CH-10 Aggregate Supply – Macroeconomics: A Contemporary Introduction : Exam Guide

Chapter 10—Aggregate Supply 1. Aggregate supply is the relationship between aggregate demand and the quantities of aggregate output firms are willing and able to produce, other things constant. A. True B. False 2. 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 3. Which of the following is true of the short-run aggregate supply curve? A. It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant. B. It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant. C. It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant. D. It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant. E. It displays an inverse relationship between the price level and real GDP. 4. 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 5. Compensation is usually negotiated in terms of the nominal wage because wage agreements are based on expected price levels. A. True B. False 6. 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 7. 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. 8. The expected price level is significant because A. it is the equilibrium price level in the short run B. it determines the actual price level in the short run C. it determines the actual price level in the long run D. firms and resource owners make long-term agreements based on the expected price level E. the difference between the expected and actual price levels is equal to the actual inflation rate 9. 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 10. The nominal wage represents A. the quantity of goods and services a worker can purchase in exchange for work time B. the dollar value of the goods and services a worker can purchase in exchange for work time C. real wages minus taxes paid on wages D. the most accurate measure for comparing employee standard of living across time E. real wages divided by the price level 11. At the potential level of output, there is no seasonal unemployment. A. True B. False 12. At the potential level of output, there is no structural unemployment. A. True B. False 13. The natural rate of unemployment includes frictional, cyclical, and structural unemployment. A. True B. False 14. Which of the following is true about real and nominal wages? A. In periods of low inflation, real wages are constant and nominal wages decline. B. If the price level is high, real wages will fall. C. If the price level is high, nominal wages will fall. D. If there is inflation, real wages will change if nominal wages are constant. E. If there is a constant inflation rate, real wages will not change unless nominal wages do. 15. Suppose that the real wage remained unchanged between year 1 and 2 but the nominal wage was $20 in year 1 and $18 in year 2. What is true about the price level? A. It rose by 20 percent. B. It rose by 25 percent. C. It remained unchanged. D. It fell by 10 percent. E. It fell by 20 percent. 16. Suppose that the real wage remained unchanged between year 1 and 2 but the nominal wage increased from $20 to $24. What is true about the price level? A. It rose by 20 percent. B. It rose by 25 percent. C. It remained unchanged. D. It fell by 10 percent. E. It fell by 20 percent. 17. If the price level rises by 5 percent and the nominal wage rises 3 percent, the real wage A. falls by 2 percent B. falls by 8 percent C. rises by 2 percent D. rises by 8 percent E. remains constant 18. If the price level rises by 4 percent and the nominal wage rises 6 percent, the real wage A. falls by 2 percent B. falls by 10 percent C. rises by 2 percent D. rises by 10 percent E. remains constant 19. The potential output of an economy is the level of output produced when the A. real wage equals the nominal wage B. price level is constant C. expected real wage equals the inflation rate D. expected price level equals the unemployment rate E. expected price level equals the actual price level 20. Potential output is the amount produced when A. firms' and workers' expectations about the price level are realized B. the actual price level is higher than workers expected C. firms and workers have the same expectations about the price level D. the actual price level remains constant E. the actual price level is higher than firms expected 21. When the economy is at its potential output level, which of the following is not true? A. Firms' and workers' expectations about the price level are realized. B. The nominal wage is a good measure of the expected real wage. C. The unemployment rate is about 2 percent. D. The economy is producing its maximum sustainable output. E. The actual price level equals the expected price level. 22. When the economy is at its potential output level, which of the following is not true? A. Firms' and workers' expectations about the price level are not accurate. B. The nominal wage is a good measure of the expected real wage. C. The unemployment rate is about 4 to 6 percent. D. The economy is producing its maximum sustainable output. E. The actual price level equals the expected price level. 23. When the economy is at its potential output level, which of the following is not true? A. Firms' and workers' expectations about the price level are realized. B. The nominal wage is a very poor measure of the expected real wage. C. The unemployment rate is about 4 to 6 percent. D. The economy is producing its maximum sustainable output. E. The actual price level equals the expected price level. 24. When the economy is at its potential output level, which of the following is not true? A. Firms' and workers' expectations about the price level are realized. B. The nominal wage is a good measure of the expected real wage. C. The unemployment rate is about 4 to 6 percent. D. The economy is producing the maximum output it can produce in short periods of time; however, such a fast pace could not be maintained for long. E. The actual price level equals the expected price level. 25. When the economy is at its potential output level, which of the following is not true? A. Firms' and workers' expectations about the price level are realized. B. The nominal wage is a good measure of the expected real wage. C. The unemployment rate is about 4 to 6 percent. D. The economy is producing its maximum sustainable output. E. The actual price level is greater than the expected price level. 26. If the economy were at its potential output level, which of the following is not true? A. The actual unemployment rate would equal the natural rate. B. There would be some cyclical unemployment. C. There would be some seasonal unemployment. D. There would be some frictional unemployment. E. There would be some structural unemployment. 27. 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. Frictional unemployment would be zero. E. There would be some structural unemployment. 28. 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. 29. If the economy were at its potential output level, which of the following would not be true? A. The actual unemployment rate would be greater than 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. There would be some structural unemployment. 30. 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. 