question

potential output

answer

is the level of output that the economy would produce if all prices, including nominal wages, were fully flexible.

question

Suppose that productivity increases as workers' health improves. This increase in productivity will:

answer

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

question

The best example of a public good is:

answer

a court of law.

question

Which of the following is a negative externality?

answer

the risks to nonsmokers from second-hand smoke

question

The labor force is equal to the:

answer

sum of employment and unemployment.

question

When the economy is at full employment, _____ is zero.

answer

cyclical unemployment

question

In the long run, inflationary and recessionary gaps are self-correcting because eventually:

answer

nominal wages rise to close an inflationary gap or fall to close a recessionary gap.

question

Deflation

answer

encourages people to hold cash rather than invest.

question

With tradable emissions permits, the price of the permit is determined by:

answer

the supply of and demand for permits.

question

The unemployment rate is the:

answer

percent of the labor force that is unemployed.

question

If an activity generates external costs, the decision makers generating the activity will:

answer

not be faced with its full costs.

question

Inflationary and recessionary gaps are closed by self-correcting adjustments that shift:

answer

the SRAS curve.

question

A survey reveals that on a small island 40 people have jobs, 10 people are not working but looking for jobs, and 30 people are neither working nor looking for work. The unemployment rate on the island is:

answer

20%.

question

Unanticipated inflation:

answer

helps borrowers and hurts lenders.

question

In contrast to the conclusions drawn from microeconomics, many economists argue that in macroeconomics, government:

answer

intervention in markets can prevent or reduce the effects of adverse events on the macroeconomy.

question

Suppose that consumer expectations improve. The aggregate demand curve will undergo a:

answer

shift to the right.

question

A bank makes a loan for one year. The nominal annual interest rate is 7.5%. The real rate is 4%. Over the course of the year, overall prices increase by 4%. This rate of inflation hurt the _____ because the actual rate of inflation was _____ than the anticipated rate.

answer

lender; higher

question

A worker classified as frictionally unemployed is one who is:

answer

unemployed while looking for a job that demands his or her skills.

question

Betsy loves to garden, and her rose garden is enjoyed by everyone in her neighborhood. Because her consumption of rosebushes provides a positive externality to the community, the government should _____ because the market quantity of rosebushes is _____ than the socially optimal quantity.

answer

provide a subsidy; lower

question

If during several months the economy is simultaneously increasing its levels of output and employment, then the economy is in a(n):

answer

expansion.

question

Inflation affects people adversely because:

answer

it causes money to lose its value over time.

question

Which of the following would shift the aggregate demand curve to the LEFT?

answer

monetary policy that raises the interest rate

question

A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.

answer

supply; short-run aggregate supply; left

question

Use of fiscal policy involves changes in:

answer

government spending.

question

The intersection of an economy's aggregate demand and long-run aggregate supply curves:

answer

occurs at the economy's potential output.

question

A(n) _____ is nonexcludable and nonrival in consumption.

answer

public good

question

A common resource is a good or service for which exclusion is _____ and which is _____ in consumption.

answer

not possible; rival

question

The central mission of modern macroeconomics is to prevent:

answer

a deep recession like the Great Depression.

question

An inflationary gap is automatically closed by _____ wages that shift the SRAS curve _____.

answer

rising; leftward

question

Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is:

answer

4%.

question

When Joe watched a television movie, his viewing was _____ in consumption because other people _____ able to view the movie at the same time Joe did.

answer

nonrival; were

question

The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.

answer

higher; higher output, since most production costs are fixed in the short run.

question

Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _____ unemployment.

answer

decrease in frictional

question

Long-run growth is the sustained upward trend in:

answer

aggregate output per person over several decades.

question

The natural rate of unemployment:

answer

is composed of structural and frictional unemployment.

question

Look at the figure Payoff Matrix for the United States and the European Union. Suppose that the United States and the European Union both produce corn, and each region can make more profit if output is limited and the price of corn is high. The joint profit-maximizing combination is for the United States to produce a _____ output and the European Union to produce a _____ output.

answer

low; low

question

Look at the figure Payoff Matrix for Ajinomoto and ADM. The optimal combination for maximum combined profit occurs when ADM produces _____ million pounds and Ajinomoto produces _____ million pounds.

answer

30; 30

question

Stagflation may result from:

answer

an increase in the price of oil.

question

An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

answer

an increase; an increase

question

According to the long-run aggregate supply curve, when _____, the quantity of aggregate output supplied _____.

answer

the aggregate price level rises; does not change

question

The short-run aggregate supply curve will shift to the:

answer

left if nominal wages increase.

question

Which of the following goods is most likely a common resource?

answer

a public park

question

Look at the figure Shifts of the AD-AS Curves. A decrease in wages in the short run is illustrated by:

answer

panel (c).

question

Keynesian economics stressed:

answer

the importance of total spending.

question

A decrease in energy prices will:

answer

increase short-run aggregate supply.

question

Payoff Matrix II for Blue Spring and Purple Rain describes two producers of bottled water. Each has two strategies available to it: a high price and a low price. The dominant strategy for Purple Rain is to:

answer

charge a low price.

question

A public good is a good or service for which exclusion is _____ and which is _____ in consumption.

answer

not possible; nonrival

question

An increase in the nation's _____ is generally accepted as a long-run indicator of a rising standard of living.

answer

output per person

question

A major reason for the end of the Great Depression was an increase in government spending:

answer

during World War II.

question

Gary's Gas and Frank's Fuel are the only two providers of gasoline in their town. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of:

answer

a dominant strategy.

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