Question

21. Suppose the economy is an inflationary gap. According to neoclassical economists, what will happen?

Select all that apply:

A tight labor market will put upward pressure on wages, causing AS to shift to the left.

Unemployment will put downward pressure on wages, causing AS to shift to the right.

The economy will return to its potential levels of output.

The economy will remain in the inflationary gap for a prolonged period.

28.)A shock to the economy, such as a decrease in supply caused by higher resource prices, will _____________________.

Select the correct answer below:

cause the Phillips curve to shift to the left

cause the Phillips curve to shift to the right

not have an effect on the Phillips curve.

none of the above

29. If an economy at full employment experiences a fall in aggregate demand, what can the government do to help the situation?

Select all that apply:

increase government spending

decrease government spending

increase taxes on individuals and businesses

reduce taxes on individuals and businesses

34.)Neoclassical economists focus on the economy ________________________.

Select all that apply:

in the long-run

in the short-run

when it is experiencing a prolonged recession

at the natural rate of unemployment

Answer 1

a) "A" and "C" are the right answer. the wages will increase and that will shift the SRAS to the left and the new equilibrium in the market will be at a the same level of output.

b)) "B"

This will shift the Philip curve to the left and the unemployment will rise at every level of inflation.

c) The government will decrease the taxes and increase the increase the spending to bring the economy back at the full level of equilibrium.

d) A and D are the answer. They focus on the economy at the long run and at full level of employment.