Question 1

Refer to the graph shown. No changes in fiscal policy are advisable when the economy is at point:

Accepted Answer

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

Question 2

Explain the difference between the long run and short-run views of saving.

Accepted Answer

The long-run view of saving is that of t

Question 3

According to Keynes, why might deflation create problems for an economy?

Accepted Answer

A) Consumers might expect prices to fall further and cut back consumption now. 
B) In expectation of increased spending, too many entrepreneurs would begin businesses and most would fail. 
C) Producers might increase production to take advantage of falling input prices. 
D) People would drop out of unions because unions would become ineffective at keeping wages of members high. 
A) Consumers might expect prices to fall further and cut back consumption now. 
B) In expectation of increased spending, too many entrepreneurs would begin businesses and most would fail. 
C) Producers might increase production to take advantage of falling input prices. 
D) People would drop out of unions because unions would become ineffective at keeping wages of members high.

Question 4

Refer to the graph shown. A policy that cuts government spending would be most appropriate when the economy is at point:

Accepted Answer

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

Question 5

With an upward-sloping short-run aggregate supply curve, firms respond to a change in aggregate demand by adjusting:

Accepted Answer

A) both prices and quantities in the short run. 
B) prices but not quantities in the short run. 
C) quantities but not prices in the short run. 
D) neither prices nor quantities in the short run. 
A) both prices and quantities in the short run. 
B) prices but not quantities in the short run. 
C) quantities but not prices in the short run. 
D) neither prices nor quantities in the short run.

Question 6

If actual output exceeds potential output, eventually:

Accepted Answer

A) input prices will rise and output will fall. 
B) both input prices and output will rise. 
C) input prices will fall and output will rise. 
D) both input prices and output will fall. 
A) input prices will rise and output will fall. 
B) both input prices and output will rise. 
C) input prices will fall and output will rise. 
D) both input prices and output will fall.

Question 7

In the 1990s, the price level in Japan fell relative to the price level in the United States. If the exchange rate did not change, one would expect that:

Accepted Answer

A) U.S. exports to Japan would rise and U.S. imports from Japan would decline. 
B) U.S. exports to Japan would decline and U.S. imports from Japan would rise. 
C) both U.S. exports to Japan and U.S. imports from Japan would rise. 
D) both U.S. exports to Japan and U.S. imports from Japan would fall. 
A) U.S. exports to Japan would rise and U.S. imports from Japan would decline. 
B) U.S. exports to Japan would decline and U.S. imports from Japan would rise. 
C) both U.S. exports to Japan and U.S. imports from Japan would rise. 
D) both U.S. exports to Japan and U.S. imports from Japan would fall.

Question 8

Refer to the graph shown. In the graph, a recessionary gap exists if the price level is:

Accepted Answer

A) P0 and the aggregate demand curve is AD0. 
B) P0 and the aggregate demand curve is AD1. 
C) P1 and the aggregate demand curve is AD0. 
D) P1 and the aggregate demand curve is AD1. 
A) P0 and the aggregate demand curve is AD0. 
B) P0 and the aggregate demand curve is AD1. 
C) P1 and the aggregate demand curve is AD0. 
D) P1 and the aggregate demand curve is AD1.

Question 9

Consider the following diagram   Demonstrate graphically and explain verbally the impact of a decrease of 50 in government spending on the AD curve in the diagram when the multiplier is 3.

Accepted Answer

The total impact of the decrease of 50 o

Question 10

A fall in the price level:

Accepted Answer

A) reduces the value of money in peoples' pockets, so people buy less goods. 
B) reduces the value of money in peoples' pockets, so people buy more goods. 
C) increases the value of money in peoples' pockets, so people buy less goods. 
D) increases the value of money in peoples' pockets, so people buy more goods. 
A) reduces the value of money in peoples' pockets, so people buy less goods. 
B) reduces the value of money in peoples' pockets, so people buy more goods. 
C) increases the value of money in peoples' pockets, so people buy less goods. 
D) increases the value of money in peoples' pockets, so people buy more goods.

Question 11

An economy's resources:

Accepted Answer

A) can never be overutilized. 
B) can always be overutilized. 
C) are always fully employed. 
D) can be overutilized, but only temporarily. 
A) can never be overutilized. 
B) can always be overutilized. 
C) are always fully employed. 
D) can be overutilized, but only temporarily.

Question 12

Demonstrate graphically and explain verbally the comparison of the impact of a drop in the price level on the shape of the aggregate demand curve when the multiplier effect is positive to when it is zero.

Accepted Answer

With a multiplier effect of zero the AD

Question 13

In the early 1930s, U.S. government expenditures increased as part of the New Deal without any change in taxes. This:

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 14

What factors shift the short-run aggregate supply (SAS)curve? Explain the impact of changes in each factor on the SAS curve.

Accepted Answer

(a)Input prices.A rise (decline)in input

Question 15

Governments are said to fine-tune the economy when they attempt to use fiscal policy to:

Accepted Answer

A) offset fluctuations in aggregate supply. 
B) offset only large fluctuations in aggregate demand. 
C) keep the economy always at its target or potential level of income. 
D) eliminate unemployment. 
A) offset fluctuations in aggregate supply. 
B) offset only large fluctuations in aggregate demand. 
C) keep the economy always at its target or potential level of income. 
D) eliminate unemployment.

Question 16

At points on the short-run aggregate supply curve, but to the right of the long-run aggregate supply curve, resources are:

Accepted Answer

A) overutilized, making it more likely that the short-run aggregate supply curve will shift up (to the left). 
B) overutilized, making it more likely that the short-run aggregate supply curve will shift down (to the right). 
C) underutilized, making it more likely that the short-run aggregate supply curve will shift up (to the left). 
D) underutilized, making it more likely that the short-run aggregate supply curve will shift down (to the right). 
A) overutilized, making it more likely that the short-run aggregate supply curve will shift up (to the left). 
B) overutilized, making it more likely that the short-run aggregate supply curve will shift down (to the right). 
C) underutilized, making it more likely that the short-run aggregate supply curve will shift up (to the left). 
D) underutilized, making it more likely that the short-run aggregate supply curve will shift down (to the right).

Question 17

Keynes argued that, for the period that he was writing about:

Accepted Answer

A) the long run is a more important policy concern than the short run. 
B) the short run is a more important policy concern than the long run. 
C) both the short run and the long run are equally important. 
D) the distinction between the short run and the long run is irrelevant. 
A) the long run is a more important policy concern than the short run. 
B) the short run is a more important policy concern than the long run. 
C) both the short run and the long run are equally important. 
D) the distinction between the short run and the long run is irrelevant.

Question 18

Refer to the graph shown. If the price level is P1, then:

Accepted Answer

A) input prices will fall and output will rise in the long run. 
B) both input prices and output will fall in the long run. 
C) input prices will rise and output will fall in the long run. 
D) both input prices and output will rise in the long run. 
A) input prices will fall and output will rise in the long run. 
B) both input prices and output will fall in the long run. 
C) input prices will rise and output will fall in the long run. 
D) both input prices and output will rise in the long run.

Question 19

Refer to the graph shown. A decrease in production costs is likely to cause a movement from:

Accepted Answer

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

Question 20

In the AS/AD model, the repercussion that a change in aggregate quantity demanded has on production and subsequently on income and expenditures is called the:

Accepted Answer

A) accelerator effect. 
B) expenditure effect. 
C) multiplier effect. 
D) money wealth effect. 
A) accelerator effect. 
B) expenditure effect. 
C) multiplier effect. 
D) money wealth effect.

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

Refer to the graph shown. No changes in fiscal policy are advisable when the economy is at point:

Explain the difference between the long run and short-run views of saving.

According to Keynes, why might deflation create problems for an economy?

Refer to the graph shown. A policy that cuts government spending would be most appropriate when the economy is at point:

With an upward-sloping short-run aggregate supply curve, firms respond to a change in aggregate demand by adjusting:

If actual output exceeds potential output, eventually:

In the 1990s, the price level in Japan fell relative to the price level in the United States. If the exchange rate did not change, one would expect that:

Refer to the graph shown. In the graph, a recessionary gap exists if the price level is:

Consider the following diagram Demonstrate graphically and explain verbally the impact of a decrease of 50 in government spending on the AD curve in the diagram when the multiplier is 3.

A fall in the price level:

An economy's resources:

Demonstrate graphically and explain verbally the comparison of the impact of a drop in the price level on the shape of the aggregate demand curve when the multiplier effect is positive to when it is zero.

In the early 1930s, U.S. government expenditures increased as part of the New Deal without any change in taxes. This:

What factors shift the short-run aggregate supply (SAS)curve? Explain the impact of changes in each factor on the SAS curve.

Governments are said to fine-tune the economy when they attempt to use fiscal policy to:

At points on the short-run aggregate supply curve, but to the right of the long-run aggregate supply curve, resources are:

Keynes argued that, for the period that he was writing about:

Refer to the graph shown. If the price level is P1, then:

Refer to the graph shown. A decrease in production costs is likely to cause a movement from:

In the AS/AD model, the repercussion that a change in aggregate quantity demanded has on production and subsequently on income and expenditures is called the:

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. If the price level is P₁, then: