Question 1

The approach to understanding the determination of real GDP and the price level that emphasizes flexible wages and prices and competitive markets is

Accepted Answer

A)  the classical model. 
B)  the Keynesian model. 
C)  Adam Smith's Law. 
D)  the aggregate demand model. 
A)  the classical model. 
B)  the Keynesian model. 
C)  Adam Smith's Law. 
D)  the aggregate demand model.

Question 2

Say's law implies that

Accepted Answer

A)  wages and prices are not flexible. 
B)  people supply goods and services to the market because they want to consume other goods and services. 
C)  government regulation is needed to prevent shortages from becoming a problem. 
D)  government regulation is needed to prevent surpluses from becoming a problem. 
A)  wages and prices are not flexible. 
B)  people supply goods and services to the market because they want to consume other goods and services. 
C)  government regulation is needed to prevent shortages from becoming a problem. 
D)  government regulation is needed to prevent surpluses from becoming a problem.

Question 3

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

Accepted Answer

A)  workers can be switched from counted to uncounted production. 
B)  existing capital equipment can be used more intensively. 
C)  wage rates rise almost simultaneously with the price level. 
D)  the unemployment rate usually rises dramatically along with the price level. 
A)  workers can be switched from counted to uncounted production. 
B)  existing capital equipment can be used more intensively. 
C)  wage rates rise almost simultaneously with the price level. 
D)  the unemployment rate usually rises dramatically along with the price level.

Question 4

If the U.S. government were to relax its restrictions on offshore oil well drilling and open drilling in Alaskan national parks, the result to aggregate supply would be to

Accepted Answer

A)  cause a shift in the SRAS to the left. 
B)  cause a shift in the LRAS to the left. 
C)  cause no long-term shifts in AS. 
D)  cause a shift in both LRAS and SRAS to the right. 
A)  cause a shift in the SRAS to the left. 
B)  cause a shift in the LRAS to the left. 
C)  cause no long-term shifts in AS. 
D)  cause a shift in both LRAS and SRAS to the right.

Question 5

The short-run aggregate supply (SRAS) curve represents the relationship between

Accepted Answer

A)  the price level and the real Gross Domestic Product (GDP) without full adjustment or full information. 
B)  the price level and the real Gross Domestic Product (GDP) without full adjustment but with full information. 
C)  the price level and the nominal Gross Domestic Product (GDP). 
D)  the decisions of producers and the decisions of consumers. 
A)  the price level and the real Gross Domestic Product (GDP) without full adjustment or full information. 
B)  the price level and the real Gross Domestic Product (GDP) without full adjustment but with full information. 
C)  the price level and the nominal Gross Domestic Product (GDP). 
D)  the decisions of producers and the decisions of consumers.

Question 6

Compare the effects of an increase in aggregate demand when the price level is fixed versus when it can change.

Accepted Answer

@#IMG-DLM& The above figure shows the effects. An

Question 7

In the short run, an increase in the price level induces firms to expand production because

Accepted Answer

A)  prices of inputs are held constant, so the higher prices for firms' products imply that it is profitable to expand production. 
B)  each firm must keep its production level up to the level of its rivals, and some firms will expand production as the price level increases. 
C)  higher prices allow firms to hire more inputs by offering higher prices for inputs, which increases productivity and profits. 
D)  they can increase profits by increasing maintenance costs. 
A)  prices of inputs are held constant, so the higher prices for firms' products imply that it is profitable to expand production. 
B)  each firm must keep its production level up to the level of its rivals, and some firms will expand production as the price level increases. 
C)  higher prices allow firms to hire more inputs by offering higher prices for inputs, which increases productivity and profits. 
D)  they can increase profits by increasing maintenance costs.

Question 8

Suppose the U.S. dollar weakens against the euro (and against other major currencies). We know with certainty that this weakening of the dollar will cause which of the following to occur?

Accepted Answer

A)  a recessionary gap 
B)  an inflationary gap 
C)  a deflationary gap 
D)  none of the above 
A)  a recessionary gap 
B)  an inflationary gap 
C)  a deflationary gap 
D)  none of the above

Question 9

A major hurricane causes production problems in Gulf Coast region of the United States. This would cause

Accepted Answer

A)  the short-run aggregate supply curve to shift to the left, but there would be no effect on the long-run aggregate supply curve. 
B)  the short-run aggregate supply curve to shift to the left, and the long-run aggregate supply curve would shift to the right. 
C)  both the short-run and the long-run aggregate supply curves to shift to the right in equal amounts. 
D)  both the short-run and the long-run aggregate supply curves to shift to the left, but the long-run aggregate supply curve would shift more than the short-run curve. 
A)  the short-run aggregate supply curve to shift to the left, but there would be no effect on the long-run aggregate supply curve. 
B)  the short-run aggregate supply curve to shift to the left, and the long-run aggregate supply curve would shift to the right. 
C)  both the short-run and the long-run aggregate supply curves to shift to the right in equal amounts. 
D)  both the short-run and the long-run aggregate supply curves to shift to the left, but the long-run aggregate supply curve would shift more than the short-run curve.

Question 10

Individuals will increase their saving as

Accepted Answer

A)  the interest rate falls. 
B)  business investment falls. 
C)  the rate of unemployment increases. 
D)  the interest rate increases. 
A)  the interest rate falls. 
B)  business investment falls. 
C)  the rate of unemployment increases. 
D)  the interest rate increases.

