3.5 & 3.6 - Equilibrium and Changes in the AS-AD Model

When an economy is in equilibrium at potential gross domestic product, the actual unemployment rate is

• equal to the cyclical rate

• greater than the natural rate

• less than the natural rate

• equal to the natural rate

• equal to zero

The intersection of the aggregate supply curve and the aggregate demand curve occurs at the economy's equilibrium level of

• real investment and the interest rate

• real disposable income and unemployment

• real national output and the price level

• government expenditures and taxes

• imports and exports

In the AD−AS model, which of the following is true?

• The economy is in an inflationary gap when the short-run equilibrium real output is below the long-run equilibrium real output.

• The economy is in an inflationary gap when the short-run equilibrium real output is at the long-run equilibrium real output.

• The economy is in a recessionary gap when the short-run equilibrium real output is at the long-run equilibrium real output.

• The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output.

• The economy is in a recessionary gap when the short-run equilibrium real output is above the long-run equilibrium real output.

The diagram above shows a nation’s short-run aggregate supply curve (SRAS), long-run aggregate supply curve (LRAS), and aggregate demand curve (AD).

Based on the diagram above, which of the following describes the short-run equilibrium?

• The economy is operating at full employment.

• The economy is operating below full employment.

• The economy is operating above full employment.

• There will be downward pressure on the price level.

• There is a recessionary gap.

Given the graph of the short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves above, which of the following is true?

• At point Z, the economy has cyclical unemployment.

• At point Z, the economy is in long-run equilibrium but not in short-run equilibrium.

• At point Y, the natural rate of unemployment is zero.

• At point X, the economy is experiencing a recessionary gap.

• At point X, there is no frictional unemployment.

With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely

• reduce the price level

• reduce the level of nominal gross domestic product

• increase real gross domestic product

• shift the short-run aggregate supply curve to the right

• shift both the aggregate demand curve and the long-run aggregate supply curve to the left

With an increase in the real interest rate, consumption and real gross domestic product will most likely change in which of the following ways?

• Consumption - Increase

  Real Gross Domestic Product - Increase

• Consumption - Increase

  Real Gross Domestic Product - Decrease

• Consumption - Decrease

  Real Gross Domestic Product - Increase

• Consumption - Decrease

  Real Gross Domestic Product - Decrease

• Consumption - No change

  Real Gross Domestic Product - Increase

Which of the following would generate cost-push inflation?

• An increase in the price of labor

• A decrease in the price of energy

• An increase in household consumption

• A decrease in government spending

• An increase in the money supply

Which of the following would be the initial impact on an economy if wages were to increase more than worker productivity?

• There would be no initial impact, since neither the aggregate supply curve nor the aggregate demand curve would shift.

• Employment would increase, causing a rightward shift in the aggregate demand curve.

• The price level would increase, resulting in excess aggregate supply.

• The short-run aggregate supply curve would shift to the left, increasing the price level.

• The aggregate demand curve would shift to the left, increasing the price level.

Which of the following will most likely occur as a result of an increase in labor productivity in an economy?

• An increase in output and a decrease in inflation

• An increase in interest rates and a decrease in investment

• A decrease in both money demand and money supply

• A decrease in exports and an increase in unemployment

• A leftward shift in the short-run aggregate supply curve and a decrease in output