Question 1

An increase in aggregate demand in the long run, will change:

Accepted Answer

A) output but not price level. 
B) the price level but not output. 
C) both output and the price level. 
D) neither output nor the price level. 
A) output but not price level. 
B) the price level but not output. 
C) both output and the price level. 
D) neither output nor the price level.

Question 2

If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will:

Accepted Answer

A) rise by 1 percent. 
B) fall by 1 percent. 
C) rise by 7 percent. 
D) fall by 7 percent. 
A) rise by 1 percent. 
B) fall by 1 percent. 
C) rise by 7 percent. 
D) fall by 7 percent.

Question 3

Potential income is that level of income that:

Accepted Answer

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

Question 4

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.

Question 5

According to the Keynesian model,

Accepted Answer

A) wages are flexible because workers wouldn't otherwise be able to keep their jobs. 
B) the price level is somewhat fixed due to social forces, which keeps an economy from remaining at an equilibrium level of unemployment. 
C) prices are subject to significant fluctuations as demand and supply change. 
D) the government puts price controls on the economy, keeping the price level fixed. 
A) wages are flexible because workers wouldn't otherwise be able to keep their jobs. 
B) the price level is somewhat fixed due to social forces, which keeps an economy from remaining at an equilibrium level of unemployment. 
C) prices are subject to significant fluctuations as demand and supply change. 
D) the government puts price controls on the economy, keeping the price level fixed.

Question 6

One reason the decline in asset prices just before and during the 2008 recession undermined the health of the economy is that they:

Accepted Answer

A) raised the value of the dollar making U.S.goods more expensive to foreigners. 
B) raised the trade deficit when foreigners reduce purchases of U.S.assets. 
C) led to a contraction in consumer loans because the value of collateral declined. 
D) undermined consumer and business confidence. 
A) raised the value of the dollar making U.S.goods more expensive to foreigners. 
B) raised the trade deficit when foreigners reduce purchases of U.S.assets. 
C) led to a contraction in consumer loans because the value of collateral declined. 
D) undermined consumer and business confidence.

Question 7

Most economists agree that fiscal policy:

Accepted Answer

A) can be used to eliminate most if not all economic fluctuations. 
B) can be used to fine tune the economy. 
C) cannot be used to fine tune the economy. 
D) should not be used to eliminate economic fluctuations, no matter how large or small. 
A) can be used to eliminate most if not all economic fluctuations. 
B) can be used to fine tune the economy. 
C) cannot be used to fine tune the economy. 
D) should not be used to eliminate economic fluctuations, no matter how large or small.

Question 8

Which of the following factors will not shift the long-run aggregate supply curve?

Accepted Answer

A) An increase in capital accumulation 
B) An increase in available resources 
C) An increase in the price level 
D) An improvement in production technology 
A) An increase in capital accumulation 
B) An increase in available resources 
C) An increase in the price level 
D) An improvement in production technology

Question 9

As a response to the 2008 recession, the U.S.government employed expansionary policy to push the economy out to its level of potential output.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) short-run aggregate supply curve will shift up (to the left) in the long run to restore equilibrium. 
B) short-run aggregate supply curve will shift down (to the right) in the long run to restore equilibrium. 
C) aggregate demand curve will shift up in the long run to restore equilibrium. 
D) aggregate demand curve will shift down in the long run to restore equilibrium. 
A) short-run aggregate supply curve will shift up (to the left) in the long run to restore equilibrium. 
B) short-run aggregate supply curve will shift down (to the right) in the long run to restore equilibrium. 
C) aggregate demand curve will shift up in the long run to restore equilibrium. 
D) aggregate demand curve will shift down in the long run to restore equilibrium.

Question 11

If actual output exceeds potential 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 12

To combat inflation in 1955 and 1956, the Fed reduced the money supply.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 13

If the U.S.government increases its expenditures (without any change in taxes) and at the same time the Federal Reserve Bank increases the money supply, the 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 14

A fall in the U.S.price level will cause foreigners to:

Accepted Answer

A) substitute U.S.goods for their own domestically-produced goods. 
B) substitute their own domestically-produced goods for U.S.goods. 
C) buy more of their own domestically-produced goods. 
D) buy fewer U.S.goods. 
A) substitute U.S.goods for their own domestically-produced goods. 
B) substitute their own domestically-produced goods for U.S.goods. 
C) buy more of their own domestically-produced goods. 
D) buy fewer U.S.goods.

Question 15

Suppose the economy is in a recessionary gap.In the absence of any policy intervention, the short-run aggregate supply curve will eventually shift:

Accepted Answer

A) down (to the right), causing the price level to fall and output to rise. 
B) down (to the right), causing the price level to fall and output to fall. 
C) down (to the right), causing the price level to rise and output to fall. 
D) up (to the left), causing the price level to fall and output to rise. 
A) down (to the right), causing the price level to fall and output to rise. 
B) down (to the right), causing the price level to fall and output to fall. 
C) down (to the right), causing the price level to rise and output to fall. 
D) up (to the left), causing the price level to fall and output to rise.

Question 16

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 5 percent when the price rises by 10 percent and the multiplier is 3, then the slope of the aggregate demand curve is:

Accepted Answer

A) -1/2. 
B) -2/3. 
C) -2. 
D) -3. 
A) -1/2. 
B) -2/3. 
C) -2. 
D) -3.

Question 17

If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:

Accepted Answer

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

Question 18

Many economists have argued that labor market regulations in the European Union have stifled efficiency and held down potential GDP.If this argument is correct, the removal of these regulations should:

Accepted Answer

A) shift the short-run aggregate supply curve in to the left. 
B) shift the long-run aggregate supply curve out to the right. 
C) shift the aggregate demand curve out to the right. 
D) not affect the aggregate supply or aggregate demand curves. 
A) shift the short-run aggregate supply curve in to the left. 
B) shift the long-run aggregate supply curve out to the right. 
C) shift the aggregate demand curve out to the right. 
D) not affect the aggregate supply or aggregate demand curves.

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

An increase in the price level:

Accepted Answer

A) increases the purchasing power of money, leading to lower interest rates, which increases investment. 
B) increases the purchasing power of money, leading to higher interest rates, which decreases investment. 
C) decreases the purchasing power of money, leading to lower interest rates, which increases investment. 
D) decreases the purchasing power of money, leading to higher interest rates, which decreases investment. 
A) increases the purchasing power of money, leading to lower interest rates, which increases investment. 
B) increases the purchasing power of money, leading to higher interest rates, which decreases investment. 
C) decreases the purchasing power of money, leading to lower interest rates, which increases investment. 
D) decreases the purchasing power of money, leading to higher interest rates, which decreases investment.

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

An increase in aggregate demand in the long run, will change:

If productivity increases by 3 percent but wages increase by 4 percent, then it is most likely that the price level will:

Potential income is that level of income that:

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

According to the Keynesian model,

One reason the decline in asset prices just before and during the 2008 recession undermined the health of the economy is that they:

Most economists agree that fiscal policy:

Which of the following factors will not shift the long-run aggregate supply curve?

As a response to the 2008 recession, the U.S.government employed expansionary policy to push the economy out to its level of potential output.

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

If actual output exceeds potential output, the economy:

To combat inflation in 1955 and 1956, the Fed reduced the money supply.In terms of the AS/AD model, this change should have:

If the U.S.government increases its expenditures (without any change in taxes) and at the same time the Federal Reserve Bank increases the money supply, the AD curve would:

A fall in the U.S.price level will cause foreigners to:

Suppose the economy is in a recessionary gap.In the absence of any policy intervention, the short-run aggregate supply curve will eventually shift:

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 5 percent when the price rises by 10 percent and the multiplier is 3, then the slope of the aggregate demand curve is:

If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:

Many economists have argued that labor market regulations in the European Union have stifled efficiency and held down potential GDP.If this argument is correct, the removal of these regulations should:

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

An increase in the price level:

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.If the price level is P₀ the: