A) Increase in wealth.

B) Increase in the rate of interest.

C) Increase in income levels abroad.
D) Increase in business expectations.
E) Decrease government regulations.

99) Which of the following is true of a recessionary gap?

A) Firms will increase output because Real GDP is below Potential GDP.
B) Firms will decrease output because the price level is low.
C) Firms have no incentive to produce more because they can't sell additional output.
D) Firms have no incentive to produce more because it's very expensive to employ more
labour.
E) It is correctly described as "too much money chasing too few goods."

100) Which of the following is true of an inflationary gap?

A) People are trying to buy more than the economy can produce on a sustainable basis.
B) The level of aggregate demand is equal to Potential GDP.
C) The level of aggregate demand is greater than the level of aggregate supply.
D) It is often described as "too much money chasing too many goods."
E) It is often described as "too little money chasing too many goods."

101) Which of the following will likely happen if an economy is experiencing an inflationary
gap?

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 A) Consumption will decrease because goods and services are too expensive.
B) Unemployment will be above the natural rate because Real GDP is less than Potential
GDP.
C) Unemployment will be equal to the natural rate because of high aggregate demand.
D) Firms will bid up wage rates in an effort to attract and secure scarce labour.
E) Firms will bid down wage rates in order to create unemployment.

102) Which of the following is not a determinant of aggregate demand?

A) Labour productivity.
B) Interest rates.
C) Foreign exchange rates.
D) The money supply.

103) How will the age of the existing capital stock affect aggregate demand?

A) An older capital stock will decrease the level of investment and decrease aggregate
demand.
B) An older capital stock will decrease the level of investment and increase aggregate
demand.
C) An older capital stock will increase the level of investment and increase aggregate
demand.
D) An older capital stock will increase the level of investment and decrease aggregate
demand.
E) The age of the capital stock will not affect the level of investment or aggregate
demand.

104) Which of the following is least likely to affect the level of government spending in an
economy?

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 A) Social and cultural standards.
B) People's expectations.
C) Political philosophy of the government.
D) Age of consumer durables.
E) The amount of time left in a government's mandate.

105) Which of the following will cause a decrease in aggregate supply but no change in long-
run aggregate supply?

A) A decrease in labour productivity.

B) An increase in factor prices.
C) An increase in the capital stock.
D) A decrease in the labour participation rate.

106) According to Keynesian economists, why are prices and wages often inflexible?

A) Because of the existence of large corporations and unions.

B) Because of high unemployment.
C) Because of government regulation of the market.
D) Because the AS curve is vertical.
E) Because the AD curve is horizontal.

107) What is the relationship between LAS and the price level?

A) Positive.
B) Negative.
C) Independent.
D) Positive or negative.

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108) A high interest rate will lead to:

A) low investment spending.

B) no investment spending.
C) high investment spending.
D) no changes in investment spending.

109) What is real wage?

A) It is equal to nominal wage plus the price level.

B) It is equal to the nominal wage minus the price level.
C) It is equal to the nominal wage multiplied by the price level.
D) It is equal to the nominal wage divided by the price level.

110) All of the following, except one, will change net exports. Which is the exception?

A) Foreign income.
B) Value of exchange rate.
C) Price of competitive (foreign) goods.
D) Interest rates.
E) Tastes of foreigners.

111) Assume an economy is currently in equilibrium with Real GDP at $500 billion. If
potential Real GDP (LAS) is $400 billion, which of the following is true?

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 A) There is a recessionary gap of 100 percent.
B) There is a recessionary gap of $100 billion.
C) There is an inflationary gap of 100 percent.
D) There is an inflationary gap of $100 billion.

112) Assume an economy is currently in equilibrium with Real GDP at $716 billion. If
potential Real GDP (LAS) is $627 billion, which of the following is true?

A) There is an inflationary gap of $89 billion.

B) There is an inflationary gap of 89 percent.
C) There is a recessionary gap of 89 percent.
D) There is a recessionary gap of $89 billion.

113) Assume an economy is currently in equilibrium with Real GDP at $1,627 billion. If
potential Real GDP (LAS) is $1,800 billion, which of the following is true?

A) There is a recessionary gap of 173 percent.

B) There is an inflationary gap of 173 percent.
C) There is a recessionary gap of $173 billion.
D) There is an inflationary gap of $173 billion.

114) Assume an economy is currently in equilibrium with Real GDP at $500 billion. If
potential Real GDP (LAS) is $600 billion, which of the following is true?

A) There is a recessionary gap of 100 percent.

B) There is a recessionary gap of $100 billion.
C) There is an inflationary gap of $100 billion.
D) There is an inflationary gap of 100 percent.

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