Question 1

Refer to the graph shown.In the graph, if the price level is P1 and the aggregate demand curve is AD0 then the economy is:

Accepted Answer

A) in a recessionary gap. 
B) in an inflationary gap. 
C) in a long-run equilibrium. 
D) fully employed. 
A) in a recessionary gap. 
B) in an inflationary gap. 
C) in a long-run equilibrium. 
D) fully employed.

Question 2

In principle, we would expect the aggregate demand curve to be vertical because the price level is a reference point, the actual value of which should not matter.

Accepted Answer

A) True 
 B)False

Question 3

If the dollar appreciates while foreign income rises:

Accepted Answer

A) the U.S.AD curve would likely shift to the left. 
B) the U.S.AD curve would likely shift to the right. 
C) the U.S.AD curve would likely remain unchanged. 
D) what happens to the U.S.AD curve is unclear. 
A) the U.S.AD curve would likely shift to the left. 
B) the U.S.AD curve would likely shift to the right. 
C) the U.S.AD curve would likely remain unchanged. 
D) what happens to the U.S.AD curve is unclear.

Question 4

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

Question 5

Refer to the graph shown.If the price level is P0, 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 6

An economy's resources:

Accepted Answer

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

Question 7

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 8

In 2015, the Brazilian currency, the real, depreciated significanly.The AS/AD model predicts that this would cause a trade:

Accepted Answer

A) deficit for Brazil and shifted its AD curve left 
B) surplus for Brazil and shifted its AD curve left. 
C) deficit for Brazil and shifted its AD curve right. 
D) surplus for Brazil and shifted its AD curve right. 
A) deficit for Brazil and shifted its AD curve left 
B) surplus for Brazil and shifted its AD curve left. 
C) deficit for Brazil and shifted its AD curve right. 
D) surplus for Brazil and shifted its AD curve right.

Question 9

Fiscal policy is:

Accepted Answer

A) easy to enact and quick to affect the economy. 
B) easy to enact but slow to affect the economy . 
C) difficult to enact but quick to affect the economy. 
D) difficult to enact and slow to affect the economy. 
A) easy to enact and quick to affect the economy. 
B) easy to enact but slow to affect the economy . 
C) difficult to enact but quick to affect the economy. 
D) difficult to enact and slow to affect the economy.

Question 10

If productivity increases by 2 percent but wages increase by 3 percent, then it is most likely that the:

Accepted Answer

A) short-run aggregate supply curve will shift up (to the left). 
B) short-run aggregate supply curve will shift down (to the right). 
C) short-run aggregate supply curve will not shift. 
D) aggregate demand curve will shift left. 
A) short-run aggregate supply curve will shift up (to the left). 
B) short-run aggregate supply curve will shift down (to the right). 
C) short-run aggregate supply curve will not shift. 
D) aggregate demand curve will shift left.

Question 11

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 12

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 13

Expansionary policy that followed the 2008 recession:

Accepted Answer

A) led to higher inflation rates than expected. 
B) did not reduce unemployment as much as desired. 
C) did not reduce the trade deficit as much as desired. 
D) led to higher growth rates than expected. 
A) led to higher inflation rates than expected. 
B) did not reduce unemployment as much as desired. 
C) did not reduce the trade deficit as much as desired. 
D) led to higher growth rates than expected.

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

Refer to the graph shown.If the economy is at point D, which of the following policies is most appropriate to bring the economy to potential?

Accepted Answer

A) Cut in government spending 
B) Cut in taxes 
C) Increase in taxes 
D) No change in taxes or government spending 
A) Cut in government spending 
B) Cut in taxes 
C) Increase in taxes 
D) No change in taxes or government spending

Question 16

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 17

An increase in production costs is most likely to shift the:

Accepted Answer

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

Question 18

An inflationary gap exists when:

Accepted Answer

A) aggregate demand exceeds output. 
B) actual output exceeds potential output. 
C) output exceeds aggregate demand. 
D) potential output exceeds actual output. 
A) aggregate demand exceeds output. 
B) actual output exceeds potential output. 
C) output exceeds aggregate demand. 
D) potential output exceeds actual output.

Question 19

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 20

According to Keynes, market economies:

Accepted Answer

A) never experience significant declines in aggregate demand. 
B) quickly recover after they experience a significant decline in aggregate demand. 
C) may recover slowly after they experience a significant decline in aggregate demand. 
D) are constantly experiencing a significant declines in aggregate demand. 
A) never experience significant declines in aggregate demand. 
B) quickly recover after they experience a significant decline in aggregate demand. 
C) may recover slowly after they experience a significant decline in aggregate demand. 
D) are constantly experiencing a significant declines in aggregate demand.

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

Refer to the graph shown.In the graph, if the price level is P1 and the aggregate demand curve is AD0 then the economy is:

In principle, we would expect the aggregate demand curve to be vertical because the price level is a reference point, the actual value of which should not matter.

If the dollar appreciates while foreign income rises:

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

Refer to the graph shown.If the price level is P0, then:

An economy's resources:

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

In 2015, the Brazilian currency, the real, depreciated significanly.The AS/AD model predicts that this would cause a trade:

Fiscal policy is:

If productivity increases by 2 percent but wages increase by 3 percent, then it is most likely that the:

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

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

Expansionary policy that followed the 2008 recession:

Equilibrium income is that level of income:

Refer to the graph shown.If the economy is at point D, which of the following policies is most appropriate to bring the economy to potential?

A fall in the price level will:

An increase in production costs is most likely to shift the:

An inflationary gap exists when:

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

According to Keynes, market economies:

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

Filters

Refer to the graph shown.In the graph, if the price level is P₁ and the aggregate demand curve is AD₀then the economy is:

Refer to the graph shown.If the price level is P₀, then:

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