Which of the following is true of an expansionary gap?
a. It develops when the expected price level exceeds the actual price level.
b. In the long run, this gap will close when resource suppliers negotiate lower resource payments.
c. It measures the amount by which actual output falls short of the economy's potential.
d. In the long run, this gap will close when the short-run aggregate supply curve shifts rightward.
e. In the long run, this gap will close when resource suppliers negotiate higher resource payments.
QUESTION 2If the Fed purchases U.S. government securities, gross domestic product:
a. increases because the resulting increase in the interest rate leads to a decrease in investment.
b. increases because the resulting decrease in the interest rate leads to an increase in investment.
c. decreases because the resulting increase in the interest rate leads to a decrease in investment.
d. decreases because the resulting increase in the interest rate leads to an increase in investment.
e. decreases because the resulting decrease in the interest rate leads to an increase in investment.
QUESTION 3Which of the following occurs when an expansionary gap is closed in the long run by the action of firms?
a. Output decreases, and the price level increases.
b. Inflation decreases, and unemployment rises.
c. Both the equilibrium output and the price level increase.
d. Both the equilibrium output and the price level decrease.
e. Inflation rises, and unemployment decreases
QUESTION 4If the Fed decreases the money supply, gross domestic product:
a. increases by the same amount as the increase in the interest rate.
b. decreases by a greater amount than the increase in the interest rate because of the multiplier.
c. decreases by the same amount as the decrease in investment.
d. decreases by a greater amount than the decrease in investment because of the multiplier.
e. decreases by a lesser amount than the decrease in investment because of the multiplier.
QUESTION 5If resource suppliers and demanders find out that the actual price level exceeds the expected price level, they will take corrective actions that will:
a. cause the economy to move away from the potential output level.
b. raise the unemployment level above the natural rate of unemployment.
c. shift the aggregate demand curve of an economy.
d. shift the short-run aggregate supply curve of an economy.
e. lower the actual price level.
QUESTION 6When the Fed adopts an expansionary monetary policy:
a. the demand for investment curve shifts to the left.
b. the demand for investment curve shifts to the right.
c. there is a downward movement along the demand for investment curve.
d. there is an upward movement along the demand for investment curve.
e. there is no impact on the demand for investment curve.