Question 1

The Keynesian theory of nominal wage rigidity predicts that

Accepted Answer

A)  the real wage is countercyclical. 
B)  the real wage is procyclical. 
C)  the real wage is acyclical. 
D)  the real wage is constant. 
A)  the real wage is countercyclical. 
B)  the real wage is procyclical. 
C)  the real wage is acyclical. 
D)  the real wage is constant.

Question 2

Consider the following short run aggregate supply equation: Y= $ \hat{\mathrm{Y}} $+ b (P - Pe), where Y is the real output, $ \hat{\mathrm{Y}} $ is the full employment output, P and Pe are the actual and expected price levels, respectively. Which of the following is correct?

Accepted Answer

A)  In the Keynesian model, b is positive because of the sticky wage assumption. 
B)  In the Keynesian model, b is zero because of the sticky wage assumption. 
C)  In the classical model, b is zero because of the price misperception assumption. 
D)  Both A and C are correct. 
A)  In the Keynesian model, b is positive because of the sticky wage assumption. 
B)  In the Keynesian model, b is zero because of the sticky wage assumption. 
C)  In the classical model, b is zero because of the price misperception assumption. 
D)  Both A and C are correct.

Question 3

When the demand for an imperfect competitor's product is greater than it planned, the firm will

Accepted Answer

A)  increase the price of the product until supply equals demand. 
B)  meet the demand at its set price. 
C)  reduce the price until supply equals demand. 
D)  allow a shortage of the product to develop, without changing the product's price. 
A)  increase the price of the product until supply equals demand. 
B)  meet the demand at its set price. 
C)  reduce the price until supply equals demand. 
D)  allow a shortage of the product to develop, without changing the product's price.

Question 4

In the Keynesian model of the business cycles,

Accepted Answer

A)  unanticipated changes in government expenditures cause output to change by change in real wage. 
B)  anticipated changes in government expenditures cause output to change by changes in real wage. 
C)  anticipated changes in money supply cause output to change by changes in real wage. 
D)  anticipated or unanticipated changes in money supply cause output to change by changes in real wage. 
A)  unanticipated changes in government expenditures cause output to change by change in real wage. 
B)  anticipated changes in government expenditures cause output to change by changes in real wage. 
C)  anticipated changes in money supply cause output to change by changes in real wage. 
D)  anticipated or unanticipated changes in money supply cause output to change by changes in real wage.

Question 5

You are the liaison between the Bank of Canada and the Department of Finance. Your goal is to coordinate policy efforts to achieve full-employment output in the economy while keeping a fixed real interest rate. You must recommend tightening or easing both monetary and fiscal policies to do this. What would your recommendation be in each of the following situations?
a. People decide to increase saving.
b. Expected inflation declines.
c. The future marginal productivity of capital declines.
d. There's an adverse oil price shock in which the LM curve moves farther to the left than does the FE line

Accepted Answer

a. Loosen fiscal policy, no change in mo

Question 6

In the Keynesian model in the short run, an increase in the money supply will cause

Accepted Answer

A)  an increase in output and a decrease in the real interest rate. 
B)  a decrease in the real interest rate but no change in output. 
C)  an increase in the real interest rate and an increase in output. 
D)  no change in either the real interest rate or output. 
A)  an increase in output and a decrease in the real interest rate. 
B)  a decrease in the real interest rate but no change in output. 
C)  an increase in the real interest rate and an increase in output. 
D)  no change in either the real interest rate or output.

Question 7

The effort of a firm's workers depends on their real wage according to the following schedule: $$\begin{array} { c c } 
\text { Real wage } & \text { Effort } ( E ) \
\hline 16 & 10 \
17 & 13 \
18 & 18 \
19 & 22 \
20 & 25 \
21 & 26 \
\hline
\end{array}$$ The marginal product of labour is MPN = E(400 - 4N)/30.
a. What is the efficiency wage?
b. How many workers will the firm hire?
c. Suppose an adverse productivity shock reduces the marginal product of labour to
MPN = E(360 - 4N)/30. How would your answers to parts (a) and (b) change?

Accepted Answer

The following table shows the real wage

Question 8

The economy is currently in a recession due to a reduction in consumer confidence. Output and the real interest rate are below their levels prior to the recession. Six months later the economy has returned to its equilibrium level of output and the previous interest rate. Which of the following must have happened?

Accepted Answer

A)  The government did not intervene in the economy. 
B)  The government increased the money supply. 
C)  The government decreased the money supply. 
D)  The government increased purchases of goods. 
A)  The government did not intervene in the economy. 
B)  The government increased the money supply. 
C)  The government decreased the money supply. 
D)  The government increased purchases of goods.

Question 9

Which one of the following describes Keynesians' rationale for the positively sloped SRAS?

Accepted Answer

A)  Nominal wages are fixed for the term of labour contracts, but price level changes, leading to a change in real wages and output. 
B)  Demand for labour increases as prices and therefore profits increase. 
C)  Workers prefer longer term contracts because of job security. 
D)  There is misperception about the relative price levels. 
A)  Nominal wages are fixed for the term of labour contracts, but price level changes, leading to a change in real wages and output. 
B)  Demand for labour increases as prices and therefore profits increase. 
C)  Workers prefer longer term contracts because of job security. 
D)  There is misperception about the relative price levels.

Question 10

The crowding-out effect refers to a situation where

Accepted Answer

A)  an easy fiscal policy reduces interest rate and increases investment. 
B)  an easy monetary policy reduces interest rate and increases investment. 
C)  an easy fiscal policy increases interest rate and decreases investment. 
D)  an easy monetary policy increases interest rate and decreases investment. 
A)  an easy fiscal policy reduces interest rate and increases investment. 
B)  an easy monetary policy reduces interest rate and increases investment. 
C)  an easy fiscal policy increases interest rate and decreases investment. 
D)  an easy monetary policy increases interest rate and decreases investment.

Question 11

The Keynesian theory is consistent with the business cycle fact that inflation is

Accepted Answer

A)  procyclical and leading. 
B)  procyclical and lagging. 
C)  countercyclical and leading. 
D)  countercyclical and lagging. 
A)  procyclical and leading. 
B)  procyclical and lagging. 
C)  countercyclical and leading. 
D)  countercyclical and lagging.

Question 12

The idea that firms retain some workers in a recession, whom they would otherwise lay off, to avoid the costs of hiring and training, is called

Accepted Answer

A)  the gift exchange motive. 
B)  worker pooling. 
C)  labour hoarding. 
D)  union busting. 
A)  the gift exchange motive. 
B)  worker pooling. 
C)  labour hoarding. 
D)  union busting.

Question 13

A Keynesian economy is described by the following equations:
Cd = 250 + 0.5(Y - T) - 250r
Id = 250 - 250r
G = 300
T = 300
L = 0.5Y - 500r + πe
 M = 3000
Y = 1250
 πe = 0
a. Calculate the values of the real interest rate, the price level, consumption, and investment for the economy in general equilibrium.
b. Now suppose government purchases increase to 350 with no change in taxes. What will be the real interest rate, the price level, output, consumption, and investment in the short run?
c. What will be the real interest rate, the price level, output, consumption, and investment in the long run?

Accepted Answer

a. r = .05, P = 5, C = 712.5,

Question 14

Which of the following is true in the Keynesian model?

Accepted Answer

A)  An easy fiscal policy affects output despite the effect of fiscal policy on the interest rates. 
B)  An easy monetary policy is associated with an increase in interest rates. 
C)  An easy fiscal policy is associated with a decrease in interest rates. 
D)  An easy monetary policy will lead to crowding-out effect. 
A)  An easy fiscal policy affects output despite the effect of fiscal policy on the interest rates. 
B)  An easy monetary policy is associated with an increase in interest rates. 
C)  An easy fiscal policy is associated with a decrease in interest rates. 
D)  An easy monetary policy will lead to crowding-out effect.

Question 15

Consider the following short run aggregate supply equation: Y= $ \hat{\mathrm{Y}} $ + b (P - Pe), where Y is the real output, $ \hat{\mathrm{Y}} $ is the full employment output, P and Pe are the actual and expected price levels, respectively. Which of the following is correct?

Accepted Answer

A)  In the classical model, P is always equal to Pe because of price misperception assumption. 
B)  In the classical model, P may be different than Pe because of price misperception assumption. 
C)  In the classical model, P is always greater than Pe because of price misperception assumption. 
D)  In the classical model, P is always less than Pe because of price misperception assumption. 
A)  In the classical model, P is always equal to Pe because of price misperception assumption. 
B)  In the classical model, P may be different than Pe because of price misperception assumption. 
C)  In the classical model, P is always greater than Pe because of price misperception assumption. 
D)  In the classical model, P is always less than Pe because of price misperception assumption.

Question 16

Discuss the major problems that arise in practice in attempting to use aggregate demand management to stabilize the economy.

Accepted Answer

There are problems in gauging

Question 17

Using the Keynesian model, the effect of a government-imposed ceiling on interest rates paid on personal chequing accounts that is lower than the current market interest rate would be to cause ________ in the real interest rate and ________ in output in the short run.

Accepted Answer

A)  a decrease; a decrease 
B)  a decrease; no change 
C)  a decrease; an increase 
D)  an increase; a decrease 
A)  a decrease; a decrease 
B)  a decrease; no change 
C)  a decrease; an increase 
D)  an increase; a decrease

Question 18

According to Keynesians, the primary source of business cycle fluctuations is

Accepted Answer

A)  aggregate demand shocks. 
B)  productivity shocks. 
C)  oil price shocks. 
D)  consumer confidence shocks. 
A)  aggregate demand shocks. 
B)  productivity shocks. 
C)  oil price shocks. 
D)  consumer confidence shocks.

