Macroeconomics 1 – Seminar 9
21.04.2015
Miroslava Federičová
Whenever the economy is in recession, we can
expect:
a. investment to decrease
b. unemployment to decrease
c. incomes to increase
d. all of the above
Which of the following occurs when the price level rises?
a. Consumers feel wealthier, which encourages them to
spend more.
b. People need to hold more money, so interest rates rise,
making firms borrow and invest less.
c. The value of the dollar rises on foreign exchange
markets.
d. The government responds to the higher prices by
reducing its purchases.
Which of the following would cause the
aggregate demand curve to shift to the right?
a. A new law that requires the government to
cover the full cost of medicines for the elderly.
b. A wave of pessimism afflicts consumers.
c. Higher real interest rates.
d. The stock market crashes.
• The long run aggregate supply curve is
vertical/horizontal, because in the long-run,
nominal variables, such as the price level,
do/do not affect real variables, such as the
production of goods and services in the
economy.
The long run aggregate supply will shift to the right
whenever:
a. the price level increases.
b. factors of production (such as labor and capital)
increase.
c. expenditures (such as consumption and net exports)
increase.
d. the prices of inputs used to produce goods and
services (such as wages and the price of oil) decrease.
Which of the following would cause the short run
aggregate supply curve to shift to the left, but have no
effect over the long run aggregate supply?
a. The amount of factors of production (such as labor and
capital) increase.
b. The amount of factors of production (such as labor and
capital) decrease.
c. Prices of inputs (such as wages or oil prices) increase.
d. Prices of inputs (such as wages or oil prices) decrease.
If an economy is in a state of long run equilibrium,
all of the following will occur, EXCEPT:
a. all markets will be in equilibrium, including input
markets.
b. there are no forces for further adjustment.
c. the economy will be producing its natural rate of
output.
d. there will be no unemployment in the economy.
Suppose the economy is in long run equilibrium. If
aggregate demand increases, we can expect that in
the short run output will ________, and in the long
run output will ________.
a. decrease, increase
b. decrease, decrease
c. increase, increase
d. increase, return to the natural rate of output
Suppose the economy is in long run equilibrium. If
the stock market crashes in the short run, we can
expect the price level to ________, and output to
________
a. decrease, increase
b. decrease, decrease
c. increase, increase
d. increase, decrease
Suppose the economy is in long-run equilibrium. If
the price of oil increases substantially, in the short
run, we can expect the price level to ________, and
output to ________
a. decrease, increase
b. decrease, decrease
c. increase, increase
d. increase, decrease
Explain whether each of the following events will
increase, decrease, or have no effect on long-run
aggregate supply.
a. The U.S. experiences a wave of immigration. increase
b. Congress raises the minimum wage to $10 per hour.
Has no effect
c. Intel invents a new and more powerful computer
chip. increase
d. A severe hurricane damages factories along the East
Coast. decrease
Suppose the economy is in a long-run equilibrium.
a. Draw a diagram to illustrate the state of the economy. Be
sure to show aggregate demand, short-run aggregate
supply, and long-run aggregate supply.
b. Now suppose that a stock-market crash causes aggregate
demand to fall. Use your diagram to show what happens
to output and price level in the short run. What happens
to the unemployment rate? Output and price level decline
and unemployment rate rises
c. Use the sticky-wage theory of aggregate supply to explain
what will happen to output and the price level in the long
run (assuming there is no change in policy). What role
does the expected price level play in this adjustment?
Output will return to its natural level and price will fall
even more