Question 1

An assumption of the classical model is that

Accepted Answer

A) money illusion is widespread. 
B) people make decisions based on nominal prices rather than real prices. 
C) prices are flexible while wages are inflexible. 
D) people are motivated by self-interest. 
A) money illusion is widespread. 
B) people make decisions based on nominal prices rather than real prices. 
C) prices are flexible while wages are inflexible. 
D) people are motivated by self-interest.

Question 2

The net effect of a stronger dollar on real GDP is

Accepted Answer

A) an increase in real GDP. 
B) a decrease in real GDP. 
C) an increase in the price level. 
D) dependent on whether the increase in aggregate supply is more or less than the decrease in aggregate demand. 
A) an increase in real GDP. 
B) a decrease in real GDP. 
C) an increase in the price level. 
D) dependent on whether the increase in aggregate supply is more or less than the decrease in aggregate demand.

Question 3

Which of the following decreases aggregate supply?

Accepted Answer

A) discoveries of new raw materials 
B) an increase in competition 
C) an increase in training and education 
D) a decrease in labor supply 
A) discoveries of new raw materials 
B) an increase in competition 
C) an increase in training and education 
D) a decrease in labor supply

Question 4

According to modern Keynesian analysis, an increase in aggregate demand leads to a higher price level because the

Accepted Answer

A) aggregate demand curve is upward sloping. 
B) short-run aggregate supply curve is upward sloping. 
C) aggregate demand curve is upward horizontal. 
D) short-run aggregate supply curve is vertical. 
A) aggregate demand curve is upward sloping. 
B) short-run aggregate supply curve is upward sloping. 
C) aggregate demand curve is upward horizontal. 
D) short-run aggregate supply curve is vertical.

Question 5

An inflationary gap occurs when

Accepted Answer

A) aggregate demand falls, but other things remain constant. 
B) short-run aggregate supply falls, but other things remain constant. 
C) the short-run equilibrium level of real GDP is greater than long-run aggregate supply. 
D) the short-run equilibrium level of real GDP is less than long-run aggregate supply. 
A) aggregate demand falls, but other things remain constant. 
B) short-run aggregate supply falls, but other things remain constant. 
C) the short-run equilibrium level of real GDP is greater than long-run aggregate supply. 
D) the short-run equilibrium level of real GDP is less than long-run aggregate supply.

Question 6

-Refer to the above figure. Suppose the economy is at E originally, when the dollar increases in value. Which aggregate supply curve applies if the value of real GDP increases?

Accepted Answer

A) 1 
B) 2 
C) 4 
D) 5 
A) 1 
B) 2 
C) 4 
D) 5

Question 7

If the full-employment level of real GDP is greater than the equilibrium level of real GDP, the nation would be experiencing a(n)

Accepted Answer

A) inflationary gap. 
B) recessionary gap. 
C) demand-pull inflation. 
D) rising prices. 
A) inflationary gap. 
B) recessionary gap. 
C) demand-pull inflation. 
D) rising prices.

Question 8

In an economy with no government and no international trade, consumption expenditures will be less than the total value of goods and services when

Accepted Answer

A) investment is zero. 
B) saving is zero. 
C) people save some of their income. 
D) people barter rather than use money in making exchanges. 
A) investment is zero. 
B) saving is zero. 
C) people save some of their income. 
D) people barter rather than use money in making exchanges.

Question 9

In the classical model, what occurs if a wage of $20/hour results in unemployed workers?

Accepted Answer

A) The workers will go on strike to demand that more jobs be created. 
B) Producers will quickly create more jobs and hire the unemployed workers, so unemployment is short-lived. 
C) The wage rate will drop, more workers will be hired, and the unemployment rate falls. 
D) The government will step in and order firms to hire more workers. 
A) The workers will go on strike to demand that more jobs be created. 
B) Producers will quickly create more jobs and hire the unemployed workers, so unemployment is short-lived. 
C) The wage rate will drop, more workers will be hired, and the unemployment rate falls. 
D) The government will step in and order firms to hire more workers.

