Question 1

A shift of the AD-curve to the right could be caused by

Accepted Answer

A) a decrease in taxes 
B) a decrease in government transfer payments 
C) an increase in money demand 
D) a decrease in defense spending 
E) both A and C 
A) a decrease in taxes 
B) a decrease in government transfer payments 
C) an increase in money demand 
D) a decrease in defense spending 
E) both A and C

Question 2

If nominal GDP is $12,600 billion and nominal money supply is $6,300 billion, then the income velocity of money is

Accepted Answer

A) V = $2 billion 
B)  V = 0.5 
C)  V = 2 
D) V can only be determined if the price level is known 
E) none of the above 
A) V = $2 billion 
B)  V = 0.5 
C)  V = 2 
D) V can only be determined if the price level is known 
E) none of the above

Question 3

A decrease in real money supply caused by an increase in the price level is graphically represented by

Accepted Answer

A) a shift of the AD-curve to the right 
B) a shift of the AD-curve to the left 
C) movement along the AD-curve to the right 
D) movement along the AD-curve to the left 
E) a shift of the AS-curve to the right 
A) a shift of the AD-curve to the right 
B) a shift of the AD-curve to the left 
C) movement along the AD-curve to the right 
D) movement along the AD-curve to the left 
E) a shift of the AS-curve to the right

Question 4

Which of the following is NOT reflected in a shift of the AD-curve?

Accepted Answer

A) a change in real money balances due to a change in the price level 
B) a change in real money balances due to a change in nominal money supply 
C) a change in government transfer payments 
D) a change in the confidence of consumers and businesses 
E) all of the above will shift the AD-curve 
A) a change in real money balances due to a change in the price level 
B) a change in real money balances due to a change in nominal money supply 
C) a change in government transfer payments 
D) a change in the confidence of consumers and businesses 
E) all of the above will shift the AD-curve

Question 5

The Keynesian AS-curve differs from the classical AS-curve, since Keynes

Accepted Answer

A) thought that labor markets worked smoothly to always establish full employment 
B)  thought that nominal wages were rigid even when there was unemployment 
C)  thought that nominal wages were flexible even when there was unemployment 
D) described the AS-curve as completely vertical 
E) assumed that firms tried to exploit the work force by paying them substandard wages 
A) thought that labor markets worked smoothly to always establish full employment 
B)  thought that nominal wages were rigid even when there was unemployment 
C)  thought that nominal wages were flexible even when there was unemployment 
D) described the AS-curve as completely vertical 
E) assumed that firms tried to exploit the work force by paying them substandard wages

Question 6

An increase in aggregate demand can be caused by

Accepted Answer

A) an increase in government expenditures 
B) an increase in nominal money supply 
C) a decrease in taxes 
D) an increase in business and consumer confidence 
E) all of the above 
A) an increase in government expenditures 
B) an increase in nominal money supply 
C) a decrease in taxes 
D) an increase in business and consumer confidence 
E) all of the above

Question 7

In the long run, as potential GDP grows at a steady pace and nominal money supply is continuously increased over time

Accepted Answer

A) the level of output is essentially determined by shifts in the AS-curve 
B) the level of output is essentially determined by shifts in the AD-curve 
C) the price level will not change since the AS-curve is horizontal 
D) real money balances continuously decrease as the AD-curve remains constant 
E) the price level is determined solely by the shift in the AS-curve 
A) the level of output is essentially determined by shifts in the AS-curve 
B) the level of output is essentially determined by shifts in the AD-curve 
C) the price level will not change since the AS-curve is horizontal 
D) real money balances continuously decrease as the AD-curve remains constant 
E) the price level is determined solely by the shift in the AS-curve

Question 8

As nominal money supply is steadily increased and the long-run AS-curve shifts to the right over time, we realize that

Accepted Answer

A) the price level decreases since the AS-curve shifts right while the AD-curve remains constant 
B) the price level stays the same, while output continuously increases 
C) the price level increases or decreases depending on the respective shifts in the AD-curve and the AS-curve, but the level of output is essentially determined by the shifts in the AS-curve 
D) we will experience a substantial increase in inflation with very little increase in output 
E) none of the above 
A) the price level decreases since the AS-curve shifts right while the AD-curve remains constant 
B) the price level stays the same, while output continuously increases 
C) the price level increases or decreases depending on the respective shifts in the AD-curve and the AS-curve, but the level of output is essentially determined by the shifts in the AS-curve 
D) we will experience a substantial increase in inflation with very little increase in output 
E) none of the above

Question 9

In a normal AD-AS diagram with an upward-sloping AS-curve, if the government wanted to maintain a fixed level of output, it would need to respond to a decrease in money supply by

Accepted Answer

A) decreasing government expenditures 
B) increasing government spending 
C) urging the Fed to sell bonds in the open market 
D) increasing income taxes 
E) decreasing taxes and government spending by the same amount 
A) decreasing government expenditures 
B) increasing government spending 
C) urging the Fed to sell bonds in the open market 
D) increasing income taxes 
E) decreasing taxes and government spending by the same amount

Question 10

In which of the following cases will the AS-curve be horizontal?

Accepted Answer

A) if nominal wages and prices always change proportionally, leaving real wages unchanged 
B) if nominal wages do not change even if there is high unemployment 
C) if nominal wages are completely flexible 
D) if the economy is always in a full-employment equilibrium 
E) if fiscal policy has no impact on the output level 
A) if nominal wages and prices always change proportionally, leaving real wages unchanged 
B) if nominal wages do not change even if there is high unemployment 
C) if nominal wages are completely flexible 
D) if the economy is always in a full-employment equilibrium 
E) if fiscal policy has no impact on the output level

Question 11

When nominal money supply is held constant and the price level increases, then

Accepted Answer

A) real money balances increase and real interest rates decrease 
B) real money balances decrease and real interest rates increase 
C) real money balances decrease and real interest rates remain the same 
D) the AS-curve must have shifted to the right 
E) both B and D 
A) real money balances increase and real interest rates decrease 
B) real money balances decrease and real interest rates increase 
C) real money balances decrease and real interest rates remain the same 
D) the AS-curve must have shifted to the right 
E) both B and D

Question 12

Assume investment is very interest sensitive and wages always adjust immediately to maintain an equilibrium in the labor market.Which of the following would be most effective in significantly increasing the level of output?

Accepted Answer

A) expansionary fiscal policy 
B) expansionary monetary policy 
C) increased government spending accompanied by monetary expansion 
D) an increase in government transfer payments 
E) none of the above policies would succeed in significantly increasing the level of output 
A) expansionary fiscal policy 
B) expansionary monetary policy 
C) increased government spending accompanied by monetary expansion 
D) an increase in government transfer payments 
E) none of the above policies would succeed in significantly increasing the level of output

Question 13

An increase in government purchases will NOT increase the level of output if

Accepted Answer

A) the AS-curve is totally price elastic 
B) the price level is fixed 
C) wages and prices are completely rigid 
D) wages and prices are completely flexible 
E) real money balances are not affected 
A) the AS-curve is totally price elastic 
B) the price level is fixed 
C) wages and prices are completely rigid 
D) wages and prices are completely flexible 
E) real money balances are not affected

Question 14

The income velocity of money can be calculated using the following formula

Accepted Answer

A) V = M/(PY) 
B) V = (MY)/P 
C) V = (PY)/M 
D) V = MY 
E) none of the above 
A) V = M/(PY) 
B) V = (MY)/P 
C) V = (PY)/M 
D) V = MY 
E) none of the above

Question 15

Cutting income tax rates will most likely cause

Accepted Answer

A) a large shift in the AD-curve but a small shift in the AS-curve 
B) a small shift in the AD-curve but a large shift in the AS-curve 
C) a large increase in output resulting in a large increase in tax revenues 
D) a budget deficit so large that income growth is no longer possible 
E) both B and C 
A) a large shift in the AD-curve but a small shift in the AS-curve 
B) a small shift in the AD-curve but a large shift in the AS-curve 
C) a large increase in output resulting in a large increase in tax revenues 
D) a budget deficit so large that income growth is no longer possible 
E) both B and C

