Question 1

The result of the supply shocks of 1973-1974 was to

Accepted Answer

A) reduce aggregate output and raise the price level. 
B) reduce the price level and raise aggregate output. 
C) reduce both aggregate output and the price level. 
D) raise both aggregate output and the price level. 
A) reduce aggregate output and raise the price level. 
B) reduce the price level and raise aggregate output. 
C) reduce both aggregate output and the price level. 
D) raise both aggregate output and the price level.

Question 2

According to the new classical approach to the aggregate supply curve, the aggregate supply curve slopes upward because

Accepted Answer

A) increases in the price level result in lower real balances. 
B) higher current output results in higher desired investment. 
C) higher prices result in higher levels of spending as consumers attempt to stay ahead of inflation. 
D) businesses have difficulty in distinguishing relative price increases from general price increases. 
A) increases in the price level result in lower real balances. 
B) higher current output results in higher desired investment. 
C) higher prices result in higher levels of spending as consumers attempt to stay ahead of inflation. 
D) businesses have difficulty in distinguishing relative price increases from general price increases.

Question 3

Analyze the following statement: "I know the fact that prices have started to rise rapidly seems like bad news, but at least prices starting to go up means that output must be starting to go up as well."

Accepted Answer

If the increase in the price level is du

Question 4

The aggregate demand curve illustrates the relationship between

Accepted Answer

A) the aggregate demand for goods and services, and the real interest rate. 
B) the aggregate demand for goods and services, and the level of current output. 
C) the level of current output and the real interest rate. 
D) the aggregate demand for goods and services, and the aggregate price level. 
A) the aggregate demand for goods and services, and the real interest rate. 
B) the aggregate demand for goods and services, and the level of current output. 
C) the level of current output and the real interest rate. 
D) the aggregate demand for goods and services, and the aggregate price level.

Question 5

In the aggregate demand-aggregate supply model, if the Federal Reserve decides to decrease the nominal money supply,

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 6

An increase in oil prices will shift the short-run aggregate supply curve

Accepted Answer

A) up and to the left, causing the level of current output to fall. 
B) up and to the left, causing the level of current output to rise. 
C) down and to the right, causing the level of current output to rise. 
D) down and to the right, causing the level of current output to fall. 
A) up and to the left, causing the level of current output to fall. 
B) up and to the left, causing the level of current output to rise. 
C) down and to the right, causing the level of current output to rise. 
D) down and to the right, causing the level of current output to fall.

Question 7

An important difference between the new classical and new Keynesians views is that new classicals

Accepted Answer

A) assume that all firms are price takers, but new Keynesians assume that some firms are price setters. 
B) take into account the existence of long-term nominal wage and price contracts, but new Keynesians do not believe they are important. 
C) focus on the importance of investment spending, but new Keynesians believe that government spending is more important. 
D) believe that the aggregate supply curve is horizontal, even in the short run, but new Keynesians believe that the aggregate supply curve slopes upward in the short run. 
A) assume that all firms are price takers, but new Keynesians assume that some firms are price setters. 
B) take into account the existence of long-term nominal wage and price contracts, but new Keynesians do not believe they are important. 
C) focus on the importance of investment spending, but new Keynesians believe that government spending is more important. 
D) believe that the aggregate supply curve is horizontal, even in the short run, but new Keynesians believe that the aggregate supply curve slopes upward in the short run.

Question 8

The new classical explanation of aggregate supply in the short run builds on research by

Accepted Answer

A) Irving Fisher. 
B) John Maynard Keynes. 
C) Robert Lucas. 
D) Robert Solow. 
A) Irving Fisher. 
B) John Maynard Keynes. 
C) Robert Lucas. 
D) Robert Solow.

Question 9

When output is below its full-employment level, the short-run aggregate supply will shift down and to the right because

Accepted Answer

A) the expected price level will be below the actual price level. 
B) workers' wages will decline. 
C) prices of nonlabor inputs will rise. 
D) workers' wages will rise. 
A) the expected price level will be below the actual price level. 
B) workers' wages will decline. 
C) prices of nonlabor inputs will rise. 
D) workers' wages will rise.

Question 10

A monopolistically competitive market differs from a perfectly competitive market in that a monopolistically competitive market has

Accepted Answer

A) more sellers. 
B) products that are identical. 
C) less sticky prices. 
D) firms that are price setters. 
A) more sellers. 
B) products that are identical. 
C) less sticky prices. 
D) firms that are price setters.

Question 11

The best explanation of why the aggregate demand curve has a negative slope is that

Accepted Answer

A) at a higher price level households cut back on their spending on goods and services. 
B) at a higher price level business firms wish to produce more goods and services. 
C) a higher price level results in lower real balances and a higher real interest rate. 
D) a higher price level results in less government spending on transfers, such as unemployment insurance and social security payments. 
A) at a higher price level households cut back on their spending on goods and services. 
B) at a higher price level business firms wish to produce more goods and services. 
C) a higher price level results in lower real balances and a higher real interest rate. 
D) a higher price level results in less government spending on transfers, such as unemployment insurance and social security payments.

Question 12

Which of the following would NOT shift the aggregate demand curve to the left?

Accepted Answer

A) An increase in money demand 
B) A cut in federal government spending 
C) An increase in the money supply 
D) A decrease in consumption spending 
A) An increase in money demand 
B) A cut in federal government spending 
C) An increase in the money supply 
D) A decrease in consumption spending

Question 13

The new classical explanation of aggregate supply is also known as

Accepted Answer

A) Monetarism. 
B) Keynesianism. 
C) the misperception theory. 
D) the adaptive expectations theory. 
A) Monetarism. 
B) Keynesianism. 
C) the misperception theory. 
D) the adaptive expectations theory.

