11) A recessionary output gap implies that
A) the demand for all factor services will be relatively low.
B) the intersection of AD and AS occurs where real GDP exceeds potential output.
C) the economy’s resources are being used at more than their normal capacity.
D) there is upward pressure on wages.
E) there is excess demand for most factors of production.
12) An inflationary output gap would generate which of the following conditions in the economy?
A) Firms are making low profits.
B) Workers have a relatively large amount of bargaining power with employers.
C) There is an unusually small demand for labour.
D) There is downward pressure on wages.
E) There is much idle capacity.
13) An inflationary output gap is characterized by
A) falling prices.
B) constant prices.
C) real output that varies one-for-one with aggregate demand.
D) real GDP exceeding potential output.
E) real GDP falling below potential output.
14) A recessionary output gap is characterized by
A) rising prices.
B) constant prices.
C) real output that varies one-for-one with aggregate demand.
D) real GDP exceeding potential output.
E) real GDP falling below potential output.
15) Which of the following will occur as part of the automatic adjustment process in an economy with an inflationary gap?
A) falling prices
B) increasing investment
C) declining government purchases
D) rising wages
E) increasing tax rates
16) Which of the following would occur as part of the automatic adjustment process in an economy with a recessionary gap?
A) rising prices
B) decreasing investment
C) increasing government purchases
D) falling tax rates
E) decreasing wages
17) If the short-run macroeconomic equilibrium occurs with real GDP less than Y*, the economy is
A) at its full-employment level of output.
B) experiencing a recessionary gap.
C) experiencing an inflationary gap.
D) threatened with an acceleration of inflation.
E) operating at full capacity.
18) If the short-run macroeconomic equilibrium occurs with real GDP greater than potential output, the economy is
A) at its full-employment level of output.
B) experiencing a recessionary output gap.
C) experiencing an inflationary output gap.
D) threatened with a demand shock.
E) operating at full capacity.
19) If wages rise faster than increases in labour productivity, then unit labour costs will
A) fall and the AS curve will shift left.
B) fall and the AS curve will shift right.
C) rise and the AS curve will shift left.
D) rise and the AS curve will shift right.
E) not change because only total labour costs change.
20) A common assumption among macroeconomists is that when real GDP exceeds potential output, factor prices adjust and the
A) AS curve shifts to the left fairly rapidly.
B) AS curve shifts to the left 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.
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