31. Which of the following types of unemployment can exist in an economy that is at its potential output level? A. cyclical unemployment only B. structural unemployment only C. frictional, cyclical, and seasonal unemployment only D. frictional, seasonal, and structural unemployment only E. there will be no unemployment in an economy that is at the potential output level 32. If workers are willing to work more hours when the nominal wage increases, what can be said about the economic rationality of their decision? A. The decision is not economically rational, since it should be based on the real wage only. B. The decision could be rational if workers thought that the inflation rate would fall in the future. C. The decision could be rational if workers thought that the real wage had fallen. D. The decision could be rational if workers thought that the nominal wage and the real wage were equal. E. The decision is rational no matter what happens to the real wage. 33. Suppose this year’s inflation rate is 4 percent, which is greater than the 2 percent everyone expected. Which of the following is true? A. real GDP will increase B. the unemployment rate will probably rise C. potential output will remain the same D. the short-run aggregate supply curve will shift to the right E. there will be a leftward movement along a given short-run aggregate supply curve 34. In the long run, but not in the short run, A. output is fixed B. prices can change but the level of output is fixed C. some resource prices are fixed D. prices are fixed but the output level can change E. both prices and output are fixed 35. In the short run, but not in the long run, A. actual output can equal potential output B. cyclical unemployment can exist C. structural unemployment can exist D. frictional unemployment can exist E. real and nominal GDP can differ 36. In the long run, but not in the short run, A. cyclical unemployment can exist B. structural unemployment can exist C. frictional unemployment can exist D. the actual rate of unemployment equals the natural rate of unemployment E. actual output can exceed potential output 37. 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 38. 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 39. The long-run equilibrium price level is the price level the economy is expected to reach when the A. economy produces its potential output B. Fed has stabilized interest rates C. federal budget is balanced D. discount rate equals the prime rate E. inflation rate is zero 40. If the actual price level is less than the expected price level reflected in long-term contracts, firm owners will find production more profitable than they had expected. A. True B. False 41. If the inflation rate is 4 percent a year and everyone expected 2 percent a year, then the potential level of real GDP will increase. A. True B. False 42. If the actual price level is higher than the expected price level, the economy will expand in the short run. A. True B. False 43. A wage rate above what is necessary to attract a sufficient number of workers is known as a(n) A. inefficient wage B. market-clearing wage C. efficiency wage D. marginal productivity wage E. minimum wage 44. Fixed resource prices help explain why firms A. increase output in the short run when the price level increases B. keep production levels constant in the short run when the price level decreases C. sell output in the short run at fixed prices D. increase output in the long run when the price level increases E. decrease production when nominal wages fall in the long run 45. If the actual price level exceeds the expected price level reflected in long-term contracts, A. firms will find production more profitable than they had expected and will increase the quantity of output supplied B. firms will find production less profitable than they had expected and will decrease the quantity of output supplied C. firms will find production more profitable than they had expected and will decrease the quantity of output supplied D. resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied E. unemployment will increase 46. In constructing a short-run aggregate supply curve, we assume that the goal of business is to A. maximize sales revenue B. maximize profit C. maximize growth in assets D. maximize growth in sales E. minimize cost 47. In constructing the short-run aggregate supply curve, we define the short run as the period in which A. the price level is constant B. output is fixed C. profit is constant D. the costs of some resources are fixed E. the economic growth rate is less than 4 percent 48. 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 49. Among the reasons firms find it profitable to expand output in the short run when the price level is rising faster than expected is that A. all firms' costs are contractually fixed B. prices for firms' output are rising with the price level C. firms are interested in minimizing cost per unit, not total profits D. all firms' costs are variable E. the quantity of resources available to the economy is fixed 50. The short run is a period of time A. when there is an expansionary gap and firms run their plants only for short periods B. of one year or less C. when there is a contractionary gap D. during which resource buyers and sellers cannot adjust fully to changes in the price level E. when resource buyers and sellers can adjust fully to changes in the price level 51. If the price level turns out to be higher than expected, A. businesses increase production B. the potential output level increases C. initially, the short-run aggregate supply curve shifts rightward; later, there is an upward movement along that curve D. initially, the short-run aggregate supply curve shifts rightward; later, there is a downward movement along that curve E. a contractionary gap develops 52. A rising price level in the short run may create an incentive for firms to increase production because A. costs of production will increase B. total sales revenue will decrease C. profits will increase D. costs of production will increase faster than total revenue E. output prices are generally not fixed by contract whereas resource prices are 53. If the actual price level exceeds the expected price level reflected in long-term contracts, A. firms will find production more profitable than they had expected and will decrease the quantity of output supplied B. firms will find production less profitable than they had expected and will decrease the quantity of output supplied C. firms will find production less profitable than they had expected and will increase the quantity of output supplied D. resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied E. unemployment will decrease 54. Real wages are nominal wages adjusted for price changes. A. True B. False 55. Between 1994 and 2004, Jack's salary increased from $100,000 to $200,000 per year and the price index increased from 100 to 300 during the same period. Which of the following statements best describes Jack's situation? A. his real income and money income have both increased B. his real income increased and money income decreased C. his real income and money income both decreased D. his real income decreased and money income increased E. his real income and money income remained unchanged 56. If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year, which of the following is correct? A. real wages increase by 2 percent per year B. real wages increase by 3 percent per year C. real wages decrease by 3 percent per year D. real wages decrease by 2 percent per year E. real wages remain constant 57. If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will A. increase by 3 percent per year B. increase by 5 percent per year C. increase by 2 