Practice Questions
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How does labor market flexibility influence long run economic adjustment?
When the labor market is flexible, workers can quickly move to new jobs. Other options are incorrect because Some might think flexibility causes more ...
How does technological advancement impact long-run aggregate supply in an economy?
Technological advancement helps businesses produce more goods efficiently. Other options are incorrect because Some might think that technology reduce...
In the long run, how do aggregate supply and demand adjustments affect the price level in an economy?
In the long run, the economy finds a balance. Other options are incorrect because Some might think that more demand always raises prices permanently; ...
In the context of long-run economic adjustment, which of the following scenarios best illustrates the process by which capital accumulation can lead to price level adjustments under an inflation targeting regime?
When people save more money, businesses can invest that money. Other options are incorrect because This option suggests that increasing exports alone ...
In a long-run economic adjustment scenario, how does a demand shock affect the price level and the equilibrium output in the economy?
When demand increases, businesses produce more goods. Other options are incorrect because This option suggests prices go up but output stays the same;...
What characterizes long-run equilibrium in an economy?
In long-run equilibrium, firms adjust their production until they earn zero economic profit. Other options are incorrect because Some might think pric...
In the long run, how does an increase in aggregate demand affect the economy, assuming aggregate supply is perfectly inelastic?
When demand goes up but supply can't change, prices rise. Other options are incorrect because This suggests that both prices and output increase; This...
What is the natural rate of unemployment?
The natural rate of unemployment is the level when the economy is healthy. Other options are incorrect because Some might think this is the highest un...
How does a decrease in nominal wages contribute to long run economic adjustment in an economy?
When wages go down, it costs less for businesses to make products. Other options are incorrect because Some might think lower wages mean people spend ...
Arrange the following steps in the correct sequence for the long run economic adjustment process after a recession: A) Increase in resource prices leads to a leftward shift in the SRAS curve, B) Initial recession causes an output gap, C) Economy reaches full employment as output increases, D) Decrease in resource prices leads to a rightward shift in the SRAS curve.
First, a recession creates an output gap, meaning the economy is not producing enough. Other options are incorrect because This option suggests that r...
If the process of long run economic adjustment is like a self-regulating thermostat (A:B), how does a decrease in nominal wages (C:?) influence the economy's return to full employment?
When wages go down, it costs less for companies to make things. Other options are incorrect because Some might think lower wages mean people will spen...
If an economy is seen moving from a recessionary output gap back to full employment due to a decrease in resource prices, which of the following is the most likely cause behind this adjustment?
When resource prices go down, it costs less to make things. Other options are incorrect because Some might think that more demand alone fixes the econ...
Which of the following scenarios best illustrates the process of long run economic adjustment in response to a recessionary output gap?
When wages go down, it costs less for businesses to hire workers. Other options are incorrect because Some think that just spending more money can fix...
How does an economy typically self-correct from a recessionary output gap in the long run?
When an economy is in a recession, prices for resources like labor and materials often fall. Other options are incorrect because Some think that just ...
In the long run economic adjustment process, an economy returns to full employment through shifts in the short-run aggregate supply (SRAS) curve due to changes in __________, which can include nominal wages and input costs.
Resource prices, like wages and costs for materials, affect how much businesses can produce. Other options are incorrect because Some might think that...
Which of the following statements accurately describe the process of long run economic adjustment? Select all that apply.
Other options are incorrect because Some people think the economy can fix itself without help; It's a common belief that changing wages affects short-...
After a prolonged recession, an economy begins to recover as firms start hiring more workers due to lower input costs. Which of the following best describes the economic adjustment process occurring in this scenario?
The economy is getting better as businesses hire more people. Other options are incorrect because Some might think that too much government help cause...
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