Question

1. In economy A, all workers agree in advance on the nominal wages that their employers will pay them. In economy B, half of all workers have these nominal wage contracts. In contrast, the other half have indexed employment contracts, so their wages rise and fall automatically with the price level.

A. According to the sticky-wage theory of aggregate supply, which economy has a more steeply sloped short-run aggregate-supply curve?
B. In which economy would a 5 percent increase in the money supply have a larger impact on output in the short run?
C. In which economy would it have a larger impact on the price level in the short run?

2. When output rises, unemployment falls.

a. TRUE
b. FALSE

 

3. How do prices change due to an economic contraction that is caused by a shift in aggregate demand?

A. They rise in the short run and fall back to their original level in the long run.

B. They rise in the short run and rise even more in the long run.

C. They fall in the short run and rise back to their original level in the long run.

D. They fall in the short run and fall even more in the long run.

4. What happens to sales and profit during recessions?

A. sales rise and profits fall

B. profits fall and sales rise

C. sales and profits fall

D. sales and profits rise

5. Which of the following explains why production rises in most years?

A. increases in prices of goods and services

B. increases in stock prices

C. aging population

D. technological innovation