percent per year D. decrease by 5 percent per year E. decrease by 3 percent per year 58. If the actual price level is lower than the expected price level, the economy will contract in the short run. A. True B. False 59. If the actual price level is less than the expected price level reflected in long-term contracts, A. firms will find production more profitable than they had expected and will increase the quantity of output supplied B. firms will find production less profitable than they had expected and will decrease the quantity of output supplied C. firms, because they are making less profit than they had expected, will increase the quantity of output supplied D. resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied E. unemployment will increase 60. Given implicit or explicit resource price agreements, if the actual price level is below the expected price level, the A. economy will move rightward along the short-run aggregate supply curve B. economy will move leftward along the short-run aggregate supply curve C. short-run aggregate supply curve will shift to the left D. long-run aggregate supply curve will become steeper E. short-run aggregate supply curve will become flatter 61. If the price level turns out to be lower than expected, A. businesses cut back production B. the potential output level decreases C. initially, the short-run aggregate supply curve shifts leftward; later, there is a downward movement along that curve D. initially, the short-run aggregate supply curve shifts leftward; later, there is an upward movement along that curve E. an expansionary gap develops 62. Exhibit 10-1 Given aggregate demand and aggregate supply schedule #2 in Exhibit 10-1, the equilibrium output level and price level are A. output $7.0, price level 110 B. output $6.5, price level 120 C. output $6.0, price level 130 D. output $5.5, price level 140 E. output $5.0, price level 150 63. Exhibit 10-1 Given aggregate demand and aggregate supply schedule #2 in Exhibit 10-1, the equilibrium output level and price level are $7.0 and 110 A. True B. False 64. Exhibit 10-1 Given aggregate demand and aggregate supply schedule #3 in Exhibit 10-1, the equilibrium level of output and price level are A. output $7.0, price level 110 B. output $6.5, price level 120 C. output $6.0, price level 130 D. output $5.0, price level 150 E. output $5.5, price level 140 65. Exhibit 10-1 Given aggregate demand and aggregate supply schedule #3 in Exhibit 10-1, the equilibrium level of output and price level are $5.5 and 140. A. True B. False 66. Exhibit 10-1 Given aggregate demand and aggregate supply schedule #1 in Exhibit 10-1, the equilibrium price level is A. 110 B. 120 C. 130 D. 140 E. 150 67. Exhibit 10-1 Given aggregate demand and aggregate supply schedule #1 in Exhibit 10-1, the equilibrium level of output is A. $5.0 B. $5.5 C. $6.0 D. $6.5 E. $7.0 68. In the short run, the price level is determined solely by aggregate supply. A. True B. False 69. The expected price level is assumed to be constant along a given short-run aggregate supply curve. A. True B. False 70. The actual price level is assumed to be constant along a given short-run aggregate supply curve. A. True B. False 71. The aggregate supply curve reflects the relationship between the A. price of a particular good and the quantity supplied by all firms producing that good B. price of a particular good and the quantity supplied by the aggregate economy C. price level and the quantity of all goods supplied in the economy D. price level and the quantity purchased of all goods in the economy E. price level and investment spending 72. Which of the following is not assumed to be constant along a short-run aggregate supply curve? A. the actual price level B. the state of technology C. the size and quality of the labor force D. the expected price level E. the size and quality of the capital stock 73. 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 74. The steepness of the short-run aggregate supply curve depends primarily on A. the length of time for which resource prices are fixed B. the length of time for which output prices are fixed C. the difference between the expected and the actual price levels D. how quickly employment increases as output expands E. how quickly production costs increase as output expands 75. In the short run, there is a positive relationship between A. inflation and unemployment B. inflation and real GDP C. the actual price level and aggregate quantity supplied D. the actual price level and unemployment E. the actual price level and consumption spending 76. For the purpose of aggregate supply analysis, the long run is the period of time during which A. aggregate supply adjusts to equal aggregate demand B. excess aggregate supply is bought C. excess aggregate demand is fulfilled D. real wages are constant E. all resource prices can be varied 77. In the short run, but not in the long run, A. output is fixed B. prices are fixed C. prices can change but output is fixed D. some resource prices are fixed E. the aggregate supply curve is vertical 78. Increases in the costs of producing each level of output will cause a rightward shift of the short-run aggregate supply curve. A. True B. False 79. Increases in the costs of production will shift the short-run aggregate supply curve to the left. A. True B. False 80. Wage agreements may cause costs to be __________ flexible than prices so that __________ in the price level cause __________ in aggregate quantity supplied. A. less; decreases; decreases B. less; increases; increases C. less; decreases; increases D. more; decreases; increases E. more; increases; increases 81. Suppose that the actual and expected price levels are initially equal, and that the expected price level falls. Which of the following will occur over the long run? (Hint: Recall the actual price level is on the vertical axis.) A. The economy will move rightward along the short-run aggregate supply curve. B. The economy will move leftward along the short-run aggregate supply curve. C. The short-run aggregate supply curve will shift to the right. D. The short-run aggregate supply curve will shift to the left. E. The short-run aggregate supply curve will become flatter. 82. If the expected price level falls below the actual price level, A. the inflation rate must be negative B. the inflation rate must be positive C. production becomes less attractive to firms D. production becomes more attractive to firms E. the short-run aggregate supply curve is negatively sloped 83. When the expected price level falls below the actual price level, firms A. increase production in the short run B. decrease production in the short run C. maintain production in the short run but increase prices D. maintain production in the short run but decrease prices E. decrease production and lower prices in the short run 84. As actual output rises above the potential level, which of the following must be true? A. more resources become unemployed B. prices remain constant C. real GDP rises D. nominal GDP remains constant E. production falls 85. 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 86. The situation in which actual output exceeds potential output A. is impossible because all resources are employed to produce potential output B. is possible only in times of high unemployment C. is possible only if the unemployment rate is negative D. is possible only in the long run E. creates pressure for inflation 87. Exhibit 10-2 If the actual price level in Exhibit 10-2 exceeds the expected price level, then A. equilibrium output might be Y2 in the short run B. equilibrium output might be Y1 in the short run C. equilibrium output might be Y3 in the short run D. potential output is greater than actual output E. unemployment is above the natural rate 88. Exhibit 10-2 If the actual price level in Exhibit 10-2 exceeds the expected price level, then A. equilibrium output is Y2 in the short run B. equilibrium output is Y1 in the short run C. the actual unemployment rate is below the natural rate D. potential output is greater than actual output E. the actual price level is less than the equilibrium price level 89. Exhibit 10-2 In Exhibit 10-2, an expansionary gap would be represented by the distance A. Y2 - Y1 B. Y3 - Y1 C. Y2 - Y3 D. P3 - P1 E. P2 - P3 90. Exhibit 10-2 In Exhibit 10-2, if P3 is the prevailing price level, then A. the expected price level is less than the actual price level B. there is a contractionary gap C. the price level will rise D. the actual unemployment rate is above the natural rate E. potential output is greater than actual output 91. Exhibit 10-2 In Exhibit 10-2, if P1 is the prevailing price level, then A. there is an expansionary gap B. the price level will decrease C. the expected price level is the same as the actual price level D. the unemployment rate is below the natural unemployment rate E. potential output is less than the actual level of output 92. Exhibit 10-2 If the actual price level in Exhibit 10-2 is lower than the expected price level, then A. equilibrium output might be Y2 in the short run B. equilibrium output might be Y1 in the short run C. equilibrium output might be Y3 in the short run D. potential output is less than actual output E. unemployment is below the natural rate 93. Exhibit 10-2 In Exhibit 10-2, a contractionary gap would be represented by the distance A. Y1 - Y2 B. Y1 - Y3 C. Y2 - Y3 D. P3 - P1 E. P3 - P2 94. Exhibit 10-2 Aggregate supply describes the relationship between A. price level and real GDP B. nominal and real GDP C. real GDP and the level of production D. nominal GDP and the level of output E. the level of output and income 95. Exhibit 10-3 Consider Exhibit 10-3. The short-run equilibrium output is Y1. A. True B. False 96. Exhibit 10-3 Consider Exhibit 10-3. In this situation, long-run equilibrium would be established by a(n) A. increase of short-run aggregate supply to close the expansionary gap B. decrease of short-run aggregate supply to close the expansionary gap C. decrease of short-run aggregate supply to close the contractionary gap D. increase of short-run aggregate supply to close the contractionary gap E. rightward shift of the aggregate demand curve 97. Exhibit 10-3 In Exhibit 10-3, the distance between Y1 and Y2 is called A. an expansionary gap B. a contractionary gap C. an increase in potential output D. the natural rate of unemployment E. a decrease in potential output 98. Exhibit 10-3 In Exhibit 10-3, at income level Y2 A. potential output is greater than actual output B. there is a contractionary gap C. the price level will fall D. the actual unemployment rate equals the natural rate of unemployment E. aggregate supply will increase to restore equilibrium 99. 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. 100. An expansionary gap is closed in the long run by a(n) A. rightward shift of the short-run aggregate supply curve B. leftward shift of the short-run aggregate supply curve C. movement to the right along a fixed short-run aggregate supply curve D. increase in aggregate demand E. decrease in aggregate demand 101. As an expansionary gap is closed in the long run by firms' actions, A. output decreases and the price level increases B. inflation decreases and unemployment rises C. both output and the price level increase D. both output and the price level decrease E. inflation rises and unemployment decreases 102. As an expansionary gap is closed in the long run, A. nominal and real GDP decline B. nominal and real GDP increase C. nominal GDP increases but real GDP declines D. nominal GDP declines but real GDP increases E. real GDP declines, but nominal GDP can increase, decrease, or remain the same 103. If resource suppliers and demanders find out that their price expectations were wrong, they will take corrective actions that will A. cause the economy to move away from the potential output level B. raise the unemployment level above the natural rate of unemployment C. shift the aggregate demand curve D. shift the short-run aggregate supply curve E. raise the actual price level 104. Which of the following is true of an expansionary gap? A. It develops when the expected price level exceeds the actual price level. B. In the long run, this gap will close when resource suppliers negotiate lower resource payments. C. It measures the amount by which actual output falls short of the economy's potential. D. In the long run, this gap will close when the short-run aggregate supply curve shifts rightward. E. In the long run, this gap will close when resource suppliers negotiate higher resource payments. 105. Which of the following would be strong evidence that an expansionary gap exists? A. Rapid inflation during a period when plant capacity utilization is below average. B. A steady price level and a 5 percent unemployment rate. C. Help wanted advertising is higher than usual, and the consumer price index is up more than expected. D. Inflation has slowed markedly and the Dow Jones average is at record levels. E. The number of new unemployment claims has skyrocketed and the price level is falling. 106. If workers and other resource suppliers negotiate higher resource payments, which of the following is true? A. The long-run aggregate supply curve will shift rightward. B. There will be a leftward movement along a fixed short-run aggregate supply curve. C. The long-run aggregate supply curve will shift leftward. D. The short-run aggregate supply curve will shift rightward. E. Higher resource payments will cause the price level to rise. 107. If the economy is simultaneously in long-run and short-run equilibrium, which of the following is not true? A. The actual price level equals the expected price level. B. Aggregate quantity supplied equals potential output. C. Aggregate quantity demanded equals potential output. D. Aggregate quantity supplied equals aggregate quantity demanded. E. The aggregate demand curve is horizontal at the potential output level. 