Macroeconomics - Chapter 10 Review

Because nominal wages fall slowly, the supply-side adjustments needed to close a contractionary gap may take very long. a. True b. False

a. True

Increases in the costs of production will shift the short-run aggregate supply curve to the left. a. True b. False

a. True

Real wages are nominal wages adjusted for price changes. a. True b. False

a. True

If the economy is experiencing an expansionary gap, which of the following will occur in the long run? a. Workers will negotiate nominal wage increases that will shift the SRAS curve to the left. b. Workers will negotiate nominal wage increases that will shift the SRAS curve to the right. c. Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the right. d. Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the left. e. Aggregate demand will fall because workers' incomes are rising.

a. Workers will negotiate nominal wage increases that will shift the SRAS curve to the left.

In the short run, if the economy is operating below potential output and if the aggregate supply curve shifts outward, then the price level will a. decrease and output will increase b. increase and output will decrease c. decrease and output will decrease d. increase and output will increase e. increase and output will remain unchanged

a. decrease and output will increase

The real wage represents the a. quantity of goods and services a worker can purchase in exchange for work time b. dollar value of the goods and services a worker can purchase in exchange for working c. nominal wage minus taxes paid on wages d. actual amount of income a worker receives after deductions for such things as taxes, insurance, and the like e. nominal wage times the price level

a. quantity of goods and services a worker can purchase in exchange for work time

Aggregate supply expresses the relationship between a. the price level in the economy and the aggregate output firms will produce, other things constant b. the price level and the aggregate amount people will buy at that price level c. the price level and the potential amount of output that could be produced d. the quantity of output that will be produced and sold in one year e. the actual output and the potential output of the economy

a. the price level in the economy and the aggregate output firms will produce, other things constant

If nominal wages are sticky in the downward direction, a. unemployment may persist for long periods of time b. shortages of labor may persist for long periods of time c. increases in real wages will happen too quickly to affect unemployment d. nominal wage increases will reduce the price level e. decreases in nominal wages will increase the inflation rate

a. unemployment may persist for long periods of time

At the potential level of output, there is no seasonal unemployment. a. True b. False

b. False

Which of the following would shift the LRAS curve to the right? a. a decline in the length of the average workweek b. an improvement in technology c. a drought d. an increase in aggregate demand e. an increase in the minimum wage

b. an improvement in technology

Which of the following is true about real and nominal wages? a. The nominal wage will be constant only if the inflation rate is constant. b. The real wage will be constant only if the inflation rate is constant. c. Changes in the nominal wage will be the same as changes in the real wage only if the price level is constant. d. The real wage will be constant only if the price level is constant. e. The real wage will be constant only if the nominal wage is constant.

c. Changes in the nominal wage will be the same as changes in the real wage only if the price level is constant.

If an economy is at its potential output level, which of the following is not true? a. The economy is at its full-employment output level. b. Unemployment is at the natural level. c. The price level is zero. d. The output level being produced can be sustained indefinitely given the economy's resources and technology. e. The only unemployment is frictional, structural, or seasonal.

c. The price level is zero.

The long-run aggregate supply curve is represented by a. an upward-sloping line b. a downward-sloping line c. a vertical line d. a horizontal line e. any of the above; it depends on the relationship between the actual and the expected price level

c. a vertical line

In long-run equilibrium, a. actual output can exceed potential output b. potential output can exceed actual output c. actual output must equal potential output d. actual price levels can exceed expected price levels e. expected price levels can exceed actual price levels

c. actual output must equal potential output

An expansionary gap is equal to a. real GDP minus nominal GDP b. nominal GDP minus real GDP c. actual short-run output minus potential output d. this period's nominal GDP minus last period's nominal GDP e. this period's real GDP minus last period's real GDP

c. actual short-run output minus potential output

Because some resource prices are assumed to be constant in the short run, a. the aggregate supply curve is horizontal in the short run b. the aggregate supply curve is vertical in the short run c. costs do not increase as much as output prices do when the price level rises d. an increase in price per unit is the same thing as a decrease in profit per unit e. firms' total costs of production decrease as output increases

c. costs do not increase as much as output prices do when the price level rises

The short-run aggregate supply curve slopes upward because quantity supplied a. increases when cost per unit falls b. decreases when cost per unit falls c. increases when the price level increases d. increases when GDP decreases e. decreases as profit per unit increases

c. increases when the price level increases

During a recession, output is a. above potential and unemployment is below the natural rate b. above potential and unemployment is above the natural rate c. below potential and unemployment is below the natural rate d. below potential and unemployment is above the natural rate e. below potential and the price level is below the natural level

d. below potential and unemployment is above the natural rate

A nominal wage is a. not above the legal minimum b. always above the legal minimum c. measured in terms of goods and services it can buy d. measured in current dollars rather than in constant dollars e. measured in constant dollars rather than in current dollars

d. measured in current dollars rather than in constant dollars

Potential output will decrease if a. there is an increase in the price level b. there is a decrease in the price level c. there is technological change that increases labor productivity d. workers choose shorter work schedules in order to enjoy more leisure time e. the nation's capital stock increases

d. workers choose shorter work schedules in order to enjoy more leisure time

If the economy were at its potential output level, which of the following would not be true? a. The actual unemployment rate would equal the natural rate. b. The labor market would be in equilibrium. c. There would be some seasonal unemployment. d. There would be some frictional unemployment. e. Structural unemployment would be equal to zero.

e. Structural unemployment would be equal to zero.

Aggregate supply reflects billions of production decisions made by a. consumers when they decide which products to purchase b. households and firms, because they each demand goods and services c. the largest firms and largest households d. households, which demand resources, and firms, which supply resources e. resource suppliers and firms

e. resource suppliers and firms

Potential output depends on all of the following except one. Which is the exception? a. the supply of labor b. labor productivity c. household choices regarding labor and leisure d. the technology in current use e. the number of consumers in the market

e. the number of consumers in the market