125)

125.1) Refer to the graph above to answer this question. Which of the following
statements is not true if the economy is at point A?

A) Money wages will eventually be forced down.

B) Firms will find it difficult to hire labour and people will find it easy to find jobs.
C) A recessionary gap exists.
D) Unemployment is above its natural rate.
E) An increase in aggregate supply will move the economy towards full employment.

125.2) Refer to the graph above to answer this question. If the economy was initially at
point A, what would a movement to point B suggest?

A) The movement could be the result of an increase in aggregate demand.

B) The movement could be the result of an increase in prices.
C) The movement could be the result of an increase in nominal wages.
D) The movement could be the result of increased government spending.
E) The movement could be the result of a decrease in the costs of production.

Version 1 51
126)

126.1) Refer to the graph above to answer this question. What does Figure B illustrate?

A) The situation that existed in the 1930s.

B) Full-employment equilibrium.
C) An inflationary gap situation.
D) The situation that existed during World War II.
E) A situation where individual firms cannot be making profits.

126.2) Refer to the graph above to answer this question. What does Figure C illustrate?

Version 1 52
 A) The situation that existed in the 1930s.
B) Full-employment equilibrium.
C) An inflationary gap situation.
D) A recessionary gap situation.
E) A situation where individual firms cannot be making profits.

126.3) Refer to the graph above to answer this question. What does Figure A illustrate?

A) The situation that Keynes felt existed in the 1930s.

B) Full-employment equilibrium.
C) An inflationary gap situation.
D) A situation of unstable prices.
E) A situation where individual firms cannot be making profits.

127)

127.1) Refer to the figure above to answer this question. All of the following, except one,
would cause a movement from a to b. Which is the exception?

Version 1 53
 A) An increase in the price level.
B) An increase in wealth holdings.
C) An increase in government spending.
D) A decrease in the interest rate.
E) An increase in foreign incomes.

127.2) Refer to the figure above to answer this question. Which of the following would
cause a movement from point a to point c?

A) A decrease in the price level.

B) An increase in wealth holdings.
C) An increase in government spending.
D) An increase in the interest rate.
E) An increase in foreign incomes.

128) Table 5.2 shows the aggregate demand and supply schedules for the economy of Adana.
Table 5.2
Aggregate Quantity Demanded Price Index Aggregate Quantity Supplied
$800 100 $550
750 105 650
700 110 700
650 115 740
600 120 770

128.1) Refer to Table 5.2 to answer this question. What are the implications if the price
level is 100?

Version 1 54
 A) The price level is above equilibrium.
B) There is a shortage of real output of $250.
C) There is a surplus of real output of $250.
D) There is a surplus of real output of $150.

128.2) Refer to Table 5.2 to answer this question. If the aggregate quantity demanded
falls by $100 at every price level, what will be the new equilibrium price level and real
output, respectively?

A) 100 and $550.

B) 105 and $650.
C) 110 and $650.
D) 115 and $500.

128.3) Refer to Table 5.2 to answer this question. At what level of real output will full
employment occur in this economy?

A) $600.
B) $650.
C) $700.
D) Cannot be determined from the information.

129) What does the term Potential GDP mean?

130) What are the three reasons for the downward slope of the aggregate demand curve?

Version 1 55