108. Suppose firms are continually surprised by higher-than-expected price levels. Which of the following might be true? A. the consumer price index will rise B. potential output will increase C. potential output will decrease D. actual output will be less than potential output in the long run E. actual output will exceed potential output in the short run 109. Exhibit 10-4 The graph in Exhibit 10-4, when aggregate supply is AS, the equilibrium output and price level will be Y2 and P2. A. True B. False 110. Exhibit 10-4 The shift from AS to AS' in Exhibit 10-4 would occur when the actual price level is higher than expectations. A. True B. False 111. Exhibit 10-4 The graph in Exhibit 10-4 shows a(n) A. increase in short-run aggregate supply B. increase in long-run aggregate supply C. decrease in short-run aggregate supply D. decrease in long-run aggregate supply E. decrease in aggregate quantity demanded 112. Exhibit 10-4 Exhibit 10-4 shows that the A. expansionary gap has been closed B. contractionary gap has been closed C. potential level of real GDP has risen D. potential level of real GDP has fallen E. economy will experience deflation 113. The various output levels produced at different price levels is reflected in the A. short-run aggregate supply curve B. aggregate demand curve C. labor demand curve D. labor supply curve E. production possibilities frontier 114. Exhibit 10-5 If the economy is at point M in Exhibit 10-5, A. the actual price level is lower than expected with a $200 billion expansionary gap B. the actual price level is lower than expected with a $200 billion contractionary gap C. the actual price level is higher than expected with a $200 billion contractionary gap D. the actual price level is higher than expected with a $200 billion expansionary gap E. the economy is in equilibrium in the short run and the long run 115. Exhibit 10-5 If the economy is at point M in Exhibit 10-5, A. the actual price level is lower than expected with a $200 billion expansionary gap B. the actual price level is lower than expected with a $200 billion contractionary gap C. the actual price level is higher than expected with a $200 billion contractionary gap D. the short-run supply curve will shift to SRS109 and the expansionary gap will be eliminated E. the economy is in equilibrium in the short run and the long run 116. A decrease in the expected price level will shift the short-run aggregate supply curve. A. True B. False 117. Given a downward-sloping aggregate demand curve, if short-run aggregate supply increases, real GDP must increase and nominal GDP must fall. A. True B. False 118. An increase in short-run aggregate supply could decrease nominal GDP. A. True B. False 119. An increase in short-run aggregate supply that increases the price level will increase the inflation rate as well. A. True B. False 120. The amount by which actual output falls short of potential output is called an contractionary gap. A. True B. False 121. The amount by which actual output falls short of potential output is called an expansionary gap. A. True B. False 122. Wage agreements may cause costs to be __________ flexible than prices so that __________ in the price level cause __________ in aggregate quantity supplied. A. more; decreases; decreases B. more; increases; decreases C. less; increases; decreases D. less; decreases; increases E. less; decreases; decreases 123. Suppose that the actual and expected price levels are initially equal, and that the expected price level rises. Which of the following will occur over the long run? (Hint: Recall the actual price level is on the vertical axis.) A. The economy will move rightward along the short-run aggregate supply curve. B. The economy will move leftward along the short-run aggregate supply curve. C. The short-run aggregate supply curve will shift to the right. D. The short-run aggregate supply curve will shift to the left. E. The short-run aggregate supply curve will become flatter. 124. If the expected price level exceeds the actual price level A. the inflation rate is negative B. the inflation rate is positive C. production becomes less attractive to firms D. production becomes more attractive to firms E. the short-run aggregate supply curve is negatively sloped 125. If the expected price level exceeds the actual price level, A. firms increase production in the short run B. firms decrease production in the short run C. firms maintain production in the short run but increase prices D. firms maintain production in the short run but decrease prices E. firms increase production and raise prices in the short run 126. If the expected price level exceeds the actual price level, then firms will A. expand output hoping that prices will rise B. expand output if workers suffer from money illusion C. expand output if some resource prices are fixed by contracts D. reduce output if some resource prices are fixed by contracts E. reduce output if workers suffer from money illusion 127. If the expected price level exceeds the actual price level, then A. potential output falls B. real GDP may fall below potential output C. potential output increases D. nominal wages increase E. the inflation rate accelerates 128. As actual output falls below the potential level, which of the following must be true? A. more resources become unemployed B. prices remain constant C. real GDP rises D. nominal GDP remains constant E. production rises 129. If the actual price level turns out to be lower than expected, A. resource suppliers lose because they receive lower real incomes B. potential output rises C. potential output falls D. firms earn greater profits because their costs decrease E. the unemployment rate will probably rise 130. Exhibit 10-6 In Exhibit 10-6, the distance between Y1 and Y2 is called A. an expansionary gap B. a contractionary gap C. an increase in potential output D. a decrease in potential output E. the natural rate of unemployment 131. Exhibit 10-6 In Exhibit 10-6, at income level Y1 A. potential output is less than actual output B. there is an expansionary gap C. the price level will rise D. aggregate supply will fall to restore equilibrium E. the actual unemployment rate is greater than the natural rate of unemployment 132. Exhibit 10-6 In Exhibit 10-6, long-run equilibrium would be established by A. an increase in short-run aggregate supply to remove the expansionary gap B. a decrease in short-run aggregate supply to remove the expansionary gap C. a decrease in short-run aggregate supply to remove the contractionary gap D. an increase in short-run aggregate supply to remove the contractionary gap E. a leftward shift of the aggregate demand curve 133. A contractionary gap may be closed in the long run by a(n) A. rightward shift of the short-run aggregate supply curve B. leftward shift of the short-run aggregate supply curve C. rightward movement along a fixed short-run aggregate supply curve D. decrease in aggregate demand E. increase in aggregate demand 134. As a contractionary gap is closed in the long run, A. the inflation rate increases and unemployment decreases B. output increases and the price level decreases C. both output and the price level increase D. both output and the price level decrease E. the inflation rate decreases and unemployment increases 135. As a contractionary gap is closed in the long run by firms' actions, A. nominal and real GDP both decline B. nominal and real GDP both increase C. nominal GDP increases but real GDP declines D. nominal GDP declines but real GDP increases E. real GDP increases, but nominal GDP can increase, decrease, or remain the same 136. Which of the following is true of a contractionary gap? A. It develops when the expected price level is less than the actual price level. B. In the long run, this gap will close when resource suppliers negotiate lower resource payments. C. It measures the amount by which actual output is greater than the economy's potential output. D. In the long run, this gap will close when the short-run aggregate supply curve shifts rightward. E. In the long run, this gap will close when the aggregate demand curve shifts rightward. 137. Which of the following would be evidence that a contractionary gap exists? A. Rapid deflation during a period in which plant capacity utilization is below average. B. A steady price level and a 5 percent unemployment rate. C. Help wanted advertising lower than usual, and the consumer price index lower than expected. D. Inflation has risen markedly and the Dow Jones average is at record levels. E. The number of new unemployment claims has skyrocketed and the price level is rising. 