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115. Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, it follows that
a.
there is a surplus of labor in the labor market.
b.
the economy is currently on its institutional PPF.
c.
the economy is currently in an inflationary gap.
d.
the labor market is in equilibrium.
e.
the actual unemployment rate is below the natural unemployment rate.
116. Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, it follows that
a.
the AD curve will shift to the right and pass through point 4.
b.
the SRAS curve will shift to the left and pass through point 2.
c.
the economy is currently operating below its physical PPF and above its institutional PPF.
d.
the SRAS curve will shift to the right and pass through point 3.
117. Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, the real balance effect is operational
and relevant between points
a.
3 and 4.
b.
1 and 2.
c.
1 and 4.
d.
1 and 3.
e.
2 and 3.
118. Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, what is going to happen?
a.
Wages rise, the SRAS curve shifts to the right until it passes through point 3; in long-run equilibrium the price
level is lower and Real GDP is higher than at point 1.
b.
Wages fall, the SRAS curve shifts to the left until it passes through point 2; in long-run equilibrium the price
level is higher and Real GDP is lower that at point 1.
c.
Wages fall, the SRAS curve shifts to the right until it passes through point 3; in long-run equilibrium the price
level is lower and Real GDP is higher than at point 1.
d.
Wages rise, the AD curve shifts to the right until it passes through point 4; in long-run equilibrium the price
level and Real GDP are higher than at point 1.
e.
Prices rise, the AD curve shifts to the right until it passes through point 4; in long-run equilibrium the price
level and Real GDP are higher than at point 1.
Exhibit 9-7
119. Refer to Exhibit 9-7. Which point is representative of the economy in a recessionary gap?
a.
A
b.
B
c.
C
d.
D
e.
E
120. Refer to Exhibit 9-7. Which point is representative of the economy in an inflationary gap?
a.
A
b.
B
c.
C
d.
E
121. Refer to Exhibit 9-7. Which point is representative of the economy on its LRAS curve?
a.
A
b.
B
c.
C
d.
D
e.
E
122. Refer to Exhibit 9-7. Which point is representative of the economy with an unemployment rate that is less than the
natural unemployment rate?
a.
A
b.
B
c.
C
d.
E
123. Refer to Exhibit 9-7. Which point is representative of the economy with an unemployment rate that is greater than
the natural unemployment rate?
a.
A
b.
B
c.
C
d.
D
e.
E
124. Refer to Exhibit 9-7. Which point is representative of the economy experiencing labor market surpluses?
a.
A
b.
B
c.
C
d.
D
e.
E
125. Refer to Exhibit 9-7. Which point is representative of the economy experiencing labor market shortages?
a.
A
b.
B
c.
C
d.
E
126. If the natural unemployment rate is 5.5 percent, then the economy is in a recessionary gap when the actual
unemployment rate is
a.
greater than 5.5 percent.
b.
between 0 and 5.5 percent.
c.
0 percent.
d.
5.5 percent.
127. If the natural unemployment rate is 5.5 percent, then the economy is in an inflationary gap when the actual
unemployment rate is
a.
greater than 5.5 percent.
b.
less than 5.5 percent.
c.
0 percent.
d.
5.5 percent.
128. The structural unemployment rate is 3.1 percent, the frictional unemployment rate is 2.1 percent, and the current
unemployment rate is 6.0 percent. The economy is in
a.
a recessionary gap producing less than Natural Real GDP.
b.
an inflationary gap producing more than Natural Real GDP.
c.
long-run equilibrium.
d.
an inflationary gap producing Natural Real GDP.
e.
a recessionary gap producing more than Natural Real GDP.
129. Which of the following equations is correct?
a.
Saving = Disposable income + Consumption
b.
Saving = Disposable income x Consumption
c.
Disposable income = Consumption - Saving
d.
