21) A common assumption among macroeconomists is that when real GDP is less than potential output, factor prices adjust and the
A) AS curve shifts to the left fairly rapidly.
B) AS curve shifts to the right only very slowly.
C) AS curve shifts to the right very rapidly.
D) AD curve shifts to the left rapidly.
E) None of the above - the AS curve remains unchanged.
22) If the economy is experiencing an inflationary output gap, the adjustment process operates as follows:
A) wages do not adjust, but the AD curve shifts to the right.
B) wages fall, unit costs fall, and the AD curve shifts rightward.
C) wages rise, unit costs rise, and the AS curve shifts leftward.
D) wages rise, unit costs rise, and the AS curve shifts rightward.
E) wages fall, unit costs fall, and the AS curve shifts rightward.
23) If an economy is experiencing neither a recessionary gap nor an inflationary gap, the real output of the economy will be reflected by
A) the aggregate supply curve shifting to the left.
B) the aggregate demand curve shifting to the left.
C) the aggregate expenditure curve shifting upward.
D) the intersection of the AD and AS curves at potential output.
E) a point to the right of the aggregate supply curve at potential GDP.
24) Refer to Figure 24-1. If the economy is currently in a short-run equilibrium at Y0, the economy is experiencing
A) a recessionary output gap.
B) an inflationary output gap.
C) a labour shortage.
D) a long-run equilibrium.
E) potential output growth.
25) Refer to Figure 24-1. If the economy is currently producing output of Y0, the economy's automatic adjustment process will have the
A) AS curve shifting to the right until point A is reached.
B) vertical line at Y* shifting to the left until it gets to Y0.
C) AD curve shifting to the right until point B is reached.
D) economy remaining where it is.
E) level of potential output falling.
26) Refer to Figure 24-1. If the economy is currently producing output of Y0 and wages are sticky downwards, then the
A) economy will eventually move to point B.
B) economy will only move gradually toward point A as wages slowly adjust.
C) economy will quickly move to point A.
D) level of output will decrease below Y0.
E) AD curve will eventually shift to the right and return the economy to its full-employment level of output.
27) Refer to Figure 24-2. If the economy is currently in a short-run equilibrium at , the economy is experiencing
A) potential output growth.
B) a long-run equilibrium.
C) an excess supply of labour.
D) an inflationary output gap.
E) a recessionary output gap.
28) Refer to Figure 24-2. Suppose the economy is in equilibrium at Y1. The economy's automatic adjustment process will restore potential output, Y*, through
A) wage increases and a leftward shift of the AS curve.
B) wage increases and a rightward shift in the AS curve.
C) wage decreases and a rightward shift of the AD curve.
D) an increase in potential GDP to intersect both the AD and AS curves at B.
E) a leftward shift of the AD to intersect both the AS and potential GDP at A.
29) The Phillips curve describes the relationship between
A) aggregate expenditure and aggregate demand.
B) the money supply and interest rates.
C) unemployment and the rate of change of wages.
D) inflation and interest rates.
E) the output gap and potential GDP.
30) The Phillips curve provides a theoretical link between
A) the liquidity preference and investment demand schedules.
B) labour markets and foreign-exchange markets.
C) the goods market and productivity.
D) the goods market and the labour market.
E) inflation and the demand for money.
