The aggregate demand/aggregate supply model helps us to understand key ______ variables.

Suppose the economy is operating below potential output. If policy makers try to avoid a budget deficit by raising taxes or reducing government spending, these actions would

A) make a recession worse. B) increase inflation. C) negate the multiplier effect. D) help pull an economy out of a depression.

The number of job seekers in any sector of the economy ordinarily exceeds, by at least a small amount, the number of jobs available. Thus, employers

A) could increase their net revenue by lowering wages. B) could increase their net revenue by raising wages. C) do not pay close attention to marginal cost and marginal revenue in setting wages. D) face the threat of unionization. E) want employees to value their current jobs significantly more highly than they value alternative jobs.