Question 1

The new government of Pakistan transfers money from the rich to the poor. This will likely:

Accepted Answer

A) shift the Pakistani AD curve to the left. 
B) shift the Pakistani AD curve to the right. 
C) make the Pakistani AD curve flatter. 
D) make the Pakistani AD curve steeper. 
A) shift the Pakistani AD curve to the left. 
B) shift the Pakistani AD curve to the right. 
C) make the Pakistani AD curve flatter. 
D) make the Pakistani AD curve steeper.

Question 2

Refer to the graph shown. An economy is in both short- and long-run equilibrium at point(s):

Accepted Answer

A) A. 
B) B only. 
C) C only. 
D) Both B and C. 
A) A. 
B) B only. 
C) C only. 
D) Both B and C.

Question 3

Under what circumstances is it most clear that the government should pursue neither fiscal nor monetary policy?

Accepted Answer

A) There is no inflation and the unemployment rate equals the target rate of unemployment 
B) Unemployment rate exceeds the target rate of unemployment 
C) The economy is experiencing deflation 
D) The economy is below potential output 
A) There is no inflation and the unemployment rate equals the target rate of unemployment 
B) Unemployment rate exceeds the target rate of unemployment 
C) The economy is experiencing deflation 
D) The economy is below potential output

Question 4

The presence of wage and price controls in the United States during WWII:

Accepted Answer

A) had little impact on inflation because of the Depression. 
B) helped to reduce the inflationary pressures created by expansionary fiscal policy. 
C) helped to reduce the inflationary pressures created by contractionary fiscal policy. 
D) was not successful in reducing inflation during this period. 
A) had little impact on inflation because of the Depression. 
B) helped to reduce the inflationary pressures created by expansionary fiscal policy. 
C) helped to reduce the inflationary pressures created by contractionary fiscal policy. 
D) was not successful in reducing inflation during this period.

Question 5

If a fall in the price level made people feel richer and initially increased aggregate expenditures by 20, the AD curve would:

Accepted Answer

A) shift by more than 20. 
B) shift by less than 20. 
C) shift by exactly 20. 
D) not shift at all. 
A) shift by more than 20. 
B) shift by less than 20. 
C) shift by exactly 20. 
D) not shift at all.

Question 6

Housing prices in the United States fell sharply in 2007 and 2008, contributing to a severe recession as the AD curve shifted leftward. The ordinary AS/AD model would predict that falling short-run aggregate supply would bring deflation and move the economy back to potential output. Which of the following describes the impact of dynamic feedback effects on this return to potential output?

Accepted Answer

A) Falling house prices could cause people to buy more houses than they really need, creating a further crisis as another wave of foreclosures and bankruptcies occurs. 
B) As the SAS curve shifts downward, firms respond by increasing their investment in capital equipment, but only rehired a few of the laid-off workers, therefore, employment did not return to normal. 
C) Expectations that prices might fall further could cause people to reduce spending, shifting the AD curve further to the left. 
D) The deflation will be counteracted by increases in the money supply from the Federal Reserve, preventing the price adjustment and keeping the economy below potential output. 
A) Falling house prices could cause people to buy more houses than they really need, creating a further crisis as another wave of foreclosures and bankruptcies occurs. 
B) As the SAS curve shifts downward, firms respond by increasing their investment in capital equipment, but only rehired a few of the laid-off workers, therefore, employment did not return to normal. 
C) Expectations that prices might fall further could cause people to reduce spending, shifting the AD curve further to the left. 
D) The deflation will be counteracted by increases in the money supply from the Federal Reserve, preventing the price adjustment and keeping the economy below potential output.

Question 7

Why might we expect the AD curve to be vertical?

Accepted Answer

We might expect the AD curve to be verti

Question 8

What was the Classical economists' suggestion for ending unemployment during the Great Depression?

Accepted Answer

The Classical economists felt that the s

Question 9

Refer to the graph shown. A movement from A to C is most likely to be caused by:

Accepted Answer

A) an increase in input prices. 
B) a decrease in input prices. 
C) an increase in aggregate demand. 
D) a decrease in aggregate demand. 
A) an increase in input prices. 
B) a decrease in input prices. 
C) an increase in aggregate demand. 
D) a decrease in aggregate demand.

Question 10

The short-run aggregate supply curve is most likely to shift down (to the right)if:

Accepted Answer

A) productivity falls. 
B) wages rise. 
C) sales taxes increase. 
D) input prices fall. 
A) productivity falls. 
B) wages rise. 
C) sales taxes increase. 
D) input prices fall.

Question 11

During World War II, the U.S. government increased spending:

Accepted Answer

A) by more than it raised taxes. 
B) by the same amount as it raised taxes. 
C) by less than it raised taxes. 
D) but did not increase taxes. 
A) by more than it raised taxes. 
B) by the same amount as it raised taxes. 
C) by less than it raised taxes. 
D) but did not increase taxes.

Question 12

Refer to the graph shown. From 1980 to 1985, the U.S. dollar appreciated over 60 percent. The effect of this appreciation on the 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 13

According to Keynes, the economy could become stuck at a low income level if:

Accepted Answer

A) declines in aggregate demand and aggregate supply reinforce one another. 
B) declines in aggregate demand are not accompanied by declines in aggregate supply. 
C) declines in aggregate supply are not accompanied by declines in aggregate demand. 
D) aggregate demand and aggregate supply are independent of one another. 
A) declines in aggregate demand and aggregate supply reinforce one another. 
B) declines in aggregate demand are not accompanied by declines in aggregate supply. 
C) declines in aggregate supply are not accompanied by declines in aggregate demand. 
D) aggregate demand and aggregate supply are independent of one another.

Question 14

In the long run, the position of the short-run aggregate supply curve determines:

Accepted Answer

A) output. 
B) the price level. 
C) both output and the price level. 
D) neither output nor the price level. 
A) output. 
B) the price level. 
C) both output and the price level. 
D) neither output nor the price level.

Question 15

By the 1950s, the views of the Classical economists among American economists:

Accepted Answer

A) had been largely eclipsed by Keynesian views. 
B) had largely replaced Keynesian views. 
C) were about as widely held as Keynesian views. 
D) were just starting to be developed in response to the Great Depression. 
A) had been largely eclipsed by Keynesian views. 
B) had largely replaced Keynesian views. 
C) were about as widely held as Keynesian views. 
D) were just starting to be developed in response to the Great Depression.

Question 16

Most economists agree that it is possible for fiscal policy to fine-tune the economy.

Accepted Answer

A) True 
 B)False

Question 17

If the multiplier is 4, a $15 billion increase in government expenditures will shift the AD curve to the:

Accepted Answer

A) right by $15 billion. 
B) left by $15 billion. 
C) right by $60 billion. 
D) left by $60 billion. 
A) right by $15 billion. 
B) left by $15 billion. 
C) right by $60 billion. 
D) left by $60 billion.

Question 18

Refer to the graph shown. In the graph, an inflationary 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 19

The long-run aggregate supply curve plays an important role in determining:

Accepted Answer

A) the price level in the short run. 
B) output in the short run. 
C) output in the short run and long run. 
D) output in the long run. 
A) the price level in the short run. 
B) output in the short run. 
C) output in the short run and long run. 
D) output in the long run.

Question 20

If the price level rises, the interest rate effect will cause investment:

Accepted Answer

A) and the quantity of aggregate demand to increase. 
B) and the quantity of aggregate demand to decrease. 
C) to increase and the quantity of aggregate demand to decrease. 
D) to decrease and the quantity of aggregate demand to increase. 
A) and the quantity of aggregate demand to increase. 
B) and the quantity of aggregate demand to decrease. 
C) to increase and the quantity of aggregate demand to decrease. 
D) to decrease and the quantity of aggregate demand to increase.

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

The new government of Pakistan transfers money from the rich to the poor. This will likely:

Refer to the graph shown. An economy is in both short- and long-run equilibrium at point(s):

Under what circumstances is it most clear that the government should pursue neither fiscal nor monetary policy?

The presence of wage and price controls in the United States during WWII:

If a fall in the price level made people feel richer and initially increased aggregate expenditures by 20, the AD curve would:

Why might we expect the AD curve to be vertical?

What was the Classical economists' suggestion for ending unemployment during the Great Depression?

Refer to the graph shown. A movement from A to C is most likely to be caused by:

The short-run aggregate supply curve is most likely to shift down (to the right)if:

During World War II, the U.S. government increased spending:

Refer to the graph shown. From 1980 to 1985, the U.S. dollar appreciated over 60 percent. The effect of this appreciation on the AD curve can be shown by a movement from:

According to Keynes, the economy could become stuck at a low income level if:

In the long run, the position of the short-run aggregate supply curve determines:

By the 1950s, the views of the Classical economists among American economists:

Most economists agree that it is possible for fiscal policy to fine-tune the economy.

If the multiplier is 4, a $15 billion increase in government expenditures will shift the AD curve to the:

Refer to the graph shown. In the graph, an inflationary gap exists if the price level is:

The long-run aggregate supply curve plays an important role in determining:

If the price level rises, the interest rate effect will cause investment:

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

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