138. Exhibit 10-7 The graph in Exhibit 10-7 shows a(n) A. increase in short-run aggregate supply B. increase in long-run aggregate supply C. decrease in short-run aggregate supply D. decrease in long-run aggregate supply E. increase in aggregate quantity demanded 139. Exhibit 10-7 The movement in Exhibit 10-7 could be caused by A. a decrease in the real wage B. an increase in the economy's capital stock C. the actions of a cartel of resource suppliers D. a decrease in consumer spending E. an increase in labor productivity 140. In the short run, real and nominal GDP will both decrease whenever A. aggregate demand decreases, but not always when aggregate supply decreases B. aggregate supply decreases, but not always when aggregate demand decreases C. either aggregate demand or supply decreases D. aggregate supply decreases E. aggregate supply decreases along a constant aggregate demand curve 141. Exhibit 10-8 If the economy is at point H in Exhibit 10-8, there is a(n) A. expansionary gap of $300 billion (i.e., $0.3 trillion) B. contractionary gap of $300 billion C. contractionary gap of 10 D. expansionary gap of 20 E. expansionary gap of 10 142. 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 143. If wages are flexible, the long-run aggregate supply curve is vertical. A. True B. False 144. The long-run aggregate supply curve is vertical because potential real GDP is determined by resource availabilities and productivities. A. True B. False 145. In the long run, the price level is determined by aggregate supply. A. True B. False 146. In the long run, the aggregate demand curve determines the price level. A. True B. False 147. In the long run, the economy will produce at potential output if A. workers mistakenly believe that nominal wages equal real wages B. expectations are the same in the long and short run C. wages and prices are sufficiently flexible D. the price level is high E. the price level is low 148. In the long run, a decrease in aggregate demand will cause a(n) A. decrease in price and output levels B. increase in price and output levels C. increase in the price level and a decrease in output D. decrease in the price level and an increase in output E. decrease in the price level and no change in output 149. In the long run, an increase in aggregate demand will cause A. a decrease in price and output levels B. an increase in price and output levels C. an increase in the price level and a decrease in output D. a decrease in the price level and an increase in output E. an increase in the price level and no change in output 150. 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 151. Which of the following does not influence the position of the long-run aggregate supply curve? A. the quantity of raw materials available for production B. the quantity of capital C. the quality of the labor force D. the actual price level E. the size of the labor force 152. Which of the following is true in the long run? A. The aggregate demand curve determines the level of potential output. B. The long-run aggregate supply curve is horizontal. C. The actual price level and the expected price level are equal. D. Cyclical unemployment is between 5 percent and 6 percent. E. The price level is determined entirely by the long-run aggregate supply curve. 153. Which of the following is true in the long run? A. The aggregate demand curve determines the level of potential output. B. The long-run aggregate supply curve is vertical. C. The actual price level is greater than the expected price level. D. Cyclical unemployment is between 5 percent and 6 percent. E. The price level is determined entirely by the long-run aggregate supply curve. 154. Which of the following is true in the long run? A. The aggregate demand curve determines the level of potential output. B. The long-run aggregate supply curve is horizontal. C. The actual price level is less than the expected price level. D. Cyclical unemployment is between 5 percent and 6 percent. E. The price level is determined entirely by the aggregate demand curve. 155. Which of the following is true in the long run? A. The aggregate supply curve is the key determinant of the level of potential output. B. The long-run aggregate supply curve is horizontal. C. The actual price level is less than the expected price level. D. Cyclical unemployment is between 5 percent and 6 percent. E. The price level is determined entirely by the long-run aggregate supply curve. 156. 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 157. Given the long-run aggregate supply curve, the aggregate demand curve determines A. the price level and the output level B. the price level but not the output level C. the output level but not the price level D. neither the price level nor the output level E. the income level but not the output level 158. Wage rates are typically flexible upward but "sticky" downward. A. True B. False 159. Which of the following is generally true of nominal wages? A. In the long run, nominal and real wages tend to be equal. B. Nominal wages are more flexible downward than upward. C. Nominal wages are more flexible than prices. D. Sustained and continuous (cyclical) unemployment suggests nominal wages do not fall quickly. E. Nominal wages do not rise during labor shortages. 160. If a contractionary gap exists and resource prices are not flexible downward, the short-run aggregate supply curve will A. shift leftward to return the economy to its potential output B. shift rightward to return the economy to its potential output C. not shift leftward to return the economy to its potential output D. not shift rightward to return the economy to its potential output E. become the long-run aggregate supply curve 161. 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 162. Which of the following is true regarding the closing of a contractionary gap? A. The only way for the gap to close is for nominal wages to rise. B. Such a gap could be closed if the nominal wage grew more slowly over time than the price level. C. Once the economy falls into a contractionary gap, only a strong reduction in aggregate demand could close the gap. D. Inflation eventually ends contractionary gaps. E. Nominal wages and real wages should rise. 163. Whether aggregate supply shifts quickly or slowly to restore equilibrium at potential output depends crucially on A. how quickly planned investment spending adjusts to changes in population growth B. how quickly planned consumption spending adjusts to changes in the price level and nominal wages C. how quickly technology changes to increase aggregate supply D. whether the economy is experiencing a contractionary gap or an expansionary gap E. how quickly real wages adjust to restore full employment in the labor market 164. Compensation is usually negotiated in terms of a nominal wage because A. employers want to pay low real wages B. workers are concerned only about the nominal wage C. firms are concerned only about the nominal wage D. wage agreements are based on expected price levels E. implicit contracts between workers and employers seldom last longer than three months 165. 