate of unemployment refers to

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

If an economy produces its potential output level, _____.

there is no tendency for price or output to change

When the actual price level in an economy is lower than the expected price level, _____

unemployment exceeds its natural rate

The long-run aggregate supply (LRAS) curve is a(n):

vertical line drawn at the potential output level