Question 1

Real business cycle analysis differs from both the new classical and the new Keynesian analyses in holding that

Accepted Answer

A) the aggregate supply curve is vertical even in the short run. 
B) changes in aggregate demand can affect output in the long run. 
C) money is neutral in the long run, but not in the short run. 
D) prices are sticky in the short run. 
A) the aggregate supply curve is vertical even in the short run. 
B) changes in aggregate demand can affect output in the long run. 
C) money is neutral in the long run, but not in the short run. 
D) prices are sticky in the short run.

Question 2

Most economists believe that the aggregate supply curve is

Accepted Answer

A) upward-sloping in the short run, but vertical in the long run. 
B) upward-sloping in the long run, but vertical in the short run. 
C) upward-sloping in both the short run and in the long run. 
D) vertical in both the short run and in the long run. 
A) upward-sloping in the short run, but vertical in the long run. 
B) upward-sloping in the long run, but vertical in the short run. 
C) upward-sloping in both the short run and in the long run. 
D) vertical in both the short run and in the long run.

Question 3

In the spring of 2001 President George W. Bush proposed a substantial tax cut, when he argued it would increase aggregate demand. If the Ricardian equivalence proposition holds, is President Bush's analysis correct? Why might the Ricardian equivalence proposition not hold?

Accepted Answer

If Ricardian equivalence holds, then Pre

Question 4

An increase in the price level reduces net exports because

Accepted Answer

A) it leads indirectly to a higher exchange rate. 
B) it leads indirectly to a lower exchange rate. 
C) it leads indirectly to a lower real interest rate. 
D) it leads directly to higher real money balances. 
A) it leads indirectly to a higher exchange rate. 
B) it leads indirectly to a lower exchange rate. 
C) it leads indirectly to a lower real interest rate. 
D) it leads directly to higher real money balances.

Question 5

If oil prices fall at the same time that the federal government increases its spending, in the short run

Accepted Answer

A) aggregate output and the price level will both increase. 
B) aggregate output will increase, but the price level will fall. 
C) aggregate output and the price level will both fall. 
D) aggregate output will increase, but the price level may either increase or decrease. 
A) aggregate output and the price level will both increase. 
B) aggregate output will increase, but the price level will fall. 
C) aggregate output and the price level will both fall. 
D) aggregate output will increase, but the price level may either increase or decrease.

Question 6

A decrease in the willingness or ability of banks to lend has a significant impact on the economy because

Accepted Answer

A) it causes the short-run aggregate supply curve to shift to the left. 
B) it causes the short-run aggregate supply curve to shift to the right. 
C) some borrowers from banks are unable to borrow from nonmoney markets. 
D) bank profits decline and employment in the banking sector contracts. 
A) it causes the short-run aggregate supply curve to shift to the left. 
B) it causes the short-run aggregate supply curve to shift to the right. 
C) some borrowers from banks are unable to borrow from nonmoney markets. 
D) bank profits decline and employment in the banking sector contracts.

Question 7

A rise in the real interest rate will cause which of the components of aggregate demand to decline?

Accepted Answer

A) Only C 
B) Only C and I 
C) Only C, I, and NX 
D) C, I, G, and NX 
A) Only C 
B) Only C and I 
C) Only C, I, and NX 
D) C, I, G, and NX

Question 8

Which of the following groups of economists think that aggregate supply is vertical in the long run?

Accepted Answer

A) Real business cycle 
B) New Keynesian 
C) New classical 
D) All of the above 
A) Real business cycle 
B) New Keynesian 
C) New classical 
D) All of the above

Question 9

If the coefficient a in the new classical expression for short-run aggregate supply were equal to zero,

Accepted Answer

A) aggregate output would always be at its full-employment level. 
B) the short-run aggregate supply curve would slope down. 
C) the short-run aggregate supply curve would be a horizontal line. 
D) aggregate output would only differ from its full-employment level if the actual price level did not equal the expected price level. 
A) aggregate output would always be at its full-employment level. 
B) the short-run aggregate supply curve would slope down. 
C) the short-run aggregate supply curve would be a horizontal line. 
D) aggregate output would only differ from its full-employment level if the actual price level did not equal the expected price level.

Question 10

An increase in the expected price level

Accepted Answer

A) shifts the short-run aggregate supply curve up and to the left. 
B) shifts the short-run aggregate supply curve down and to the right. 
C) has no effect on the short-run aggregate supply curve. 
D) results in a movement along the short-run aggregate supply curve, rather than a shift in the short-run aggregate supply curve. 
A) shifts the short-run aggregate supply curve up and to the left. 
B) shifts the short-run aggregate supply curve down and to the right. 
C) has no effect on the short-run aggregate supply curve. 
D) results in a movement along the short-run aggregate supply curve, rather than a shift in the short-run aggregate supply curve.

Question 11

In the new Keynesian view, which of the following expressions correctly states the relationship between the price that an individual firm with flexible prices charges and the aggregate price level?

Accepted Answer

A) p = P + b(Y - Y) 
B) P = p + b(Y - Y) 
C) p = P + b(Y + Y) 
D) p = P + b(Y - Y) 
A) p = P + b(Y - Y) 
B) P = p + b(Y - Y) 
C) p = P + b(Y + Y) 
D) p = P + b(Y - Y)

Question 12

Which of the following will NOT shift the aggregate demand curve to the right?

