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Commerce and BusinessbackBusinessbackPrinciples of EconomicsbackEconomicsbackPractice Set 2495back

From The Short Run To The Long Run: The Adjustment Of Factor Prices

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Question 1
Free
Multiple Choice

Which of the following are the defining assumptions of the short run in macroeconomics?

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A

Factor prices are exogenous,and technology and factor supplies are changing.

B

Factor prices adjust to output gaps,and technology and factor supplies are constant.

C

Factor prices are exogenous,and technology and factor supplies are constant.

D

Factor prices adjust to output gaps,and technology and factor prices are changing.

E

Factor prices are exogenous,technology and factor prices are endogenous.

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Question 2
Free
Multiple Choice

Which of the following are the defining assumptions of the long run in macroeconomics?

Choose correct answer/s
A

Factor prices are exogenous,and technology and factor supplies are changing.

B

Factor prices adjust to output gaps,and technology and factor supplies are constant.

C

Factor prices are exogenous,and technology and factor supplies are constant.

D

Factor prices have fully adjusted to output gaps,and technology and factor supplies are changing.

E

Factor prices are exogenous,technology and factor prices are exogenous.

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Question 3
Free
Multiple Choice

In macroeconomic analysis,the assumption that potential output (Y*)is changing is a characteristic of

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A

the short run.

B

the adjustment process.

C

the national accounts model.

D

the long run.

E

the business cycle model.

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Question 4
Free
Multiple Choice

Which of the following is a defining assumption of the AD/AS macro model in the short run?

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A

factor supplies are assumed to be flexible

B

technology used in production is endogenous and variable

C

the level of potential output fluctuates with the price level

D

factor prices are assumed to be exogenous

E

firms cannot operate near their normal capacity

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Question 5
Free
Multiple Choice

In the basic AD/AS model,which of the following is a defining assumption of the adjustment process that takes the economy from the short run to the long run?

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A

factor supplies are assumed to be varying

B

technology used in production is endogenous

C

the level of potential output is changing

D

factor prices respond to output gaps

E

firms cannot operate near their normal capacity

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Question 6
Multiple Choice

Which of the following is a defining assumption of the AD/AS macro model in the long run?

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A
factor supplies are assumed to be fixed
B
technology used in production is constant
C
the level of potential output is constant
D
factor prices are assumed to be fixed
E
changes in real GDP are determined by the changes in potential output
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Question 7
Multiple Choice

When we study the adjustment process in macroeconomics,what assumption are we making about potential output,Y*?

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A
potential output is adjusting to changes in factor prices
B
potential output is adjusting to changes in factor supplies
C
potential output is adjusting to changes in technology
D
potential output is constant
E
potential output is not relevant to the analysis of the adjustment process
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Question 8
Multiple Choice

When we study the adjustment process in macroeconomics,we are analyzing the process by which

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A
potential output is adjusting to changes in factor supplies
B
potential output is adjusting to changes in technology
C
real GDP returns to the level of potential output.
D
real GDP expands over time.
E
changes in technology affect the level of real GDP.
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Question 9
Multiple Choice

The economy's output gap is defined as the

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A
difference between actual GDP and potential GDP.
B
level of total output that would be produced if capacity utilization is at its normal rate.
C
difference between actual national income and desired aggregate expenditure.
D
result of economic growth.
E
difference between nominal GDP and real GDP.
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Question 10
Multiple Choice

Which of the following best describes the concept of potential output?

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A
The total output that can be produced when all factors of production (land,labour,and capital)are fully employed.
B
The total output that can be produced when the economy is in short-run economic equilibrium.
C
The total output that can be produced when all productive resources (land,labour,and capital)are used at their maximum capacity.
D
The total output that could be produced in the future when technological advances allow for a higher level of output.
E
The total output that could be produced if no productive resource (land,labour,and capital)was ever left idle.
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Question 11
Multiple Choice

An inflationary output gap occurs when

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A
actual GDP exceeds potential GDP.
B
nominal GDP exceeds real GDP.
C
demand for labour services is very low.
D
equilibrium national income is below potential national income.
E
potential GDP exceeds actual GDP.
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Question 12
Multiple Choice

An inflationary output gap implies that

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A
the demand for all factor services will be relatively low.
B
the intersection of AD and AS occurs at real GDP below potential output.
C
the economy's resources are being used beyond their normal capacity.
D
there is a pressure for wages to decrease.
E
there is excess supply of most factors of production.
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Question 13
Multiple Choice

A recessionary output gap implies that

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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.
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Question 14
Multiple Choice

An inflationary output gap would generate which of the following conditions in the economy?

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A
Firms are making low profits.
B
Workers have relatively more 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.
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Question 15
Multiple Choice

An inflationary output gap is characterized by

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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.
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Question 16
Multiple Choice

A recessionary output gap is characterized by

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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.
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Question 17
Multiple Choice

Which of the following will occur as part of the automatic adjustment process in an economy with an inflationary gap?

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A
falling prices
B
increasing investment
C
declining government purchases
D
rising wages
E
increasing tax rates
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Question 18
Multiple Choice

Which of the following would occur as part of the automatic adjustment process in an economy with a recessionary gap?

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A
rising prices
B
decreasing investment
C
increasing government purchases
D
falling tax rates
E
decreasing wages
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Question 19
Multiple Choice

If the short-run macroeconomic equilibrium occurs with real GDP less than Y*,the economy is

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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.
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Question 20
Multiple Choice

If the short-run macroeconomic equilibrium occurs with real GDP greater than potential output,the economy is

Choose correct answer/s
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.
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