ECON Chapter 10 Pearson
Choose the statement about the business cycle that is correct. A. The business cycle occurs because aggregate demand and short-run aggregate supply fluctuate but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP. Your answer is correct.B. The gap between the price level at full employment and the price level at an above full-employment equilibrium is the inflationary gap. C. In a business cycle, real GDP shows steady growth and steady inflation. D. The business cycle moves from a below full-employment equilibrium to an above full-employment equilibrium to a full-employment equilibrium.
A. The business cycle occurs because aggregate demand and short-run aggregate supply fluctuate but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP.
Choose the correct statement about the LAS curve. A. The LAS shifts rightward when the SAS curve shifts rightward and shifts leftward when the SAS curve shifts leftward. B. Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises. C. The LAS curve is vertical because potential GDP is independent of the price level. Your answer is correct. D. The LAS curve shifts rightward when the money wage rate falls.
C. The LAS curve is vertical because potential GDP is independent of the price level. Your answer is correct.
Choose the correct statement. A. In the short run, a rise in the price level brings no change in the quantity of real GDP supplied. B. The SAS curve shifts rightward when the price level falls. C. Along the SAS curve, the real wage rate and the price level change by the same percentage. D. The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level.
D. The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its full-employment equilibrium level.
Which of the following statements about the Keynesian view of the macroeconomy is incorrect?
Technological change is the most significant influence on both aggregate demand and aggregate supply.
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
At arrow 1 in the graph, the economy is in ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve. At arrow 2, the economy is in ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the ______ of the LAS curve.
a below; left an above; right
A business cycle can be described by the following sequence: ______ equilibrium, ______ equilibrium, ______ equilibrium.
below full-employment; full-employment; above full-employment
An increase in potential GDP increases ______.
both long-run aggregate supply and short-run aggregate supply
Aggregate demand decreases if monetary policy ______ the quantity of money and ______ interest rates.
decreases; increases
Aggregate demand decreases if expected future income, inflation, or profits ______. And aggregate demand decreases if fiscal policy ______ government expenditure.
decrease; decreases
A rise in the money wage rate ______.
does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level
Aggregate demand decreases if fiscal policy ______ taxes or ______ transfer payments.
increases; decreases
Aggregate demand decreases if the exchange rate ______ or foreign income ______.
increases; decreases
Stagflation ______.
is a combination of recession and inflation
Long-run macroeconomic equilibrium ______.
occurs when real GDP equals potential GDP, and the LAS, SAS, and AD curves intersect
An international substitution effect arises because when the U.S. price level rises, _______.
people spend less on the more expensive U.S.-made items and they spend more on the less expensive foreign-made items
The quantity of real GDP supplied depends on the _______.
quantity of labor employed, the quantity of physical and human capital, and the state of technology
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
High inflation accompanies economic growth when ______.
the quantity of money increases rapidly
When firms are unable to meet the demand for their output, _____. Prices _____.
the quantity of real GDP demanded is greater than the quantity of real GDP supplied; rise
A ______ macroeconomist believes that business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change. A ______ macroeconomist believes that the short-run aggregate supply curve is horizontal at a fixed price level.
New classical; new Keynesian