Homework 2

# Homework 2 - Econ 201 (Spring 2009) Homework 2 (Due on May...

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Econ 201 (Spring 2009) April 29 th , 2009 Homework 2 (Due on May 6 th in class) Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1. If the SRAS curve intersects the AD curve to the right 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. 2. Suppose an economist believes the economy removes recessionary and inflationary gaps by itself. Which of the following describes what she thinks will happen when the economy is in a recessionary gap? a. As old wage bargains expire, wages fall, and the SRAS curve shifts rightward. b. As old wage bargains expire, wages fall, and the SRAS curve shifts leftward. c. As old wage bargains expire, wages rise, and the SRAS curve shifts leftward. d. As old wage bargains expire, wages fall, and the AD curve shifts rightward. 3. If the economy is currently in a recessionary gap, a. all economists will argue that the economy can remove the gap itself. b. some economists will argue that the economy can remove the gap itself. c. no economist will argue that the economy can remove the gap itself. d. all economists will argue that over time the recessionary gap will worsen. 4. Refer to the exhibit above. The economy is currently producing Q 1 . At this level of Real GDP, the economy is in a(n) a. inflationary gap. b. recessionary gap. c. unemployment gap. d. high Real GDP gap. e. none of the above

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5. Refer to the exhibit above. The economy is currently producing Q 1 . If an economist believes the economy (itself) can move to Q N , then he believes that the a. LRAS curve will shift leftward until it intersects the SRAS and AD curves at Q 1 . 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. 6. Refer to the exhibit above. The unemployment rate is lower at a. Q 1 than Q N . b. Q N than Q 1 . c. point A than point B. d. point B than point A. 7. Refer to the exhibit above. 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. 8. Refer to the exhibit above. The economy is currently producing Q 1 . An economist who believes wages are flexible in the downward direction would 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.
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## Homework 2 - Econ 201 (Spring 2009) Homework 2 (Due on May...

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