Saving = Disposable income - Consumption
130. Suppose the economy is self-regulating, the price level is 120, the quantity demanded of Real GDP and the quantity
supplied of Real GDP in the short run both equal $5.7 trillion, and the quantity supplied of Real GDP in the long run is
$5.2 trillion. Given all of this information, we can conclude that the economy ____________ in short run equilibrium,
and that the price level in long run equilibrium will be _____________ than 120.
a.
is not; less
b.
is; greater
c.
is; less
d.
is not; greater
131. Suppose the economy is self-regulating, the price level is 150, the quantity demanded of Real GDP and the quantity
supplied of Real GDP in the short run both equal $4.3 trillion, and the quantity supplied of Real GDP in the long run is
$4.1 trillion. Given all of this information, we can conclude that the economy ____________ in short run equilibrium,
and that the price level in long run equilibrium will be _____________ than 150.
a.
is not; less
b.
is; more
c.
is; less
d.
is not; more
Exhibit 9-8
Suppose that at a given price level the following values exist in a hypothetical economy:
Consumption = $7,000 billion
Investment = $1,900 billion
Government Purchases = $1,700 billion
Exports = $300 billion
Imports = $300 billion
132. Refer to Exhibit 9-8. The level of total expenditures (TE) in this economy is currently ______________ billion.
a.
$10,600
b.
$10,900
c.
$11,200
d.
$8,900
133. Refer to Exhibit 9-8. If saving increases by $500 billion, the new level of consumption will equal
______________. According to classical economists investment would _______________ and total expenditures would
________________________.
a.
$6,500 billion; then decrease by $500 billion; fall by $500 billion
b.
$6,500 billion; then increase by $500 billion; fall by $500 billion
c.
$7,500 billion; remain constant; fall by $500 billion
d.
$6,500 billion; then increase by $500 billion; remain constant
134. Business-cycle macroeconomics involves changes in Real GDP around a ____________ LRAS curve, while
economic-growth macroeconomics deals with increases in Real GDP resulting from a ______________ LRAS curve.
a.
rightward-shifting; fixed
b.
fixed; leftward shifting
c.
leftward shifting; fixed
d.
fixed; rightward-shifting
135. When the current state of the economy is such that Real GDP is less than Natural Real GDP, the economy is in a(n)
____________________ gap. In this situation, the (actual) unemployment rate is ___________ than the natural
unemployment rate, and there is a ________________ in the labor market.
a.
recessionary; greater; shortage
b.
inflationary; less; shortage
c.
inflationary; greater; surplus
d.
recessionary; greater; surplus
e.
recessionary; less; shortage
136. When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in
a(n) ____________________ gap. In this situation, the (actual) unemployment rate is ___________ than the natural
unemployment rate, and there is a ________________ in the labor market.
a.
recessionary; greater; shortage
b.
inflationary; less; shortage
c.
inflationary; greater; surplus
d.
recessionary; greater; surplus
e.
recessionary; less; shortage
137. When the economy is in a recessionary gap, the labor market is experiencing a _____________. In a self-regulating
economy, wage rates will then ___________ and the ______________ curve will shift __________________.
a.
shortage; rise; AD; rightward
b.
shortage; fall; SRAS; leftward
c.
surplus; rise; AD; rightward
d.
shortage; fall; SRAS; rightward
e.
surplus; fall; SRAS; rightward
138. When the economy is in an inflationary gap, the labor market is experiencing a _____________. In a self-regulating
economy, wage rates will then ___________ and the ______________ curve will shift __________________.
a.
shortage; rise; SRAS; leftward
b.
shortage; fall; SRAS; leftward
c.
surplus; rise; AD; rightward
d.
shortage; fall; AD; rightward
e.
surplus; fall; SRAS; rightward
139. When the current state of the economy is such that Real GDP is equal to Natural Real GDP, the economy is
in ____________________ . In this situation, the (actual) unemployment rate is ___________ the natural unemployment
rate, and there is ________________ in the labor market.
a.
long-run equilibrium; equal to; equilibrium
b.
inflationary; less than; a shortage
c.
long-run equilibrium; greater than; equilibrium
d.
recessionary; greater than; a surplus
e.
recessionary; less than; equilibrium
140. A natural disaster, such as the 2011 Japanese earthquake and tsunami, shifts the ___________ curve
_____________________. According to economists who believe that the economy is self-regulating, the result will be
that the economy _____________be able to find its way back to Natural Real GDP without government intervention.
a.
