Question 1

Keynes believed that an increase in savings would:

Accepted Answer

A) raise aggregate demand by reducing investment. 
B) raise aggregate demand by increasing consumption 
C) reduce aggregate demand by reducing investment. 
D) reduce aggregate demand by reducing consumption. 
A) raise aggregate demand by reducing investment. 
B) raise aggregate demand by increasing consumption 
C) reduce aggregate demand by reducing investment. 
D) reduce aggregate demand by reducing consumption.

Question 2

The short-run aggregate supply curve is upward sloping for all of the following reasons except:

Accepted Answer

A) some firms adjust their markup in response to an increase in demand. 
B) some firms adjust their production in response to an increase in demand. 
C) some markets are posted-price markets. 
D) all inputs are fully utilized in the short run. 
A) some firms adjust their markup in response to an increase in demand. 
B) some firms adjust their production in response to an increase in demand. 
C) some markets are posted-price markets. 
D) all inputs are fully utilized in the short run.

Question 3

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 4

If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will:

Accepted Answer

A) shift right by more than20. 
B) shift right by less than20. 
C) shift right by exactly20. 
D) not shift at all. 
A) shift right by more than20. 
B) shift right by less than20. 
C) shift right by exactly20. 
D) not shift at all.

Question 5

If potential output is less than actual output, eventually the short-run aggregate supply curve will shift:

Accepted Answer

A) up and eliminate the recessionary gap. 
B) down and eliminate the recessionary gap. 
C) up and eliminate the inflationary gap. 
D) down and eliminate the inflationary gap. 
A) up and eliminate the recessionary gap. 
B) down and eliminate the recessionary gap. 
C) up and eliminate the inflationary gap. 
D) down and eliminate the inflationary gap.

Question 6

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 7

If potential output exceeds actual output, the economy:

Accepted Answer

A) is experiencing an inflationary gap. 
B) is experiencing a recessionary gap. 
C) may be in a long-run equilibrium but is not in a short-run equilibrium. 
D) is in neither a short-run nor long-run equilibrium. 
A) is experiencing an inflationary gap. 
B) is experiencing a recessionary gap. 
C) may be in a long-run equilibrium but is not in a short-run equilibrium. 
D) is in neither a short-run nor long-run equilibrium.

Question 8

The theoretical proposition that the price level is just a numeraire and should not affect aggregate expenditures suggests the AD curve is:

Accepted Answer

A) downward sloping. 
B) horizontal. 
C) vertical. 
D) upward sloping. 
A) downward sloping. 
B) horizontal. 
C) vertical. 
D) upward sloping.

Question 9

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 10

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 11

If actual output exceeds potential output for a prolonged period of time, we would eventually expect factor prices to:

Accepted Answer

A) rise, causing the SAS curve to shift up (to the left). 
B) fall, causing the SAS curve to shift down (to the right). 
C) rise, causing the LAS curve to shift out to the right. 
D) fall, causing the LAS curve to shift in to the left. 
A) rise, causing the SAS curve to shift up (to the left). 
B) fall, causing the SAS curve to shift down (to the right). 
C) rise, causing the LAS curve to shift out to the right. 
D) fall, causing the LAS curve to shift in to the left.

Question 12

If total income remains the same but profits fall and real wages rise, the aggregate demand curve will most likely:

Accepted Answer

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

Question 13

At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in:

Accepted Answer

A) a short-run equilibrium but not necessarily a long-run equilibrium. 
B) a long-run equilibrium but not necessarily a short-run equilibrium. 
C) both a short-run and a long-run equilibrium. 
D) neither a short-run nor a long-run equilibrium. 
A) a short-run equilibrium but not necessarily a long-run equilibrium. 
B) a long-run equilibrium but not necessarily a short-run equilibrium. 
C) both a short-run and a long-run equilibrium. 
D) neither a short-run nor a long-run equilibrium.

Question 14

If the multiplier effect did not exist, the aggregate demand curve would:

Accepted Answer

A) be steeper. 
B) be flatter. 
C) be horizontal. 
D) not exist. 
A) be steeper. 
B) be flatter. 
C) be horizontal. 
D) not exist.

Question 15

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 16

An expansionary fiscal policy would be countercyclical if it was enacted after:

Accepted Answer

A) equilibrium income rose above potential income. 
B) equilibrium income fell below potential income. 
C) inflation rose. 
D) unemployment fell. 
A) equilibrium income rose above potential income. 
B) equilibrium income fell below potential income. 
C) inflation rose. 
D) unemployment fell.

Question 17

Refer to the graph shown.Given the increase in the price level in the graph, it is likely that the multiplier effect:

Accepted Answer

A) reduces the quantity of aggregate demand by Yo - Ye. 
B) reduces the quantity of aggregate demand by less than Y0 - Ye. 
C) raises the quantity of aggregate demand by Y0 - Ye. 
D) raises the quantity of aggregate demand by less than Y0 - Ye. 
A) reduces the quantity of aggregate demand by Yo - Ye. 
B) reduces the quantity of aggregate demand by less than Y0 - Ye. 
C) raises the quantity of aggregate demand by Y0 - Ye. 
D) raises the quantity of aggregate demand by less than Y0 - Ye.

Question 18

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 19

A fiscal policy that increases government spending or cuts taxes is most appropriate when the economy is in:

Accepted Answer

A) a recessionary gap. 
B) an inflationary gap. 
C) a short-run equilibrium. 
D) a long-run equilibrium 
A) a recessionary gap. 
B) an inflationary gap. 
C) a short-run equilibrium. 
D) a long-run equilibrium

Question 20

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.

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

Keynes believed that an increase in savings would:

The short-run aggregate supply curve is upward sloping for all of the following reasons except:

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

If the depreciation of a country's currency increases its aggregate expenditures by 20, the AD curve will:

If potential output is less than actual output, eventually the short-run aggregate supply curve will shift:

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

If potential output exceeds actual output, the economy:

The theoretical proposition that the price level is just a numeraire and should not affect aggregate expenditures suggests the AD curve is:

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

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

If actual output exceeds potential output for a prolonged period of time, we would eventually expect factor prices to:

If total income remains the same but profits fall and real wages rise, the aggregate demand curve will most likely:

At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in:

If the multiplier effect did not exist, the aggregate demand curve would:

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

An expansionary fiscal policy would be countercyclical if it was enacted after:

Refer to the graph shown.Given the increase in the price level in the graph, it is likely that the multiplier effect:

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:

A fiscal policy that increases government spending or cuts taxes is most appropriate when the economy is in:

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

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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