Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
1. When the economy is producing the level of output equal to natural Real GDP, the unemployment rate is equal to
a.
zero.
b.
the natural unemployment rate.
c.
the frictional unemployment rate.
d.
the structural unemployment rate.
2. An economy is producing its Natural Real GDP when the unemployment rate is equal to the __________
unemployment rate.
a.
frictional
b.
structural
c.
sum of the frictional unemployment rate and the structural
d.
seasonal
e.
cyclical
3. If Real GDP is less than Natural Real GDP, the economy is in
a.
an inflationary gap.
b.
a recessionary gap.
c.
an unemployment gap.
d.
a real gap.
4. If the SRAS curve intersects the AD curve to the left of Natural Real GDP, the economy is
a.
in a recessionary gap.
b.
at Natural Real GDP.
c.
in an inflationary gap.
d.
at full-employment Real GDP.
5. If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is
a.
in a recessionary gap.
b.
in either a recessionary gap or an inflationary gap, but we need more information to determine which one.
c.
in an inflationary gap.
d.
at full-employment Real GDP.
6. If Real GDP is less than Natural Real GDP, then the (actual) unemployment rate is
a.
less than the natural unemployment rate.
b.
equal to the natural unemployment rate.
c.
greater than the natural unemployment rate.
d.
less than or greater than the natural unemployment rate, but we cannot determine which one.
e.
b and d
7. If Real GDP is greater than Natural Real GDP, the economy is in a(n)
a.
frictional gap.
b.
structural gap.
c.
recessionary gap.
d.
inflationary gap.
8. If the economy is currently in a recessionary gap,
a.
all economists will agree that the economy can remove itself from the recessionary gap without government
intervention.
b.
some economists will argue that the economy can remove itself from the recessionary gap without government
intervention.
c.
no economist will state that the economy can remove itself from the recessionary gap without government
intervention.
d.
all economists will agree that over time the recessionary gap will worsen.
9. If the natural unemployment rate is 5 percent and the current unemployment rate is 6 percent, then the economy is
a.
producing a level of Real GDP that is greater than the level of natural Real GDP.
b.
in an inflationary gap.
c.
producing a level of Real GDP that is less than the level of natural Real GDP.
d.
a and b
e.
b and c
10. If the natural unemployment rate is 7 percent and the current unemployment rate is 5 percent, then the economy is
a.
producing a level of Real GDP that is greater than the level of natural Real GDP.
b.
in a recessionary gap.
c.
producing a level of Real GDP that is less than the level of natural Real GDP.
d.
a and b
e.
b and c
11. The long-run aggregate supply (LRAS) curve is
a.
horizontal.
b.
vertical.
c.
positively sloped.
d.
negatively sloped.
12. If the economy is in a recessionary gap,
a.
Real GDP is greater than Natural Real GDP.
b.
Real GDP is equal to Natural Real GDP.
c.
Real GDP is less than Natural Real GDP.
d.
the (actual) unemployment rate is less than the natural unemployment rate.
e.
a and d
13. When the economy is producing Real GDP at the level at which the LRAS curve intersects the AD curve the economy
is
a.
in a recessionary gap.
b.
in long-run equilibrium.
c.
in an inflationary gap.
d.
operating at less than full-employment output.
14. Suppose the economy's short-run equilibrium is at a point to the right of Natural Real GDP. Which of the following
statements is true?
a.
The economy is in an inflationary gap.
b.
The economy is in a recessionary gap.
c.
The economy is in long-run equilibrium.
d.
This situation is actually impossible.
15. Suppose the economy's short-run equilibrium level is at a point to the left of Natural Real GDP. Which of the
following statements is true?
a.
The economy is in an inflationary gap.
b.
The economy is in a recessionary gap.
c.
The economy is in long-run equilibrium.
d.
This situation is actually impossible.
16. An inflationary gap exists when AD and SRAS
a.
fail to intersect.
b.
intersect to the right of Natural Real GDP.
c.
intersect to the left of Natural Real GDP.
d.
both have a positive slope.
