Question 1

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 D

Question 2

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. A

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. A

Question 4

The reason why the AS/AD model does not depend upon the concepts of substitution and opportunity cost is that:

Accepted Answer

A) in groups, people do not make the same choices as when they are alone. 
B) the AS/AD model considers total output.There are no goods to substitute. 
C) the AS/AD model considers the effects of other countries' decisions. 
D) other things remain constant in the AS/AD model. 
A) in groups, people do not make the same choices as when they are alone. 
B) the AS/AD model considers total output.There are no goods to substitute. 
C) the AS/AD model considers the effects of other countries' decisions. 
D) other things remain constant in the AS/AD model.

Question 5

If total income in Sweden remains the same but the wage share of income rises, the Swedish AD curve will most likely:

Accepted Answer

A) shift to the left. 
B) shift to the right. 
C) become flatter. 
D) become steeper. 
A) shift to the left. 
B) shift to the right. 
C) become flatter. 
D) become steeper.

Question 6

The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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.

Accepted Answer

A) True 
 B)False

Question 9

A fall in the value of the dollar relative to other currencies will:

Accepted Answer

A) increase foreign demand for U.S.goods, shifting the U.S.aggregate demand curve to the right. 
B) increase foreign demand for U.S.goods, shifting the U.S.aggregate demand curve to the left. 
C) decrease foreign demand for U.S.goods, shifting the U.S.aggregate demand curve to the right. 
D) decrease foreign demand for U.S.goods, shifting the U.S.aggregate demand curve to the left. 
A) increase foreign demand for U.S.goods, shifting the U.S.aggregate demand curve to the right. 
B) increase foreign demand for U.S.goods, shifting the U.S.aggregate demand curve to the left. 
C) decrease foreign demand for U.S.goods, shifting the U.S.aggregate demand curve to the right. 
D) decrease foreign demand for U.S.goods, shifting the U.S.aggregate demand curve to the left.

Question 10

Refer to the following graph.   The massive increase in defense spending is best represented by the:

Accepted Answer

A) AD curve shifting from AD0 to AD1. 
B) AD curve shifting from AD1 to AD0. 
C) SAS curve shifting from SAS0 to SAS1. 
D) SAS curve shifting from SAS1 to SAS0. 
A) AD curve shifting from AD0 to AD1. 
B) AD curve shifting from AD1 to AD0. 
C) SAS curve shifting from SAS0 to SAS1. 
D) SAS curve shifting from SAS1 to SAS0.

Question 11

If the U.S.government increased taxes without changing spending, the U.S.AD curve would:

Accepted Answer

A) shift to the left. 
B) shift to the right. 
C) become flatter. 
D) become steeper. 
A) shift to the left. 
B) shift to the right. 
C) become flatter. 
D) become steeper.

Question 12

World War II created a:

Accepted Answer

A) budget deficit. 
B) budget surplus. 
C) smaller budget deficit. 
D) smaller budget surplus. 
A) budget deficit. 
B) budget surplus. 
C) smaller budget deficit. 
D) smaller budget surplus.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

The AS/AD model looks similar to the microeconomic supply and demand model

Accepted Answer

A) but is not based on it. 
B) is based on the microeconomic supply and demand model because the AS/AD is a macro representation of the micro model. 
C) is based on the microeconomic supply and demand model because both are based on the principle of substitution. 
D) is based on the microeconomic supply and demand model because both are based on opportunity costs. 
A) but is not based on it. 
B) is based on the microeconomic supply and demand model because the AS/AD is a macro representation of the micro model. 
C) is based on the microeconomic supply and demand model because both are based on the principle of substitution. 
D) is based on the microeconomic supply and demand model because both are based on opportunity costs.

Question 17

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 18

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

Accepted Answer

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

Question 19

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:

Accepted Answer

A) were reluctant to increase their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be steeper. 
B) increased their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be steeper. 
C) increased their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be flatter. 
D) were reluctant to increase their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be flatter. 
A) were reluctant to increase their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be steeper. 
B) increased their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be steeper. 
C) increased their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be flatter. 
D) were reluctant to increase their markups in the face of higher aggregate demand, causing the short-run aggregate supply curve to be flatter.

Question 20

Suppose that consumer spending is expected to decrease in the near future.If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?

Accepted Answer

A) An increase in government spending 
B) Aan increase in taxes 
C) A reduction in government spending 
D) No change in taxes or government spending 
A) An increase in government spending 
B) Aan increase in taxes 
C) A reduction in government spending 
D) No change in taxes or government spending

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

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

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:

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

The reason why the AS/AD model does not depend upon the concepts of substitution and opportunity cost is that:

If total income in Sweden remains the same but the wage share of income rises, the Swedish AD curve will most likely:

The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

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

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.

A fall in the value of the dollar relative to other currencies will:

Refer to the following graph. The massive increase in defense spending is best represented by the:

If the U.S.government increased taxes without changing spending, the U.S.AD curve would:

World War II created a:

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

The target rate of unemployment is:

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

The AS/AD model looks similar to the microeconomic supply and demand model

The multiplier effect makes the aggregate demand curve:

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

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:

Suppose that consumer spending is expected to decrease in the near future.If output is at potential output, which of the following policies is most appropriate according to the AS/AD model?

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

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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