4. Referring to the Figure 1, assume that, at first, the labor market is in equilibrium at point 4. Then, demand shifts to pass through point 3, and the real wage adjusts to the new equilibrium. _______ is _______ at the new equilibrium, compared to the original equilibrium.

(A) unemployment; larger
(B) unemployment; smaller
(C) the labor force; smaller
(D) employment; larger

5. On the Figure 2, movement from point to point might occur if there is a negative demand shock, followed by updating of expected inflation. (A) F; G (B) H; I (C) H; F (D) F; H (E) none of the above

6. On the Figure 2, suppose point G is on the short-run aggregate supply curve π = 2.5 + 2*(Y - 22) and aggregate demand curve Y = 29.25 - 0.5π. If output at point G is 25, and inflation expectations are adaptive, then the inflation rate next period will be (A) 11.5 (B) 14.5 (C) 8.5 (D) 2.5 (E) none of the above

7. In the Figure 3, assume that output is $10.5 trillion, while potential output is $12 trillion. If there is no policy intervention, we should expect _________. (A) rightward shifts of IS & AD, so that both output and inflation rise (B) a decrease in inflation to shift the MP curve, raising the real interest rate (C) declines in both the inflation rate and the real interest rate as output rises (D) a decrease in inflation to shift the AD curve, causing output to rise (E) none of the above

8. In the Figure 3, assume that output is $10.5 trillion, while potential output is $12 trillion. If a fiscal stimulus package is implemented quickly, raising output to $12 trillion, while inflation remains constant at one percent, then the figure implies that the real interest rate will be _________ percent. (A) 1.5 (B) 0 (C) 1 (D) 0.5 (E) 2.5

9. In the Figure 3, assume that output is $10.5 trillion, while potential output is $12 trillion. If autonomous monetary policy (alone) is used to bring output to $12 trillion, then the figure implies that the real interest rate will be _________ percent, and the inflation rate will be one percent. (A) 1.5 (B) 0 (C) 1 (D) 0.5 (E) 2.5

10. In the Figure 3, assume that output is $10.5 trillion, while potential output is $12 trillion. Suppose that a combination of fiscal stimulus and recovery of consumer and business confidence shifts the IS and AD curves, as shown in the figure, while monetary policy sets the real interest rate at one percent. If the short-run aggregate supply curve is $\pi = \frac{4}{3}Y - 13$, then the resulting values of output and inflation are ________. (A) $12 trillion & 3 percent (B) $13.5 trillion & 5 percent (C) $9.75 trillion & 0 percent (D) $13.5 trillion & 0 percent (E) $12.5 trillion & 2 percent

1. Refer to Figure 4. Which of the following shows a decrease in the price of capital while the price of labor remains unchanged? (A) The movement from \( AF \) to \( BF \) (B) The movement from \( {BF} \) to \( {AF} \) (C) The movement from \( {BF} \) to \( {BD} \) (D) The movement from \( {BF} \) to \( {CE} \)

2. Refer to Figure 4. A movement from CE to BD occurs when (A) The price of capital increases while the price of labor remains unchanged. (B)The price of labor decreases while the price of capital remains unchanged. (C)The price of capital increases while the price of labor decreases. (D) The price of capital decreases while the price of labor increases.

3. Refer to Figure 4. The price of labor is $50 per unit, then along the isocost AF, the total cost (A) is $500. (B) is $750. (C) is $1,250. (D) cannot be determined without the price of capital.

4. Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor? (A) The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact. (B) The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion. (C) The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same. (D) The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.

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