Multiple Choice Questions:
1. Where SRAS and AD currently intersect at a real output level greater than the natural level of real output,
a. It is a short-run equilibrium, and real output will tend to fall from its current level as it adjusts to long-run equilibrium.
b. It is a short-run equilibrium, and real output will tend to rise from its current level as it adjusts to long-run equilibrium.
c. It is a short-run disequilibrium, and real output will tend to fall from its current level as it adjusts to long-run equilibrium.
d. It is a short-run disequilibrium, and real output will tend to rise from its current level as it adjusts to long-run equilibrium.
2. Starting from long-run equilibrium, an increase in aggregate demand will cause?
a. An inflationary gap in the short run.
b. A recessionary gap in the short run.
c. An inflationary gap in the short run and long run.
d. A recessionary gap in the short run and long run.
e. Neither an inflationary nor a recessionary gap in the short run or the long run.
3. When a recessionary gap occurs?
a. real output exceeds the natural level of output, and unemployment exceeds its natural rate.
b. real output exceeds the natural level of output, and unemployment is less than its natural rate.
c. real output is less than the natural level of output, and unemployment exceeds its natural rate.
d. real output is less than the natural level of output, and unemployment is less than its natural rate.
4. Which of the following could begin an episode of demand-pull inflation?
a. An increase in consumer optimism.
b. A faster rate of economic growth for a major trading partner country.
c. Expectations of higher rates of return in investment.
d. Any of the above.
e. None of the above.
5. If real output is currently less than the natural level of real output, a decrease in aggregate demand will?
a. Make the current inflationary gap larger.
b. Make the current inflationary gap smaller.
c. Make the current recessionary gap larger.
d. Make the current recessionary gap smaller.
6. In the short run, demand-pull inflation
a. Increases both unemployment and the price level.
b. Increases unemployment but not the price level.
c. Increases the price level but not unemployment.
d. Decreases unemployment and increases the price level.
7. In a stagflation situation,
a. Unemployment increases and the price level increases.
b. Unemployment increases and the price level decreases.
c. Unemployment decreases and the price level increases.
d. Unemployment decreases and the price level decreases.
8. A sharp fall in oil prices will cause a(n) _____________; a sudden increase in the wages demanded by workers will cause a(n) _____________.
a. Recessionary gap; inflationary gap.
b. Recessionary gap; recessionary gap.
c. Inflationary gap; inflationary gap.
d. Inflationary gap; recessionary gap.