Accepted Answer

A) A decline in the price level 
B) An increase in government expenditures 
C) A decline in money demand 
D) An increase in the money supply 
A) A decline in the price level 
B) An increase in government expenditures 
C) A decline in money demand 
D) An increase in the money supply

Question 13

In the new Keynesian view, which of the following expressions correctly states the relationship between the price that an individual firm with sticky prices charges and the aggregate price level?

Accepted Answer

A) p = Pe + b(Ye- Ye) 
B) Pe = p + b(Ye - Ye) 
C) p = Pe + b(Ye + Y   ) 
D) p = Pe + b(Y   - Ye) 
A) p = Pe + b(Ye- Ye) 
B) Pe = p + b(Ye - Ye) 
C) p = Pe + b(Ye + Y   ) 
D) p = Pe + b(Y   - Ye)

Question 14

An argument in support of hysteresis is

Accepted Answer

A) companies may be reluctant to hire workers until AD increases 
B) prices are sticky in the short run 
C) the skills of unemployed workers may deteriorate making it more difficult to find a job 
D) overlapping wage contracts 
A) companies may be reluctant to hire workers until AD increases 
B) prices are sticky in the short run 
C) the skills of unemployed workers may deteriorate making it more difficult to find a job 
D) overlapping wage contracts

Question 15

The existence of cost of living adjustments in many wage contracts

Accepted Answer

A) assures that these wages fully adjust to aggregate nominal disturbances. 
B) results in these wages being completely rigid. 
C) does not result in these wages fully adjusting to aggregate nominal disturbances. 
D) is being phased out under recent federal legislation. 
A) assures that these wages fully adjust to aggregate nominal disturbances. 
B) results in these wages being completely rigid. 
C) does not result in these wages fully adjusting to aggregate nominal disturbances. 
D) is being phased out under recent federal legislation.

Question 16

The difference between the Keynesian and new Keynesian approaches to the short-run aggregate supply curve is that

Accepted Answer

A) Keynesians assumed that the short-run aggregate supply curve was vertical or nearly vertical, while new Keynesians assume that it is nearly horizontal. 
B) Keynesians focused on the difference between the actual and expected price levels, whereas new Keynesians believe this difference to be unimportant. 
C) Keynesians believed that aggregate demand was more important than aggregate supply, whereas new Keynesians believe the reverse. 
D) Keynesians assumed that the short-run aggregate supply curve was horizontal or nearly horizontal, whereas new Keynesians have provided economic explanations for price stickiness. 
A) Keynesians assumed that the short-run aggregate supply curve was vertical or nearly vertical, while new Keynesians assume that it is nearly horizontal. 
B) Keynesians focused on the difference between the actual and expected price levels, whereas new Keynesians believe this difference to be unimportant. 
C) Keynesians believed that aggregate demand was more important than aggregate supply, whereas new Keynesians believe the reverse. 
D) Keynesians assumed that the short-run aggregate supply curve was horizontal or nearly horizontal, whereas new Keynesians have provided economic explanations for price stickiness.

Question 17

If in the short run prices did not respond at all to changes in aggregate demand, the short-run aggregate supply curve would

Accepted Answer

A) be vertical. 
B) be horizontal. 
C) slope up. 
D) slope down. 
A) be vertical. 
B) be horizontal. 
C) slope up. 
D) slope down.

Question 18

Which of the following is NOT included in aggregate demand?

Accepted Answer

A) Demand for goods and services for consumption 
B) Investment in business plant and equipment 
C) Net exports 
D) Investment in Treasury bonds 
A) Demand for goods and services for consumption 
B) Investment in business plant and equipment 
C) Net exports 
D) Investment in Treasury bonds

Question 19

Most economists believe that the short-run aggregate supply curve

Accepted Answer

A) slopes down. 
B) slopes up. 
C) is a vertical line. 
D) is a horizontal line. 
A) slopes down. 
B) slopes up. 
C) is a vertical line. 
D) is a horizontal line.

Question 20

In the aggregate demand-aggregate supply model, if firms expect businesses taxes to rise

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.

Exam 25: Aggregate Demand and Aggregate Supply

Real business cycle analysis differs from both the new classical and the new Keynesian analyses in holding that

Most economists believe that the aggregate supply curve is

In the spring of 2001 President George W. Bush proposed a substantial tax cut, when he argued it would increase aggregate demand. If the Ricardian equivalence proposition holds, is President Bush's analysis correct? Why might the Ricardian equivalence proposition not hold?

An increase in the price level reduces net exports because

If oil prices fall at the same time that the federal government increases its spending, in the short run

A decrease in the willingness or ability of banks to lend has a significant impact on the economy because

A rise in the real interest rate will cause which of the components of aggregate demand to decline?

Which of the following groups of economists think that aggregate supply is vertical in the long run?

If the coefficient a in the new classical expression for short-run aggregate supply were equal to zero,

An increase in the expected price level

In the new Keynesian view, which of the following expressions correctly states the relationship between the price that an individual firm with flexible prices charges and the aggregate price level?

Which of the following will NOT shift the aggregate demand curve to the right?

In the new Keynesian view, which of the following expressions correctly states the relationship between the price that an individual firm with sticky prices charges and the aggregate price level?

An argument in support of hysteresis is

The existence of cost of living adjustments in many wage contracts

The difference between the Keynesian and new Keynesian approaches to the short-run aggregate supply curve is that

If in the short run prices did not respond at all to changes in aggregate demand, the short-run aggregate supply curve would

Which of the following is NOT included in aggregate demand?

Most economists believe that the short-run aggregate supply curve

In the aggregate demand-aggregate supply model, if firms expect businesses taxes to rise

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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