THE SELF-REGULATING ECONDPHIY 1. For an economy to be self-regulating: a. policymakers must be able to control the position ofthe aggregate demand curve. h. wages and other input prices must be exible. c. the shortrrun aggregate supply curve must he vertical. d. equilibrium real GDP must always be equal to full-employment real GDP. 2. Economists who believe that the economy is self-regulating generally advocate: a. active government intervention in the economy. h. using monetary policy as a tool for ne-tuning the economy. c. a laisseafaire approach to macroeconomic policy. d. using scal policy as a tool for ne-tinting the economy. Use the graph below to answer question 3*. Price Level ERAS QM Q5 Real GDP 3. The economy depicted in the above graph is experiencing a[n) ' gap. The current rate of insemploytnent is than the natural rate of unemployment. a. inationary; higher c. inationary; lower h. recessionary; higher d. recessionary; lower 4. When the economy's rate ofurtecmployrnent is higher than the natural rate, this creates: a. downward pressure on wages to eliminate the surplus in the labor market. h. downward pressure on wages to eliminate the shortage in the labor market. c. upward presstn'e on wages to eliminate the surplus in the labor market. d. upward pressure on wages to eliminate the shortage in the labor market. 5. If actual {equilibritun} real GDP is less than the hillemployment, or natural, level of real GDP. then wages and other input prices are expected to: a. fall and SEAS to shift to the left until longrun equilibrium is achieved- h. fail and SEAS to shift to the right until long-run equilibrium is achieved- c. rise and ERAS to shift to the left until longrun equilibrium is achieved. d. rise and ERAS to shift to the right until long-run equilibrium is achieved. Ml Chapter 1' Assignments