Question 1

If there is a recession in Europe

Accepted Answer

A) the aggregate demand curve in the United States will shift right. 
B) the aggregate demand curve in the United States will shift left. 
C) the aggregate demand curve in the United States will become steeper. 
D) the aggregate demand curve in the United States will be unaffected. 
A) the aggregate demand curve in the United States will shift right. 
B) the aggregate demand curve in the United States will shift left. 
C) the aggregate demand curve in the United States will become steeper. 
D) the aggregate demand curve in the United States will be unaffected. B

Question 2

Which of the following would shift the aggregate demand curve to the left?

Accepted Answer

A) An increase in the money supply 
B) A cut in federal income taxes 
C) An increase in money demand 
D) An increase in the price level 
A) An increase in the money supply 
B) A cut in federal income taxes 
C) An increase in money demand 
D) An increase in the price level C

Question 3

Which events made the inflation that began in the late 1960s worse?

Accepted Answer

A) The large tax cuts of the early 1970s 
B) The oil supply shocks of the mid-1970s 
C) The large increases in the exchange value of the dollar in the early 1970s 
D) The large reductions in the government spending in the late 1970s 
A) The large tax cuts of the early 1970s 
B) The oil supply shocks of the mid-1970s 
C) The large increases in the exchange value of the dollar in the early 1970s 
D) The large reductions in the government spending in the late 1970s B

Question 4

Which school of thought attributes short-run fluctuations in output primarily to temporary productivity shocks?

Accepted Answer

A) Real business cycle 
B) New Keynesian 
C) New classical 
D) Monetarist 
A) Real business cycle 
B) New Keynesian 
C) New classical 
D) Monetarist

Question 5

Which of the following would cause the long-run aggregate supply curve to shift?

Accepted Answer

A) An increase in the price level 
B) A decrease in the expected price level 
C) An increase in labor productivity 
D) An autonomous increase in consumption spending 
A) An increase in the price level 
B) A decrease in the expected price level 
C) An increase in labor productivity 
D) An autonomous increase in consumption spending

Question 6

In which of the following markets is a producer likely to be a price taker?

Accepted Answer

A) The apple market 
B) The automobile market 
C) The steel market 
D) The college textbook market 
A) The apple market 
B) The automobile market 
C) The steel market 
D) The college textbook market

Question 7

Which of the following statements correctly describes the New Keynesian view of the response of the price level to changes in the money supply?

Accepted Answer

A) The price level is unrelated to the money supply. 
B) The price level increases in proportion to increases in the money supply in the short run. 
C) The price level adjusts slowly to changes in the money supply. 
D) The price level is sticky in the long run, and thus doesn't fully respond to changes in the money supply. 
A) The price level is unrelated to the money supply. 
B) The price level increases in proportion to increases in the money supply in the short run. 
C) The price level adjusts slowly to changes in the money supply. 
D) The price level is sticky in the long run, and thus doesn't fully respond to changes in the money supply.

Question 8

According to the new classical view, when the actual price level is greater than the expected price level

Accepted Answer

A) aggregate output is above the full employment level. 
B) aggregate output is below the full employment level. 
C) the aggregate supply curve will slope downward. 
D) the coefficient a is equal to zero. 
A) aggregate output is above the full employment level. 
B) aggregate output is below the full employment level. 
C) the aggregate supply curve will slope downward. 
D) the coefficient a is equal to zero.

Question 9

Which of the following is most likely to have an impact on the growth of productivity?

Accepted Answer

A) A decrease in the price level 
B) An increase in government regulation of workplace safety 
C) An increase in the labor supply 
D) A decrease in real money balances 
A) A decrease in the price level 
B) An increase in government regulation of workplace safety 
C) An increase in the labor supply 
D) A decrease in real money balances

Question 10

During the years from 1964 to 1969, inflation increased in the United States

Accepted Answer

A) when the AD curve shifted up and to the right, even though the SRAS curve remained stable. 
B) when the SRAS curve shifted up and to the left, even though the AD curve remained stable. 
C) when the AD curve shifted up and to the right and the SRAS curve shifted up and to the left. 
D) despite the AD and SRAS curves remaining stable. 
A) when the AD curve shifted up and to the right, even though the SRAS curve remained stable. 
B) when the SRAS curve shifted up and to the left, even though the AD curve remained stable. 
C) when the AD curve shifted up and to the right and the SRAS curve shifted up and to the left. 
D) despite the AD and SRAS curves remaining stable.

Question 11

Which of the following best describes a price setter?

Accepted Answer

A) Firms in perfect competition 
B) Pricing of products that are not standardized 
C) Firms setting prices equal to the market price 
D) Firms setting price equal to the aggregate price level 
A) Firms in perfect competition 
B) Pricing of products that are not standardized 
C) Firms setting prices equal to the market price 
D) Firms setting price equal to the aggregate price level

Question 12

What does stagflation mean?