Question 16

In the AD-AS model, fiscal or monetary policy cannot affect the level of output in

Accepted Answer

A) the medium run and the long run 
B) the medium run and the short run 
C) the short run only 
D) the medium run only 
E) the long run only 
A) the medium run and the long run 
B) the medium run and the short run 
C) the short run only 
D) the medium run only 
E) the long run only

Question 17

If government purchases and taxes are both increased by the same lump sum, we can expect the following in the medium run:

Accepted Answer

A) output, prices, and interest rates will all remain unchanged 
B) output, prices, and interest rates will all decrease 
C) output, prices, and interest rates will all increase 
D) output and prices will remain the same but interest rates will increase 
E) output and prices will increase but interest rates will remain the same 
A) output, prices, and interest rates will all remain unchanged 
B) output, prices, and interest rates will all decrease 
C) output, prices, and interest rates will all increase 
D) output and prices will remain the same but interest rates will increase 
E) output and prices will increase but interest rates will remain the same

Question 18

Expansionary monetary policy will increase nominal GDP

Accepted Answer

A) in the Keynesian case 
B) in the classical case 
C) in the medium run 
D) all of the above 
E) only A and C 
A) in the Keynesian case 
B) in the classical case 
C) in the medium run 
D) all of the above 
E) only A and C

Question 19

Fiscal policy will affect prices and interest rates but not the level of output if

Accepted Answer

A) the AD-curve is vertical 
B) the AS-curve is vertical 
C) the AD-curve is horizontal 
D) the AS-curve is horizontal 
E) both 
A) or 
D)  
A) the AD-curve is vertical 
B) the AS-curve is vertical 
C) the AD-curve is horizontal 
D) the AS-curve is horizontal 
E) both 
A) or 
D)

Question 20

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

Accepted Answer

A) aggregate demand will decrease and aggregate supply will increase, leaving the level of output the same 
B) output, prices, and interest rates will all increase 
C) output and prices will decrease, while interest rates will increase 
D) interest rates will decrease, while output and prices may increase, decrease, or remain the same 
E) none of the above 
A) aggregate demand will decrease and aggregate supply will increase, leaving the level of output the same 
B) output, prices, and interest rates will all increase 
C) output and prices will decrease, while interest rates will increase 
D) interest rates will decrease, while output and prices may increase, decrease, or remain the same 
E) none of the above

Exam 5: Aggregate supply and demand

A shift of the AD-curve to the right could be caused by

If nominal GDP is $12,600 billion and nominal money supply is $6,300 billion, then the income velocity of money is

A decrease in real money supply caused by an increase in the price level is graphically represented by

Which of the following is NOT reflected in a shift of the AD-curve?

The Keynesian AS-curve differs from the classical AS-curve, since Keynes

An increase in aggregate demand can be caused by

In the long run, as potential GDP grows at a steady pace and nominal money supply is continuously increased over time

As nominal money supply is steadily increased and the long-run AS-curve shifts to the right over time, we realize that

In a normal AD-AS diagram with an upward-sloping AS-curve, if the government wanted to maintain a fixed level of output, it would need to respond to a decrease in money supply by

In which of the following cases will the AS-curve be horizontal?

When nominal money supply is held constant and the price level increases, then

Assume investment is very interest sensitive and wages always adjust immediately to maintain an equilibrium in the labor market.Which of the following would be most effective in significantly increasing the level of output?

An increase in government purchases will NOT increase the level of output if

The income velocity of money can be calculated using the following formula

Cutting income tax rates will most likely cause

In the AD-AS model, fiscal or monetary policy cannot affect the level of output in

If government purchases and taxes are both increased by the same lump sum, we can expect the following in the medium run:

Expansionary monetary policy will increase nominal GDP

Fiscal policy will affect prices and interest rates but not the level of output if

In the medium run, if government purchases are decreased and nominal money supply is increased, then 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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