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A. What does a contractionary gap imply about the actual rate of unemployment relative to the natural rate?

B. What does it imply about the actual price level relative to the expected price level?

C. What must happen to real and nominal wages in order to close a contractionary gap?

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Divya Singh
Divya SinghLv10
28 Sep 2019

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Related questions

6) According to Classical theory, the economy is self-regulating. If it is in a recessionary gap, what happens? Question options:

Wages rise, the SRAS curve shifts leftward, and both Real GDP and the price level rise.

Wages fall, the SRAS curve shifts rightward, the price level falls, and Real GDP rises.

Wages fall, the SRAS curve shifts leftward, the price level rises, and Real GDP falls.

none of the above

7) According to the classical economists, which of the following statements is true?

Question options:

Financial markets ensure that S will equal I..

Interest rate flexibility will ensure that planned saving is equal to planned investment.

There is a direct relationship between the amount individuals plan to save and the interest rate - higher rates cause people to save more and lower rates reduce savings.

Interest rates determine how much business firms invest - higher interest rates reduce investment and lower rates increase investment.

All of the above are true.

10)

If actual Real GDP is greater than the full employment Real GDP, then the (actual) unemployment rate is

Question options:

greater than the natural unemployment rate and an inflationary gap exists.

less than the natural unemployment rate and a recessionary gap exists.

greater than the natural unemployment rate and a recessionary gap exists.

less than the natural unemployment rate and an inflationary gap exists.

equal to the natural unemployment rate and no gap exists.

1. In the long run, when prices are perfectly flexible:

a. aggregate supply is vertical and a market economy is self-correcting.

b. a market economy cannot self-correct.

c. government will be required to set prices to maintain equilibrium.

d. changes in aggregate demand cause equilibrium real GDP to change.

 

2. An increase in household wealth when the SRAS curve is upward sloping:

a. leads to an increase in the price level but has no impact on real GDP

b. has no impact on the price level but leads to an increase in real GDP

c. leads to an increase in both the price level and real GDP

d. has no impact on the price level or real GDP

 

3. In the long run, continued increases in aggregate demand not matched by similar increases in aggregate supply will cause:

a. an increase in the full-employment level of real GDP

b. a recessionary gap

c. a decrease in the price level

d. an increase in the price level

 

4. The vertical long-run aggregate supply curve implies that:

a. changes in aggregate demand will not affect the price level

b. the short-run aggregate supply curve is also vertical

c. natural or full-employment real GDP does not depend on the price level, in the long run

d. natural or full-employment real GDP is the same as the equilibrium real GDP in the short run

 

5. A rightward shift of the long-run aggregate supply curve illustrates:

a. economic growth

b. a recessionary gap

c. an inflationary gap

d. a decrease in natural real GDP

 

6. When the economy is in a recessionary gap

a. there is a surplus of labor

b. there is a shortage of labor

c. it is producing a real GDP level that is greater than natural real GDP

d. the unemployment rate is less than the natural unemployment rate

 

7. If the actual unemployment rate is less than the natural unemployment rate:

a. a recessionary gap exists and wages are likely to rise

b. an inflationary gap exists and wages are likely to rise

c. a recessionary gap exists and wages are likely to fall

d. an inflationary gap exists and wages are likely to fall

 

8. An economy in long-run equilibrium is producing:

a. a level of real GDP that is greater than its natural real GDP

b. where both the price level and real output are maximized

c. a level of real GDP equal to its natural real GDP

d. in the vertical range of aggregate demand.

 

If the market price is kept below the equilibrium price by a regulation, what does the demand and supply model predict about the gap between quantity demanded and quantity supplied? If, in the real world, there is a gap between quantity demanded and quantity supplied, does it necessarily imply that a regulation is keeping the market price below the equilibrium price?

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