Chapter: Supply-Side Equilibrium: Unemployment and Inflation?
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1. The concept of aggregate supply refers to a
a. fixed number of output.
b. list of products demanded.
c. schedule of output.
d. schedule of production costs.
2. The aggregate supply curve is drawn with
a. the price level on the vertical axis and nominal GDP on the horizontal.
b. nominal GDP on the vertical axis and real GDP on the horizontal.
c. the price level on the vertical axis and real GDP on the horizontal.
d. real GDP on the horizontal and the rate of inflation on the vertical.
3. Many economists are in favor of increased immigration of adult foreigners who possess high levels of skills and education. Why?
a. Economists are very caring individuals.
b. Economists believe this is a way to increase understanding among different ethnic groups.
c. Economists believe foreigners will work cheaper.
d. Economists believe this will increase aggregate supply.
4. How is it possible for the economy to have an inflationary gap?
a. Equilibrium is at a GDP level below full employment.
b. Equilibrium is at a GDP level equal to full employment.
c. Equilibrium is at a GDP level above full employment.
d. GDP is rising at full employment.
e. GDP is falling at full employment.
5. The principal way in which an economy self corrects from an inflationary gap is through
a. deflation, which increases purchasing power.
b. inflation, which reduces purchasing power.
c. disinflation, which maintains purchasing power.
d. price level decreases, which stimulate production.
6. In the figure below, which graph best illustrates an autonomous increase in consumption spending?
a. 1
b. 2
c. 3
d. 4
7. In the below figure, which graph best illustrates an adverse supply shock accompanied by an increase in government spending?
a. 1
b. 2
c. 3
d. 4
8. What does inflation do to the value of the oversimplified multiplier?
a. Inflation increases the value of the multiplier above the value of the oversimplified formula.
b. Inflation does not change the value of the multiplier.
c. Inflation decreases the value of the multiplier below the value of the oversimplified formula.
d. Inflation increases the value of the multiplier unless the level of unemployment also rises.
9. If the MPC of an economy is .90 and the economy is on the horizontal portion of the aggregate supply curve, then an increase in investment spending of $50 million will
a. increase total income by $50 million.
b. increase total income by more than $50 million but less than $500 million.
c. increase total income by $500 million.
d. increase total income by more than $500 million.
10. As the purchasing power of financial assets fall, consumers react by
a. increasing spending.
b. decreasing spending.
c. decreasing saving.
d. shifting the consumption line upward.
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