Exhibit 10-4 Aggregate supply and demand curves AS 150 125 Price level 100 (CPI) E, 75 50 AD2 25 AD 0 2 4 6 8 10 12 Real GDP (billions of dollars per year) The increase in the price level as the economy moves from E 1 to E 2 in Exhibit 10-4 represents: a. demand-pull inflation. b. demand-shock inflation. c. cost-push inflation. Od. wage push inflation.

Exhibit 10-4 Aggregate supply and demand curves AS 150 125 Price level 100 (CPI) E, 75 50 AD2 25 AD 0 2 4 6 8 10 12 Real GDP (billions of dollars per year) The increase in the price level as the economy moves from E 1 to E 2 in Exhibit 10-4 represents: a. demand-pull inflation. b. demand-shock inflation. c. cost-push inflation. Od. wage push inflation.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4) If actual inflation is more than expected inflation, which of the following groups will most certainly benefit? а. Lenders b. Borrowers с. Minorities d. Women е. Men Suppose that the consumer price index of a country was 160 at year-end 2004 and 168 at the 5) end of 2005. What was the country's inflation rate during 2005? 5 percent b. а. 8 percent 60 percent d. с. 68 percent 6) If the consumer price index (CPI) at the end of year one was 100 and was 108 at the end of year two, the inflation rate during year two was zero; the CPI of 100 indicates that prices were stable. b. а. 8 percent. 5 percent. d. c. 108 percent.
QUESTIONS Which of the following can create demand-pull inflation? O Excessive aggregate spending supply disruptions caused by global pandemics and regional wars O Sharply rising oil prices Higher labor costs Recessions and depressions
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11. The short - run aggregate supply curve slopes upward. According to the sticky - wage theory of the short - run aggregate supply curve, if workers and firms expected prices to rise by 4 percent, but instead they rise by 2 percent, then a. employment falls and production rises. b. employment rises and production falls. c. both employment and production rise. d. both employment and production fall.
170 Price 140 level 120 100 D AD5 AD4 AD 3 AD, AD2 3.0 4.0 5.0 6.0 7.0 8.0 Real GDP In Exhibit 20-8, if aggregate demand shifts from AD₁ to AD3, O a. real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140. Ob. real GDP will increase from $3.0 to $7.0, and the price level will increase from 100 to 120. Oc. real GDP will increase from $3.0 to $7.0, and the price level will increase from 100 to 140. Od. real GDP will increase from $3.0 to $4.0, and the price level does not change.
4. Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 percent. Indicate whether this unexpected higher rate of inflation would help or hurt each of the following groups. a homeowner with a fixed-rate mortgage. a union worker with a fixed labor contract a company that has invested some of its endowment in a government bonds which pay a fixed rate of return. 5. Indicate how each of the following events would affect the aggregate demand AD curve: a short-run decrease in the price level an increase in consumer confidence on the price level and real GDP an increase in government purchases
Money held for emergencies represents the: A. Crisis demand for money. B. Disaster relief fund. C. Speculative demand for money. D. Precautionary demand for money.
Price Level Long-run AS Y, Y₁ Short-run AS Quantity of Real Output Suppose the economy is operating in a recession such as point B in the graph. If policymakers allow the economy to adjust to the long-run natural level on its own O a people will reduce their price expectations and aggregate demand will shift right O b. people will reduce their price expectations and the short-run aggregate supply will shift right Opeople will raise their price expectations and the short-run aggregate supply will shift left O d. people will raise their price expectations and aggregate demand will shift left
Figure 6 PRICE LEVEL LRAS Y, Y₂ QUANTITY OF OUTPUT SRAS; SRAS, AD 15. Refer to Figure 6. Starting from point A and assuming that aggregate demand is held constant, in the long run the economy is likely to experience a a. falling price level and a falling level of output, as the economy moves to point C. b. rising price level and a falling level of output, as the economy moves to point B. c. falling price level and a rising level of output, as the economy moves to point B. d. rising price level and a rising level of output, as the economy moves to point C.
Price Level Juous 17-18. Long-run AS Y₂Y₁ Short-run AS AD Quantity of Real Output Suppose the economy is operating in a recession such as point B in the graph. If policymakers allow the economy to adjust to the long-run natural level on its own, a. people will raise their price expectations and the short-run aggregate supply will shift left b. people will reduce their price expectations and aggregate demand will shift right c. people will raise their price expectations and aggregate demand will shift left d. people will reduce their price expectations and the short-run aggregate supply will shift right
9. How will (a) an unexpected 3 percent fall in the price level in the goods and services market differ from (b) 1 percent inflation when 4 percent inflation had been expected? What impact would (a) and (b) have on the real price of resources, profit margins, output, and employment? Explain.
All of the following statements are generally true EXCEPT: OA. The rate of change in nominal wages is positively correlated with the rate of change in other money prices. OB. The rate of change in nominal wages is negatively correlated with the unemployment rate. OC. The output gap is negatively correlated with the inflation rate. OD. The unemployment rate is negatively correlated with the deviation of aggregate economic activity from trend. OE. The inflation rate is positively correlated with the deviation of aggregate economic activity from trend.