Chap005 - Chapter 05 - Aggregate Supply and Demand Chapter...

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Chapter 05 - Aggregate Supply and Demand Chapter 05 Aggregate Supply and Demand Multiple Choice Questions 1. If factor markets were perfectly competitive, then full employment would be the normal condition and a. Inflation would always be zero b. Output would rise steadily with price increases c. There would never be any reason for prices to change d. The AS-curve would be horizontal E . The AS-curve would be vertical Difficulty: Easy 2. Assume your dad lost a $100 bill under a sofa in 1975 and found it again 30 years later. What would be its in 2005? a. $128 b. $100 c. $68 d. $48 E . $28 Difficulty: Easy 3. The AS-curve is horizontal or very flat if A . Additional resources (especially labor) can be hired to produce additional output with little or no increase in existing prices b. Wages fall rapidly with an increase in unemployment, reducing spending and income to restore equilibrium c. Firms lower wages less than prices to avoid a loss in profit during a recession d. The nominal wage adjustment occurs fairly rapidly e. Nominal wages and prices always change proportionally, leaving the real wage rate unchanged Difficulty: Medium 5-1
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Chapter 05 - Aggregate Supply and Demand 4. Which of the following was NOT true during the Great Depression? A . Investment as a share of GDP was below 3 percent b. Unemployment averaged about 18.8 percent c. Prices dropped by one-fourth d. Output fell by nearly 30 percent e. Both B and C Difficulty: Medium 5. The level of GDP that corresponds to full employment in the labor market is called A . Potential GDP b. Real GDP c. Nominal GDP d. Natural GDP e. GDP per capita Difficulty: Easy 6. Most economists prior to Keynes thought that a. Unemployment could be eliminated by active fiscal policies B . The economy always adjusted to full employment c. The economy always adjusted to a natural rate of inflation d. Monetary policy could be employed to eliminate the business cycle e. Government intervention was needed to avoid persistent unemployment Difficulty: Easy 7. The Keynesian AS-curve differs from the classical AS-curve, since Keynes a. Thought that labor markets worked smoothly to always establish full employment b. Thought that nominal wages were flexible even when there was unemployment C . Thought that nominal wages were rigid even when there was unemployment d. Described the AS-curve as completely vertical e. Assumed that firms tried to exploit the work force by paying them substandard wages Difficulty: Medium 5-2
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Chapter 05 - Aggregate Supply and Demand 8. The Keynesian aggregate supply curve implies that a. The economy is always at the full-employment level of output B . The price level is unaffected by current levels of GDP c. Wages are perfectly flexible d. Real money balances decrease as the AD-curve shifts to the right e. An increase in nominal money supply will not affect the level of real GDP Difficulty: Easy 9. In the Keynesian aggregate supply curve case, A . Firms will always supply the amount of goods demanded at the existing price level
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Chap005 - Chapter 05 - Aggregate Supply and Demand Chapter...

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