ch 10 final exam

Question 1

What does the graph of aggregate demand look like?

Answer 1

Downward slope

Question 2

What does the graph of aggregate supply look like?

Answer 2

upward sloping

Question 3

what does the full employment level of output look like on a graph?

Answer 3

Vertical line

Question 4

The phillips curve shows the ______ short run relationship between inflation and unemployment

Answer 4

negative

Question 5

An economy which is producing at its potential level of GDP has just experienced a quadrupling of oil prices. What will happen as a result?

Answer 5

inflation will increase and unemployment will increase, eventually prices will come back down and employment will rise

Question 6

Explain why the economy may naturally return to the full employment level of real GDP if we are currently producing more than the potential level of real GDP in the short run.

Answer 6

With low unemployment, there will be a tendency for wages to rise, lowering production, increasing prices, and lowering consumer spending

Question 7

state when the economy has the lowest unemployment rate it can get

Answer 7

full employment

Question 8

state of economy when the level of output has decreased dramatically

Answer 8

recession

Question 9

what are the qualities for there to be a recession declared?

Answer 9

Production is lower than normal, high unemployment rates, and has to be in the economy as a whole

Question 10

What are some effects of full employment?

Answer 10

Prices are higher, wages can go up, unemployment is low

Question 11

True or False the absolute capacity to produce is slightly smaller than the full employment level of real gdp

Answer 11

true

Question 12

What is the relationship between inflation and unemployment

Answer 12

As spending rises, unemployment will fall but increased inflation

Question 13

when the cause of inflation is spending increasing more rapidly than aggregate supply

Answer 13

demand pull inflation

Question 14

increasing prices of inputs or falling productivity will cause aggregate supply to be reduced

Answer 14

supply shock

Question 15

results of supply shocks

Answer 15

rising prices, falling output, rising unemployment

Question 16

How will aggregate supply shift?

Answer 16

When prices rises, producers will not have the funds to produce more; shifts to left

Question 17

no trade off between inflation and ump. instead rising inflation and rising unemployment

Answer 17

stagflation

Question 18

inflation is caused by higher prices of inputs or higher costs of production that changes supply

Answer 18

cost push inflation

Question 19

the real gdp that can be produced when we are in a long run equilibrium

Answer 19

potential level of full employment

Question 20

the economy naturally returning to this level of unemployment given sufficient time

Answer 20

natural level of unemployment

Question 21

natural adjustments for recessions

Answer 21

wages will drop (hard to do), and production increases