ABBE1023 T6

Suppose the economy's short-run equilibrium point is to the left of the Natural Real GDP. Which of the following is true?

• The economy is in an inflationary gap.

• The economy is in a recessionary gap.

• The economy is in long-run equilibrium.

• This situation is actually impossible.

A necessary condition for the economy to be self-regulating is that _____________________.

• wages must be relatively high.

• the labor market must always be in equilibrium.

• the interest rate must be above its equilibrium level.

• wages must be flexible in both an upward and downward direction.

Refer to Exhibit 1. The economy is in long-run equilibrium at point ___________.

• A

• B

• C

• D

Refer to Exhibit 1. If the economy is in short-run equilibrium at point A, _________________.

• the (actual) unemployment rate is less than the natural unemployment rate.

• the (actual) unemployment rate is equal to the natural unemployment rate.

• the (actual) unemployment rate is greater than the natural unemployment rate.

• the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be determined from the available information.

In a "self-regulating" economy, inflationary and recessionary gaps

• never occur.

• are eliminated by forces internal to the economy, without government intervention.

• are eliminated by timely actions of economic policymakers.

• are the desirable results of microeconomic price adjustments.

A laissez-faire macroeconomic policy, based on a __________ in self-regulating properties of the economy, implies __________ by the government.

• belief, active policymaking

• belief, non-interference

• disbelief, active policymaking

• disbelief, non-interference

The frictional unemployment rate is 2.3 percent, the structural unemployment rate is 3.1 percent, and the current unemployment rate (in the economy) is 5.6. The economy is in ____________.

• an inflationary gap producing more than Natural Real GDP.

• a recessionary gap producing more than Natural Real GDP

• an inflationary gap producing Natural Real GDP.

• a recessionary gap producing less than Natural Real GDP.

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?

• As old wage bargains expire, wages fall, and the SRAS curve shifts rightward.

• As old wage bargains expire, wages fall, and the SRAS curve shifts leftward.

• As old wage bargains expire, wages rise, and the SRAS curve shifts leftward.

• As old wage bargains expire, wages fall, and the AD curve shifts rightward.

If the economy is in long-run equilibrium, _____________________________________.

• prices will rise but wages will remain constant.

• surpluses occur in labour market.

• it is producing Natural Real GDP.

• prices will remain constant but wages may rise.

If the economy is self-regulating and in a recessionary gap, __________________________.

• wages and prices will fall.

• wages will fall, but prices will rise.

• neither wages nor prices will change.

• wages will rise, but prices will fall.