Question 1

An unanticipated reduction in the level of prices in the goods and services market, which results in a temporary increase in real wage rates, will
A)increase the natural rate of unemployment.
B)reduce the natural rate of unemployment.
C)result in an actual rate of unemployment that is less than the natural rate of unemployment.
D)result in an actual rate of unemployment that is greater than the natural rate of unemployment.

Accepted Answer

The answer of An unanticipated reduction in the level of...

Question 2

Other things constant, a decrease in resource prices will lead to
A)reduced profits and a reduction in short-run aggregate supply.
B)increased profits and a reduction in short-run aggregate supply.
C)reduced profits and an increase in short-run aggregate supply.
D)increased profits and an increase in short-run aggregate supply.

Accepted Answer

A decrease in resource prices will lower production costs for firms, leading to higher profit margins. This will encourage firms to increase their output in the short-run, leading to an increase in short-run aggregate supply.

Question 3

When the actual rate of unemployment is less than the natural rate of unemployment, the economy
A)operates at an output greater than its long-run potential.
B)operates at its maximum sustainable output.
C)must also be experiencing stable prices (zero inflation).
D)operates at an output less than its long-run potential.

Accepted Answer

When the actual rate of unemployment is less than the natural rate of unemployment, it means that the economy is operating at a level greater than its long-run potential as it is producing more output than it can sustain in the long-run. This can result in an overheated economy with potential issues such as inflationary pressures.

Question 4

An unanticipated increase in the level of prices in the goods and services market, which results in a temporary reduction in real wage rates, will
A)decrease the natural rate of unemployment.
B)increase the natural rate of unemployment.
C)result in an actual rate of unemployment that is less than the natural rate of unemployment.
D)result in an actual rate of unemployment that is greater than the natural rate of unemployment.

Accepted Answer

The answer of An unanticipated increase in the level of...

Question 5

If both borrowers and lenders anticipate the rate of inflation correctly, then
A)borrowers will lose real income.
B)lenders will lose real income.
C)both borrowers and lenders will lose real income.
D)neither borrowers nor lenders will lose real income.

Accepted Answer

If both borrowers and lenders anticipate the rate of inflation correctly, they can adjust their actions accordingly. Borrowers can negotiate for higher interest rates to compensate for inflation, while lenders can charge higher interest rates to account for inflation. Therefore, neither borrowers nor lenders will lose real income.

Question 6

Which of the following is the most accurate statement about nominal and real interest rates?
A)Nominal and real interest rates always move together.
B)Nominal and real interest rates never move together.
C)Nominal and real interest rates often do not move together.
D)Nominal and real interest rates always move in opposite directions.

Accepted Answer

Nominal and real interest rates often do not move together because nominal interest rates reflect the actual rate of interest charged by lenders while real interest rates take inflation into account. Inflation can have a significant impact on the purchasing power of the money borrowed or lent, causing real interest rates to differ from nominal interest rates. Therefore, nominal interest rates can increase while real interest rates may remain unchanged or even decrease if the inflation rate is high. Conversely, nominal interest rates may decrease while real interest rates increase if inflation slows down.

Question 7

Within the framework of the AD/AS model, when the current price level in the goods and services market is above the level anticipated at the time decision makers agreed to long-term resource contracts,
A)producer profits will fall, leading to a reduction in output.
B)the natural rate of unemployment will rise.
C)the actual rate of unemployment will fall below the natural rate of unemployment.
D)output will be temporarily below the economy's long-run sustainable output.

Accepted Answer

The answer of Within the framework of the AD/AS model,...

Question 8

When prices in the goods and services market are below the level anticipated,
A)output will temporarily exceed the economy's long-run potential.
B)output will temporarily fall short of the economy's long-run potential.
C)output will be equal to the economy's long-run potential.
D)the actual rate of unemployment will be less than the natural rate of unemployment.

Accepted Answer

When prices in the goods and services market are below the level anticipated, it indicates that there is less demand for goods and services than expected. This means that firms are producing less, which results in a temporary fall in output. As a result, output will temporarily fall short of the economy's long-run potential.

Question 9

An unexpected sharp reduction in inflation will most likely result in
A)the rapid growth of output and employment.
B)a reduction in the actual rate of unemployment.
C)a reduction in the natural rate of unemployment.
D)a temporary increase in unemployment and a decline in real output.

Accepted Answer

An unexpected sharp reduction in inflation indicates that there is a decrease in demand for goods and services. As a result, businesses may reduce production and lay off workers, causing an increase in unemployment. The decline in demand may also lead to a decline in real output, as businesses reduce their production to match the lower demand. This reduction in output and increase in unemployment is only temporary, as the economy adjusts to the new level of prices and demand.

Question 10

For a major country with extensive capital flows, what is the effect of an increase in interest rates?
A)There will be an inflow of capital, a currency depreciation, and increased net exports.
B)There will be an inflow of capital, a currency depreciation, and reduced net exports.
C)There will be an outflow of capital, a currency depreciation, and increased net exports.
D)There will be an inflow of capital, a currency appreciation, and reduced net exports.

Accepted Answer

The answer of For a major country with extensive capital...

Question 11

Other things constant, a decrease in aggregate demand will
A)lead to a decrease in the demand for resources.
B)cause an increase in the general level of prices.
C)result in higher nominal wage rates.
D)reduce the rate of unemployment.

Accepted Answer

The answer of Other things constant, a decrease in aggregate...

Question 12

The resource market involves transactions dealing with
A)natural resources and financial services.
B)the borrowing and lending of financial capital.
C)the buying and selling of final goods and services.
D)labor services, natural resources, and physical capital.

