Question 1

In the view of the Classical economists, a increase in aggregate demand leads to

Accepted Answer

A)  lower output levels. 
B)  a higher price level. 
C)  higher output levels. 
D)  a lower price level. 
A)  lower output levels. 
B)  a higher price level. 
C)  higher output levels. 
D)  a lower price level. B

Question 2

In the Classical view, the money supply determines

Accepted Answer

A)  interest rates. 
B)  the saving rate. 
C)  aggregate supply. 
D)  the price level. 
A)  interest rates. 
B)  the saving rate. 
C)  aggregate supply. 
D)  the price level. D

Question 3

Assume that consumption spending is equal to $600, government spending is $100 billion, and GDP is $800 billion. If net exports are equal to zero, investment spending must be

Accepted Answer

A)  $700 billion. 
B)  $600 billion. 
C)  $500 billion. 
D)  $100 billion. 
A)  $700 billion. 
B)  $600 billion. 
C)  $500 billion. 
D)  $100 billion. D

Question 4

What is Y - C equal to?

Accepted Answer

A)  S 
B)  S + T 
C)  I + G 
D)  T 
A)  S 
B)  S + T 
C)  I + G 
D)  T

Question 5

In an economy without government or a foreign sector the equilibrium level of output occurs when

Accepted Answer

A)  actual saving equals actual investment. 
B)  actual saving equals desired investment. 
C)  desired saving equals desired investment. 
D)  desired saving equals actual investment. 
A)  actual saving equals actual investment. 
B)  actual saving equals desired investment. 
C)  desired saving equals desired investment. 
D)  desired saving equals actual investment.

Question 6

In the Classical model, a decrease in the money supply __________ the real GDP and __________ the price level.

Accepted Answer

A)  leaves unchanged; leaves unchanged 
B)  leaves unchanged; lowers 
C)  lowers; lowers 
D)  lowers; leaves unchanged 
A)  leaves unchanged; leaves unchanged 
B)  leaves unchanged; lowers 
C)  lowers; lowers 
D)  lowers; leaves unchanged

Question 7

Modern Monetarists argue that the velocity of money is

Accepted Answer

A)  constant. 
B)  the inverse of the money multiplier. 
C)  unmeasurable. 
D)  predictable. 
A)  constant. 
B)  the inverse of the money multiplier. 
C)  unmeasurable. 
D)  predictable.

Question 8

The price level is 3, total output is 500, and the money supply is 200. The velocity of money is

Accepted Answer

A)  7.5. 
B)  2.5. 
C)  2.0. 
D)  None of the above. 
A)  7.5. 
B)  2.5. 
C)  2.0. 
D)  None of the above.

Question 9

Which of the following is not a factor in the equation of exchange?

Accepted Answer

A)  Money velocity 
B)  Money supply 
C)  The price level 
D)  Nominal income 
A)  Money velocity 
B)  Money supply 
C)  The price level 
D)  Nominal income

Question 10

According to Classical economists, investment is __________ related to the __________.

Accepted Answer

A)  directly; interest rate 
B)  directly; level of GDP 
C)  inversely; interest rate 
D)  inversely; level of GDP 
A)  directly; interest rate 
B)  directly; level of GDP 
C)  inversely; interest rate 
D)  inversely; level of GDP

Question 11

In the Classical system, the total output of goods and services and total employment are determined by all of the following except

Accepted Answer

A)  the interest rate. 
B)  the labor force. 
C)  the supply of capital. 
D)  existing technology. 
A)  the interest rate. 
B)  the labor force. 
C)  the supply of capital. 
D)  existing technology.

Question 12

In the Classical model, the aggregate supply curve determines the

Accepted Answer

A)  price level. 
B)  inflation rate. 
C)  level of output. 
D)  money supply. 
A)  price level. 
B)  inflation rate. 
C)  level of output. 
D)  money supply.

