Question 1

Say's law explains

Accepted Answer

A) how long-term real Gross Domestic Product (GDP)stability is achieved in the classical model. 
B) how long-run real Gross Domestic Product (GDP)stability is achieved in the Keynesian model. 
C) how the economy can go into recession. 
D) why economies experience business cycles. 
A) how long-term real Gross Domestic Product (GDP)stability is achieved in the classical model. 
B) how long-run real Gross Domestic Product (GDP)stability is achieved in the Keynesian model. 
C) how the economy can go into recession. 
D) why economies experience business cycles.

Question 2

According to classical theory, full employment in the labor market occurs

Accepted Answer

A) whenever aggregate demand is less than aggregate supply. 
B) at a wage rate at which quantity demanded equals quantity supplied. 
C) only when the economy has just experienced a demand shock. 
D) only when actual expenditures are greater than desired expenditures. 
A) whenever aggregate demand is less than aggregate supply. 
B) at a wage rate at which quantity demanded equals quantity supplied. 
C) only when the economy has just experienced a demand shock. 
D) only when actual expenditures are greater than desired expenditures.

Question 3

According to Say's law

Accepted Answer

A) supply creates its own demand. 
B) demand creates supply. 
C) changes in supply create supply-side inflation. 
D) changes in demand create demand-side inflation. 
A) supply creates its own demand. 
B) demand creates supply. 
C) changes in supply create supply-side inflation. 
D) changes in demand create demand-side inflation.

Question 4

Which of the following is NOT true according to Say's law?

Accepted Answer

A) Supply creates its own demand. 
B) No overproduction is possible in a market economy in the long run. 
C) Desired expenditures will always be higher than actual expenditures. 
D) Producing goods and services generates the means and the willingness to purchase other goods and services. 
A) Supply creates its own demand. 
B) No overproduction is possible in a market economy in the long run. 
C) Desired expenditures will always be higher than actual expenditures. 
D) Producing goods and services generates the means and the willingness to purchase other goods and services.

Question 5

If a consumer buys less gasoline because gas prices increased by 100 percent, even though all other prices have also increased by 100 percent, then

Accepted Answer

A) the consumer is paying too close attention to changes in relative prices. 
B) wages and prices are too flexible. 
C) the consumer has been fooled by money illusion. 
D) inflation is not a problem in the economy. 
A) the consumer is paying too close attention to changes in relative prices. 
B) wages and prices are too flexible. 
C) the consumer has been fooled by money illusion. 
D) inflation is not a problem in the economy.

Question 6

The Keynesian short-run aggregate supply (SRAS)curve

Accepted Answer

A) shows that real Gross Domestic Product (GDP)will increase only if the price level increases. 
B) assumes a full-employment level of real Gross Domestic Product (GDP). 
C) is horizontal. 
D) does not reflect any changes in nominal Gross Domestic Product (GDP). 
A) shows that real Gross Domestic Product (GDP)will increase only if the price level increases. 
B) assumes a full-employment level of real Gross Domestic Product (GDP). 
C) is horizontal. 
D) does not reflect any changes in nominal Gross Domestic Product (GDP).

Question 7

If your income and the price level both rise by 5 percent, and you think you now have more real income, you are suffering from

Accepted Answer

A) diminishing marginal expectations. 
B) leakages. 
C) injections. 
D) money illusion. 
A) diminishing marginal expectations. 
B) leakages. 
C) injections. 
D) money illusion.

Question 8

A temporary increase in the price of oil would

Accepted Answer

A) increase both short-run and long-run aggregate supply. 
B) increase short-run aggregate supply and decrease long-run aggregate supply. 
C) decrease short-run aggregate supply and leave long-run aggregate supply unchanged. 
D) decrease both short-run and long-run aggregate supply. 
A) increase both short-run and long-run aggregate supply. 
B) increase short-run aggregate supply and decrease long-run aggregate supply. 
C) decrease short-run aggregate supply and leave long-run aggregate supply unchanged. 
D) decrease both short-run and long-run aggregate supply.

Question 9

According to classical theory, any changes in aggregate demand will

Accepted Answer

A) lead to changes in the price level. 
B) lead to changes in real Gross Domestic Product (GDP), but not in the price level. 
C) lead to changes in both real Gross Domestic Product (GDP)and the price level. 
D) have no affect on prices or real Gross Domestic Product (GDP). 
A) lead to changes in the price level. 
B) lead to changes in real Gross Domestic Product (GDP), but not in the price level. 
C) lead to changes in both real Gross Domestic Product (GDP)and the price level. 
D) have no affect on prices or real Gross Domestic Product (GDP).

Question 10

The short-run aggregate supply curve is positively sloped because

Accepted Answer

A) real interest rates rather than nominal rates are used. 
B) some price adjustments take place in the short-run. 
C) no price adjustments take place in the short-run. 
D) complete price adjustments take place in the short-run. 
A) real interest rates rather than nominal rates are used. 
B) some price adjustments take place in the short-run. 
C) no price adjustments take place in the short-run. 
D) complete price adjustments take place in the short-run.

Question 11

When the value of the dollar increases, the net effect on the economy

Accepted Answer

A) will be an increase in short-run aggregate supply and a decrease in aggregate demand. 
B) will be decrease in short-run aggregate supply and an increase in aggregate demand. 
C) will be an increase in both aggregate demand and aggregate supply. 
D) will be a decrease in both aggregate demand and aggregate supply. 
A) will be an increase in short-run aggregate supply and a decrease in aggregate demand. 
B) will be decrease in short-run aggregate supply and an increase in aggregate demand. 
C) will be an increase in both aggregate demand and aggregate supply. 
D) will be a decrease in both aggregate demand and aggregate supply.