17. A recessionary gap exists when AD and SRAS
a.
fail to intersect.
b.
intersect to the right of Natural Real GDP.
c.
intersect to the left of Natural Real GDP.
d.
both have a positive slope.
Exhibit 9-1
18. Refer to Exhibit 9-1. The economy is currently producing Q1. At this level of Real GDP, the economy is in
a.
an inflationary gap.
b.
a recessionary gap.
c.
long-run equilibrium.
d.
none of the above
19. Refer to Exhibit 9-1. The economy is currently producing Q1. If an economist believes the economy can move itself
without government intervention to QN, then the economist believes that the
a.
LRAS curve will shift leftward until it intersects the SRAS and AD curves at Q1.
b.
AD curve will shift rightward and intersect the SRAS curve at point B.
c.
SRAS curve will shift rightward and intersect the AD curve at point A.
d.
economy will likely stay "stuck" in short-run equilibrium.
20. Refer to Exhibit 9-1. The unemployment rate is lower at
a.
Q1 than QN.
b.
QN than Q1.
c.
point A than point B.
d.
point B than point A.
21. Refer to Exhibit 9-1. If the economy is self-regulating, the price level is
a.
lower in short-run equilibrium than in long-run equilibrium.
b.
lower in long-run equilibrium than in short-run equilibrium.
c.
higher in long-run equilibrium than in short-run equilibrium.
d.
lower when the economy is in a recessionary gap than when it is in long-run equilibrium.
e.
a and c
22. Refer to Exhibit 9-1. The economy is currently producing Q1. An economist who believes wages are flexible in the
downward direction would most likely argue that
a.
it is likely the economy will soon move to point B.
b.
it is likely the economy will soon move to point A.
c.
it is not likely the economy will move to point A without government intervention.
d.
Real GDP will soon take a downturn.
Exhibit 9-2
23. Refer to Exhibit 9-2. The economy is currently producing Q1. At this level of Real GDP, the economy is in
a.
an inflationary gap.
b.
a recessionary gap.
c.
long-run equilibrium.
d.
none of the above
24. Refer to Exhibit 9-2. The economy is currently producing Q1. At this level of Real GDP, the economy is experiencing
a.
a shortage in the labor market.
b.
a surplus in the labor market.
c.
neither a shortage nor a surplus in the labor market.
d.
all of the above are equally likely
Exhibit 9-3
25. Refer to Exhibit 9-3. The economy is in long-run equilibrium at point
a.
A.
b.
B.
c.
C.
d.
D.
e.
E.
26. Refer to Exhibit 9-3. The economy is in short-run equilibrium and has an inflationary gap at point
a.
A.
b.
B.
c.
C.
d.
D.
e.
E.
27. Refer to Exhibit 9-3. The economy is in short-run equilibrium and has a recessionary gap at point
a.
A.
b.
B.
c.
C.
d.
D.
e.
E.
28. Refer to Exhibit 9-3. If the economy is in short-run equilibrium at point A,
a.
the (actual) unemployment rate is less than the natural unemployment rate.
b.
the (actual) unemployment rate is equal to the natural unemployment rate.
c.
the (actual) unemployment rate is greater than the natural unemployment rate.
d.
the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be
determined from the available information.
29. Refer to Exhibit 9-3. If the economy is in short-run equilibrium at point C,
a.
the (actual) unemployment rate is less than the natural unemployment rate.
b.
the (actual) unemployment rate is equal to the natural unemployment rate.
c.
the (actual) unemployment rate is greater than the natural unemployment rate.
d.
the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be
determined from the available information.
30. Refer to Exhibit 9-3. If the economy is in equilibrium at point B,
a.
the (actual) unemployment rate is less than the natural unemployment rate.
b.
the (actual) unemployment rate is equal to the natural unemployment rate.
c.
the (actual) unemployment rate is greater than the natural unemployment rate.
d.
the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be
determined from the available information.
31. A recessionary gap exists if (actual) Real GDP is __________ Natural Real GDP.
a.
less than
b.
greater than
c.
equal to
d.
b and c
e.
none of the above
32. When there is a recessionary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual)
unemployment rate is __________ the natural unemployment rate.
a.
greater than; less than
b.
greater than; greater than
c.
greater than; equal to
d.
less than; greater than
e.
less than; less than
33. When there is an inflationary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual)
unemployment rate is __________ the natural unemployment rate.
a.
greater than; less than
b.
greater than; greater than
c.
less than; greater than
d.
less than; less than
e.
less than; equal to
34. In a self-regulating economy, inflationary and recessionary gaps
a.
never occur.
b.
are eliminated by forces internal to the economy, without government intervention.
c.
are eliminated by timely actions of government policymakers.
d.
are the desirable results of microeconomic price adjustments.
35. In a self-regulating economy, inflationary and recessionary gaps produce shifts of the
a.
AD curve that maintain the short-run equilibrium point.
b.
AD curve that move the economy to a long-run equilibrium point.
c.
SRAS curve that maintain the short-run equilibrium point.
d.
SRAS curve that move the economy to a long-run equilibrium point.
36. The physical production possibilities frontier illustrates the different combinations of goods that society can produce
given
a.
the constraints of finite resources and the current state of technology.
b.
a constant price level.
c.
its institutional constraints.
d.
the natural rate of unemployment.
e.
the constraints of finite resources and the current state of technology and institutional constraints.
37. The economy can operate
a.
beyond its institutional PPF but not beyond its physical PPF.
b.
on both its institutional PPF and its physical PPF, but not at the same time.
c.
under its physical PPF but not under its institutional PPF.
d.
a and b
e.
a, b, and c
38. The institutional production possibilities frontier illustrates the different combinations of goods that society can obtain
given
a.
the constraints of finite resources and the current state of technology.
b.
the price level.
c.
its institutional constraints.
d.
the natural rate of unemployment.
e.
the constraints of finite resources and the current state of technology and institutional constraints.
39. The more institutional constraints that exist in a particular society,
a.
the closer the institutional PPF will lie to the physical PPF.
b.
the farther out from the origin the institutional PPF will lie.
c.
the closer to the origin the institutional PPF will lie.
d.
the closer to the origin the institutional PPF will lie and the farther out from the origin the physical PPF will
lie.
40. The unemployment rate is equal to the natural unemployment rate at
a.
some point within the interior of the physical PPF but beyond the institutional PPF.
b.
some point within the interior of the physical PPF, but we cannot locate it with more accuracy.
c.
some point within the interior of the institutional PPF, but we cannot locate it with more accuracy.
d.
every point on the institutional PPF.
e.
every point on the physical PPF.
41. Suppose the economy is self-regulating and the (actual) unemployment rate is less than the natural unemployment
rate. This means that the economy is producing a level of output
a.
above its natural level and will eventually cut back on output.
b.
below its natural level and will eventually increase output.
c.
below its natural level but no forces exist to automatically increase output.
d.
above its natural level and institutional constraints will automatically be reduced so as to allow the economy to
continue producing this level.
e.
none of the above
42. Which of the following statements is true?
a.
The economy can operate outside (or beyond) its institutional PPF and its physical PPF, but only for a short
while.
b.
The economy can operate outside its physical PPF, if only for a short while, but can never operate outside its
institutional PPF.
c.
The economy can operate outside its institutional PPF, if only for a short while, but can never operate outside
its physical PPF.
d.
The economy can never operate outside its institutional PPF or its physical PPF, even for a short while.
e.
none of the above
43. If an economy is operating __________ its institutional production possibilities frontier, it is producing __________
output than it would be at full employment.
a.
below; less
b.
below; more
c.
above; less
d.
above; more
e.
a and d
44. Classical economics refers to an era in the history of economic thought that stretched from about
a.
1750 to the early 1900s.
b.
1935 to the 1970s.
c.
1800 to the mid 1900s.
d.
1600 to the mid 1800s.
Exhibit 9-4
45. Refer to Exhibit 9-4. Which of the following is true at the Real GDP level of Q3?
a.
The unemployment rate is equal to the natural unemployment rate.
b.
The cyclical unemployment rate is zero.
c.
The economy is in long-run equilibrium.
d.
all of the above
e.
none of the above
46. Refer to Exhibit 9-4. Assume the economy is currently in long-run equilibrium with the price level equal to P3. If
foreigners begin to buy more U.S. goods, the economy will, in the short run, move to which of the following equilibrium
combinations of price level and Real GDP?
a.
P2, Q4.
b.
P3, Q3.
c.
P4, Q2.
d.
P4, Q4.
e.
P5, Q3.
47. Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price
level equal to P3. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from
a.
AD3 to AD1.
b.
SRAS1 to SRAS2.
c.
SRAS2 to SRAS1.
d.
AD3 to AD2.
e.
none of the above
48. Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price
level equal to P5. If something happens that shifts the AD curve to the AD1 position, the economy will eventually settle
down at a long-run equilibrium point of __________.
a.
P5, Q3.
b.
P4, Q4.
c.
P3, Q3.
d.
P3, Q5.
e.
P4, Q2.
49. Refer to Exhibit 9-4. When AD and SRAS cross at point (P1, Q3), the economy is in
a.
a recessionary gap.
b.
an inflationary gap.
c.
long-run equilibrium.
d.
a and c
e.
b and c
50. Refer to Exhibit 9-4. Assuming the economy is in an inflationary gap at a short-run equilibrium point with the price
level at P2, the movement toward long-run equilibrium will be
a.
down and along AD1.
b.
up and along AD2.
c.
down and along SRAS1.
d.
up and along SRAS2.
e.
down and along SRAS2.
Exhibit 9-5
51. Refer to Exhibit 9-5. Imagine an AD curve and an SRAS curve intersecting at Point I on graph (1). Which point(s)
would this correspond to on graph (2)?
a.
A or B
b.
C
c.
D or E
d.
F
e.
G
52. Refer to Exhibit 9-5. Point C on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at
which point(s) on graph (1)?
a.
I or J
b.
K
c.
L or M
d.
I or L
e.
J or M
53. Refer to Exhibit 9-5. Point B on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at
which point(s) on graph (1)?
a.
I or J
b.
K
c.
L or M
d.
I or L
e.
J or M
54. Refer to Exhibit 9-5. Point A on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at
which point(s) on graph (1)?
a.
I or J
b.
K
c.
L or M
d.
I or L
e.
J or M
55. Refer to Exhibit 9-5. Point G on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at
which point(s) on graph (1)?
a.
I or J
b.
K
c.
L or M
d.
I or L
e.
J or M
56. Refer to Exhibit 9-5. Assume that the economy starts off at point A on graph (2) with an effective minimum wage law
in place. After inflation erodes the purchasing power of the minimum wage and eliminates the constraining influence of
the minimum wage law on the unskilled labor market, the economy is likely to move to a point such as
a.
B.
b.
G.
c.
F.
d.
C.
e.
None of the above, because the minimum wage has no influence on the amount of goods produced.
57. Refer to Exhibit 9-5. Imagine an AD curve intersecting an SRAS curve at Point L on graph (1). Which point(s) would
this correspond to on graph (2)?
a.
A or B
b.
C
c.
D or E
d.
F
e.
G
58. Refer to Exhibit 9-5. Imagine an AD curve intersecting an SRAS curve at Point J on graph (1). Which point(s) would
this correspond to on graph (2)?
a.
A or B
b.
C
c.
E or F
d.
F
e.
G
59. Refer to Exhibit 9-5. Imagine an AD curve intersecting an SRAS curve at Point M on graph (1). Which point(s)
would this correspond to on graph (2)?
a.
A or B
