Question 1

Which of the following changes shifts the long-run aggregate supply curve to the right?

Accepted Answer

A)  a demographic change that increases the labour supply 
B)  a decrease in the demand for labor 
C)  an increase in consumer confidence 
D)  a decrease in taxes (assuming Ricardian equivalence doesn't hold) 
A)  a demographic change that increases the labour supply 
B)  a decrease in the demand for labor 
C)  an increase in consumer confidence 
D)  a decrease in taxes (assuming Ricardian equivalence doesn't hold)

Question 2

Classical economists argue that an increase in government expenditures will

Accepted Answer

A)  shift FE line to right increasing full-employment output. 
B)  shift FE line to left decreasing full-employment output. 
C)  shift FE line to right increasing interest rate. 
D)  shift FE line to right decreasing labour supply. 
A)  shift FE line to right increasing full-employment output. 
B)  shift FE line to left decreasing full-employment output. 
C)  shift FE line to right increasing interest rate. 
D)  shift FE line to right decreasing labour supply.

Question 3

The aggregate demand curve shows the combinations of output and the price level that put the economy on

Accepted Answer

A)  the FE line and the IS curve. 
B)  the FE line, the IS curve, and the LM curve. 
C)  the IS curve. 
D)  the IS curve and the LM curve. 
A)  the FE line and the IS curve. 
B)  the FE line, the IS curve, and the LM curve. 
C)  the IS curve. 
D)  the IS curve and the LM curve.

Question 4

A rise in the price of a bond causes the yield of the bond to

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  rise if it's a short-term bond and fall if it's a long-term bond. 
A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  rise if it's a short-term bond and fall if it's a long-term bond.

Question 5

An adverse supply shock to the economy would

Accepted Answer

A)  decrease investment and raise the real interest rate whether the shock were temporary or permanent. 
B)  decrease investment, but might not raise the real interest rate if the shock were permanent. 
C)  decrease investment, but might not raise the real interest rate if the shock were temporary. 
D)  decrease investment, but definitely not raise the real interest rate. 
A)  decrease investment and raise the real interest rate whether the shock were temporary or permanent. 
B)  decrease investment, but might not raise the real interest rate if the shock were permanent. 
C)  decrease investment, but might not raise the real interest rate if the shock were temporary. 
D)  decrease investment, but definitely not raise the real interest rate.

Question 6

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to ________ and shifts the IS curve ________.

Accepted Answer

A)  increase; down 
B)  increase; up 
C)  decrease; down 
D)  decrease; up 
A)  increase; down 
B)  increase; up 
C)  decrease; down 
D)  decrease; up

Question 7

Which of the following changes shifts the AD curve to the right?

Accepted Answer

A)  a temporary decrease in government purchases 
B)  a decline in the nominal money supply 
C)  an increase in corporate taxes 
D)  an increase in consumer confidence 
A)  a temporary decrease in government purchases 
B)  a decline in the nominal money supply 
C)  an increase in corporate taxes 
D)  an increase in consumer confidence

Question 8

An expansionary fiscal policy will lead to

Accepted Answer

A)  an increase in output and an increase in the interest rate. 
B)  an increase in output and a decrease in the interest rate. 
C)  a decrease in output and an increase in the interest rate. 
D)  a decrease in output and a decrease in the interest rate. 
A)  an increase in output and an increase in the interest rate. 
B)  an increase in output and a decrease in the interest rate. 
C)  a decrease in output and an increase in the interest rate. 
D)  a decrease in output and a decrease in the interest rate.

Question 9

Classical economists believe that in the short run,

Accepted Answer

A)  money neutrality exists and prices adjust rapidly. 
B)  money neutrality does not exist and prices adjust rapidly. 
C)  money neutrality exists and prices do not adjust rapidly. 
D)  money neutrality does not exist and prices do not adjust rapidly. 
A)  money neutrality exists and prices adjust rapidly. 
B)  money neutrality does not exist and prices adjust rapidly. 
C)  money neutrality exists and prices do not adjust rapidly. 
D)  money neutrality does not exist and prices do not adjust rapidly.

Question 10

Classical economists think general equilibrium is attained relatively quickly because

Accepted Answer

A)  the real interest rate adjusts quickly. 
B)  the level of output adjusts quickly. 
C)  the real wage rate adjusts quickly. 
D)  the price level adjusts quickly. 
A)  the real interest rate adjusts quickly. 
B)  the level of output adjusts quickly. 
C)  the real wage rate adjusts quickly. 
D)  the price level adjusts quickly.

Question 11

Suppose that the following IS-LM model represents the ATA economy.
Y = Cd + Id + G
Cd = 180+0.7 (Y-T)
Id = 100 - 18 r - 0.1 Y
T= 400
G= 400
M/P = L
L= 6Y - 120 i
M = 5400
Assume expected inflation is zero and P=1.
a. Find the equation for the IS curve.
b. Find the equation for the LM curve.
c. Find the equilibrium values for output and the interest rate.
d. At this equilibrium, what is the level of consumption and investment?
e. If government purchases (G) increases to $410, find the new equilibrium values for output and the interest rate.
f. What are the effects of the fiscal expansion above on consumption and investment?
g. Using the values in (e), find the new equilibrium values for output and the interest rate if the central bank of ATA increases the money supply to 5600.
h. What are the effects of the monetary expansion above on consumption and investment?
i. Comment on the effects of the two expansionary fiscal and monetary policies above on Y, i, C and I.

Accepted Answer

a. Y = 180 + 0.7(Y-400) + 100 - 18 r + 0

Which of the following changes shifts the long-run aggregate supply curve to the right?

Classical economists argue that an increase in government expenditures will

The aggregate demand curve shows the combinations of output and the price level that put the economy on

A rise in the price of a bond causes the yield of the bond to

An adverse supply shock to the economy would

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to and shifts the IS curve .

Which of the following changes shifts the AD curve to the right?

An expansionary fiscal policy will lead to

Classical economists believe that in the short run,

Classical economists think general equilibrium is attained relatively quickly because

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

Exam 9: The IS-LMAD-AS Model: A General Framework for Macroeconomic Analysis

Which of the following changes shifts the long-run aggregate supply curve to the right?

Classical economists argue that an increase in government expenditures will

The aggregate demand curve shows the combinations of output and the price level that put the economy on

A rise in the price of a bond causes the yield of the bond to

An adverse supply shock to the economy would

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to ________ and shifts the IS curve ________.

Which of the following changes shifts the AD curve to the right?

An expansionary fiscal policy will lead to

Classical economists believe that in the short run,

Classical economists think general equilibrium is attained relatively quickly because

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to and shifts the IS curve .