24. Sarah moves from Upperland, which has no taxes or transfer payments, to Lowe
ID: 1228232 • Letter: 2
Question
24. Sarah moves from Upperland, which has no taxes or transfer payments, to Lowerland, where she is hit with taxes of $2,000 and receives transfer payments of $3,000. She earns the same wage in both countries, but in Lowerland her disposable income is
a.
$1,000 higher
b.
$1,000 lower
c.
$5,000 higher
d.
$2,000 lower
e.
$3,000 higher
25. Out of disposable income, households
a.
consume and save
b.
consume and invest
c.
save and invest
d.
consume, save, and pay taxes
e.
consume, save, pay taxes, and make transfer payments
26. Aggregate supply reflects billions of production decisions made by
a.
consumers when they decide which products to purchase
b.
households and firms, because they each demand goods and services
c.
the largest firms and largest households
d.
households, which demand resources, and firms, which supply resources
e.
resource suppliers and firms
27. Which of the following is true of the short-run aggregate supply curve?
a.
It shows the relation between the inflation rate and the quantity of aggregate output firms supply, other things constant.
b.
It shows the relation between the price of labor and the aggregate quantity of labor workers supply, other things constant.
c.
It shows the relation between the interest rate and the quantity of capital goods firms supply, other things constant.
d.
It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.
e.
It displays an inverse relationship between the price level and real GDP.
28. The nominal wage represents
a.
the quantity of goods and services a worker can purchase in exchange for work time
b.
the dollar value of the goods and services a worker can purchase in exchange for work time
c.
real wages minus taxes paid on wages
d.
the most accurate measure for comparing employee standard of living across time
e.
real wages divided by the price level
29. If the price level rises by 5 percent and the nominal wage rises 3 percent, the real wage
a.
falls by 2 percent
b.
falls by 8 percent
c.
rises by 2 percent
d.
rises by 8 percent
e.
remains constant
30. When the economy is at its potential output level, which of the following isnottrue?
a.
Firms' and workers' expectations about the price level are realized.
b.
The nominal wage is a good measure of the expected real wage.
c.
The unemployment rate is about 2 percent.
d.
The economy is producing its maximum sustainable output.
e.
The actual price level equals the expected price level.
31. Potential output will decrease if
a.
there is an increase in the price level
b.
there is a decrease in the price level
c.
there is technological change that increases labor productivity
d.
workers choose shorter work schedules in order to enjoy more leisure time
e.
the nation's capital stock increases
32. The long-run equilibrium price level is the price level the economy is expected to reach when the
a.
economy produces its potential output
b.
Fed has stabilized interest rates
c.
federal budget is balanced
d.
discount rate equals the prime rate
e.
inflation rate is zero
33. If the actual price level exceeds the expected price level reflected in long-term contracts,
a.
firms will find production more profitable than they had expected and will increase the quantity of output supplied
b.
firms will find production less profitable than they had expected and will decrease the quantity of output supplied
c.
firms will find production more profitable than they had expected and will decrease the quantity of output supplied
d.
resource owners, because they are making a lower profit than they had expected, will decrease the quantity of output supplied
e.
unemployment will increase
34. The short run is a period of time
a.
when there is an expansionary gap and firms run their plants only for short periods
b.
of one year or less
c.
when there is a contractionary gap
d.
during which resource buyers and sellers cannot adjust fully to changes in the price level
e.
when resource buyers and sellers can adjust fully to changes in the price level
35. If the price level turns out to be higher than expected,
a.
businesses increase production
b.
the potential output level increases
c.
initially, the short-run aggregate supply curve shifts rightward; later, there is an upward movement along that curve
d.
initially, the short-run aggregate supply curve shifts rightward; later, there is a downward movement along that curve
e.
a contractionary gap develops
36. If nominal wage rates increase by 5 percent per year and the price level increases by 3 percent per year, which of the following is correct?
a.
real wages increase by 2 percent per year
b.
real wages increase by 3 percent per year
c.
real wages decrease by 3 percent per year
d.
real wages decrease by 2 percent per year
e.
real wages remain constant
37. 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
38. The aggregate supply curve reflects the relationship between the
a.
