Question 1

The multiplier effect makes the aggregate demand curve:

Accepted Answer

A) steeper. 
B) flatter. 
C) horizontal. 
D) vertical. 
A) steeper. 
B) flatter. 
C) horizontal. 
D) vertical.

Question 2

After the 2008 expansionary policy, unemployment remained higher than desired and output was much lower than desired.

Accepted Answer

A) True 
 B)False

Question 3

During the Vietnam War, Congress increased government expenditures while raising taxes. As a result we know that:

Accepted Answer

A) the AD curve shifted to the left. 
B) the AD curve shifted to the right. 
C) the AD curve remained unchanged. 
D) What happened to the AD curve is unclear. 
A) the AD curve shifted to the left. 
B) the AD curve shifted to the right. 
C) the AD curve remained unchanged. 
D) What happened to the AD curve is unclear.

Question 4

What does aggregate demand management mean?

Accepted Answer

Aggregate demand management is the gover

Question 5

Starting from a long-run equilibrium, an increase in government expenditures increases output in the short run but not in the long run.

Accepted Answer

A) True 
 B)False

Question 6

Describe two distinct and opposing effects that a fall in interest rates (that are not caused by changes in the price level)could have on the AS/AD model.

Accepted Answer

A fall in interest rates would make capi

Question 7

If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will:

Accepted Answer

A) rise by 3 percent. 
B) fall by 3 percent. 
C) rise by 7 percent. 
D) fall by 7 percent. 
A) rise by 3 percent. 
B) fall by 3 percent. 
C) rise by 7 percent. 
D) fall by 7 percent.

Question 8

A fall in the price level will:

Accepted Answer

A) increase the value of money in people's pockets. 
B) decrease the value of money in people's pockets. 
C) not affect the value of money in people's pockets. 
D) reduce real wealth. 
A) increase the value of money in people's pockets. 
B) decrease the value of money in people's pockets. 
C) not affect the value of money in people's pockets. 
D) reduce real wealth.

Question 9

Keynes believed equilibrium income was:

Accepted Answer

A) not fixed at the economy's potential income. 
B) fixed at the economy's potential income. 
C) always below the economy's potential income. 
D) always above the economy's potential income. 
A) not fixed at the economy's potential income. 
B) fixed at the economy's potential income. 
C) always below the economy's potential income. 
D) always above the economy's potential income.

Question 10

Economists estimate the target rate of unemployment in order to determine:

Accepted Answer

A) the unemployment rate. 
B) the inflation rate. 
C) the level of output. 
D) potential output. 
A) the unemployment rate. 
B) the inflation rate. 
C) the level of output. 
D) potential output.

Question 11

Refer to the graph shown. An expansionary fiscal policy would be most appropriate when the economy is at point:

Accepted Answer

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

Question 12

If the money wealth, interest rate, and international effects increase the quantity of aggregate demand by 2 percent when the price falls by 2 percent and the multiplier is 4, then the slope of the aggregate demand curve is:

Accepted Answer

A) −1/4. 
B) −1/2. 
C) −1. 
D) −4. 
A) −1/4. 
B) −1/2. 
C) −1. 
D) −4.

Question 13

Which of the following do economists generally agree is an unacceptable method of bringing aggregate demand and supply into equilibrium?

Accepted Answer

A) Increases in the government deficit 
B) Inflation 
C) Increases in the supply of money 
D) Deflation 
A) Increases in the government deficit 
B) Inflation 
C) Increases in the supply of money 
D) Deflation

Question 14

Equilibrium income is that level of income:

Accepted Answer

A) which the economy always produces. 
B) toward which the economy gravitates in the short-run. 
C) which an economy is capable of producing without generating accelerating inflation. 
D) which an economy is capable of producing without generating unemployment. 
A) which the economy always produces. 
B) toward which the economy gravitates in the short-run. 
C) which an economy is capable of producing without generating accelerating inflation. 
D) which an economy is capable of producing without generating unemployment.

