Chapter 12
All of the following will increase the economy's potential output EXCEPT
a decrease in the aggregate price level
When an economy experiences stagflation, it is usually caused by a:
a negative supply shock.
Suppose the economy is operating in long-run equilibrium. If a positive demand shock hits the economy, we would expect:
a short-run increase in real GDP and price level, and a long-run decrease in real GDP and an increase in price level
An increase in government spending on health care is likely to shift the:
aggregate demand curve to the right.
Raising taxes shifts the
aggregate demand curve; left
(Figure: Inflationary and Recessionary Gaps) In Panel (a), the intersection of SRAS with AD indicates:
an economy experiencing a recessionary gap.
Which of the following would likely cause the short-run aggregate supply curve to shift to the left?
an increase in the price of imported oil
If the economy is currently in a recessionary gap, real GDP will be ________ potential output.
below
An aggregate output level lower than potential output means
high unemployment.
Nominal wages are "sticky" because:
in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment.
Stagflation is a combination of
increasing unemployment and increasing inflation
In the long run, the aggregate price level has:
no effect on the quantity of aggregate output
The short-run aggregate supply curve may shift to the right if:
productivity increases.
Because the aggregate price level has no effect on aggregate output in the long run, the long-run aggregate supply curve is:
vertical
The long-run aggregate supply curve is:
vertical