Accepted Answer

The resource market involves transactions dealing with labor services (human resources), natural resources (land and raw materials), and physical capital (machinery and equipment).

Question 13

Which of the following is the most accurate statement about real and nominal interest rates?
A)Real interest rates can be either positive or negative, but nominal interest rates must be positive.
B)Real interest rates and nominal interest rates must be positive.
C)Real interest rates must be positive, but nominal interest rates can be either positive or negative.
D)Real interest rates and nominal interest rates can be either positive or negative.

Accepted Answer

The answer of Which of the following is the most...

Question 14

From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent. When inflation is constant for an extended period, which of the following is most likely?
A)People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will approach the natural rate of unemployment.
B)People will correctly anticipate the actual inflation rate, and the actual rate of unemployment will exceed the natural rate of unemployment.
C)The actual inflation rate will be greater than the anticipated rate, leading to an actual rate of unemployment that exceeds the natural rate of unemployment.
D)Actual inflation will be less than the anticipated rate, leading to an actual rate of unemployment that exceeds the natural rate of unemployment.

Accepted Answer

When inflation is constant for an extended period, people will generally correctly anticipate the actual inflation rate, and the actual rate of unemployment will approach the natural rate of unemployment. This is because when inflation is stable, people adjust their expectations and behavior accordingly, leading to a more stable economy overall.

Question 15

For a major country with extensive capital flows, what is the effect of a decrease in interest rates?
A)There will be an inflow of capital, a currency depreciation, and increased net exports.
B)There will be an inflow of capital, a currency depreciation, and reduced net exports.
C)There will be an outflow of capital, a currency depreciation, and increased net exports.
D)There will be an inflow of capital, a currency appreciation, and reduced net exports.

Accepted Answer

The answer of For a major country with extensive capital...

Question 16

Which of the following will most likely result from an unexpected increase in prices that decreases real wages and resource prices?
A)a decrease in unemployment
B)an increase in unemployment
C)a decrease in the nominal interest rate
D)a decrease in aggregate supply and real output

Accepted Answer

The answer of Which of the following will most likely...

Question 17

Other things constant, an increase in resource prices will
A)increase the demand for goods and services.
B)increase the cost of producing goods and services, which will lead to a higher price level.
C)reduce costs and improve profit margins, which will lead to an increase in aggregate supply in the goods and services market.
D)cause the natural rate of unemployment to rise.

Accepted Answer

If resource prices increase, the cost of producing goods and services will increase. This will lead to higher costs for businesses and cause them to raise the price level of goods and services. Therefore, an increase in resource prices will increase the cost of producing goods and services, which will lead to a higher price level.

Question 18

A positive nominal interest rate indicates
A)how fast the number of dollars in your savings account is rising over time.
B)how fast the purchasing power of your savings account is rising over time.
C)the number of dollars in your savings account today.
D)the purchasing power in your savings account today.

Accepted Answer

A positive nominal interest rate indicates how fast the number of dollars in your savings account is rising over time, not the purchasing power of those dollars.

Question 19

The actual rate of unemployment will be greater than the natural rate of unemployment when
A)the actual output is less than the economy's potential output.
B)the actual output is greater than the economy's potential output.
C)the actual output is equal to the economy's potential output.
D)the inflation rate has been relatively constant for several years.

Accepted Answer

The natural rate of unemployment is the rate of unemployment that exists when the economy is at full employment and there is no cyclical unemployment. When actual output is less than the economy's potential output, there is a recessionary gap and unemployment increases above the natural rate due to cyclical unemployment. Therefore, the actual rate of unemployment will be greater than the natural rate of unemployment.

Question 20

A positive real interest rate indicates
A)how fast the number of dollars in your savings account is rising over time.
B)how fast the purchasing power of your savings account is rising over time.
C)the number of dollars in your savings account today.
D)the purchasing power of your savings account today.

Accepted Answer

A positive real interest rate indicates that the interest rate is greater than the inflation rate, meaning that the purchasing power of your savings account is increasing over time. It does not directly indicate the number of dollars in your savings account today or how fast it is rising over time.

Quiz 9: An Introduction to Basic Macroeconomic Markets

An unanticipated reduction in the level of prices in the goods and services market, which results in a temporary increase in real wage rates, will

Other things constant, a decrease in resource prices will lead to

When the actual rate of unemployment is less than the natural rate of unemployment, the economy

An unanticipated increase in the level of prices in the goods and services market, which results in a temporary reduction in real wage rates, will

If both borrowers and lenders anticipate the rate of inflation correctly, then

Which of the following is the most accurate statement about nominal and real interest rates?

Within the framework of the AD/AS model, when the current price level in the goods and services market is above the level anticipated at the time decision makers agreed to long-term resource contracts,

When prices in the goods and services market are below the level anticipated,

An unexpected sharp reduction in inflation will most likely result in

For a major country with extensive capital flows, what is the effect of an increase in interest rates?

Other things constant, a decrease in aggregate demand will

The resource market involves transactions dealing with

Which of the following is the most accurate statement about real and nominal interest rates?

From 1994 to 1999, inflation in the United States was relatively constant at approximately 2.5 percent. When inflation is constant for an extended period, which of the following is most likely?

For a major country with extensive capital flows, what is the effect of a decrease in interest rates?

Which of the following will most likely result from an unexpected increase in prices that decreases real wages and resource prices?

Other things constant, an increase in resource prices will

A positive nominal interest rate indicates

The actual rate of unemployment will be greater than the natural rate of unemployment when

A positive real interest rate indicates