Question 1

A Keynesian economist believes that

Accepted Answer

A)  the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic. 
B)  the economy is self-regulating and always at full employment. 
C)  if the economy was left alone, it would rarely operate at full employment. 
D)  the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic. 
A)  the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic. 
B)  the economy is self-regulating and always at full employment. 
C)  if the economy was left alone, it would rarely operate at full employment. 
D)  the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic. C

Question 2

-Suppose the economy is at point B. If a recession in another country decreases exports, to what point might economy move in the short run?

Accepted Answer

A)  It stays at point B. 
B)  It shifts to a point such as C. 
C)  It shifts to a point such as A. 
D)  None of the above answers are correct because it is the SAS curve that shifts, not the AD 
A)  It stays at point B. 
B)  It shifts to a point such as C. 
C)  It shifts to a point such as A. 
D)  None of the above answers are correct because it is the SAS curve that shifts, not the AD C

Question 3

The table above shows Purplelandʹs economy aggregate demand and supply schedules. Purplelandʹs potential GDP is $675 billion.
a) Plot the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.
b) What are the short-run equilibrium real GDP and price level in Purpleland?
c) What is the long-run equilibrium real GDP?
d) Is Purplelandʹs short-run macroeconomic equilibrium a full-employment equilibrium, below
full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap if any)? What is the inflationary gap if any)?
e) Suppose aggregate demand increases by $150 billion. Plot the new aggregate demand curve. How do real GDP and the price level change in the short run?
f) Is Purplelandʹs new short-run macroeconomic equilibrium a full-employment equilibrium, below
full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap if any)? What is the inflationary gap if any)?

Accepted Answer

See the figure above. The aggregate demand curve is AD₀.
b) A short-run macroeconomic equilibrium occurs where the aggregate demand curve, AD₀, intersects the
short-run aggregate supply curve, SAS. As the figure shows, the short-run equilibrium real GDP is $600 billion, and the short-run equilibrium price level is 100.
c) Long-run equilibrium real GDP equals potential GDP. So the long-run equilibrium real GDP in Purpleland is
$675 billion.
d) Purplelandʹs short-run macroeconomic equilibrium is a below full-employment equilibrium because the short-run equilibrium GDP is less than potential GDP. The amount by which potential GDP exceeds real GDP is a
recessionary gap, so the recessionary gap is $75 billion. An inflationary gap exists when real GDP is above potential GDP, so there is no inflationary gap in Purpleland.
e) As the figure above shows, the aggregate demand curve shifts from AD₀to AD₁. As a result, real GDP increases from $600 billion to $675 billion, and the price level rises from 100 to 110.
f) Purplelandʹs new short-run macroeconomic equilibrium is a full-employment equilibrium because the equilibrium real GDP equals the potential GDP. When real GDP equals potential GDP, there is neither a recessionary gap nor an inflationary gap.

Question 4

In 2008, Germany passed a stimulus package of $29 billion as its economy slowed. This policy action follows the __________to restore full employment.

Accepted Answer

A)  monetarist viewpoint that supports increases in expenditure by the federal government 
B)  Keynesian viewpoint that supports increases in the money supply 
C)  Keynesian viewpoint that supports increases in federal government expenditure 
D)  new classical viewpoint that discourages the use of expenditure by the federal government 
A)  monetarist viewpoint that supports increases in expenditure by the federal government 
B)  Keynesian viewpoint that supports increases in the money supply 
C)  Keynesian viewpoint that supports increases in federal government expenditure 
D)  new classical viewpoint that discourages the use of expenditure by the federal government

Question 5

In short-run macroeconomic equilibrium

Accepted Answer

A)  real GDP equals potential GDP and aggregate demand determines the price level. 
B)  real GDP and the price level are determined by short-run aggregate supply and aggregate demand. 
C)  the price level is fixed and short-run aggregate supply determines real GDP. 
D)  real GDP is less than potential GDP. 
A)  real GDP equals potential GDP and aggregate demand determines the price level. 
B)  real GDP and the price level are determined by short-run aggregate supply and aggregate demand. 
C)  the price level is fixed and short-run aggregate supply determines real GDP. 
D)  real GDP is less than potential GDP.

Question 6

If the expected future inflation rate decreases, then

Accepted Answer

A)  aggregate demand increases. 
B)  aggregate demand decreases. 
C)  long-run aggregate supply decreases. 
D)  short-run aggregate supply increases. 
A)  aggregate demand increases. 
B)  aggregate demand decreases. 
C)  long-run aggregate supply decreases. 
D)  short-run aggregate supply increases.