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 166. Actual output falls below potential output A. during a recession B. when aggregate demand exceeds aggregate supply C. when the natural rate of unemployment exceeds the actual rate of unemployment D. when the natural rate of unemployment is zero E. when short run aggregate supply exceeds long run aggregate supply 167. During a recession, A. unemployment is below the natural rate B. actual output is above potential output C. both unemployment and the price level are too high D. contractionary gaps may persist if wages are not very flexible E. expansionary gaps may persist if wages are not very flexible 168. During recessions, workers resist efforts to reduce nominal wages because A. they believe wage reductions are inefficient B. they care more about nominal wages than about real wages C. they worry that they will not qualify for unemployment benefits D. they would rather be unemployed than accept a lower nominal wage E. of the difficulty of coordinating wage cuts on a large scale 169. Which of the following would cause the long-run aggregate supply curve to shift rightward? A. a rise in energy prices B. a drop in the actual price level C. workers opting for more leisure time and less time on the job D. a level of investment spending that is less than depreciation of the capital stock E. a technological breakthrough with widespread practical applications that occurs in the microcomputer industry 170. 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 171. Which of the following would shift the LRAS curve to the right? A. a decline in the size of the labor force B. a reduction in the quality of the labor force C. a reduction in the cost of using computers D. an increase in the price level E. an increase in aggregate demand 172. Which of the following is true of a beneficial supply shock? A. It could lead to a lower price level. B. If the economy were initially in equilibrium, such a shock would create a contractionary gap. C. It will permanently decrease the economy's price level. D. It will cause the aggregate demand curve to shift rightward. E. It will cause the aggregate demand curve to shift leftward. 173. The potential level of output can be altered by changes in A. the actual price level B. the expected price level C. aggregate demand D. real GDP E. a nation's stock of capital 174. The capital stock increases A. whenever money in circulation is decreased B. whenever gross investment is positive C. whenever gross investment is negative D. only if net investment is positive E. whenever gross investment is zero 175. The main effect of an increase in the capital stock is a(n) A. rightward shift of the long-run aggregate supply curve B. rightward shift of the aggregate demand curve C. leftward shift of the long-run aggregate supply curve D. leftward shift of the aggregate demand curve E. increase in price and output levels 176. Exhibit 10-9 The graph in Exhibit 10-9 shows a(n) A. increase in short-run aggregate supply B. increase in long-run aggregate supply C. decrease in short-run aggregate supply D. decrease in long-run aggregate supply E. decrease in aggregate quantity demanded 177. Exhibit 10-9 The movement shown in Exhibit 10-9 could be caused by A. a decrease in the size of the labor force B. an increase in the price level C. positive net investment D. an increase in autonomous consumption E. a decrease in autonomous consumption 178. Exhibit 10-9 The movement shown in Exhibit 10-9 could be caused by A. government policies to increase demand B. weather conditions causing worldwide crop failures C. an attempt by key resource producers to monopolize supply D. an increase in taxation or a decrease in government spending E. an increase in labor productivity 179. Beneficial supply shocks include all of the following except one. Which is the exception? A. an abundant harvest that increases food supplies B. discoveries of natural resources C. changes in legislation favorable to production D. technological advances E. establishment of the Occupational Safety and Health Administration (OSHA) 180. Which of the following supply shocks would shift the long-run aggregate supply curve outward? A. an increase in business taxes B. an increase in gasoline taxes C. an increase in the cost of raw materials D. an increase in the amount and cost of government regulation E. an increase in agricultural output 181. Given the aggregate demand curve, a beneficial supply shock would A. increase output and the price level B. decrease output and the price level C. increase output and lower the price level D. decrease output and increase the price level E. cause no change in output or the price level 182. An adverse supply shock could increase both the price level and nominal GDP. A. True B. False 183. An increase in the federal minimum wage would shift the long-run aggregate supply curve inward (to the left). A. True B. False 184. Floods in the midwest that diminish farm output would shift the aggregate supply curve outward (to the right). A. True B. False 185. Which of the following would shift the LRAS curve to the left? A. an increase in the average workweek B. an improvement in technology C. a civil war D. a decrease in aggregate demand E. accelerated depreciation allowances to encourage capital formation 186. Which of the following would shift the LRAS curve to the left? A. an increase in the size of the labor force B. a reduction in the quality of the labor force C. a reduction in the cost of using computers D. a decrease in the price level E. an increase in the price level 187. Suppose the economy is initially in long-run equilibrium and then it experiences a supply shock in the form of sharply higher energy prices. Which of the following is true? A. The short-run aggregate supply curve shifts leftward and the long-run supply curve shifts rightward. B. The short-run aggregate supply curve shifts rightward and the long-run supply curve shifts rightward. C. The short-run aggregate supply curve does not shift and the long-run aggregate supply curve shifts rightward. D. The short-run aggregate supply curve shifts rightward but the long-run aggregate supply curve does not shift. E. There will be a movement to the left along the aggregate demand curve. 188. The main effect of a decrease in the stock of capital is a(n) A. rightward shift of the short-run aggregate supply curve B. rightward shift of the aggregate demand curve C. leftward shift of the long-run aggregate supply curve D. leftward shift of the aggregate demand curve E. increase in price and output levels 189. Given the aggregate demand curve, an increase in the supply of a productive resource will A. increase output but leave prices unchanged B. decrease both output and prices C. increase the price level and decrease output D. decrease the price level and increase output E. increase the price level but leave output unchanged 190. Which of the following changes best represents the effect on the U.S. of the oil embargo (a shut-off of oil from certain OPEC countries) of the 1970s? A. a leftward shift of the aggregate supply curve B. a rightward shift of the aggregate supply curve C. a leftward shift of the aggregate demand curve and the aggregate supply curve D. a rightward shift of both the aggregate demand curve and the aggregate supply curve E. a change in the aggregate supply curve from a line with an upward slope to a vertical line 191. If global pollution causes climatic changes that permanently harm crop production worldwide, aggregate supply and demand analysis would lead us to expect A. increases in