Question 1

Under what circumstances is it most clear that the government should pursue neither fiscal nor monetary policy?

Accepted Answer

A) There is no inflation and the unemployment rate equals the target rate of unemployment 
B) Unemployment rate exceeds the target rate of unemployment 
C) The economy is experiencing deflation 
D) The economy is below potential output 
A) There is no inflation and the unemployment rate equals the target rate of unemployment 
B) Unemployment rate exceeds the target rate of unemployment 
C) The economy is experiencing deflation 
D) The economy is below potential output

Question 2

An increase in aggregate demand:

Accepted Answer

A) raises potential output. 
B) reduces potential output. 
C) does not change potential output. 
D) has an unpredictable effect on potential output. 
A) raises potential output. 
B) reduces potential output. 
C) does not change potential output. 
D) has an unpredictable effect on potential output.

Question 3

If the multiplier is 4, a $15 billion increase in government expenditures will shift the AD curve:

Accepted Answer

A) to the right by $15 billion. 
B) to the left by $15 billion. 
C) to the right by $60 billion. 
D) to the left by $60 billion. 
A) to the right by $15 billion. 
B) to the left by $15 billion. 
C) to the right by $60 billion. 
D) to the left by $60 billion.

Question 4

A recessionary 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 5

If the price level falls but people don't feel richer because of that fall, then the AD curve would likely:

Accepted Answer

A) shift in. 
B) shift out. 
C) be flatter than it otherwise would be. 
D) be steeper than it otherwise would be. 
A) shift in. 
B) shift out. 
C) be flatter than it otherwise would be. 
D) be steeper than it otherwise would be.

Question 6

Refer to the graph shown.If the price level is P1 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 to the left in the long run to restore equilibrium. 
D) aggregate demand curve will shift to the right 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 to the left in the long run to restore equilibrium. 
D) aggregate demand curve will shift to the right in the long run to restore equilibrium.

Question 7

A fall in a foreign country's income will most likely cause:

Accepted Answer

A) a reduction in U.S.exports, so the U.S.aggregate demand curve shifts left. 
B) a reduction in U.S.exports, so the U.S.aggregate demand curve shifts right. 
C) an increase in U.S.exports, so the U.S.aggregate demand curve shifts left. 
D) an increase in U.S.exports, so the U.S.aggregate demand curve shifts right. 
A) a reduction in U.S.exports, so the U.S.aggregate demand curve shifts left. 
B) a reduction in U.S.exports, so the U.S.aggregate demand curve shifts right. 
C) an increase in U.S.exports, so the U.S.aggregate demand curve shifts left. 
D) an increase in U.S.exports, so the U.S.aggregate demand curve shifts right.

Question 8

A fall in the price level:

Accepted Answer

A) reduces the value of money in peoples' pockets, so people buy less goods. 
B) reduces the value of money in peoples' pockets, so people buy more goods. 
C) increases the value of money in peoples' pockets, so people buy less goods. 
D) increases the value of money in peoples' pockets, so people buy more goods. 
A) reduces the value of money in peoples' pockets, so people buy less goods. 
B) reduces the value of money in peoples' pockets, so people buy more goods. 
C) increases the value of money in peoples' pockets, so people buy less goods. 
D) increases the value of money in peoples' pockets, so people buy more goods.

Question 9

If potential output is unknown:

Accepted Answer

A) we can still determine how the short-run aggregate supply curve will shift. 
B) factor prices are more likely to change. 
C) factor prices are less likely to change. 
D) we cannot determine precisely how the short-run aggregate supply curve will shift. 
A) we can still determine how the short-run aggregate supply curve will shift. 
B) factor prices are more likely to change. 
C) factor prices are less likely to change. 
D) we cannot determine precisely how the short-run aggregate supply curve will shift.

Question 10

Federal Reserve policy makers argue about whether productivity is increasing faster than it has in the past.If productivity is growing faster than anticipated, they would expect the:

Accepted Answer

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

Question 11

A rise in the U.S.price level will cause:

Accepted Answer

A) both exports and imports to increase. 
B) both exports and imports to decrease. 
C) exports to increase and imports to decrease. 
D) exports to decrease and imports to increase. 
A) both exports and imports to increase. 
B) both exports and imports to decrease. 
C) exports to increase and imports to decrease. 
D) exports to decrease and imports to increase.

