Exam 26: The Keynesian Short-Run Policy Model: Demand-Side Policies

In 1968, the government instituted a 26 percent income tax surcharge. In terms of the AS/AD model, this change should have:

Suppose that in order to win voter support for reelection,an incumbent President pushes a tax cut through Congress.What impact will this have on the AD curve?

At the intersection of the short-run aggregate supply curve, the aggregate demand curve, and the long-run aggregate supply curve, the economy is in:

During the early years of the Reagan administration, some of the presidential advisors argued that tax cuts could reduce inflation because they would give people an incentive to produce more. Critics of this argument believed that tax cuts would increase inflation, not reduce it. The critics were arguing that tax cuts move the:

From 2007 to 2012, the U.S. personal savings rate rose. If the additional savings were not translated into investment, Keynes would predict that aggregate income would:

During the late 1990s in the United States, aggregate demand rose sharply but the price level increased much more slowly. This might be because during this period, firms:

One reason the decline in asset prices just before and during the 2008 recession undermined the health of the economy is that they:

What is the key insight of the Keynesian AS/AD model,and what implication does this insight have for policy?

If the dollar appreciates while foreign income rises:

What is the difference,in terms of the time frame of analysis,between Classicals and Keynesians?

In early 2000s, oil prices were rising because of concern about the Iraqi invasion Kuwait and other situations, along with rapid growth in demand in the Far East. Prices eventually reached over $100 a barrel. How would most economists predict these high prices should affect the U.S. economy in terms of the AD/AS model?

A fiscal policy in which the government attempts to offset any change in aggregate expenditures that would create a business cycle is called a:

In principle, we would expect the aggregate demand curve to be vertical because the price level is a reference point, the actual value of which should not matter.

Refer to the graph shown. From 1929 to 1933 the money supply fell in the United States by 40 percent. The effect of this on the AD curve is best shown by a movement from:

The axes for the short-run aggregate supply curve are:

If potential output is unknown:

Which of the following is not a reason why the AD curve slopes downward?

If the economy is not in a long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to a long-run equilibrium.

An increase in the aggregate demand curve will, in the short run, change:

In the early 2000s the European Central Bank warned that higher oil prices were a threat to economic growth. The Bank President called the higher prices "a sizeable adverse shock" to the economy. In terms of the AS/AD framework, this shock would be represented as a shift: