Question 1

In an AD-AS diagram with an upward-sloping AS-curve, an increase in money supply will

Accepted Answer

A) increase output and the price level but not affect the interest rate 
B) increase output, the price level, and the interest rate 
C) increase output and the price level but lower the interest rate 
D) decrease the interest rate, increase the price level, but leave output unchanged 
E) increase the price level but leave output and the interest rate unchanged 
A) increase output and the price level but not affect the interest rate 
B) increase output, the price level, and the interest rate 
C) increase output and the price level but lower the interest rate 
D) decrease the interest rate, increase the price level, but leave output unchanged 
E) increase the price level but leave output and the interest rate unchanged C

Question 2

Most economists prior to Keynes thought that

Accepted Answer

A) unemployment could be eliminated by active fiscal policies 
B) the economy always adjusted rapidly to full employment 
C) the economy always adjusted to a natural rate of inflation 
D) monetary policy could be employed to eliminate the business cycle 
E) government intervention was needed to avoid persistent unemployment 
A) unemployment could be eliminated by active fiscal policies 
B) the economy always adjusted rapidly to full employment 
C) the economy always adjusted to a natural rate of inflation 
D) monetary policy could be employed to eliminate the business cycle 
E) government intervention was needed to avoid persistent unemployment B

Question 3

The slope of the AS-curve becomes steeper

Accepted Answer

A) as nominal wages become more flexible 
B) as nominal wages become more rigid 
C) as the actual level of output moves further away from potential output 
D) as the economy approaches full employment 
E) both A and D 
A) as nominal wages become more flexible 
B) as nominal wages become more rigid 
C) as the actual level of output moves further away from potential output 
D) as the economy approaches full employment 
E) both A and D E

Question 4

Supply-side economics involves policy measures designed to

Accepted Answer

A) encourage technological progress 
B) remove unnecessary government regulations 
C) give investment tax credits to stimulate specific capital investments 
D) all of the above 
E) none of the above 
A) encourage technological progress 
B) remove unnecessary government regulations 
C) give investment tax credits to stimulate specific capital investments 
D) all of the above 
E) none of the above

Question 5

If factor markets were perfectly competitive, then full employment would be the normal condition and

Accepted Answer

A) inflation would always be zero 
B) output would rise steadily with price increases 
C) there would never be any reason for prices to change 
D) the AS-curve would be horizontal 
E) the AS-curve would be vertical 
A) inflation would always be zero 
B) output would rise steadily with price increases 
C) there would never be any reason for prices to change 
D) the AS-curve would be horizontal 
E) the AS-curve would be vertical

Question 6

In the classical supply curve case, monetary expansion will

Accepted Answer

A) increase P, lower i, and leave Y unchanged 
B) increase Y, lower i, and leave P unchanged 
C) leave Y and i unchanged but increase P 
D) leave Y, i, and P unchanged 
E) increase Y, i, and P 
A) increase P, lower i, and leave Y unchanged 
B) increase Y, lower i, and leave P unchanged 
C) leave Y and i unchanged but increase P 
D) leave Y, i, and P unchanged 
E) increase Y, i, and P

Question 7

Which of the following was NOT true during the Great Depression?

Accepted Answer

A) investment as a share of GDP was below 3 percent 
B)  unemployment averaged about 18.8 percent 
C)  prices dropped by one-fourth 
D) output fell by nearly 30 percent 
E) both B and C 
A) investment as a share of GDP was below 3 percent 
B)  unemployment averaged about 18.8 percent 
C)  prices dropped by one-fourth 
D) output fell by nearly 30 percent 
E) both B and C

Question 8

Given the Keynesian AS-curve, expansionary monetary policy will

Accepted Answer

A) increase the level of output but leave the price level unchanged 
B) increase the price level but leave the level of output unchanged 
C) increase both the level of output and the price level 
D) leave the level of output and the price level unchanged 
E) increase the level of output but decrease the price level 
A) increase the level of output but leave the price level unchanged 
B) increase the price level but leave the level of output unchanged 
C) increase both the level of output and the price level 
D) leave the level of output and the price level unchanged 
E) increase the level of output but decrease the price level

Question 9

The Keynesian AS-curve implies that

Accepted Answer

A) the economy is always at the full-employment level of output 
B) the price level is unaffected by current levels of GDP 
C) wages are perfectly flexible 
D) real money balances decrease as the AD-curve shifts to the right 
E) an increase in nominal money supply will not affect the level of real GDP 
A) the economy is always at the full-employment level of output 
B) the price level is unaffected by current levels of GDP 
C) wages are perfectly flexible 
D) real money balances decrease as the AD-curve shifts to the right 
E) an increase in nominal money supply will not affect the level of real GDP

Question 10

If restrictive monetary policy leads to a lower price level but leaves real output, employment, and real interest rates unchanged, then

Accepted Answer

A) real money balances must be unchanged 
B) it must have been accompanied by expansionary fiscal policy 
C) it must have been accompanied by restrictive fiscal policy 
D) money is said to be neutral 
E) both 
A) and 
D)  
A) real money balances must be unchanged 
B) it must have been accompanied by expansionary fiscal policy 
C) it must have been accompanied by restrictive fiscal policy 
D) money is said to be neutral 
E) both 
A) and 
D)

Question 11

To maintain a fixed level of aggregate demand, a central bank would have to respond to a tax increase by

Accepted Answer

A) increasing reserve requirements for banks 
B) restricting money supply 
C) buying bonds in the open market 
D) selling bonds in the open market 
E) both A and B 
A) increasing reserve requirements for banks 
B) restricting money supply 
C) buying bonds in the open market 
D) selling bonds in the open market 
E) both A and B

Question 12

The natural rate of unemployment is

Accepted Answer

A) always zero 
B) the unemployment rate that exists when inflation is zero 
C) the unemployment rate that exists when output is assumed to be at its full-employment level 
D) the unemployment rate that exists above frictional unemployment 
E) none of the above 
A) always zero 
B) the unemployment rate that exists when inflation is zero 
C) the unemployment rate that exists when output is assumed to be at its full-employment level 
D) the unemployment rate that exists above frictional unemployment 
E) none of the above

Question 13

The AS-curve is horizontal or very flat if

Accepted Answer

A) additional resources (especially labor)can be hired to produce additional output with little or no increase in existing prices 
B) wages fall rapidly with an increase in unemployment, reducing spending and income to restore equilibrium 
C) firms lower wages less than prices to avoid a loss in profit during a recession 
D) the nominal wage adjustment occurs fairly rapidly 
E) nominal wages and prices always change proportionally, leaving the real wage rate unchanged 
A) additional resources (especially labor)can be hired to produce additional output with little or no increase in existing prices 
B) wages fall rapidly with an increase in unemployment, reducing spending and income to restore equilibrium 
C) firms lower wages less than prices to avoid a loss in profit during a recession 
D) the nominal wage adjustment occurs fairly rapidly 
E) nominal wages and prices always change proportionally, leaving the real wage rate unchanged

Question 14

The AD-curve has a negative slope since

Accepted Answer

A) firms will produce less if they have to lower their prices 
B) lower prices mean higher real wages so firms can no longer afford to produce as many goods and services 
C) a decrease in the price level increases real money balances, leading to lower interest rates and increased spending 
D) lower prices drive up the demand for goods since buyers fear future market shortages 
E) lower prices increase consumer confidence, which encourages spending 
A) firms will produce less if they have to lower their prices 
B) lower prices mean higher real wages so firms can no longer afford to produce as many goods and services 
C) a decrease in the price level increases real money balances, leading to lower interest rates and increased spending 
D) lower prices drive up the demand for goods since buyers fear future market shortages 
E) lower prices increase consumer confidence, which encourages spending

