7. If the price level doubles and real output doesn\'t change, then nominal outp

Question

7. If the price level doubles and real output doesn't change, then nominal output also doubles.

8. Inflation makes it less difficult to interpret the information conveyed by prices.

9. Laissez-faire economists oppose government intervention in the market process.

10. Active demand management policies are based on the work of John Maynard Keynes.

11. In the AS/AD model, as the price level raises, the real value of assets increases, causing consumption to increase. This is one reason why the aggregate demand curve slopes down.

12. The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

13. If productivity and wages both raises by 3 percent, then the short-run aggregate supply curve does not shift.

14. The long-run aggregate supply curve is vertical because all prices adjust in the long run.

15 If the economy is not in a long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to a long-run equilibrium.

16  Most economists agree that it is possible for fiscal policy to fine-tune the economy.

Explanation / Answer

They are all true except for 8 7. nominal output is a value reflected in money terms. if price doubles, it doubles too 8. inflation is a rise in the general value of goods and services over a period of time. this makes it difficult to calculate nominal values 9. true 10. true 11. true 12. true 13. increase in wages by 3% will shift the short term AS curve to the left; Higher wage rates without any compensating increase in labour productivity cause a rise in production costs, leading businesses to produce less and the aggregate supply curve will shift to the left. However since there's an increase in productivity by 3% , the wage increase is compensated perfectly, hence the AS curve does not shift 14. true 15. true. If most firms are making abnormal profits in the short run there will be an expansion of the output of existing firms and we expect to see the entry of new firms into the industry. The addition of new suppliers causes an outward shift in the market supply curve. Making the assumption that the market demand curve remains unchanged, higher market supply will reduce the equilibrium market price until the price = long run average cost 16. true

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