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Exam 13: Aggregate Supply and the Short-Run

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Question 41

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According to the sticky-price model:

A) all firms announce their prices in advance.
B) all firms set their prices in accord with observed prices and output.
C) some firms set their prices according to the aggregate supply equation.
D) some firms announce their prices in advance,and some firms set their prices in accord with observed prices and output.

E) None of the above
F) B) and C)

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Question 42

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According to the imperfect-information model,in countries in which there is a great deal of variability of prices:

A) the response of output to unexpected changes in prices will be relatively large.
B) the response of output to unexpected changes in prices will be relatively small.
C) output will respond negatively to an unexpected rise in prices.
D) output will not respond to an unexpected change in prices.

E) B) and C)
F) B) and D)

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Question 43

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Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: AD-AS Shifts) Starting from long-run equilibrium at A with output equal to Y and the price level equal to P₁,a cost-push inflation would be represented by a shift from:

According to the open-economy Phillips curve model,other things equal,the unemployment rate rises in all the following situations except when:

Assume that a firm has a production function Y = 1,000L^1/2,where Y is output and L is labour.Labour demand is L^d = 250,000(P/W)² and labour supply is L^s = 31,250(W/P).Initially,there is an equilibrium in which output is 250,000,employment is 62,500,the nominal wage is 20,and the price level is 10.Demand for output is 250,000 at the given price,so all output is sold.Suddenly,demand at the given price drops to 200,000,but the firm does not lower its price.It lowers output and lays off workers.a.Assuming that the firm cannot produce for inventory,how much will the firm want to produce? b.Assuming output equals the amount given under part a,what employment force will the firms want to hire? c.If the firm continues to pay the same nominal and real wage,how much more labour will workers wish to supply than the firm will want to hire?

Use the following to answer questions : Exhibit: AD-AS Shifts -(Exhibit: Short-run Phillips Curve) As the short-run Phillips curve shifts from A to B to C to D:

The Phillips curve expresses a short-run link:

In the sticky-wage model,if labour contracts specify that the nominal wage be fully indexed for inflation,the short-run aggregate supply schedule will:

In the 1980s in Canada,there was I: rising inflationary expectations,and II: expansionary monetary policy.

If only unanticipated changes in the money supply affect real GDP,the public has rational expectations,and everyone has the same information about the state of the economy,then:

Both models of aggregate supply discussed in Chapter 13 imply that if the price level is higher than expected,then output ______ natural level of output.

Assume that an economy has the Phillips curve $\pi$ = $\pi$ _-1 - 0.5(u - 0.06) .How many percentage point-years of cyclical unemployment are needed to reduce inflation by 5 percentage points?

Each of the following conditions will tend to reduce the sacrifice ratio except when:

Workers resist wage decreases more vigorously than they resist wage increases.This phenomenon makes the short-run Phillips curve nonlinear-steeper when inflation is positive than when inflation is negative.Given this nonlinearity,which of the following statements are true? I.A positive inflation target (say 2%) leads to less unemployment than does an inflation target of zero. II.The NAIRU (noninflationary rate of unemployment) is increased.

Inflation inertia refers to the idea that inflation:

Assume that people form expectations rationally and that the sticky-price model describes the aggregate supply curve in the economy.For each of the following scenarios,explain whether monetary policy can have real effects on the economy: a.The central bank determines monetary policy using the same information available to all firms and at the same time firms are setting prices,so both firms and policymakers have the same information.b.The central bank determines monetary policy after firms have set prices using information not available at the time prices were set.

To illustrate inflation inertia in an aggregate demand-aggregate supply model,the short-run aggregate supply curve shifts upward because of increases in ______,and the aggregate demand curve shifts upward because of increases in ______.

If the short-run aggregate supply curve is assumed to be horizontal and there are no international capital flows,then the big,comprehensive model corresponds to which of the following special cases?

All of the following are ways that the modern Phillips curve differs from the relationship observed by A.W.Phillips in 1958 except that the modern Phillips curve:

According to the imperfect-information model,when the price level rises and the producer expects the price level to rise,the producer: