Q1. The key to understanding how the level of real GDP will fall below and oscillate around potential output is:

                a. money supply adjustment

                b. net export adjustment

                c. output adjustment

                d. inventory adjustment

                e. (a) and (c)

Q2. The economy may be in equilibrium when:

                a. planned expenditure equals real GDP

                b. planned expenditure equals nominal GDP

                c. national income equals real GDP

                d. planned expenditure equals planned private savings

                e. (a) and (d)

Q3. An increase in the expected inflation rate may:

                a. result in a decrease in the inflation rate along the Phillips Curve

                b. shift the Phillips Curve to the right

                c. shift the Phillips Curve to the left

                d. result in an increase in the inflation rate along the Phillips Curve

                e. (a) and (c)

Q4. An adverse supply shock may:

                a. result in a decrease in the inflation rate along the Phillips Curve

                b. shift the Phillips Curve to the right

                c. shift the Phillips Curve to the left

                d. result in an increase in the inflation rate along the Phillips Curve

                e. (a) and (c)

Q5. If inflation increases and last year's inflation is expected to be this year's inflation:

                a. the Phillips Curve may shift to the right, further exacerbating the inflation problem

                b. the Phillips Curve may shift to the left, improving the inflation-unemployment situation

                c. the Phillips Curve may remain in place and unemployment will decrease

                d. the Federal Reserve will increase the supply of money

                e. (a) and (d)

Q6. The short run is a period in which nominal wages:

                a. Increase as real wages increase

                b. Change as the price level stays constant

                c. Remain unresponsive as the price level increases

                d. Change as the price level increases

                e. are the same as real wages

Q7. The short-run aggregate supply curve:

                a. Is vertical and the long-run aggregate supply curve is vertical

                b. Slopes upward and the long-run aggregate supply curve slopes upward

                c. Slopes upward, but the long-run aggregate supply curve is horizontal

                d. Slopes upward, but the long-run aggregate supply curve is vertical

                e. both the short-run and the long-run aggregate supply curves slope upward

Q8. From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output:

                 a. Product price would increase, but resource prices would decrease

                 b. Product price would decrease, but resource prices would increase

                 c. Product and resource prices would decrease, so that aggregate spending would rise, expanding output

                 d. Product and resource prices would increase, so that aggregate spending would equal output

Short Answer Questions

Q1. Explain how GDP would return to equilibrium if it was above or below equilibrium GDP.

Q2. Whenever there is change in spending, there will be a change in real GDP.  Explain why this is so.

Q3. What is the basic difference between the short run and long run as these terms relate to macroeconomics?  Why does this difference occur?

Q4. If the Phillips Curve exists in reality, what dilemma does this create for fiscal and monetary policies?  Describe.

Essay Question

Comment (fully) on the subsequent statement: "Unemployment depends upon aggregate spending."