Question 15

A shift of the AD-curve to the left can be caused by

Accepted Answer

A) a decrease in taxes 
B) an increase in business and consumer confidence 
C) an increase in nominal money supply 
D) a decrease in government transfer payments 
E) a decrease in money demand 
A) a decrease in taxes 
B) an increase in business and consumer confidence 
C) an increase in nominal money supply 
D) a decrease in government transfer payments 
E) a decrease in money demand

Question 16

In the Keynesian aggregate supply curve case, a fiscal expansion will

Accepted Answer

A) have no impact on equilibrium income or prices 
B) increase prices but have no impact on equilibrium income 
C) increase prices more than income 
D) increase income more than prices 
E) increase equilibrium income but have no impact on prices 
A) have no impact on equilibrium income or prices 
B) increase prices but have no impact on equilibrium income 
C) increase prices more than income 
D) increase income more than prices 
E) increase equilibrium income but have no impact on prices

Question 17

A large decrease in the income tax rate will most likely cause

Accepted Answer

A) a fairly large increase in aggregate demand 
B) a fairly small increase in aggregate supply 
C) an increase in the price level 
D) all of the above 
E) none of the above 
A) a fairly large increase in aggregate demand 
B) a fairly small increase in aggregate supply 
C) an increase in the price level 
D) all of the above 
E) none of the above

Question 18

Which of the following is FALSE?

Accepted Answer

A) the AS-curve is horizontal in the Keynesian case 
B) the AS-curve is vertical in the classical case 
C) the AS-curve is upward sloping in the medium run 
D) the AS-curve is more price elastic in the long run than in the short run 
E) none of the above 
A) the AS-curve is horizontal in the Keynesian case 
B) the AS-curve is vertical in the classical case 
C) the AS-curve is upward sloping in the medium run 
D) the AS-curve is more price elastic in the long run than in the short run 
E) none of the above

Question 19

Expansionary fiscal policy is very effective in significantly increasing the level of output

Accepted Answer

A) if the AS-curve is totally price inelastic 
B) in the classical case 
C) if the economy is close to full employment 
D) if the economy is in a recession 
E) both A and D 
A) if the AS-curve is totally price inelastic 
B) in the classical case 
C) if the economy is close to full employment 
D) if the economy is in a recession 
E) both A and D

Question 20

In the medium run, if government purchases are increased and nominal money supply is decreased, we can expect that

Accepted Answer

A) aggregate demand and prices will increase but interest rates will not change 
B) aggregate demand, prices, and the interest rate will all decrease 
C) aggregate demand and interest rates will decrease but prices will increase 
D) the AD-curve will shift to the right and the AS-curve will shift to the left 
E) the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same 
A) aggregate demand and prices will increase but interest rates will not change 
B) aggregate demand, prices, and the interest rate will all decrease 
C) aggregate demand and interest rates will decrease but prices will increase 
D) the AD-curve will shift to the right and the AS-curve will shift to the left 
E) the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same

Exam 5: Aggregate supply and demand

In an AD-AS diagram with an upward-sloping AS-curve, an increase in money supply will

Most economists prior to Keynes thought that

The slope of the AS-curve becomes steeper

Supply-side economics involves policy measures designed to

If factor markets were perfectly competitive, then full employment would be the normal condition and

In the classical supply curve case, monetary expansion will

Which of the following was NOT true during the Great Depression?

Given the Keynesian AS-curve, expansionary monetary policy will

The Keynesian AS-curve implies that

If restrictive monetary policy leads to a lower price level but leaves real output, employment, and real interest rates unchanged, then

To maintain a fixed level of aggregate demand, a central bank would have to respond to a tax increase by

The natural rate of unemployment is

The AS-curve is horizontal or very flat if

The AD-curve has a negative slope since

A shift of the AD-curve to the left can be caused by

In the Keynesian aggregate supply curve case, a fiscal expansion will

A large decrease in the income tax rate will most likely cause

Which of the following is FALSE?

Expansionary fiscal policy is very effective in significantly increasing the level of output

In the medium run, if government purchases are increased and nominal money supply is decreased, we can expect that

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

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