Scenario: Starting from long-run equilibrium, graphically illustrate and explain what happens to RGDP, the average price level, and unemployment if the cost of labor declines and business expectations decline. 1. Which one of the following best illustrates the effect of a decline in the cost of labor and a decrease in business expectations on the average price level, RGDP, and unemployment.

Price level falls, RGDP remains relatively constant (ambiguous), and unemployment remains relatively constant(ambiguous) RGDP falls, price remains relatively constant (ambiguous), and unemployment rises. Price level falls, RGDP falls, and unemployment rises Price level falls, unemployment rises,and RGDP remains relatively constant (ambiguous) None of the responses are correct

2. The economy is currently in short-run equilibrium but experiencing a recessionary gap. This means that the actual unemployment rate includes the following type(s) of unemployment:

Structural Unemployment

The correct answer does not appear in any of the choices. Cyclical Unemployment Frictional and Structural Unemployment Frictional, Structural and Cyclical Unemployment

3. If the MPC = 0.75, what happens to consumer spending if disposable income increases by $200 billion? What effect would this ultimately have on RGDP?

There is insufficient information to determine the answer for at least one of the questions. Consumer spending increases by $200 billion, and RGDP increases by $800 billion Consumer Spending increases by $75 billion, and RGDP increases by $200 billion Consumer spending increases by $150 billion, and RGDP increases by $600 billion

Consumer spending increases by $200 billion, and RGDP increases by $266.66 billion

4. Given that MPC = 0.80, if consumer spending (C) increases by $200 billion, investment spending (I ) increases by $100 billion, and government spending (G) declines by $50 billion, we would expect RGDP to increase by $1750 billion.

True or False