SRAS; rightward; will
b.
SRAS; leftward; will not
c.
AD; leftward; will not
d.
SRAS; leftward; will
e.
AD; leftward; will
141. When consumers start to spend less and save more, classical macroeconomists believe that interest rates will then
______________ resulting in a(n) ________________ in investment.
a.
rise; increase
b.
fall; increase
c.
fall; decrease
d.
rise; decrease
142. If the economy is in long-run equilibrium, the actual unemployment rate is less than the natural unemployment rate.
a.
True
b.
False
143. It is possible for the economy to be producing at a point that lies beyond its institutional production possibilities
frontier (PPF), but not its physical PPF.
a.
True
b.
False
144. If the economy is currently in a recessionary gap, the SRAS curve intersects the AD curve to the left of Natural Real
GDP.
a.
True
b.
False
145. In a self-regulating economy, wages will fall and prices will rise when there is an inflationary gap.
a.
True
b.
False
146. Say's law states that demand creates its own supply.
a.
True
b.
False
147. The classical economists believed that wages, prices, and interest rates were flexible in both the upward and the
downward direction.
a.
True
b.
False
148. All economists agree that the economy is self-regulating.
a.
True
b.
False
149. Classical economics refers to an era in the history of economic thought that stretched from the late 1600s to the mid-
1800s.
a.
True
b.
False
150. Due to their belief in interest rate flexibility, the classical economists argued that saving is matched by an equal
amount of investment.
a.
True
b.
False
151. In a self-regulating economy, a recessionary gap will be eliminated by falling wages which will shift the SRAS curve
to the right.
a.
True
b.
False
152. In the long run, changes in aggregate demand will affect the level of Real GDP (but not the price level) in a self-
regulating economy.
a.
True
b.
False
153. According to classical economists, Say's law applies to a barter economy, but it does not apply to a money economy.
a.
True
b.
False
154. For saving to increase, consumption must decrease, ceteris paribus.
a.
True
b.
False
155. When the actual unemployment rate is less than the natural unemployment rate, the economy is in a recessionary
gap.
a.
True
b.
False
156. If the structural unemployment rate is 3 percent, the frictional unemployment rate is 2 percent, and the current
unemployment rate is 6 percent, then the economy is in a recessionary gap.
a.
True
b.
False
157. If the structural unemployment rate is 3 percent, the frictional unemployment rate is 3 percent, and the current
unemployment rate is 5 percent, then the economy is in a recessionary gap.
a.
True
b.
False
158. Natural disasters (such as the 2011 earthquake and tsunami in Japan) are examples of an adverse supply shock, which
result in the SRAS curve shifting leftward.
a.
True
b.
False
159. Business-cycle macroeconomics involves increases in Real GDP that result from a rightward-shifting LRAS curve.
a.
True
b.
False
160. When the economy is in a recessionary gap, the labor market is experiencing a surplus.
a.
True
b.
False
161. Classical macroeconomists assert that “saving” is the same as “not spending at all”.
a.
True
b.
False
162. If the economy is self-regulating, explain the correct sequence of events that occurs once the economy is in a
recessionary gap to move the economy to long-run equilibrium.
163. Explain how it is possible for the economy to produce at a point beyond its institutional production possibilities
frontier (PPF), but not beyond its physical PPF.
164. Describe how Say's law can hold in a money economy, according to the classical economists.
165. Explain the policy implications of the classical economists' beliefs.
166. Using the aggregate demand and aggregate supply (AD-SRAS) framework, explain how a large-scale natural disaster
would be expected to impact the economy. Discuss how an economist who believes the economy is self-regulating would
view the longer term impact of such a disaster, and whether they would advocate the need for government intervention.
167. Describe the difference between business-cycle macroeconomics and economic-growth macroeconomics.
168. The number of unpaid internships is more likely to rise in an economy when the economy is in a recessionary gap
and wage rates are constant than when wage rates are falling.
a.
True
b.
False
