Chapter 9 Economics

Question 1

If Real GDP is greater than Natural GDP, the economy is in

Answer 1

An inflationary gap

Question 2

Suppose the economy’s short-run equilibrium point is to the right of the Natural Real GDP. What is true?

Answer 2

The economy is in an inflationary gap

Question 3

If REAL GDP is less than Natural Real GDP, then the (actual) unemployment rate is

Answer 3

Greater than the natural unemployment rate

Question 4

If the natural unemployment rate is 5% and the current unemployment rate is 6%, then the economy is

Answer 4

Producing less GDP than it does at full employment

Question 5

When there is an inflationary gap, (actual) Real GDP is _________ Natural Real GDP, and the (actual) unemployment rate is _________ the natural rate of unemployment

Answer 5

Greater than; less than

Question 6

Suppose AD and SRAS intersect to the left of LRAS. Which is true?

Answer 6

The economy is in a recessionary gap

Question 7

If the current unemployment rate is less than the natural unemployment rate, then the economy is

Answer 7

In an inflationary gap

Question 8

Some economists believe the economy is self regulating. What does this mean?

Answer 8

It means the economy can remove itself from recessionary and inflationary gaps and produce at the Natural Real GDP

Question 9

If the economy is self-regulating and current Real GDP is less than the Natural Real GDP, the economy is operating _________ the natural unemployment rate and wages will__________

Answer 9

None of the above

Question 10

Suppose the natural unemployment rate is 5%. Which observation is consistent with an economy that is self-regulating

Answer 10

There is a tendency for the unemployment rate in the economy to move toward 5%.

Question 11

If the economy is currently operating below its institutional production possibilities frontier (institutional PPF), it is

Answer 11

In a recessionary gap

Question 12

In the classical view of the credit market, a rise in saving produces a rise in investment via a

Answer 12

Falling interest rate

Question 13

Classical economists argued that saving is matched by an equal amount of investment because of

Answer 13

Interest rate flexibility

Question 14

Classical economists felt that planned saving would be equal to planned investment because

Answer 14

Interest rates are flexible

Question 15

According to classical economists, the relationship between the amount of funds firms plan to invest and the interest rate is

Answer 15

Inverse.

Question 16

I’d the natural unemployment rate is 5.5%, then the economy is in an inflationary gap when the actual unemployment rate is

Answer 16

Less than 5.5% percent

Question 17

Classical economists believe:

Answer 17

1. Savings= investment
2. Laissez-Faire
3. No government intervention
4. Investment is driven by interest rate and not by expectations

Question 18

If Real GDP>Natural GDP, the economy is

Answer 18

In an inflationary gap

Question 19

Self regulating means

Answer 19

The economy can remove itself from recessionary and inflationary gaps, and produce at Natural Real GDP

Question 20

What shifts AS?

Answer 20

Flexible wages

Question 21

Investment is determined by ___________ according to classical economists?

Answer 21

Interest rate