Which of the following measures is most likely to be taken by the government, if

Question

Which of the following measures is most likely to be taken by the government, if real GDP exceeds potential GDP? A decrease in government borrowing An increase in subsidies An increase in government spending on infrastructure An increase in taxes The natural rate of unemployment is the rate that prevails when structural and frictional unemployment are 0%, only cyclical unemployment prevails True False Which of the following correctly describes an economy's potential output? The amount produced when there are surprises associated with the given level of unemployment The maximum level that is sustainable given available resources The maximum level that is not sustainable, but possible in the short run The amount produced when there are surprises associated with the price level in the economy Which of the following would most likely cause an adverse (bad) long-run aggregate supply shock and stagflation? Technological innovation A long term oil embargo that reduces the supply of oil to the United States and other Western Countries Record Harvests in Corn, Beans, and Wheat A massive increase in real GDP How long is the long run in Macroeconomics? The amount of time needed for natural unemployment to fall to zero The amount of time needed for input and output prices to adjust to natural changes the economy 5 years 10 Years An expansionary gap would create Lower prices A labor shortage Excessive unemployment Political instability Wage rates are seen as a fixed input price because of both implicit and explicit contractual arrangements True False

Explanation / Answer

34. C is right

35. true

36. A

37. B

38. C

39. option A is correct, an expansiory gap existed when the acual output is exceeded potential output. when the supply is higher than required levels, automatically the prices comes down.

40. true, because the producer thinks that the wage rates are fixed while planning for work.

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