Question 15

The rapid development of Internet technologies during the 1990s allowed businesses to produce goods and services more cheaply than before and also gave rise to completely new services. We would show this change in the AD/AS model by moving the short-run aggregate:

Accepted Answer

A) demand curve right with little change in short-run aggregate supply. 
B) demand curve left with little change in short-run aggregate supply. 
C) supply curve down (to the right)with little change in aggregate demand. 
D) supply curve up with little change in aggregate demand. 
A) demand curve right with little change in short-run aggregate supply. 
B) demand curve left with little change in short-run aggregate supply. 
C) supply curve down (to the right)with little change in aggregate demand. 
D) supply curve up with little change in aggregate demand.

Question 16

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

Accepted Answer

A) an increase in input prices. 
B) a reduction in sales taxes. 
C) an increase in aggregate demand. 
D) an increase in import prices. 
A) an increase in input prices. 
B) a reduction in sales taxes. 
C) an increase in aggregate demand. 
D) an increase in import prices.

Question 17

Some economists believe that the good times of the early 2000s were not sustainable due to:

Accepted Answer

A) higher inflation rates. 
B) higher rates of crime. 
C) higher deflation rates. 
D) an unsustainable financial bubble. 
A) higher inflation rates. 
B) higher rates of crime. 
C) higher deflation rates. 
D) an unsustainable financial bubble.

Question 18

Refer to the graph shown. In 1975 U.S. President Gerald Ford instituted a large tax cut. At the same time, the Fed expanded the money supply. The effect of these policies on the AD curve is best shown as a movement from:

Accepted Answer

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

Question 19

Demonstrate graphically and explain verbally the case of an inflationary gap.Describe the forces in the economy that will result in the gap closing itself.

Accepted Answer

Initially we are at point A with a price

Question 20

In which of the following situations is a budget surplus most likely to occur?

Accepted Answer

A) When fiscal policy is expansionary 
B) When the economy is contracting 
C) When fiscal policy is expansionary and the economy is contracting 
D) When fiscal policy is contractionary and the economy is expanding 
A) When fiscal policy is expansionary 
B) When the economy is contracting 
C) When fiscal policy is expansionary and the economy is contracting 
D) When fiscal policy is contractionary and the economy is expanding

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

The multiplier effect makes the aggregate demand curve:

After the 2008 expansionary policy, unemployment remained higher than desired and output was much lower than desired.

During the Vietnam War, Congress increased government expenditures while raising taxes. As a result we know that:

What does aggregate demand management mean?

Starting from a long-run equilibrium, an increase in government expenditures increases output in the short run but not in the long run.

Describe two distinct and opposing effects that a fall in interest rates (that are not caused by changes in the price level)could have on the AS/AD model.

If productivity increases by 5 percent but wages increase by 2 percent, then it is most likely that the price level will:

A fall in the price level will:

Keynes believed equilibrium income was:

Economists estimate the target rate of unemployment in order to determine:

Refer to the graph shown. An expansionary fiscal policy would be most appropriate when the economy is at point:

If the money wealth, interest rate, and international effects increase the quantity of aggregate demand by 2 percent when the price falls by 2 percent and the multiplier is 4, then the slope of the aggregate demand curve is:

Which of the following do economists generally agree is an unacceptable method of bringing aggregate demand and supply into equilibrium?

Equilibrium income is that level of income:

The rapid development of Internet technologies during the 1990s allowed businesses to produce goods and services more cheaply than before and also gave rise to completely new services. We would show this change in the AD/AS model by moving the short-run aggregate:

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

Some economists believe that the good times of the early 2000s were not sustainable due to:

Refer to the graph shown. In 1975 U.S. President Gerald Ford instituted a large tax cut. At the same time, the Fed expanded the money supply. The effect of these policies on the AD curve is best shown as a movement from:

Demonstrate graphically and explain verbally the case of an inflationary gap.Describe the forces in the economy that will result in the gap closing itself.

In which of the following situations is a budget surplus most likely to occur?

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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