Category: Questions

Question: Suppose that the economy is in long-run macroeconomic equilibrium and aggregate demand increases. As the economy moves to short-run macroeconomic equilibrium, there is:

ANSWER: An inflationary gap with low unemployment.

The point where the long-run aggregate supply curve intercepts the horizontal axis is:
A) the point that reflects the economy’s actual output.
B) the economy’s potential output.
C) the level of real GDP the economy would produce if all prices were flexible and wages were fixed.
D) impossible to attain.

In the long run, changes in the aggregate price level will be accompanied by _____ proportional changes in input prices.
A) less than
B) more than
C) equal
D) opposite

The long-run aggregate supply curve is vertical because in the long run:
A) technological progress outpaces raises in nominal wages.
B) all factors of production increase.
C) the price of labor is flexible, while the price of physical capital is fixed.
D) all prices are flexible.

Because the aggregate price level has no effect on aggregate output in the long run, the long-run aggregate supply curve is:
A) upward sloping.
B) vertical.
C) horizontal.
D) downward sloping.

According to the long-run aggregate supply curve, when _____, the quantity of aggregate output supplied _____.
A) nominal wages rise; falls
B) the aggregate price level rises; does not change
C) the aggregate price level rises; falls
D) the price of commodities falls; rises

If all prices, including the nominal wage rate, double in the long run, then aggregate output supplied will:
A) double.
B) rise.
C) fall.
D) remain unchanged.