Greater; increase
Smaller; increase
Greater; decrease
Smaller; decrease
Some firms do not adjust their prices instantly to changes in demand.
Expectations are formed adaptively rather than rationally.
Firms confuse changes in the overall level of prices with changes in relative prices.
The real wage adjusts to bring labor supply and labor demand into equilibrium.
The proportion of firms with flexible prices.
The target real wage rate.
The target nominal wage rate.
The implicit agreements between workers and firms.
Firms expect a high price level and the demand for goods is high.
The proportion of firms with flexible prices equals the proportion of firms with sticky prices.
The price level equals the expected price level.
Expectations are formed adaptively, but not if expectations are formed rationally
Positively associated with
Negatively associated with
Not related to
Equal to
Increases production.
Does not change production.
Decreases production.
Hires more workers.
Increases production.
Does not change production.
Decreases production.
Hires more workers.
Be greater than
Be less than
Equal to
Shift the
Exceeds the
Falls below the
Equals the
Moves to a different
Increase; increase
Increase; decrease
Decrease; decrease
Decrease; increase
Greater than the expected price level.
Less than the expected price level.
Equal to the natural price level.
Stuck at the existing price level.
Unemployment level.
Expected price level.
Inflation level.
Output level.
An increase in the price level.
A decrease in the level of output.
An increase in the expected price level.
A decrease in the price level.
A to B.
A to G.
A to C.
A to D.
A to B.
A to G.
A to C.
A to D.
Flat.
Steep.
Backward-bending.
Unrelated to the slope of the short-run aggregate supply curve.
Sticky wages; sticky prices
Sticky prices; sticky wages
Output; unemployment
Unemployment; output
Aggregate demand curve.
Short-run aggregate supply curve.
Long-run aggregate supply curve.
Aggregate demand and short-run aggregate supply curves.
AD1 to AD2.
AD1 to AD3.
AS1 to AS2.
AS1 to AS3.
AD1 to AD2.
AD1 to AD3.
AS1 to AS2.
AS1 to AS3.
Exceeds the inflation rate.
Equals the inflation rate.
Is below the inflation rate.
Equals the inflation rate of the previous year.
The same tradeoff between inflation and unemployment.
A lower rate of inflation for any level of unemployment.
A higher rate of inflation for any level of unemployment.
Higher than expected inflation rates and lower unemployment rates.
The expected rate of inflation is unchanged at every level of unemployment.
There is a lower-expected rate of inflation at every level of unemployment.
There is a higher-expected rate of inflation for every level of unemployment.
The natural rate of unemployment falls.
Aggregate demand in the short run, but not in the long run.
Aggregate demand in the long run, but not in the short run.
The natural rate of unemployment in the short run, but the natural rate of inflation in the long run.
The natural rate of inflation in the short run, but the natural rate of unemployment in the long run.
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