the price level B. decreases in the price level C. outward shifts of the aggregate demand and supply curves D. a leftward shift of the aggregate demand curve along a vertical aggregate supply curve E. an increase in the potential level of real GDP 192. Exhibit 10-10 The graph in Exhibit 10-10 shows a(n) A. increase in long-run aggregate supply B. increase in short-run aggregate supply C. decrease in short-run aggregate supply D. decrease in long-run aggregate supply E. increase in aggregate quantity demanded 193. Exhibit 10-10 The movement in Exhibit 10-10 could be caused by a(n) A. decrease in the size of the labor force B. decrease in the price level C. positive level of net investment D. increase in autonomous consumption E. decrease in autonomous consumption 194. Which of the following supply shocks would shift the aggregate supply curve inward? A. a decrease in business taxes B. a decrease in gasoline taxes C. a decrease in the cost of raw materials D. a decrease in agricultural output E. a decrease in the amount and cost of government regulation 195. Stagflation is defined as A. decreased output accompanied by a higher price level B. decreased output accompanied by a lower price level C. increased output accompanied by a lower price level D. increased output accompanied by a higher price level E. stagnation in the rate of inflation (i.e., no appreciable change in the rate of inflation for a year or more) 196. Given the aggregate demand curve, an adverse supply shock would A. increase output and the price level B. decrease output and the price level C. increase output and decrease the price level D. decrease output and increase the price level E. cause no change in output or the price level 197. An adverse supply shock would shift the A. short-run aggregate supply curve outward but not the long-run aggregate supply curve B. long-run aggregate supply curve outward but not the short-run aggregate supply curve C. long-run aggregate supply curve inward but not the short-run aggregate supply curve D. short-run aggregate supply curve inward but not the long-run aggregate supply curve E. long-run and short-run aggregate supply curves inward 198. A beneficial supply shock would shift the A. long-run and short-run aggregate supply curves inward B. short-run aggregate supply curve inward and the long-run aggregate supply curve outward C. short-run aggregate supply curve outward but not the long-run aggregate supply curve D. long-run aggregate supply curve inward but not the short-run aggregate supply curve E. long-run and short-run aggregate supply curves outward 199. Which of the following would cause the short-run aggregate supply curve to shift leftward? A. a drop in energy prices B. a drop in the actual price level C. workers opting for more leisure time and less time on the job D. new investment spending that is greater than depreciation of the capital stock E. a technological breakthrough with widespread practical applications that occurs in the microcomputer industry 200. The key resource underlying aggregate supply is A. economic institutions B. production incentives C. labor D. technology E. natural resources 201. A wage in dollars measured by the goods and services the dollars buy is called the A. real wage B. imaginary wage C. inflationary wage D. nominal wage E. normal wage 202. As macroeconomic output expands, the cost of additional output increases. A. True B. False 203. Which of the following occurs as macroeconomic output expands in the short run? A. the nominal cost of labor increases B. the demand for nonlabor resources increases C. equipment wears out faster D. the nominal cost per unit of output rises E. All of the answers are correct 204. Firms __________ output as long as the revenue from additional production __________ the cost of that production. A. expand, is less than B. contract, is less than C. contract, exceeds D. expand, exceeds E. expand, is equal to 205. Exhibit 10-11 Refer to Exhibit 10-11. Which point represents short-run equilibrium? A. a B. b C. c D. d E. e 206. Because nominal wages fall slowly, the supply-side adjustments needed to close a contractionary gap may take very long. A. True B. False 207. A coordination failure occurs when A. production on a factory floor is disorganized B. customers regularly trip over loose welcome mats at stores C. employers and employees fail to reach an agreement to increase nominal wages, employment, and an expansionary gap D. an economy is at full employment E. employers and employees fail to reach an agreement to reduce nominal wages, unemployment, and a contractionary gap 208. CEO Carmen Ngouri must choose between laying off some workers or cutting nominal wages for all workers. She will likely decide on the layoff because A. layoffs damage worker morale more than pay cuts do B. pay cuts decrease labor turnover C. layoffs reduce productivity D. the workers prefer a pay cut so that all workers can stay employed E. the damage from layoffs is brief and limited because laid off workers are soon gone 209. Supply shocks are unexpected events that affect aggregate supply. A. True B. False 210. Exhibit 10-12 Consider Exhibit 10-12. Aggregate demand is represented by AD0 and the aggregate supply is AS100 since the expected price level is 100. Which of the following describes the current situation for this economy? A. an expansionary gap exists B. a recessionary gap exists C. a long-run equilibrium exists D. an employment gap exists E. an economic growth gap exists 211. Exhibit 10-12 Consider Exhibit 10-12. Aggregate demand is represented by AD0 and the aggregate supply is AS120 since the expected price level is 120. Which of the following describes the current situation for this economy? A. an expansionary gap exists B. a recessionary gap exists C. a long-run equilibrium exists D. an employment gap exists E. an economic growth gap exists 212. Exhibit 10-12 Consider Exhibit 10-12. Aggregate demand is represented by AD0 and the aggregate supply is AS100 since the expected price level is 100. Which of the following identifies the size of the expansionary gap? A. FB B. GB C. JB D. EA E. HI 213. Exhibit 10-12 Consider Exhibit 10-12. Aggregate demand is represented by AD0 and the aggregate supply is AS120 since the expected price level is 120. Which of the following identifies the size of the recessionary gap? A. FB B. GB C. JB D. EA E. DK 214. Exhibit 10-12 Consider Exhibit 10-12. Aggregate demand is represented by AD0 and the aggregate supply is AS100 since the expected price level is 100. Which of the following identifies the the short-run equilibrium? A. A B. B C. C D. I E. J 215. Exhibit 10-12 Consider Exhibit 10-12. Aggregate demand is represented by AD0 and the aggregate supply is AS120 since the expected price level is 120. Which of the following identifies the the short-run equilibrium? A. A B. B C. C D. D E. J 216. Exhibit 10-12 Consider Exhibit 10-12. Aggregate demand is represented by AD0 and the aggregate supply is AS100 since the expected price level is 100. Which of the following identifies the the long-run equilibrium? A. A B. B C. C D. I E. J 217. Exhibit 10-12 Consider Exhibit 10-12. Aggregate demand is represented by AD0 and the aggregate supply is AS120 since the expected price level is 120. Which of the following identifies the the long-run equilibrium? A. A B. B C. C D. I E. J Test Bank for Macroeconomics: A Contemporary Introduction William A. McEachern 9781133188131, 9780538453776