Question 10

An example of an aggregate supply shock is

Accepted Answer

A) inflation caused by a surge in demand. 
B) the cutoff of oil by the OPEC nations in the early 1970s. 
C) the increase in the labor force due to the baby-boomer generation reaching working age. 
D) the increase in candy sales every February. 
A) inflation caused by a surge in demand. 
B) the cutoff of oil by the OPEC nations in the early 1970s. 
C) the increase in the labor force due to the baby-boomer generation reaching working age. 
D) the increase in candy sales every February.

Question 11

The short-run aggregate supply curve in modern Keynesian analysis is

Accepted Answer

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

Question 12

The horizontal portion of the short-run aggregate supply curve in which there is excessive unemployment and unused capacity in the economy is

Accepted Answer

A) Say's law. 
B) the classical short-run aggregate supply curve. 
C) the Keynesian short-run aggregate supply curve. 
D) exists when prices are flexible. 
A) Say's law. 
B) the classical short-run aggregate supply curve. 
C) the Keynesian short-run aggregate supply curve. 
D) exists when prices are flexible.

Question 13

Which of the following is a basic difference between the classical model and the Keynesian model in which the Keynesian short-run aggregate supply curve exists?

Accepted Answer

A) The classical model assumes that the long run aggregate supply curve is vertical, while the Keynesian model assumes the long run aggregate supply curve is horizontal. 
B) The classical model assumes that the position of the long run aggregate supply curve is determined by full employment, while the Keynesian model assumes that the long run aggregate supply curve will be to the left of full employment. 
C) The classical model assumes that the level of real GDP is supply determined, while the Keynesian model assumes that it is demand determined. 
D) The classical model uses real GDP, while the Keynesian model uses nominal GDP. 
A) The classical model assumes that the long run aggregate supply curve is vertical, while the Keynesian model assumes the long run aggregate supply curve is horizontal. 
B) The classical model assumes that the position of the long run aggregate supply curve is determined by full employment, while the Keynesian model assumes that the long run aggregate supply curve will be to the left of full employment. 
C) The classical model assumes that the level of real GDP is supply determined, while the Keynesian model assumes that it is demand determined. 
D) The classical model uses real GDP, while the Keynesian model uses nominal GDP.

Question 14

In the modern Keynesian model, over much of its range the short-run aggregate supply (SRAS)curve is

Accepted Answer

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

Question 15

In the classical model, changes in interest rates will always ensure that

Accepted Answer

A) consumption equals production. 
B) saving equals investment. 
C) consumption equals investment. 
D) consumption equals income. 
A) consumption equals production. 
B) saving equals investment. 
C) consumption equals investment. 
D) consumption equals income.

Question 16

The Keynesian short-run aggregate supply (SRAS)curve is

Accepted Answer

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

Question 17

-Refer to the above figure. Suppose the economy is at E. A stronger dollar leads to a lower real GDP. Which of the aggregate supply curves must be the relevant curve after the change in the value of the dollar?

Accepted Answer

A) 1 
B) 2 
C) 4 
D) 5 
A) 1 
B) 2 
C) 4 
D) 5

Question 18

Joe's increase in wages has been identical to the increase in the price level. Joe thinks that he is better off and has increased his expenditures. Joe's behavior is consistent with

Accepted Answer

A) Say's law. 
B) the classical model. 
C) a vertical aggregate supply curve. 
D) money illusion. 
A) Say's law. 
B) the classical model. 
C) a vertical aggregate supply curve. 
D) money illusion.