Question 19

In the Keynesian model, the short run aggregate supply curve is

Accepted Answer

A)  perfectly horizontal. 
B)  upward sloping, but relatively flat. 
C)  upward sloping, but relatively steep. 
D)  perfectly vertical. 
A)  perfectly horizontal. 
B)  upward sloping, but relatively flat. 
C)  upward sloping, but relatively steep. 
D)  perfectly vertical.

Question 20

The recent experience in Japan was characterized by ________ monetary policy and ________ fiscal policy.

Accepted Answer

A)  tight; easy 
B)  tight; tight 
C)  easy; easy 
D)  easy; tight 
A)  tight; easy 
B)  tight; tight 
C)  easy; easy 
D)  easy; tight

The Keynesian theory of nominal wage rigidity predicts that

Consider the following short run aggregate supply equation: Y= $\hat{\mathrm{Y}}$ + b (P - P^e), where Y is the real output, $\hat{\mathrm{Y}}$ is the full employment output, P and P^eare the actual and expected price levels, respectively^. Which of the following is correct?

When the demand for an imperfect competitor's product is greater than it planned, the firm will

In the Keynesian model of the business cycles,

In the Keynesian model in the short run, an increase in the money supply will cause

Which one of the following describes Keynesians' rationale for the positively sloped SRAS?

The crowding-out effect refers to a situation where

The Keynesian theory is consistent with the business cycle fact that inflation is

The idea that firms retain some workers in a recession, whom they would otherwise lay off, to avoid the costs of hiring and training, is called

Which of the following is true in the Keynesian model?

Consider the following short run aggregate supply equation: Y= $\hat{\mathrm{Y}}$ + b (P - P^e), where Y is the real output, $\hat{\mathrm{Y}}$ is the full employment output, P and P^eare the actual and expected price levels, respectively^. Which of the following is correct?

Discuss the major problems that arise in practice in attempting to use aggregate demand management to stabilize the economy.

Using the Keynesian model, the effect of a government-imposed ceiling on interest rates paid on personal chequing accounts that is lower than the current market interest rate would be to cause in the real interest rate and in output in the short run.

According to Keynesians, the primary source of business cycle fluctuations is

In the Keynesian model, the short run aggregate supply curve is

The recent experience in Japan was characterized by monetary policy and fiscal policy.

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

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

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

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

Exam 12: Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics

The Keynesian theory of nominal wage rigidity predicts that

Consider the following short run aggregate supply equation: Y= Y^ \hat{\mathrm{Y}} Y^ + b (P - Pe), where Y is the real output, Y^ \hat{\mathrm{Y}} Y^ is the full employment output, P and Pe are the actual and expected price levels, respectively. Which of the following is correct?

When the demand for an imperfect competitor's product is greater than it planned, the firm will

In the Keynesian model of the business cycles,

In the Keynesian model in the short run, an increase in the money supply will cause

Which one of the following describes Keynesians' rationale for the positively sloped SRAS?

The crowding-out effect refers to a situation where

The Keynesian theory is consistent with the business cycle fact that inflation is

The idea that firms retain some workers in a recession, whom they would otherwise lay off, to avoid the costs of hiring and training, is called

Which of the following is true in the Keynesian model?

Consider the following short run aggregate supply equation: Y= Y^ \hat{\mathrm{Y}} Y^ + b (P - Pe), where Y is the real output, Y^ \hat{\mathrm{Y}} Y^ is the full employment output, P and Pe are the actual and expected price levels, respectively. Which of the following is correct?

Discuss the major problems that arise in practice in attempting to use aggregate demand management to stabilize the economy.

Using the Keynesian model, the effect of a government-imposed ceiling on interest rates paid on personal chequing accounts that is lower than the current market interest rate would be to cause ________ in the real interest rate and ________ in output in the short run.

According to Keynesians, the primary source of business cycle fluctuations is

In the Keynesian model, the short run aggregate supply curve is

The recent experience in Japan was characterized by ________ monetary policy and ________ fiscal policy.

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

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

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

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

Consider the following short run aggregate supply equation: Y= $\hat{\mathrm{Y}}$ + b (P - P^e), where Y is the real output, $\hat{\mathrm{Y}}$ is the full employment output, P and P^eare the actual and expected price levels, respectively^. Which of the following is correct?

Consider the following short run aggregate supply equation: Y= $\hat{\mathrm{Y}}$ + b (P - P^e), where Y is the real output, $\hat{\mathrm{Y}}$ is the full employment output, P and P^eare the actual and expected price levels, respectively^. Which of the following is correct?

Using the Keynesian model, the effect of a government-imposed ceiling on interest rates paid on personal chequing accounts that is lower than the current market interest rate would be to cause in the real interest rate and in output in the short run.

The recent experience in Japan was characterized by monetary policy and fiscal policy.