Chapter 33 Problem Set #5

Wages tend to be sticky

• because of contracts, social norms, and notions of fairness.

• because of contracts, but not social norms or notions of fairness.

• because of social norms and notions of fairness, but not contracts.

• but not because of social norms, notions of fairness or contracts.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,

• production is more profitable and employment rises.

• production is more profitable and employment falls.

• production is less profitable and employment rises.

• production is less profitable and employment falls.

According to the sticky-wage theory of the short-run aggregate supply curve, if workers and firms expected prices to rise by 4 percent, but instead they rise by 2 percent, then

• employment and production rise.

• employment rises and production falls.

• employment falls and production rises.

• employment and production fall.

Other things the same, an unexpected fall in the price level results in some firms having

• lower than desired prices which increases their sales.

• lower than desired prices which depresses their sales.

• higher than desired prices which increases their sales.

• higher than desired prices which depresses their sales.

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% and people were expecting it to rise by 2%, then firms have

• higher than desired prices which increases their sales.

• higher than desired prices which depresses their sales.

• lower than desired prices which increases their sales.

• lower than desired prices which depresses their sales.

Other things the same, if the price level is lower than expected, then some firms believe that the relative price of what they produce has

• decreased, so they increase production.

• decreased, so they decrease production.

• increased, so they increase production.

• increased, so they decrease production.

The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price level:

• increases less than expected so that firms believe the relative price of their output has increased.

• increases less than expected so that firms believe the relative price of their output has decreased.

• increases more than expected so that firms believe the relative price of their output has increased.

• increases more than expected so that firms believe the relative price of their output has decreased.

If the price level is higher than expected, firms might raise their production in the short run if:

• the nominal wage they pay their employees was set based on the expected price level.

• prices are costly to adjust and they have set their price at some time in the past and are not ready to change it.

• they believe that the price of their product has risen relative to the price of other products, when in fact the rise in the price of their product reflects an increase in the general price level.

• All of the above are correct.

If the actual price level is 165, but people had been expecting it to be 160, then:

• the quantity of output supplied rises, but only in the short run.

• the quantity of output supplied rises in the short run and the long run.

• the quantity of output supplied falls, but only in the short run.

• the quantity of output supplied falls in the short run and the long run.

The effects of a higher than expected price level are shown by:

• shifting the short-run aggregate supply curve right.

• shifting the short-run aggregate supply curve left.

• moving to the right along a given aggregate supply curve.

• moving to the left along a given aggregate supply curve.