Question 7

-In the above figure, the short-run aggregate supply curve is SAS and the aggregate demand curve is AD. An inflationary gap exists

Accepted Answer

A)  if the long-run aggregate supply curve is LAS3. 
B)  if the long-run aggregate supply curve is LAS2. 
C)  if the long-run aggregate supply curve is LAS1. 
D)  All of the above answers are correct. 
A)  if the long-run aggregate supply curve is LAS3. 
B)  if the long-run aggregate supply curve is LAS2. 
C)  if the long-run aggregate supply curve is LAS1. 
D)  All of the above answers are correct.

Question 8

curve.
  
-The figure illustrates aggregate demand and aggregate supply in Sparta. Which of the following events will decrease Spartaʹs real GDP in the short run?

Accepted Answer

A)  a fall in resource prices 
B)  a decrease in government expenditure 
C)  an increase in investment 
D)  a decrease in taxes 
A)  a fall in resource prices 
B)  a decrease in government expenditure 
C)  an increase in investment 
D)  a decrease in taxes

Question 9

____________ economists believe that the economy is self-regulating and always at full employment.

Accepted Answer

A)  All 
B)  Classical 
C)  Monetarist 
D)  Keynesian 
A)  All 
B)  Classical 
C)  Monetarist 
D)  Keynesian

Question 10

Suppose consumers decrease their consumption expenditure because they worry about what their income will be in the future. There is

Accepted Answer

A)  an upward movement along the aggregate demand curve. 
B)  a rightward shift of the aggregate demand curve. 
C)  a downward movement along the aggregate demand curve. 
D)  a leftward shift of the aggregate demand curve. 
A)  an upward movement along the aggregate demand curve. 
B)  a rightward shift of the aggregate demand curve. 
C)  a downward movement along the aggregate demand curve. 
D)  a leftward shift of the aggregate demand curve.

Question 11

An increase in the amount of human capital ___________the short-run aggregate supply curve and___________ The long-run aggregate supply curve.

Accepted Answer

A)  shifts; does not shift 
B)  shifts; shifts 
C)  does not shift; does not shift 
D)  does not shift; shifts 
A)  shifts; does not shift 
B)  shifts; shifts 
C)  does not shift; does not shift 
D)  does not shift; shifts

Question 12

According to the United States spends a larger portion of expenditures on higher education compared to any other country. Increasing the amount of higher education produces
i. rightward shifts in the U.S. long-run aggregate supply curve
ii. movements up along the U.S. aggregate demand curve
iii. increases in U.S. human capital.

Accepted Answer

A)  i and iii only. 
B)  i, ii and iii. 
C)  iii only. 
D)  ii and iii only. 
A)  i and iii only. 
B)  i, ii and iii. 
C)  iii only. 
D)  ii and iii only.

Question 13

Which of the following is true about the long-run aggregate supply curve?

Accepted Answer

A)  It does not shift in response to temporary changes in aggregate demand. 
B)  It is vertical at the level of potential GDP. 
C)  It shows the relationship between the price level and real GDP when the economy is at full employment. 
D)  All of the above are true. 
A)  It does not shift in response to temporary changes in aggregate demand. 
B)  It is vertical at the level of potential GDP. 
C)  It shows the relationship between the price level and real GDP when the economy is at full employment. 
D)  All of the above are true.

Question 14

Disposable income__________ when__________ .

Accepted Answer

A)  decreases; aggregate income increases 
B)  increases; government expenditures decrease 
C)  decreases; transfer payments increase 
D)  decreases; taxes increase 
A)  decreases; aggregate income increases 
B)  increases; government expenditures decrease 
C)  decreases; transfer payments increase 
D)  decreases; taxes increase

Question 15

$$\begin{array} { | l | l | l | } 
\hline \text { Price level } & \begin{array} { l } 
\text { Real GDP demanded } \
\text { (billions of 2005 } \
\text { dollars) }
\end{array} & \begin{array} { l } 
\text { Real GDP supplied } \
\text { (billions of 2005 } \
\text { dollars) }
\end{array} \
\hline 90 & 450 & 150 \
\hline 100 & 400 & 250 \
\hline 110 & 350 & 350 \
\hline 120 & 300 & 450 \
\hline 130 & 250 & 550 \
\hline
\end{array}$$
-The table above shows Yellowlandʹs economy aggregate demand and supply schedules. Yellowlandʹs potential GDP is $300 billion.
a) Plot the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.
b) What are the short-run equilibrium real GDP and price level in Yellowland?
c) What is the long-run equilibrium real GDP?
d) Is Yellowlandʹs short-run macroeconomic equilibrium a full-employment equilibrium, below
full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap if any)? What is the inflationary gap if any)?
e) Suppose aggregate supply decreases by $150 billion. Plot the new aggregate supply curve. How do real GDP and the price level change in the short run?
f) Is Yellowlandʹs new short-run macroeconomic equilibrium a full-employment equilibrium, below
full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap if any)? What is the inflationary gap if any)?