Question 13

According to rational expectations theory,

Accepted Answer

A)  increasing the money supply to reduce unemployment will always be successful. 
B)  decreasing the money supply to reduce unemployment will usually be successful. 
C)  increasing the money supply to reduce unemployment will not be successful because of an offsetting decrease in prices. 
D)  increasing the money supply to reduce unemployment will not be successful because of an offsetting increase in prices. 
A)  increasing the money supply to reduce unemployment will always be successful. 
B)  decreasing the money supply to reduce unemployment will usually be successful. 
C)  increasing the money supply to reduce unemployment will not be successful because of an offsetting decrease in prices. 
D)  increasing the money supply to reduce unemployment will not be successful because of an offsetting increase in prices.

Question 14

In the Classical model, a decrease in saving will result in saving being __________ than investment which will cause the interest rate to __________.

Accepted Answer

A)  greater; rise 
B)  greater; fall 
C)  less; rise 
D)  less; fall 
A)  greater; rise 
B)  greater; fall 
C)  less; rise 
D)  less; fall

Question 15

What is Y - S equal to?

Accepted Answer

A)  I 
B)  C - T 
C)  I + G 
D)  C 
A)  I 
B)  C - T 
C)  I + G 
D)  C

Question 16

Which of the following ensures full employment in the Classical model?

Accepted Answer

A)  Wage and price flexibility 
B)  The equation of exchange 
C)  Inventory adjustment 
D)  Constant velocity 
A)  Wage and price flexibility 
B)  The equation of exchange 
C)  Inventory adjustment 
D)  Constant velocity

Question 17

In an economy with no government or foreign sector, which of the following always holds true, ex-post?

Accepted Answer

A)  Consumption equals investment. 
B)  Velocity equals money demand. 
C)  Saving equals consumption. 
D)  Saving equals investment. 
A)  Consumption equals investment. 
B)  Velocity equals money demand. 
C)  Saving equals consumption. 
D)  Saving equals investment.

Question 18

According to Classical interest rate theory, rising interest rates will

Accepted Answer

A)  increase the demand for money. 
B)  decrease the demand for money. 
C)  increase investment expenditures. 
D)  increase the saving rate. 
A)  increase the demand for money. 
B)  decrease the demand for money. 
C)  increase investment expenditures. 
D)  increase the saving rate.

Question 19

If the inflation rate is 5 percent and the real rate of interest is 3 percent, the nominal interest rate is

Accepted Answer

A)  8 percent. 
B)  5 percent. 
C)  3 percent. 
D)  2 percent. 
A)  8 percent. 
B)  5 percent. 
C)  3 percent. 
D)  2 percent.

Question 20

In the Classical system, the interest rate is determined by all of the following except

Accepted Answer

A)  the thriftiness of the public. 
B)  the money supply. 
C)  the productivity of capital. 
D)  investment. 
A)  the thriftiness of the public. 
B)  the money supply. 
C)  the productivity of capital. 
D)  investment.

Exam 22: The Classical Foundations

In the view of the Classical economists, a increase in aggregate demand leads to

In the Classical view, the money supply determines

Assume that consumption spending is equal to $600, government spending is $100 billion, and GDP is $800 billion. If net exports are equal to zero, investment spending must be

What is Y - C equal to?

In an economy without government or a foreign sector the equilibrium level of output occurs when

In the Classical model, a decrease in the money supply __________ the real GDP and __________ the price level.

Modern Monetarists argue that the velocity of money is

The price level is 3, total output is 500, and the money supply is 200. The velocity of money is

Which of the following is not a factor in the equation of exchange?

According to Classical economists, investment is __________ related to the __________.

In the Classical system, the total output of goods and services and total employment are determined by all of the following except

In the Classical model, the aggregate supply curve determines the

According to rational expectations theory,

In the Classical model, a decrease in saving will result in saving being __________ than investment which will cause the interest rate to __________.

What is Y - S equal to?

Which of the following ensures full employment in the Classical model?

In an economy with no government or foreign sector, which of the following always holds true, ex-post?

According to Classical interest rate theory, rising interest rates will

If the inflation rate is 5 percent and the real rate of interest is 3 percent, the nominal interest rate is

In the Classical system, the interest rate is determined by all of the following except

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

Bank Reserves and the Money Supply

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

In the Classical model, a decrease in the money supply the real GDP and the price level.

According to Classical economists, investment is related to the .

In the Classical model, a decrease in saving will result in saving being than investment which will cause the interest rate to .