Question 1

The target rate of unemployment is:

Accepted Answer

A) difficult to determine. 
B) always equal to the actual unemployment rate. 
C) changing but easy to estimate. 
D) constant. 
A) difficult to determine. 
B) always equal to the actual unemployment rate. 
C) changing but easy to estimate. 
D) constant.

Question 2

A rise in the U.S. price level will cause:

Accepted Answer

A) both exports and imports to increase. 
B) both exports and imports to decrease. 
C) exports to increase and imports to decrease. 
D) exports to decrease and imports to increase. 
A) both exports and imports to increase. 
B) both exports and imports to decrease. 
C) exports to increase and imports to decrease. 
D) exports to decrease and imports to increase.

Question 3

The paradox of thrift will not arise if:

Accepted Answer

A) increases in saving are translated into identical increases in investment. 
B) increases in saving are translated into identical decreases in consumption. 
C) decreases in saving are translated into identical increases in investment. 
D) decreases in saving are translated into identical decreases in consumption. 
A) increases in saving are translated into identical increases in investment. 
B) increases in saving are translated into identical decreases in consumption. 
C) decreases in saving are translated into identical increases in investment. 
D) decreases in saving are translated into identical decreases in consumption.

Question 4

Refer to the graph shown. In the graph, if the price level is P1 and the aggregate demand curve is AD0 then the economy is:

Accepted Answer

A) in a recessionary gap. 
B) in an inflationary gap. 
C) in a long-run equilibrium. 
D) fully employed. 
A) in a recessionary gap. 
B) in an inflationary gap. 
C) in a long-run equilibrium. 
D) fully employed.

Question 5

According to Keynes there is a difference between equilibrium income and potential income.Explain this difference.

Accepted Answer

The key idea of Keynes was that in the s

Question 6

Explain what will happen to the SAS curve if productivity increases.

Accepted Answer

An increase in productivity wi

Question 7

Refer to the graph shown. In 1930, the United States passed the Smoot-Hawley Tariff Act, which raised tariffs on imported goods at an average of 60 percent. Other countries retaliated with similar tariffs and world output declined. The effect of the decline in foreign output on the U.S. AD curve can be shown by a movement from:

Accepted Answer

A) A to B. 
B) A to C. 
C) A to D. 
D) B to A. 
A) A to B. 
B) A to C. 
C) A to D. 
D) B to A.

Question 8

To combat inflation in 1955 and 1956, the Fed reduced the money supply. In terms of the AS/AD model, this change should have:

Accepted Answer

A) shifted the AD curve to the left. 
B) shifted the AD curve to the right. 
C) made the AD curve flatter. 
D) made the AD curve steeper. 
A) shifted the AD curve to the left. 
B) shifted the AD curve to the right. 
C) made the AD curve flatter. 
D) made the AD curve steeper.

Question 9

If the U.S. government increases its expenditures (without any changes in taxes)while the Federal Reserve Bank decreases the money supply:

Accepted Answer

A) the AD curve would likely shift to the left. 
B) the AD curve would likely shift to the right. 
C) the AD curve would likely remain unchanged. 
D) what happens to the AD curve is unclear. 
A) the AD curve would likely shift to the left. 
B) the AD curve would likely shift to the right. 
C) the AD curve would likely remain unchanged. 
D) what happens to the AD curve is unclear.

Question 10

A fall in a foreign country's income will most likely cause:

Accepted Answer

A) a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left. 
B) a reduction in U.S. exports, so the U.S. aggregate demand curve shifts right. 
C) an increase in U.S. exports, so the U.S. aggregate demand curve shifts left. 
D) an increase in U.S. exports, so the U.S. aggregate demand curve shifts right. 
A) a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left. 
B) a reduction in U.S. exports, so the U.S. aggregate demand curve shifts right. 
C) an increase in U.S. exports, so the U.S. aggregate demand curve shifts left. 
D) an increase in U.S. exports, so the U.S. aggregate demand curve shifts right.

Question 11

A shift in the long-run aggregate supply curve will change:

Accepted Answer

A) output but not the price level. 
B) the price level but not output. 
C) both output and the price level. 
D) neither output nor the price level. 
A) output but not the price level. 
B) the price level but not output. 
C) both output and the price level. 
D) neither output nor the price level.

Question 12

The paradox of thrift occurs when:

Accepted Answer

A) an increase in saving raises output. 
B) an increase in saving reduces output. 
C) saving is unrelated to output. 
D) a decrease in saving reduces output. 
A) an increase in saving raises output. 
B) an increase in saving reduces output. 
C) saving is unrelated to output. 
D) a decrease in saving reduces output.

