|1. Potential output is the amount produced when A) firms’ and workers’ expectations about the price level are realized|
B) the actual price level is higher than workers expected
C) firms and workers have the same expectations about the price level
D) the actual price level remains constant
E) the actual price level is higher than firms expected
2. Which of the following types of unemployment can exist in an economy that is at its potential output level? A) cyclical unemployment only
B) structural unemployment only
C) frictional, cyclical, and seasonal unemployment only
D) frictional, seasonal, and structural unemployment only
E) there will be no unemployment in an economy that is at the potential output level
3. In the short run, but not in the long run, A) output is fixed
B) prices are fixed
C) prices can change but output is fixed
D) some resource prices are fixed
E) the aggregate supply curve is vertical
4. The expected price level is significant because A) it is the equilibrium price level in the short run
B) it determines the actual price level in the short run
C) it determines the actual price level in the long run
D) firms and resource owners make long-term agreements based on the expected price level
E) the difference between the expected and actual price levels is equal to the actual inflation rate
5. Aggregate supply expresses the relationship between A) the price level in the economy and the aggregate output firms will produce, other things constant
B) the price level and the aggregate amount people will buy at that price level
C) the price level and the potential amount of output that could be produced
D) the quantity of output that will be produced and sold in one year
E) the actual output and the potential output of the economy
6. Which of the following is true about real and nominal wages? A) The nominal wage will be constant only if the inflation rate is constant.
B) The real wage will be constant only if the inflation rate is constant.
C) Changes in the nominal wage will be the same as changes in the real wage only if the price level is constant.
D) The real wage will be constant only if the price level is constant.
E) The real wage will be constant only if the nominal wage is constant.
7. Suppose that the real wage remained unchanged between year 1 and 2 but the nominal wage increased from $20 to $24. What is true about the price level? A) It rose by 20 percent.
B) It rose by 25 percent.
C) It remained unchanged.
D) It fell by 10 percent.
E) It fell by 20 percent.
8. If the nominal wage increased by 5% and the price level increased by 6%, then the real wage: A) Increased by 5%
B) Increased by 11%
C) Decreased by 5%
D) Increased by 1%
E) Decreased by 1%
9. If the price level turns out to be lower than expected, A) businesses cut back production
B) the potential output level decreases
C) initially, the short-run aggregate supply curve shifts leftward; later, there is a downward movement along that curve
D) initially, the short-run aggregate supply curve shifts leftward; later, there is an upward movement along that curve
E) an expansionary gap develops
10. In the long run, but not in the short run, A) cyclical unemployment can exist
B) structural unemployment can exist
C) frictional unemployment can exist
D) the actual rate of unemployment equals the natural rate of unemployment
E) actual output can exceed potential output
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