When the aggregate supply curve intersects the aggregate demand curve at a level of real GDP that exceeds potential GDP, is there an inflationary gap or a deflationary gap? What adjustments will take place?
What will be an ideal response?
There is an inflationary gap because real GDP exceeds potential GDP. In this situation, the money wage rate will rise, shifting the aggregate supply curve leftward and raising the price level. Eventually the economy will return to potential GDP. At this time, real GDP is lower than when the inflationary gap existed but the price level is higher.
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The application of Solow's growth theory to the explanation of the slowdown in productivity growth in the United States suggests that the slowdown is primarily caused by
A) reduced growth in the capital stock per hour of work. B) reduced growth in the technical change or total factor productivity. C) slow residual growth of the capital stock. D) ignorance since people save and invest less.
Monopolistic competition is different from perfect competition because monopolistic competitors produce
a. a homogeneous product b. a homogeneous but unique product c. identical products d. differentiated products e. products similar to those produced by a monopoly
If a country's income level is high:
A. it must have a high level of growth. B. it usually has a high level of GDP per capita. C. it must be well-endowed with natural resources. D. All of these are true.
The oversimplified multiplier formula assumes that the
a. level of consumption spending is fixed. b. price level is fixed. c. government spending is fixed. d. net exports depend on income.