Unit 3 Homework

A contractionary supply shock would most likely result in

• a) a decrease in the general price level

• b) an increase in gross domestic product

• c) an increase in national income

• d) an increase in aggregate demand

• e) a decrease in employment

How does the automatic adjustment mechanism move the economy to potential real gross domestic product (GDP) in the long run when current real GDP is above potential GDP?

• Nominal wages fall, shifting the short-run aggregate supply curve to the left.

• Nominal wages fall, shifting the short-run aggregate supply curve to the right.

• Nominal wages rise, shifting the short-run aggregate supply curve to the left.

• Nominal wages do not change, shifting the short-run aggregate supply curve to the right.

• Nominal wages rise, shifting the short-run aggregate supply curve to the right.

The graph above shows the macroeconomic conditions of Wattsonia. Many economists estimate that the natural rate of unemployment is 6 percent. If this is true and the current rate of unemployment is 5.1 percent, in what range of real gross domestic product is the economy currently producing?

• Greater than Y1 and less than Y2

• At Y1

• At Y2

• Less than Y1

• Greater than Y2

Which of the following will remain unchanged when the price level decreases? 4MA37

• Aggregate quantity demanded

• Long-run aggregate supply

• Nominal wages

• Inflationary expectations

• Nominal output

The aggregate demand curve assumes that 4MA310

• as the domestic price level increases, consumers substitute domestic goods for foreign goods

• changes in the price level affect real wealth

• nominal interest rates increase as the price level decreases

• as the price of a good or service increases, nominal wages decrease

• all prices and total consumer incomes are constant

A change in which of the following will cause the short-run aggregate supply curve to shift? I. The price level II. Government spending III. The cost of all inputs

• I only

• I and II only

• III only

• II only

• I, II, and III

A high marginal propensity to consume implies which of the following?

• A small change in consumption when income changes

• An equilibrium level of income near full employment

• A high savings rate

• A high marginal tax rate

• A low marginal propensity to save

The short-run aggregate supply curve would be vertical if

• investment demand is very responsive to changes in interest rates

• nominal wages adjust slowly when there is unemployment

• the spending multiplier is very low

• both nominal wages and prices adjust slowly to changes in aggregate demand

• nominal wages adjust immediately to changes in the price level

According to the graph above, which of the following will necessarily result in a decrease in output? I. A rightward shift of the aggregate demand curve II. A leftward shift of the aggregate demand curve III. A rightward shift of the aggregate supply curve IV. A leftward shift of the aggregate supply curve 4MA36

• II and IV only

• I only

• II and III only

• I and III only

• III only

A decrease in taxes will necessarily result in an increase in which of the following?

• Money supply

• Nominal gross domestic product

• Marginal propensity to save

• Unemployment

• Exports