ECN-240 Ch. 10
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
Which of the following is the most likely result of a recessionary gap?
Market forces will lower nominal resource costs.
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.
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
Which of the following was observed in the U.S. 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:
a direct relationship between the price level and the quantity of real GDP supplied.
The term "short run" refers to:
a period of time during which some resource prices remain fixed.
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
The natural rate of unemployment prevails when:
cyclical unemployment is zero.
The amount by which short-run output exceeds an economy's potential output is called a(n):
expansionary gap.
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
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.
In the short run, there is a direct relationship between:
the actual price level and the real GDP supplied, other things remaining constant.
Expansionary gap in an economy occurs when _____.
the aggregate demand in the economy increases
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
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.