price of a particular good and the quantity supplied by all firms producing that good
b.
price of a particular good and the quantity supplied by the aggregate economy
c.
price level and the quantity of all goods supplied in the economy
d.
price level and the quantity purchased of all goods in the economy
e.
price level and investment spending
39. The short-run aggregate supply curve slopes upward because quantity supplied
a.
increases when cost per unit falls
b.
decreases when cost per unit falls
c.
increases when the price level increases
d.
increases when GDP decreases
e.
decreases as profit per unit increases
40. In the short run, there is a positive relationship between
a.
inflation and unemployment
b.
inflation and real GDP
c.
the actual price level and aggregate quantity supplied
d.
the actual price level and unemployment
e.
the actual price level and consumption spending
41. As actual output rises above the potential level, which of the following must be true?
a.
more resources become unemployed
b.
prices remain constant
c.
real GDP rises
d.
nominal GDP remains constant
e.
production falls
42. An expansionary gap is equal to
a.
real GDP minus nominal GDP
b.
nominal GDP minus real GDP
c.
actual short-run output minus potential output
d.
this period's nominal GDP minus last period's nominal GDP
e.
this period's real GDP minus last period's real GDP
43. The situation in which actual output exceeds potential output
a.
is impossible because all resources are employed to produce potential output
b.
is possible only in times of high unemployment
c.
is possible only if the unemployment rate is negative
d.
is possible only in the long run
e.
creates pressure for inflation
Exhibit 11-2
44. If the actual price level in Exhibit 11-2 exceeds the expected price level, then
a.
equilibrium output might be Y2 in the short run
b.
equilibrium output might be Y1 in the short run
c.
equilibrium output might be Y3 in the short run
d.
potential output is greater than actual output
e.
unemployment is above the natural rate
45. In Exhibit 11-2, an expansionary gap would be represented by the distance
a.
Y2 - Y1
b.
Y3 - Y1
c.
Y2 - Y3
d.
P3 - P1
e.
P2 - P3
46. If the actual price level in Exhibit 11-2 is lower than the expected price level, then
a.
equilibrium output might be Y2 in the short run
b.
equilibrium output might be Y1 in the short run
c.
equilibrium output might be Y3 in the short run
d.
potential output is less than actual output
e.
unemployment is below the natural rate
47. Aggregate supply describes the relationship between
a.
price level and real GDP
b.
nominal and real GDP
c.
real GDP and the level of production
d.
nominal GDP and the level of output
e.
the level of output and income
Exhibit 11-3
48. Consider Exhibit 11-3. In this situation, long-run equilibrium would be established by a(n)
a.
increase of short-run aggregate supply to close the expansionary gap
b.
decrease of short-run aggregate supply to close the expansionary gap
c.
decrease of short-run aggregate supply to close the contractionary gap
d.
increase of short-run aggregate supply to close the contractionary gap
e.
rightward shift of the aggregate demand curve
49. If the economy is experiencing an expansionary gap, which of the following will occur in the long run?
a.
Workers will negotiate nominal wage increases that will shift the SRAS curve to the left.
b.
Workers will negotiate nominal wage increases that will shift the SRAS curve to the right.
c.
Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the right.
d.
Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the left.
e.
Aggregate demand will fall because workers' incomes are rising.
50. Which of the following would be strong evidence that an expansionary gap exists?
a.
Rapid inflation during a period when plant capacity utilization is below average.
b.
A steady price level and a 5 percent unemployment rate.
c.
Help wanted advertising is higher than usual, and the consumer price index is up more than expected.
d.
Inflation has slowed markedly and the Dow Jones average is at record levels.
e.
The number of new unemployment claims has skyrocketed and the price level is falling.
a.
$1,000 higher
b.
$1,000 lower
c.
$5,000 higher
d.
$2,000 lower
e.
$3,000 higher
Explanation / Answer
ans.24-
Because her income is the same in both countries, you don't need to worry about it. When she moves to lowerland she has an income of $3000 (from tsfr pymts) and she must pay $2000 due to taxes, so she has disposabe income of 3000-2000 or $1000 more than it was in upperland.
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