20. For this question, assume that Y = N . B2sed on our understanding of the !abor market model presented in Chapter 6, we know that an increase in the minimum wage will cause A) an increase in the natural level of output. B) a reduction in the natural level of output. C) no change in the natural level of output. D) an increase in the natural level of employment.

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Chapter2: Second-order Linear Odes
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20. For this question, assume that Y = N. B2sed on our understanding of the !abor
market model presented in Chapter 6, we know that an increase in the minimum wage
will cause
A) an increase in the natural level of output.
B) a reduction in the natural level of output.
C) no change in the natural level of output.
D) an increase in the natural level of employment.
21. Assume the economy is initially operating at the natural level of output. Which of
the following events will NOT change the composition of output (i.e., the percentage
of GDP composed of consumption, investment, ... etc.) in the medium run?
A) a reduction in government spending
B) a cut in taxes
C) a reduction in the desire to save
D) an increase in consumer confidence
E) an increase in the money supply
22. Suppose a central bank implements a monetary contraction. Which of the
following would we expect to occur in the medium run? Assume that initially the
economy is at the medium run equilibrium.
A) a decline in output
B) an increase in the price expectations
C) a decrease in the nominal wage rate
D) a decrease in investment
5
23. Which of the following statements is NOT correct?
A) Any shifts of the IS curve will shift the AD curve
B) Any shifts of the LM curve will shift the AD curve
C) Any shifts of the WS curve will affect the natural unemployment rate, assuming
that Y=N.
D) Any shifts of the PS curve will affect the natural level of output, assuming that
Y=N.
24. Which of the following statements is NOT correct?
A) Each AS curve is associated with one particular level of price expectations.
B) All points along the AS curve are short-run equilibrium points in the labor market.
C) Price expectations are always accurate along the AS curve.
D) Only one point along the AS curve is the medium run equilibrium in the labor
market.
25. Suppose fiscal policy makers implement a policy to reduce a budget deficit.
Which of the following would occur, assuming initially the economy produces the
natural level of output
A) Output increases in the short run
B) Price expectation increases before the economy reaches the new medium-run
equilibrium.
C) Real wage rate increases in the medium run.
D) investment spending increases in the medium run.
Transcribed Image Text:20. For this question, assume that Y = N. B2sed on our understanding of the !abor market model presented in Chapter 6, we know that an increase in the minimum wage will cause A) an increase in the natural level of output. B) a reduction in the natural level of output. C) no change in the natural level of output. D) an increase in the natural level of employment. 21. Assume the economy is initially operating at the natural level of output. Which of the following events will NOT change the composition of output (i.e., the percentage of GDP composed of consumption, investment, ... etc.) in the medium run? A) a reduction in government spending B) a cut in taxes C) a reduction in the desire to save D) an increase in consumer confidence E) an increase in the money supply 22. Suppose a central bank implements a monetary contraction. Which of the following would we expect to occur in the medium run? Assume that initially the economy is at the medium run equilibrium. A) a decline in output B) an increase in the price expectations C) a decrease in the nominal wage rate D) a decrease in investment 5 23. Which of the following statements is NOT correct? A) Any shifts of the IS curve will shift the AD curve B) Any shifts of the LM curve will shift the AD curve C) Any shifts of the WS curve will affect the natural unemployment rate, assuming that Y=N. D) Any shifts of the PS curve will affect the natural level of output, assuming that Y=N. 24. Which of the following statements is NOT correct? A) Each AS curve is associated with one particular level of price expectations. B) All points along the AS curve are short-run equilibrium points in the labor market. C) Price expectations are always accurate along the AS curve. D) Only one point along the AS curve is the medium run equilibrium in the labor market. 25. Suppose fiscal policy makers implement a policy to reduce a budget deficit. Which of the following would occur, assuming initially the economy produces the natural level of output A) Output increases in the short run B) Price expectation increases before the economy reaches the new medium-run equilibrium. C) Real wage rate increases in the medium run. D) investment spending increases in the medium run.
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