Question 12

In the classical model, a change in aggregate demand

Accepted Answer

A) causes a change in long-run real GDP but not in the price level. 
B) causes a change in the price level but not in the long-run real GDP. 
C) causes changes in both the long-run real GDP and in the price level. 
D) has no effect on either real GDP or the price level. 
A) causes a change in long-run real GDP but not in the price level. 
B) causes a change in the price level but not in the long-run real GDP. 
C) causes changes in both the long-run real GDP and in the price level. 
D) has no effect on either real GDP or the price level.

Question 13

A permanent reduction in international trade barriers would

Accepted Answer

A) decrease long-run aggregate supply. 
B) increase long-run aggregate supply. 
C) decrease aggregate demand. 
D) increase aggregate demand. 
A) decrease long-run aggregate supply. 
B) increase long-run aggregate supply. 
C) decrease aggregate demand. 
D) increase aggregate demand.

Question 14

Which of the following would increase aggregate supply?

Accepted Answer

A) increased training and education 
B) a reduction in input prices 
C) a discovery of new raw materials 
D) all of the above 
A) increased training and education 
B) a reduction in input prices 
C) a discovery of new raw materials 
D) all of the above

Question 15

According to Keynes, involuntary unemployment is possible because of

Accepted Answer

A) the existence of capital markets. 
B) long-term labor contracts and the existence of labor unions. 
C) government interference in the market economy. 
D) inflation. 
A) the existence of capital markets. 
B) long-term labor contracts and the existence of labor unions. 
C) government interference in the market economy. 
D) inflation.

Question 16

Which one of the following statements is NOT true?

Accepted Answer

A) The classical model assumes that people suffer from money illusion. 
B) The classical model assumes that people are motivated by self-interest. 
C) The classical model assumes that pure competition exists. 
D) The classical model assumes that no single seller of a commodity can affect its price. 
A) The classical model assumes that people suffer from money illusion. 
B) The classical model assumes that people are motivated by self-interest. 
C) The classical model assumes that pure competition exists. 
D) The classical model assumes that no single seller of a commodity can affect its price.

Question 17

Which one of the following statements is TRUE?

Accepted Answer

A) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the classical model. 
B) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model. 
C) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the idea that increases in aggregate demand will increase the price level but will leave real GDP unchanged. 
D) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with a vertical short-run aggregate supply curve. 
A) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the classical model. 
B) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model. 
C) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the idea that increases in aggregate demand will increase the price level but will leave real GDP unchanged. 
D) The actual behavior of prices and real GDP during the decade of the 1930s is consistent with a vertical short-run aggregate supply curve.

Question 18

Classical economists assumed that

Accepted Answer

A) prices were sticky. 
B) individuals suffered from money illusion. 
C) wages were inflexible. 
D) none of the above. 
A) prices were sticky. 
B) individuals suffered from money illusion. 
C) wages were inflexible. 
D) none of the above.

Question 19

-Consider the above figure. If the aggregate demand fell from AD₁ to AD₂, our nation would be experiencing

Accepted Answer

A) an inflationary gap. 
B) a recessionary gap. 
C) overemployment. 
D) rising prices. 
A) an inflationary gap. 
B) a recessionary gap. 
C) overemployment. 
D) rising prices.

Question 20

A short-run equilibrium occurs

Accepted Answer

A) at the intersection of the long-run aggregate supply curve and the aggregate demand curve. 
B) at the intersection of the short-run aggregate supply curve and the long-run aggregate supply curve. 
C) at the intersection of the short-run aggregate supply curve and the aggregate demand curve. 
D) at the real GDP associated with full employment. 
A) at the intersection of the long-run aggregate supply curve and the aggregate demand curve. 
B) at the intersection of the short-run aggregate supply curve and the long-run aggregate supply curve. 
C) at the intersection of the short-run aggregate supply curve and the aggregate demand curve. 
D) at the real GDP associated with full employment.

Say's law explains

According to classical theory, full employment in the labor market occurs

According to Say's law

Which of the following is NOT true according to Say's law?

If a consumer buys less gasoline because gas prices increased by 100 percent, even though all other prices have also increased by 100 percent, then

The Keynesian short-run aggregate supply (SRAS)curve

If your income and the price level both rise by 5 percent, and you think you now have more real income, you are suffering from

A temporary increase in the price of oil would

According to classical theory, any changes in aggregate demand will

The short-run aggregate supply curve is positively sloped because

When the value of the dollar increases, the net effect on the economy

In the classical model, a change in aggregate demand

A permanent reduction in international trade barriers would

Which of the following would increase aggregate supply?

According to Keynes, involuntary unemployment is possible because of

Which one of the following statements is NOT true?

Which one of the following statements is TRUE?

Classical economists assumed that

-Consider the above figure. If the aggregate demand fell from AD₁ to AD₂, our nation would be experiencing

A short-run equilibrium occurs

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

Say's law explains

According to classical theory, full employment in the labor market occurs

According to Say's law

Which of the following is NOT true according to Say's law?

If a consumer buys less gasoline because gas prices increased by 100 percent, even though all other prices have also increased by 100 percent, then

The Keynesian short-run aggregate supply (SRAS)curve

If your income and the price level both rise by 5 percent, and you think you now have more real income, you are suffering from

A temporary increase in the price of oil would

According to classical theory, any changes in aggregate demand will

The short-run aggregate supply curve is positively sloped because

When the value of the dollar increases, the net effect on the economy

In the classical model, a change in aggregate demand

A permanent reduction in international trade barriers would

Which of the following would increase aggregate supply?

According to Keynes, involuntary unemployment is possible because of

Which one of the following statements is NOT true?

Which one of the following statements is TRUE?

Classical economists assumed that

-Consider the above figure. If the aggregate demand fell from AD₁ to AD₂, our nation would be experiencing

A short-run equilibrium occurs

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