Accepted Answer

See the figure above. The short-run aggr

Question 16

An increase in the money wage rate

Accepted Answer

A)  decreases the long-run aggregate supply. 
B)  increases the long-run aggregate supply. 
C)  increases the short-run aggregate supply. 
D)  decreases the short-run aggregate supply. 
A)  decreases the long-run aggregate supply. 
B)  increases the long-run aggregate supply. 
C)  increases the short-run aggregate supply. 
D)  decreases the short-run aggregate supply.

Question 17

According to the wealth effect, if real wealth decreases then people

Accepted Answer

A)  decrease their consumption expenditure. 
B)  do not respond if their nominal wealth does not change. 
C)  increase their consumption expenditure. 
D)  decrease their consumption expenditure only if their nominal wealth also decreases. 
A)  decrease their consumption expenditure. 
B)  do not respond if their nominal wealth does not change. 
C)  increase their consumption expenditure. 
D)  decrease their consumption expenditure only if their nominal wealth also decreases.

Question 18

In the macroeconomic long run,

Accepted Answer

A)  real GDP equals potential GDP. 
B)  regardless of the price level, the economy is producing at potential GDP. 
C)  the economy is at full employment. 
D)  All of the above are correct. 
A)  real GDP equals potential GDP. 
B)  regardless of the price level, the economy is producing at potential GDP. 
C)  the economy is at full employment. 
D)  All of the above are correct.

Question 19

If the full-employment quantity of labor increases, then the

Accepted Answer

A)  SAS curve shifts rightward and the LAS curve does shifts leftward. 
B)  SAS curve shifts rightward and the LAS curve does not shift. 
C)  SAS curve shifts rightward and the LAS curve shifts rightward. 
D)  LAS curve shifts rightward and the SAS curve does not shift. 
A)  SAS curve shifts rightward and the LAS curve does shifts leftward. 
B)  SAS curve shifts rightward and the LAS curve does not shift. 
C)  SAS curve shifts rightward and the LAS curve shifts rightward. 
D)  LAS curve shifts rightward and the SAS curve does not shift.

Question 20

How does the aggregate demand curve reflect an increase in aggregate demand?

Accepted Answer

A rightward shift of

A Keynesian economist believes that

-Suppose the economy is at point B. If a recession in another country decreases exports, to what point might economy move in the short run?

In 2008, Germany passed a stimulus package of $29 billion as its economy slowed. This policy action follows the __________to restore full employment.

In short-run macroeconomic equilibrium

If the expected future inflation rate decreases, then

-In the above figure, the short-run aggregate supply curve is SAS and the aggregate demand curve is AD. An inflationary gap exists

curve. -The figure illustrates aggregate demand and aggregate supply in Sparta. Which of the following events will decrease Spartaʹs real GDP in the short run?

____________ economists believe that the economy is self-regulating and always at full employment.

Suppose consumers decrease their consumption expenditure because they worry about what their income will be in the future. There is

An increase in the amount of human capital _the short-run aggregate supply curve and_ The long-run aggregate supply curve.

Which of the following is true about the long-run aggregate supply curve?

Disposable income when .

An increase in the money wage rate

According to the wealth effect, if real wealth decreases then people

In the macroeconomic long run,

If the full-employment quantity of labor increases, then the

How does the aggregate demand curve reflect an increase in aggregate demand?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Exam 10: Aggregate Supply and Aggregate Demand

A Keynesian economist believes that

-Suppose the economy is at point B. If a recession in another country decreases exports, to what point might economy move in the short run?

In 2008, Germany passed a stimulus package of $29 billion as its economy slowed. This policy action follows the __________to restore full employment.

In short-run macroeconomic equilibrium

If the expected future inflation rate decreases, then

-In the above figure, the short-run aggregate supply curve is SAS and the aggregate demand curve is AD. An inflationary gap exists

curve. -The figure illustrates aggregate demand and aggregate supply in Sparta. Which of the following events will decrease Spartaʹs real GDP in the short run?

____________ economists believe that the economy is self-regulating and always at full employment.

Suppose consumers decrease their consumption expenditure because they worry about what their income will be in the future. There is

An increase in the amount of human capital ___________the short-run aggregate supply curve and___________ The long-run aggregate supply curve.

Which of the following is true about the long-run aggregate supply curve?

Disposable income__________ when__________ .

An increase in the money wage rate

According to the wealth effect, if real wealth decreases then people

In the macroeconomic long run,

If the full-employment quantity of labor increases, then the

How does the aggregate demand curve reflect an increase in aggregate demand?

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Expenditure Multipliers: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

An increase in the amount of human capital _the short-run aggregate supply curve and_ The long-run aggregate supply curve.

Disposable income when .