ECON102 Lecture Notes - Lecture 15: Autonomous Consumption, Disposable And Discretionary Income, Consumption Function

1. In the long run, when prices are perfectly flexible:

a. aggregate supply is vertical and a market economy is self-correcting.

b. a market economy cannot self-correct.

c. government will be required to set prices to maintain equilibrium.

d. changes in aggregate demand cause equilibrium real GDP to change.

2. An increase in household wealth when the SRAS curve is upward sloping:

a. leads to an increase in the price level but has no impact on real GDP

b. has no impact on the price level but leads to an increase in real GDP

c. leads to an increase in both the price level and real GDP

d. has no impact on the price level or real GDP

3. In the long run, continued increases in aggregate demand not matched by similar increases in aggregate supply will cause:

a. an increase in the full-employment level of real GDP

b. a recessionary gap

c. a decrease in the price level

d. an increase in the price level

4. The vertical long-run aggregate supply curve implies that:

a. changes in aggregate demand will not affect the price level

b. the short-run aggregate supply curve is also vertical

c. natural or full-employment real GDP does not depend on the price level, in the long run

d. natural or full-employment real GDP is the same as the equilibrium real GDP in the short run

5. A rightward shift of the long-run aggregate supply curve illustrates:

a. economic growth

b. a recessionary gap

c. an inflationary gap

d. a decrease in natural real GDP

6. When the economy is in a recessionary gap

a. there is a surplus of labor

b. there is a shortage of labor

c. it is producing a real GDP level that is greater than natural real GDP

d. the unemployment rate is less than the natural unemployment rate

7. If the actual unemployment rate is less than the natural unemployment rate:

a. a recessionary gap exists and wages are likely to rise

b. an inflationary gap exists and wages are likely to rise

c. a recessionary gap exists and wages are likely to fall

d. an inflationary gap exists and wages are likely to fall

8. An economy in long-run equilibrium is producing:

a. a level of real GDP that is greater than its natural real GDP

b. where both the price level and real output are maximized

c. a level of real GDP equal to its natural real GDP

d. in the vertical range of aggregate demand.

31) A recessionary gap is the amount by which A) potential GDP exceeds real GDP. B) demand will increase to achieve full employment at a given price level. the supply curve must increase to achieve full employment at a given price level. D) real GDP exceeds potential GDP. E) the price level must adjust to achieve full employment.

1. Does the Aggregate Demand (AD) curve always slope downward? Discuss and use explanations (interest rate effect, wealth effects, open economy effect).

2. The Aggregate Supply (AS) curve slopes upward to reflect the profit motive of businesses. So, why there are two versions of the AS curve( i.e. short run and long- run). Discuss.

3. Does Aggregate Demand and Aggregate Supply always occur at full-employment level?

a) If yes, will there be some unemployment? Explain

b) If no, then the actual real GDP may be different from the potential real GDP. When the actual and potential GDP are not the same, then the economy is either in a recessionary gap or inflationary gap. Explain