Question 13

What are the three ways that falling asset prices can affect aggregate demand?

Accepted Answer

A fall in asset prices can decrease expe

Question 14

According to Keynes, market economies:

Accepted Answer

A) never experience significant declines in aggregate demand. 
B) quickly recover after they experience a significant decline in aggregate demand. 
C) may recover slowly after they experience a significant decline in aggregate demand. 
D) are constantly experiencing a significant declines in aggregate demand. 
A) never experience significant declines in aggregate demand. 
B) quickly recover after they experience a significant decline in aggregate demand. 
C) may recover slowly after they experience a significant decline in aggregate demand. 
D) are constantly experiencing a significant declines in aggregate demand.

Question 15

Which of the following would shift the aggregate demand curve to the right?

Accepted Answer

A) An increase in foreign income 
B) An appreciation of the value of a country's currency 
C) A lower future expected price level 
D) An increase in imports 
A) An increase in foreign income 
B) An appreciation of the value of a country's currency 
C) A lower future expected price level 
D) An increase in imports

Question 16

If productivity and wages both rise by 3 percent, then the aggregate supply curve shifts up.

Accepted Answer

A) True 
 B)False

Question 17

Imagine you are the chief economist on the President's Council of Economic Advisers.The President has asked you to develop a policy that she can announce during her upcoming State of the Union Address.Your staff knows the President has a fondness for the SAS-AD model.Unfortunately,you can't you give her solid policy prescriptions based on that model because you do not know the location of the LAS curve.Explain why that is a serious problem.

Accepted Answer

Unfortunately,on the basis of an AD-SAS

Question 18

The interest rate effect helps to explain why:

Accepted Answer

A) an increase in the price level reduces the quantity of aggregate demand. 
B) an increase in the price level raises investment. 
C) a decrease in the price level reduces the quantity of aggregate demand. 
D) a decrease in the price level reduces investment. 
A) an increase in the price level reduces the quantity of aggregate demand. 
B) an increase in the price level raises investment. 
C) a decrease in the price level reduces the quantity of aggregate demand. 
D) a decrease in the price level reduces investment.

Question 19

In the summer of 1953, the Korean War ended and government expenditures decreased. In terms of the AS/AD model, this change should have:

Accepted Answer

A) shifted the AD curve to the left. 
B) shifted the AD curve to the right. 
C) made the AD curve flatter. 
D) made the AD curve steeper. 
A) shifted the AD curve to the left. 
B) shifted the AD curve to the right. 
C) made the AD curve flatter. 
D) made the AD curve steeper.

Question 20

Describe two ways in which the macro AS/AD model differs from the micro supply and demand model.

Accepted Answer

The first difference deals with what is

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

The target rate of unemployment is:

A rise in the U.S. price level will cause:

The paradox of thrift will not arise if:

Refer to the graph shown. In the graph, if the price level is P1 and the aggregate demand curve is AD0 then the economy is:

According to Keynes there is a difference between equilibrium income and potential income.Explain this difference.

Explain what will happen to the SAS curve if productivity increases.

To combat inflation in 1955 and 1956, the Fed reduced the money supply. In terms of the AS/AD model, this change should have:

If the U.S. government increases its expenditures (without any changes in taxes)while the Federal Reserve Bank decreases the money supply:

A fall in a foreign country's income will most likely cause:

A shift in the long-run aggregate supply curve will change:

The paradox of thrift occurs when:

What are the three ways that falling asset prices can affect aggregate demand?

According to Keynes, market economies:

Which of the following would shift the aggregate demand curve to the right?

If productivity and wages both rise by 3 percent, then the aggregate supply curve shifts up.

The interest rate effect helps to explain why:

In the summer of 1953, the Korean War ended and government expenditures decreased. In terms of the AS/AD model, this change should have:

Describe two ways in which the macro AS/AD model differs from the micro supply and demand model.

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Production and Cost Analysis II

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

Economic Growth, Business Cycles, and Unemployment

Measuring and Describing the Aggregate Economy

The Classical Long-Run Policy Model: Growth and Supply-Side Policies

The Financial Sector and the Economy

Monetary Policy

Financial Crises, Panics, and Unconventional Monetary Policy

Deficits and Debt: the Austerity Debate

The Fiscal Policy Dilemma

Jobs and Unemployment

Inflation, Deflation, and Macro Policy

International Financial Policy

Macro Policy in a Global Setting

Structural Stagnation and Globalization

Macro Policy in Developing Countries

Filters

Refer to the graph shown. In the graph, if the price level is P₁ and the aggregate demand curve is AD₀then the economy is: