macro chapter 10
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
most likely cause an adverse long-run aggregate supply shock and stagflation?
An oil embargo that significantly reduces oil supply to all industrialized countries
Which of the following increases an economy's potential output?
Institutional changes with defined property rights
an economy's potential output level?
The maximum output level that is sustainable, given available resources, technology, institutional constraints, and production incentives.
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.
short run
a period of time during which some resource prices remain fixed.
If firms and resource suppliers in an economy overestimate the actual price level
a. the output and employment fall short of their potential levels in the short run
The equilibrium price in an economy in the long run depends on the:
aggregate demand curve.
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
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
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
The long-run aggregate supply (LRAS) curve is a(n):
horizontal line drawn at the equilibrium price level.
The real wage in an economy will fall if price _____ the nominal wage.
increases more than
Closing an expansionary gap involves inflation and closing a recessionary gap involves deflation.
inflation and deflation
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
A period of time long enough for all input prices and wages to be renegotiated
long run
Nomial wage
measured in US dollars ; amount on workers paycheck
real wage=
nomial wage/price level
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 beneficial supply shock that has a prolonged impact on the economy:
shifts the short-run and long-run aggregate supply curves rightward.
A period of time in which some input prices and wages are fixed
short run
Expansionary gap in an economy occurs when
the aggregate demand in the economy increase
The higher the price leve
the lower the real wage and the less attractive that wage is to workers.
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.
natrual rate on unemployment is
the unemployment rate that occurs when an economy's real GDP is equal to its potential output
real wage
the wage rate divided by the price level
8. When the actual price level in an economy is lower than the expected price level
unemployment exceeds its natural rate