Question 14

The key concept in the new classical approach to the aggregate supply curve is

Accepted Answer

A) the impact of imperfect information on business decisions. 
B) the impact of changes in the price level on real balances. 
C) the inverse relationship between the real interest rate and desired investment spending. 
D) the crowding out of investment spending by government spending. 
A) the impact of imperfect information on business decisions. 
B) the impact of changes in the price level on real balances. 
C) the inverse relationship between the real interest rate and desired investment spending. 
D) the crowding out of investment spending by government spending.

Question 15

Which of the following statements is correct?

Accepted Answer

A) New classicals believe that the aggregate supply curve is vertical in the short run. 
B) New Keynesians believe that the aggregate supply curve is vertical in the short run. 
C) New Keynesians believe that the aggregate supply curve slopes upward in the long run. 
D) New classicals believe that the aggregate supply curve slopes upward in the short run. 
A) New classicals believe that the aggregate supply curve is vertical in the short run. 
B) New Keynesians believe that the aggregate supply curve is vertical in the short run. 
C) New Keynesians believe that the aggregate supply curve slopes upward in the long run. 
D) New classicals believe that the aggregate supply curve slopes upward in the short run.

Question 16

On what do economists place the blame for the persistent increases in the price level that began in the late 1960s?

Accepted Answer

A) The government's decision not to raise taxes to finance the Vietnam war 
B) The deep recession that began in 1969 
C) The Federal Reserve's failure to keep interest rates low 
D) The slowdown in productivity growth 
A) The government's decision not to raise taxes to finance the Vietnam war 
B) The deep recession that began in 1969 
C) The Federal Reserve's failure to keep interest rates low 
D) The slowdown in productivity growth

Question 17

Most economists believe that changes in the price level have

Accepted Answer

A) no effect on the quantity of output supplied in either the short run or the long run. 
B) an effect on the quantity of output supplied in the short run, but not in the long run. 
C) an effect on the quantity of output supplied in the long run, but not in the short run. 
D) an effect on the quantity of output supplied in both the short run and the long run. 
A) no effect on the quantity of output supplied in either the short run or the long run. 
B) an effect on the quantity of output supplied in the short run, but not in the long run. 
C) an effect on the quantity of output supplied in the long run, but not in the short run. 
D) an effect on the quantity of output supplied in both the short run and the long run.

Question 18

When output exceeds its full-employment level,

Accepted Answer

A) the short-run aggregate supply function shifts up. 
B) wages fall. 
C) the short-run aggregate supply function shifts down. 
D) aggregate supply exceeds aggregate demand. 
A) the short-run aggregate supply function shifts up. 
B) wages fall. 
C) the short-run aggregate supply function shifts down. 
D) aggregate supply exceeds aggregate demand.

Question 19

The new classical approach to the aggregate supply curve assumes that businesses are

Accepted Answer

A) better informed about the general price level than they are about prices in their own markets. 
B) better informed about prices in their own markets than they are about the general price level. 
C) equally well informed about prices in their own markets and the general price level. 
D) reluctant to engage in investment spending because of a lack of information concerning future prices. 
A) better informed about the general price level than they are about prices in their own markets. 
B) better informed about prices in their own markets than they are about the general price level. 
C) equally well informed about prices in their own markets and the general price level. 
D) reluctant to engage in investment spending because of a lack of information concerning future prices.

Question 20

Expansionary shifts of the aggregate demand curve

Accepted Answer

A) can originate in either the assets market or the goods market. 
B) can originate in the assets market, but not the goods market. 
C) can originate in the goods market, but not the assets market. 
D) cannot originate in either the assets market or the goods market. 
A) can originate in either the assets market or the goods market. 
B) can originate in the assets market, but not the goods market. 
C) can originate in the goods market, but not the assets market. 
D) cannot originate in either the assets market or the goods market.

Exam 25: Aggregate Demand and Aggregate Supply

The result of the supply shocks of 1973-1974 was to

According to the new classical approach to the aggregate supply curve, the aggregate supply curve slopes upward because

Analyze the following statement: "I know the fact that prices have started to rise rapidly seems like bad news, but at least prices starting to go up means that output must be starting to go up as well."

The aggregate demand curve illustrates the relationship between

In the aggregate demand-aggregate supply model, if the Federal Reserve decides to decrease the nominal money supply,

An increase in oil prices will shift the short-run aggregate supply curve

An important difference between the new classical and new Keynesians views is that new classicals

The new classical explanation of aggregate supply in the short run builds on research by

When output is below its full-employment level, the short-run aggregate supply will shift down and to the right because

A monopolistically competitive market differs from a perfectly competitive market in that a monopolistically competitive market has

The best explanation of why the aggregate demand curve has a negative slope is that

Which of the following would NOT shift the aggregate demand curve to the left?

The new classical explanation of aggregate supply is also known as

The key concept in the new classical approach to the aggregate supply curve is

Which of the following statements is correct?

On what do economists place the blame for the persistent increases in the price level that began in the late 1960s?

Most economists believe that changes in the price level have

When output exceeds its full-employment level,

The new classical approach to the aggregate supply curve assumes that businesses are

Expansionary shifts of the aggregate demand curve

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

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