Accepted Answer

A) Rising output and falling prices 
B) Falling output and rising prices 
C) Rising output and prices 
D) Falling output and prices 
A) Rising output and falling prices 
B) Falling output and rising prices 
C) Rising output and prices 
D) Falling output and prices

Question 13

In the new Keynesian view a monopolistically competitive firm may fail to increase the price of its product as demand increases because

Accepted Answer

A) if it does so it will lose all of its customers. 
B) the cost to it of changing prices may exceed the benefit of doing so. 
C) prices of monopolistically competitive firms are regulated by the federal government and may only be changed with permission. 
D) for a monopolistically competitive firm, price is below marginal cost. 
A) if it does so it will lose all of its customers. 
B) the cost to it of changing prices may exceed the benefit of doing so. 
C) prices of monopolistically competitive firms are regulated by the federal government and may only be changed with permission. 
D) for a monopolistically competitive firm, price is below marginal cost.

Question 14

Monetary neutrality refers to the fact that changes in the money supply

Accepted Answer

A) affect output more in the long run than in the short run. 
B) have no effect on output in the long run. 
C) affect only output in the long run. 
D) have a greater effect on prices in the short run than in the long run. 
A) affect output more in the long run than in the short run. 
B) have no effect on output in the long run. 
C) affect only output in the long run. 
D) have a greater effect on prices in the short run than in the long run.

Question 15

What does the coefficient a in the new classical expression for short-run aggregate supply represent?

Accepted Answer

A) The full employment level of output 
B) The price level in the previous period 
C) How much output responds when the actual price level differs from the expected price level 
D) How much the price level responds when the actual level of output differs from the full employment level of output 
A) The full employment level of output 
B) The price level in the previous period 
C) How much output responds when the actual price level differs from the expected price level 
D) How much the price level responds when the actual level of output differs from the full employment level of output

Question 16

Suppose that many households look to the stock market to gauge how the economy is likely to perform in the future. When stock prices are rising, then households will be optimistic about the future state of the economy and will increase their spending on houses and consumer durables, such as cars and furniture. When stock prices are falling, then households will be pessimistic about the future and will cut back on their spending. If this view of the link between stock prices and household spending is correct, then what will be the effect of a decline in stock prices on output in the new Keynesian view? Be sure to distinguish the short run from the long run.

Accepted Answer

The fall in stock prices will reduce hou

Question 17

A decrease in the price level will lead to

Accepted Answer

A) a decrease in the real interest rate and an increase in net exports. 
B) an increase in the real interest rate and an increase in net exports. 
C) a decrease in the real interest rate and a decrease in net exports. 
D) an increase in the real interest rate and a decrease in net exports. 
A) a decrease in the real interest rate and an increase in net exports. 
B) an increase in the real interest rate and an increase in net exports. 
C) a decrease in the real interest rate and a decrease in net exports. 
D) an increase in the real interest rate and a decrease in net exports.

Question 18

Which of the following expressions is correct?

Accepted Answer

A) Yd= C + I + G - NX. 
B) Yd = C + I + G + NX. 
C) Yd = C + I + (G - T) + NX. 
D) Yd = C + I + (G - T) - NX. 
A) Yd= C + I + G - NX. 
B) Yd = C + I + G + NX. 
C) Yd = C + I + (G - T) + NX. 
D) Yd = C + I + (G - T) - NX.

Question 19

In the aggregate demand-aggregate supply model, if entrepreneurs become convinced that future profitability of capital has increased,

Accepted Answer

A) current output will fall, but the price level will rise. 
B) current output will rise, but the price level will fall. 
C) current output and the price level will both rise. 
D) current output and the price level will both fall. 
A) current output will fall, but the price level will rise. 
B) current output will rise, but the price level will fall. 
C) current output and the price level will both rise. 
D) current output and the price level will both fall.

Question 20

According to AD-AS model, the primary long-run effect of increases in the money supply is

Accepted Answer

A) higher price level. 
B) higher GDP. 
C) lower price level. 
D) lower GDP. 
A) higher price level. 
B) higher GDP. 
C) lower price level. 
D) lower GDP.

Exam 25: Aggregate Demand and Aggregate Supply

If there is a recession in Europe

Which of the following would shift the aggregate demand curve to the left?

Which events made the inflation that began in the late 1960s worse?

Which school of thought attributes short-run fluctuations in output primarily to temporary productivity shocks?

Which of the following would cause the long-run aggregate supply curve to shift?

In which of the following markets is a producer likely to be a price taker?

Which of the following statements correctly describes the New Keynesian view of the response of the price level to changes in the money supply?

According to the new classical view, when the actual price level is greater than the expected price level

Which of the following is most likely to have an impact on the growth of productivity?

During the years from 1964 to 1969, inflation increased in the United States

Which of the following best describes a price setter?

What does stagflation mean?

In the new Keynesian view a monopolistically competitive firm may fail to increase the price of its product as demand increases because

Monetary neutrality refers to the fact that changes in the money supply

What does the coefficient a in the new classical expression for short-run aggregate supply represent?

A decrease in the price level will lead to

Which of the following expressions is correct?

In the aggregate demand-aggregate supply model, if entrepreneurs become convinced that future profitability of capital has increased,

According to AD-AS model, the primary long-run effect of increases in the money supply is

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters