Question

What is the relationship between the price level and the level of output in the long run? When the price level rises, output increases. When the price level rises, output decreases. The relationship depends on how quickly producers respond to changes in prices. There is no relationship between the price level and the level of output.
(16)
What is the main reason why wages might be fixed in the short run? Workers are afraid they may be fired if they ask for raises. Unions are not constantly renegotiating their wage contracts. Unions are constantly renegotiating their wage contracts. Workers fail to recognize that prices have risen.
(17)
If inflation is __________ than expected, the real wages of workers covered by wage contracts fall.
(18)
In the short run, what happens to the level of output when the government increases its spending? Aggregate demand shifts outward, decreasing the equilibrium level of output. Aggregate demand shifts inward, decreasing the equilibrium level of output. Aggregate demand shifts outward, increasing the equilibrium level of output. Aggregate demand shifts inward, increasing the equilibrium level of output.
(19)
What is the long-run effect of increasing output beyond the full-employment level? Prices and wages rise, and the level of output falls. Prices and wages rise, and the level of output remains unchanged. Prices, wages, and the level of output increase. Prices, wages, and the level of output decrease.
(20)
What is the effect of a tax increase on the equilibrium level of aggregate output and prices in the economy? Both the level of output and the price level increase. Both the level of output and the price level decrease. The level of output decreases and the price level increases. The level of output increases and the price level decreases.

Answer 1

1. In the long run “There is no relationship between the price level and the level of output.”

The level of output in the long run is determined on other factors other than price , like technology productivity etc

2. wages might be fixed in short run because “Unions are not constantly renegotiating their wage contracts.”

In short run the process can be costly and employment of workers may be affected.

3. If inflation is “HIGHER” than expected, the real wages of workers covered by wage contracts fall.

4. when government increase its spending, in the short run “Aggregate demand shifts outward, increasing the equilibrium level of output.”

The demand curve will shift outward when government increase in expenditure in the short run AS/AD curve

5. Prices, wages, and the level of output increase , when output rises beyond full employment level.

Above full employment level(LRAS), there is inflationary gap with higher inflation and output.

6. Answer is “Both the level of output and the price level decrease.”

With tax increase the Aggregate demand curve shifts inward and price level and output falls