econ 201 midterm 2

is the level of output that the economy would produce if all prices, including nominal wages, were fully flexible.
potential output
shift the short-run aggregate supply curve to the right.
Suppose that productivity increases as workers’ health improves. This increase in productivity will:
a court of law.
The best example of a public good is:
the risks to nonsmokers from second-hand smoke
Which of the following is a negative externality?
sum of employment and unemployment.
The labor force is equal to the:
cyclical unemployment
When the economy is at full employment, _____ is zero.
nominal wages rise to close an inflationary gap or fall to close a recessionary gap.
In the long run, inflationary and recessionary gaps are self-correcting because eventually:
encourages people to hold cash rather than invest.
the supply of and demand for permits.
With tradable emissions permits, the price of the permit is determined by:
percent of the labor force that is unemployed.
The unemployment rate is the:
not be faced with its full costs.
If an activity generates external costs, the decision makers generating the activity will:
the SRAS curve.
Inflationary and recessionary gaps are closed by self-correcting adjustments that shift:
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:
helps borrowers and hurts lenders.
Unanticipated inflation:
intervention in markets can prevent or reduce the effects of adverse events on the macroeconomy.
In contrast to the conclusions drawn from microeconomics, many economists argue that in macroeconomics, government:
shift to the right.
Suppose that consumer expectations improve. The aggregate demand curve will undergo a:
lender; higher
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.
unemployed while looking for a job that demands his or her skills.
A worker classified as frictionally unemployed is one who is:
provide a subsidy; lower
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.
If during several months the economy is simultaneously increasing its levels of output and employment, then the economy is in a(n):
it causes money to lose its value over time.
Inflation affects people adversely because:
monetary policy that raises the interest rate
Which of the following would shift the aggregate demand curve to the LEFT?
supply; short-run aggregate supply; left
A natural disaster that destroys part of a country’s infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.
government spending.
Use of fiscal policy involves changes in:
occurs at the economy’s potential output.
The intersection of an economy’s aggregate demand and long-run aggregate supply curves:
public good
A(n) _____ is nonexcludable and nonrival in consumption.
not possible; rival
A common resource is a good or service for which exclusion is _____ and which is _____ in consumption.
a deep recession like the Great Depression.
The central mission of modern macroeconomics is to prevent:
rising; leftward
An inflationary gap is automatically closed by _____ wages that shift the SRAS curve _____.
Suppose that the nominal rate of interest is 7% and the inflation rate is 3%. The real rate of interest is:
nonrival; were
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.
higher; higher output, since most production costs are fixed in the short run.
The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to _____.
decrease in frictional
Internet employment agencies have simplified the job search for the applicants. They have also led to a(n) _____ unemployment.
aggregate output per person over several decades.
Long-run growth is the sustained upward trend in:
is composed of structural and frictional unemployment.
The natural rate of unemployment:
low; low
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.
30; 30
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.
an increase in the price of oil.
Stagflation may result from:
an increase; an increase
An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.
the aggregate price level rises; does not change
According to the long-run aggregate supply curve, when _____, the quantity of aggregate output supplied _____.
left if nominal wages increase.
The short-run aggregate supply curve will shift to the:
a public park
Which of the following goods is most likely a common resource?
panel (c).
Look at the figure Shifts of the AD-AS Curves. A decrease in wages in the short run is illustrated by:
the importance of total spending.
Keynesian economics stressed:
increase short-run aggregate supply.
A decrease in energy prices will:
charge a low price.
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:
not possible; nonrival
A public good is a good or service for which exclusion is _____ and which is _____ in consumption.
output per person
An increase in the nation’s _____ is generally accepted as a long-run indicator of a rising standard of living.
during World War II.
A major reason for the end of the Great Depression was an increase in government spending:
a dominant strategy.
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:

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