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ISU ECON 102 - Problem Set 5

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Economics 102 Walter Enders Problem Set 5: Due Monday, November 8 1. When the expenditure schedule is too low, the result is a. an unemployment surplus. b. an inflationary gap. c. a recessionary gap. d. a budgetary gap. 2. The combination of high unemployment and high inflation is termed a. reflation. b. stagflation. c. depression. d. unflation. 3. For most firms in the economy, the largest part of factor costs is the cost of a. capital. b. land and natural resources. c. labor. d. property and machinery. 4. As a result of the Balkan wars, the populations of Serbia and Kosovo as well as their capital stocks were reduced. This can be illustrated by aggregate supply curve a. shifting outward. b. becoming flatter. c. shifting inward. d. becoming more elastic. 5. The aggregate supply curve slopes ________ because firms can ________ . a. downward; sell more at lower prices. b. downward; hire more workers at lower prices. c. upward; hire more workers at higher wage levels. d. upward; hire labor at fixed wages for short-run periods. 6. Input prices are fixed for some period of time because a. some workers enter into long-term contracts. b. firms purchase raw materials on set-price contracts. c. many workers get pay increases only once a year. d. All of the others are correct. 7. The slope of the aggregate supply curve increases as output increases because: a. the cost of resource-use increases as potential is reached. b. consumers are willing to pay more as output expands. c. firms substitute capital for labor as prices increase. d. firms substitute capital for labor as capacity is reached. 8. A decrease in the price of resources will cause the aggregate supply curve to a. shift outward. b. shift inward. c. become flatter. d. become steeper. 9. An economist who claims that an increase in government spending would result mainly in a higher price level believes the economy is operating where a. the MPC is small. b. the MPC is large. c. aggregate supply curve is flat. d. aggregate supply curve is steep. 10. If the price level rises, what will happen to aggregate supply? a. It will shift outward. b. It will shift inward. c. Nothing. d. It will get steeper. e. It will get flatter. 11. An increase in the money wage rate will cause a. the aggregate supply curve to shift outward, which means the quantity supplied at any price level decreases. b. the aggregate supply curve to shift outward, which means the quantity supplied at any price level increases. c. the aggregate supply curve to shift inward, which means the quantity supplied at any price level increases. d. the aggregate supply curve to shift inward, which means the quantity supplied at any price level decreases. 12. A technological breakthrough in the production of computer memory productivity will cause aggregate supply to a. shift inward and becomes flatter. b. shift inward. c. shift outward. d. become flatter. 13. At levels of output close to full employment, the aggregate supply curve is probably a. very flat. b. very steep. c. sloped downward. d. perfectly elastic. 14. The only factor that can cause movement along the aggregate supply curve is the a. labor force. b. capital stock. c. availability of resources. d. price level. e. All of the others are correct.15. Why are many economists in favor of increased immigration of foreigners with high levels of skills and education? a. Economists are very caring individuals. b. Economists believe foreigners will work cheaper. c. This will increase understanding among different ethnic groups. d. Such immigration will increase aggregate supply. Table 11.1 Aggregate Demand Price Aggregate Supply $3,500 65 $2,900 3,400 75 3,000 3,350 90 3,150 3,250 110 3,250 3,100 130 3,400 16. In Table 11.1, what is the equilibrium level of real output and the equilibrium price? a. $3,100 real output and a price of 75. b. $3,250 real output and a price of 110. c. $3,350 real output and a price of 90. d. $3,400 real output and a price of 75. 17. In Table 11.1, if full employment occurs at $3,100, then a. the economy experiences a recessionary gap of $150. b. the economy experiences a recessionary gap of $250 c. the economy experiences an inflationary gap of $150. d. the economy experiences an inflationary gap of $250. 18. In Table 11.1, if full employment occurs at $3,400, then a. the economy experiences a recessionary gap of $150. b. the economy experiences a recessionary gap of $250. c. the economy experiences an inflationary gap of $150. d. the economy experiences an inflationary gap of $250. 19. Most economists agree that the economy will adjust to a recessionary gap, but the adjustment process a. is rapid and destabilizing. b. is moderately quick, but not as rapid as necessary. c. takes place solely on the supply side. d. the adjustment process is very slow. 20. The reason that stagflation tends to follow an inflationary gap is that a. output tends to fall even as prices continue to rise as part of the self-correcting mechanism. b. government officials tend to overact in controlling inflation. c. businesses try to increase profits by raising prices and increasing output. d. workers accept pay cuts to maintain employment. 21. One reason the simplified multiplier is incorrect is that inflation ______ the multiplier by ______ . a. increases; increasing investment spending. b. increases; increasing consumer spending. c. decreases; increasing net exports. d. decreases; by decreasing consumer spending. 22. The federal government increases spending by $50 billion and the main effect is an increase in the price level. It must be true that the economy is operating on the a. horizontal portion of the aggregate demand curve. c. horizontal portion of the aggregate supply curve. c. vertical portion of the aggregate supply curve. d. vertical portion of the aggregate demand curve. 23. “Fiscal Policy” is the federal government’s plan a. for international trade, designed to balance exports and imports. b. for spending and taxes, designed to influence the level of aggregate demand. c. for manipulating the money supply and the control of interest rates. d. All of the above are correct. 24. An increase


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