Question 12

The long-run aggregate supply curve shows the output level that an economy can produce when:

Accepted Answer

A) firms adjust quantity rather than price. 
B) capital is fully employed. 
C) labor is fully employed. 
D) both capital and labor are fully employed. 
A) firms adjust quantity rather than price. 
B) capital is fully employed. 
C) labor is fully employed. 
D) both capital and labor are fully employed.

Question 13

Refer to the graph shown.In the graph, if the price level is P0 and the aggregate demand curve is AD0, then the economy is in:

Accepted Answer

A) a recessionary gap. 
B) an inflationary gap. 
C) a long-run equilibrium. 
D) a short-run equilibrium but not a long-run equilibrium. 
A) a recessionary gap. 
B) an inflationary gap. 
C) a long-run equilibrium. 
D) a short-run equilibrium but not a long-run equilibrium.

Question 14

Suppose prices in the United States are expected to decline in the future.The effect today is likely to:

Accepted Answer

A) shift the AD curve to the left. 
B) shift the AD curve to the right. 
C) make the AD curve flatter. 
D) make the AD curve steeper. 
A) shift the AD curve to the left. 
B) shift the AD curve to the right. 
C) make the AD curve flatter. 
D) make the AD curve steeper.

Question 15

In the early 2000s the European Central Bank warned that higher oil prices were a threat to economic growth.The Bank President called the higher prices "a sizeable adverse shock" to the economy.In terms of the AS/AD framework, this shock would be represented as a shift:

Accepted Answer

A) up (to the left) of the AS curve. 
B) down (to the right) of the AS curve. 
C) left of the AD curve. 
D) right of the AD curve. 
A) up (to the left) of the AS curve. 
B) down (to the right) of the AS curve. 
C) left of the AD curve. 
D) right of the AD curve.

Question 16

The axes for the short-run aggregate supply curve are:

Accepted Answer

A) real output and the price level. 
B) real output and unemployment. 
C) inflation and real output. 
D) unemployment and inflation. 
A) real output and the price level. 
B) real output and unemployment. 
C) inflation and real output. 
D) unemployment and inflation.

Question 17

Some economists believe that the good times of the early 2000s were not sustainable because they were creating a dangerous financial bubble and trade deficit.

Accepted Answer

A) True 
 B)False

Question 18

If workers begin to expect more inflation in the future, then we would expect 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 19

Which of the following would shift the aggregate demand curve to the right?

Accepted Answer

A) An increase in foreign income 
B) An appreciation of the value of a country's currency 
C) A lower future expected price level 
D) An increase in imports 
A) An increase in foreign income 
B) An appreciation of the value of a country's currency 
C) A lower future expected price level 
D) An increase in imports

Question 20

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.

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

Under what circumstances is it most clear that the government should pursue neither fiscal nor monetary policy?

An increase in aggregate demand:

If the multiplier is 4, a $15 billion increase in government expenditures will shift the AD curve:

A recessionary gap exists when:

If the price level falls but people don't feel richer because of that fall, then the AD curve would likely:

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

A fall in a foreign country's income will most likely cause:

A fall in the price level:

If potential output is unknown:

Federal Reserve policy makers argue about whether productivity is increasing faster than it has in the past.If productivity is growing faster than anticipated, they would expect the:

A rise in the U.S.price level will cause:

The long-run aggregate supply curve shows the output level that an economy can produce when:

Refer to the graph shown.In the graph, if the price level is P0 and the aggregate demand curve is AD0, then the economy is in:

Suppose prices in the United States are expected to decline in the future.The effect today is likely to:

In the early 2000s the European Central Bank warned that higher oil prices were a threat to economic growth.The Bank President called the higher prices "a sizeable adverse shock" to the economy.In terms of the AS/AD framework, this shock would be represented as a shift:

The axes for the short-run aggregate supply curve are:

Some economists believe that the good times of the early 2000s were not sustainable because they were creating a dangerous financial bubble and trade deficit.

If workers begin to expect more inflation in the future, then we would expect that the:

Which of the following would shift the aggregate demand curve to the right?

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

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 P₁ the:

Refer to the graph shown.In the graph, if the price level is P₀ and the aggregate demand curve is AD_0, then the economy is in: