CLEP Macroeconomics chapter practice4 questions

11 Macroeconomic Equilibrium, Gaps, and Self-Correction

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

In the aggregate demand and aggregate supply model, short-run equilibrium occurs where

The intersection with the upward-sloping short-run curve fixes both the price level and real output for the period. Choices A and B state the long-run condition instead, C borrows a condition from two other markets at once, and D imposes a balanced budget that equilibrium never requires.
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E. aggregate demand meets short-run aggregate supply

The intersection with the upward-sloping short-run curve fixes both the price level and real output for the period. Choices A and B state the long-run condition instead, C borrows a condition from two other markets at once, and D imposes a balanced budget that equilibrium never requires.

Question 2

Question 2 of 4

Actual real output in Country X lies below potential output for several quarters. What does that condition indicate?

Producing under capacity for a sustained stretch is exactly what a recessionary gap names. Choice B reverses the direction of the gap, C describes production at capacity, and D and E name outcomes that may or may not accompany a gap without defining one.
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A. A recessionary gap

Producing under capacity for a sustained stretch is exactly what a recessionary gap names. Choice B reverses the direction of the gap, C describes production at capacity, and D and E name outcomes that may or may not accompany a gap without defining one.

Question 3

Question 3 of 4

An economy is operating in a recessionary gap. Which of the following describes cyclical unemployment in that situation?

Weak demand leaves resources idle, so unemployment sits above the natural rate and the cyclical piece is positive. Choice A reverses the sign, C describes production at potential, D mistakes the cyclical component for the whole rate, and E swaps it for search unemployment.
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B. It is positive.

Weak demand leaves resources idle, so unemployment sits above the natural rate and the cyclical piece is positive. Choice A reverses the sign, C describes production at potential, D mistakes the cyclical component for the whole rate, and E swaps it for search unemployment.

Question 4

Question 4 of 4

During long-run self-correction from a recessionary gap, what do nominal wages and other input prices tend to do?

Slack labor markets eventually pull nominal wages down, production costs follow, and short-run supply slides right until output is back at potential. Choice A describes correction from the opposite gap, B and D move curves that wage adjustment does not touch, and E denies that any adjustment happens.
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C. Fall, shifting short-run supply right

Slack labor markets eventually pull nominal wages down, production costs follow, and short-run supply slides right until output is back at potential. Choice A describes correction from the opposite gap, B and D move curves that wage adjustment does not touch, and E denies that any adjustment happens.

Quiz complete