Question 19

A temporary embargo on oil from the Middle East going in to the United States would

Accepted Answer

A) shift both the short-run and long-run aggregate supply curves to the left. 
B) shift only the long-run aggregate supply curve to the left. 
C) shift the long-run aggregate supply curve to the right. 
D) shift only the short-run aggregate supply curve to the left. 
A) shift both the short-run and long-run aggregate supply curves to the left. 
B) shift only the long-run aggregate supply curve to the left. 
C) shift the long-run aggregate supply curve to the right. 
D) shift only the short-run aggregate supply curve to the left.

Question 20

Which of the following is NOT an assumption of the classical model?

Accepted Answer

A) pure competition 
B) Wages and prices are flexible. 
C) People are motivated by self-interest. 
D) wage rigidity 
A) pure competition 
B) Wages and prices are flexible. 
C) People are motivated by self-interest. 
D) wage rigidity

An assumption of the classical model is that

The net effect of a stronger dollar on real GDP is

Which of the following decreases aggregate supply?

According to modern Keynesian analysis, an increase in aggregate demand leads to a higher price level because the

An inflationary gap occurs when

-Refer to the above figure. Suppose the economy is at E originally, when the dollar increases in value. Which aggregate supply curve applies if the value of real GDP increases?

If the full-employment level of real GDP is greater than the equilibrium level of real GDP, the nation would be experiencing a(n)

In an economy with no government and no international trade, consumption expenditures will be less than the total value of goods and services when

In the classical model, what occurs if a wage of $20/hour results in unemployed workers?

An example of an aggregate supply shock is

The short-run aggregate supply curve in modern Keynesian analysis is

The horizontal portion of the short-run aggregate supply curve in which there is excessive unemployment and unused capacity in the economy is

Which of the following is a basic difference between the classical model and the Keynesian model in which the Keynesian short-run aggregate supply curve exists?

In the modern Keynesian model, over much of its range the short-run aggregate supply (SRAS)curve is

In the classical model, changes in interest rates will always ensure that

The Keynesian short-run aggregate supply (SRAS)curve is

-Refer to the above figure. Suppose the economy is at E. A stronger dollar leads to a lower real GDP. Which of the aggregate supply curves must be the relevant curve after the change in the value of the dollar?

Joe's increase in wages has been identical to the increase in the price level. Joe thinks that he is better off and has increased his expenditures. Joe's behavior is consistent with

A temporary embargo on oil from the Middle East going in to the United States would

Which of the following is NOT an assumption of the classical model?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 10: Classical and Keynesian Macro Analyses

An assumption of the classical model is that

The net effect of a stronger dollar on real GDP is

Which of the following decreases aggregate supply?

According to modern Keynesian analysis, an increase in aggregate demand leads to a higher price level because the

An inflationary gap occurs when

-Refer to the above figure. Suppose the economy is at E originally, when the dollar increases in value. Which aggregate supply curve applies if the value of real GDP increases?

If the full-employment level of real GDP is greater than the equilibrium level of real GDP, the nation would be experiencing a(n)

In an economy with no government and no international trade, consumption expenditures will be less than the total value of goods and services when

In the classical model, what occurs if a wage of $20/hour results in unemployed workers?

An example of an aggregate supply shock is

The short-run aggregate supply curve in modern Keynesian analysis is

The horizontal portion of the short-run aggregate supply curve in which there is excessive unemployment and unused capacity in the economy is

Which of the following is a basic difference between the classical model and the Keynesian model in which the Keynesian short-run aggregate supply curve exists?

In the modern Keynesian model, over much of its range the short-run aggregate supply (SRAS)curve is

In the classical model, changes in interest rates will always ensure that

The Keynesian short-run aggregate supply (SRAS)curve is

-Refer to the above figure. Suppose the economy is at E. A stronger dollar leads to a lower real GDP. Which of the aggregate supply curves must be the relevant curve after the change in the value of the dollar?

Joe's increase in wages has been identical to the increase in the price level. Joe thinks that he is better off and has increased his expenditures. Joe's behavior is consistent with

A temporary embargo on oil from the Middle East going in to the United States would

Which of the following is NOT an assumption of the classical model?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money Banking and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters