Macro Ch. 9

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Aggregate supply expresses the relationship between

the price level in the economy and the aggregate output firms will produce, other things constant

The real wage represents the

quantity of goods and services a worker can purchase in exchange for work time

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?

It rose by $20

If the economy were at its potential output level, which of the following would not be true?

Frictional unemployment would be zero.

Suppose this year's inflation rate is 4 percent, which is greater than the 2 percent everyone expected. Which of the following is true?

Potential output will stay the same

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

prices for firms' output are rising with the price level

Given implicit or explicit resource price agreements, if the actual price level is below the expected price level, the

economy will move leftward along the short-run aggregate supply curve

The steepness of the short-run aggregate supply curve depends primarily on

how quickly production costs increase as output expands

In Exhibit 11-2, an expansionary gap would be represented by the distance

y3 - y1

If the actual price level in Exhibit 11-2 is lower than the expected price level, then

equilibrium output might be Y2 in the short run

As an expansionary gap is closed in the long run by firms' actions,

output decreases and the price level increases

If the economy is simultaneously in long-run and short-run equilibrium, which of the following is not true?

The aggregate demand curve is horizontal at the potential output level.

A contractionary gap may be closed in the long run by a(n)

rightward shift of the short-run aggregate supply curve

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

decrease and output will increase

Which of the following does not influence the position of the long-run aggregate supply curve?

the actual price level

Which of the following is true in the long run?

The price level is determined entirely by the aggregate demand curve.

If a contractionary gap exists and resource prices are not flexible downward, the short-run aggregate supply curve will

not shift rightward quickly to return the economy to its potential output

During a recession,

contractionary gaps may persist for a while if wages are not very flexible

The movement shown in Exhibit 11-9 could be caused by

positive net investment

An adverse supply shock would shift the

long-run and short-run aggregate supply curves inward

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