85. Refer to the figure below. The current level of GDP in this economy is ______; the potential level
of GDP is ______.
A.
Y1; Y1
B.
Y2; Y2
C.
Y1; Y2
D.
Y2; Y1
86. Refer to the figure below. Long-run equilibrium in this economy:
A. will be impossible to achieve.
B. could occur if AD shifts upward to the right.
C. could occur if AS shifts upward and to the left.
D. will occur only if AD shifts downward to the left.
87. The Great Recession was the result of:
A. two negative demand shocks.
B. a negative demand shock and a negative inflation shock.
C. two positive inflation shocks.
D. a negative demand shock and a positive inflation shock.
88. The two negative demand shocks that caused the Great Recession were:
A. declining housing prices and the 2008 financial panic.
B. declining housing prices and declining stock prices.
C. increasing oil prices and the 2008 financial panic.
D. increasing oil prices and declining stock prices.
89. The self-correcting property of the economy means that output gaps are eventually eliminated
by:
A. rising or falling prices.
B. falling prices only.
C. increasing or decreasing potential output.
D. government policy.
90. The fact that output gaps will not last indefinitely, but will be closed by rising or falling prices is the
economy’s:
A. short-run equilibrium property.
B. self-correcting property.
C. income-expenditure multiplier.
D. long-run equilibrium property.
91. The self-correcting tendency of the economy means that rising inflation eventually eliminates:
A. expansionary gaps.
B. recessionary gaps.
C. exogenous spending.
D. unemployment.
92. The self-correcting tendency of the economy means that falling inflation eventually eliminates:
A. expansionary gaps.
B. recessionary gaps.
C. exogenous spending.
D. unemployment.
93. To achieve long-run equilibrium in an economy with a recessionary gap, without the use of
stabilization policy, the inflation rate must:
A. increase.
B. decrease.
C. not change.
D. either increase or decrease depending on the relative shifts of AD and AS.
94. An economy with an expansionary gap will, in the absence of stabilization policy, eventually
experience a(n) ______ in the inflation rate, leading to a(n) ______ in output.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
95. Starting from long-run equilibrium, a large increase in government purchases will result in a(n)
______gap in the short run and ____inflation and ____output in the long run.
A. expansionary; higher; potential
B. expansionary; lower; potential
C. expansionary; higher; higher
D. recessionary; higher; lower
96. Starting from long-run equilibrium, a large decrease in government purchases will result in a(n)
______gap in the short run and ____inflation and ____output in the long run.
A. expansionary; higher; potential
B. recessionary; lower; potential
C. expansionary; higher; higher
D. recessionary; higher; potential