Question 1 of 36 1 0 1 0 Points Wage and price stickiness A give rise to a vertical long run aggregate supply curve B give rise to a vertical short run aggregate supply curve C creates a surplus or a shortage of real GDP D prevents the economy from producing its potential level of real GDP Answer Key D Question 2 of 36 1 0 1 0 Points The vertical long run aggregate supply curve implies that shifts in aggregate demand will in the long run A change output and prices B change interest rates C change prices only D change nothing Answer Key C Question 3 of 36 1 0 1 0 Points The natural rate of unemployment includes frictional and structural unemployment is equal to zero when an economy is producing at a point on its production possibilities frontier is the unemployment rate that exists when the quantity of labor demanded is equal to the quantity of labor supplied A I II and III B I and II only C I and III only D II and III only Answer Key C Question 4 of 36 1 0 1 0 Points The long run in macroeconomics is a period in which wages and prices are flexible and there is full market adjustment A True B False Answer Key True Question 5 of 36 1 0 1 0 Points The natural rate of unemployment A decreases during recessions B equals the sum of frictional and cyclical unemployment C equals the sum of frictional and structural unemployment D is always less than full employment rate of unemployment Answer Key C Question 6 of 36 1 0 1 0 Points Cyclical unemployment A occurs even when an economy is producing at a point on its production possibilities frontier B occurs only during a recession C tend to occur when an economy experiences inflation D is a part of an economy s natural rate of unemployment Answer Key B Question 7 of 36 1 0 1 0 Points Suppose that product prices start rising but nominal wages do not In that case A real wages will fall and firms will want to produce more because doing so will be profitable B real wages will rise and firms will want to produce more because doing so will be profitable C there will be a surplus of goods and services produced D there will be a shortage of goods and services produced Answer Key A Question 8 of 36 1 0 1 0 Points The long run aggregate supply curve is upward sloping rather than vertical in the short run due to A sticky wages B sticky employment C sticky interest rates D sticky output Answer Key A Question 9 of 36 0 0 1 0 Points In the long run unemployment will be at the natural rate This implies that A there is a one to one relationship between unemployment and inflation and consequently the Phillips curve is vertical B there is no relationship between unemployment and inflation and consequently the Phillips curve is vertical C there is a positive relationship between unemployment and inflation and consequently the Phillips curve is upward sloping D there is a negative relationship between unemployment and inflation and consequently the Phillips curve is downward sloping Answer Key B Question 10 of 36 1 0 1 0 Points Which of the following is a source of wage stickiness fixed wage contracts minimum wage laws workers and firms want to avoid complexity of negotiating contracts frequently A I only B I and II only C I and III only D I II and III Answer Key D Question 11 of 36 1 0 1 0 Points According to the Bureau of Labor Statistics a person who is not working and is not looking for work is A considered unemployed B considered underemployed C counted as a not currently working member of the labor force D not a member of the labor force Answer Key D Question 12 of 36 1 0 1 0 Points The labor force is made up of A all individuals who are employed B those who are employed plus those who are unemployed C the population of a nation aged 16 years and above D all individuals who are working and those who are not working Answer Key B Question 13 of 36 1 0 1 0 Points What determines the the real interest rate in the long run classical model A aggregate supply and demand B money supply and demand C savings and investment D inflation Answer Key C Question 14 of 36 1 0 1 0 Points The natural level of employment occurs if there is no A unemployment B frictional unemployment C structural employment D cyclical unemployment Answer Key D Question 15 of 36 1 0 1 0 Points What determines prices and inflation in the long run classical model A money supply B aggregate demand and supply C interest rates D saving and investment Answer Key A Question 16 of 36 1 0 1 0 Points Consider the following A country s frictional unemployment rate is 3 the natural unemployment rate is 5 5 and the cyclical unemployment rate is 2 4 Calculate the structural unemployment rate and the unemployment rate A structural unemployment rate 3 the unemployment rate 7 9 B structural unemployment rate 2 5 the unemployment rate 7 9 C structural unemployment rate 2 5 the unemployment rate 5 4 D structural unemployment rate 2 4 the unemployment rate 5 4 Answer Key B Question 17 of 36 1 0 1 0 Points Which of the following reduces the duration of frictional unemployment A retraining unemployed workers to equip them with new skills B subsidizing firms that are willing to train new entrants in the labor market C establishing employment agencies which give out information about job vacancies D establishing labor unions which will protect workers from being laid off Answer Key C Question 18 of 36 1 0 1 0 Points In general the duration of job search will be shorter if A less job market information is available B it is more costly to obtain job search information C there are fewer employment agencies D unemployment compensation benefits decrease Answer Key D Question 19 of 36 1 0 1 0 Points A number of semi skilled workers in an industry find themselves out of work when improvements in technology render their jobs obsolete These workers experience A transitional unemployment B technological unemployment C structural unemployment D frictional unemployment Answer Key C Question 20 of 36 1 0 1 0 Points Welfare reforms enacted in 1996 put more pressure on welfare recipients to look for work The new law mandated cutting off benefits after a certain length of time Which of the following is likely to occur as a result of this provision A the natural rate of unemployment and the unemployment rate are likely to increase B the natural rate of unemployment is likely to decrease but the unemployment rate is likely to increase C the natural rate of unemployment is not affected but the unemployment rate is likely to increase