Question 11

As real GDP per year increases along the short-run aggregate supply (SRAS) curve, the SRAS curve

Accepted Answer

A)  becomes increasingly steep. 
B)  begins to level out. 
C)  shifts inward. 
D)  does not change. 
A)  becomes increasingly steep. 
B)  begins to level out. 
C)  shifts inward. 
D)  does not change.

Question 12

In the Keynesian model, an aggregate demand shock

Accepted Answer

A)  will cause the aggregate demand curve to shift, leading to a change in the price level and real GDP. 
B)  will cause the aggregate demand curve to shift, leading to a change in the price level but not real GDP. 
C)  will cause the aggregate demand curve to shift, leading to a change in real GDP but not the price level. 
D)  will not lead to a shift of the aggregate demand curve. 
A)  will cause the aggregate demand curve to shift, leading to a change in the price level and real GDP. 
B)  will cause the aggregate demand curve to shift, leading to a change in the price level but not real GDP. 
C)  will cause the aggregate demand curve to shift, leading to a change in real GDP but not the price level. 
D)  will not lead to a shift of the aggregate demand curve.

Question 13

According to Keynes, the "stickiness" of wage rates could best be explained by

Accepted Answer

A)  minimum wage laws. 
B)  unions and long-term labor contracts. 
C)  short-term labor contracts. 
D)  government interference. 
A)  minimum wage laws. 
B)  unions and long-term labor contracts. 
C)  short-term labor contracts. 
D)  government interference.

Question 14

A change in tastes for U.S. produced goods will

Accepted Answer

A)  shift both the aggregate demand curve and the long-run aggregate supply curve. 
B)  shift the aggregate demand curve. 
C)  shift the short-run aggregate supply curve. 
D)  shift the long-run aggregate supply curve. 
A)  shift both the aggregate demand curve and the long-run aggregate supply curve. 
B)  shift the aggregate demand curve. 
C)  shift the short-run aggregate supply curve. 
D)  shift the long-run aggregate supply curve.

Question 15

According to the circular flow of income and output, saving causes

Accepted Answer

A)  total output to fall. 
B)  consumption expenditures and total output to fall. 
C)  consumption expenditures to fall short of total output. 
D)  investment spending to fall. 
A)  total output to fall. 
B)  consumption expenditures and total output to fall. 
C)  consumption expenditures to fall short of total output. 
D)  investment spending to fall.

Question 16

In the classical model, an increase in aggregate demand will lead to an increase in wage rates while a decrease in aggregate demand will

Accepted Answer

A)  leave wages unchanged since workers will not take a cut in pay. 
B)  decrease wages. 
C)  increase wages since business will be desperate for labor. 
D)  change the price of capital. 
A)  leave wages unchanged since workers will not take a cut in pay. 
B)  decrease wages. 
C)  increase wages since business will be desperate for labor. 
D)  change the price of capital.

Question 17

Money illusion is

Accepted Answer

A)  a basic condition that all classical economists assume people have. 
B)  when people think they are better off when their income increases even though prices have increased by the same amount. 
C)  when people are motivated by self-interest. 
D)  could not exist if the economy did not have competitive markets. 
A)  a basic condition that all classical economists assume people have. 
B)  when people think they are better off when their income increases even though prices have increased by the same amount. 
C)  when people are motivated by self-interest. 
D)  could not exist if the economy did not have competitive markets.

Question 18

Which one of the following statements is true?

Accepted Answer

A)  The classical model cannot explain periods of prolonged unemployment. 
B)  The Keynesian model cannot explain periods of prolonged unemployment. 
C)  The Keynesian model assumes complete flexibility of wages and prices. 
D)  The Keynesian model shows that the level of real GDP is supply-determined. 
A)  The classical model cannot explain periods of prolonged unemployment. 
B)  The Keynesian model cannot explain periods of prolonged unemployment. 
C)  The Keynesian model assumes complete flexibility of wages and prices. 
D)  The Keynesian model shows that the level of real GDP is supply-determined.

Question 19

Keynes and his followers believed that

Accepted Answer

A)  capitalism was one economic system that guaranteed full employment. 
B)  wages and prices in the short run were flexible. 
C)  the economy could not operate at any level of real Gross Domestic Product (GDP) less than full capacity. 
D)  there was no guarantee that a capitalist economy would reach a full employment equilibrium. 
A)  capitalism was one economic system that guaranteed full employment. 
B)  wages and prices in the short run were flexible. 
C)  the economy could not operate at any level of real Gross Domestic Product (GDP) less than full capacity. 
D)  there was no guarantee that a capitalist economy would reach a full employment equilibrium.

Question 20

Which of the following actions would cause the aggregate demand curve to shift to the left?

Accepted Answer

A)  an increase in consumer spending caused by a cut in the personal income tax rate 
B)  an increase in government spending caused by increased spending on highways and bridge construction 
C)  a decrease net export spending caused by an appreciation of the home currency 
D)  an increase in exports caused by an increase in economic activity in the European Union 
A)  an increase in consumer spending caused by a cut in the personal income tax rate 
B)  an increase in government spending caused by increased spending on highways and bridge construction 
C)  a decrease net export spending caused by an appreciation of the home currency 
D)  an increase in exports caused by an increase in economic activity in the European Union

Exam 11: Classical and Keynesian Macro Analyses

The approach to understanding the determination of real GDP and the price level that emphasizes flexible wages and prices and competitive markets is

Say's law implies that

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

If the U.S. government were to relax its restrictions on offshore oil well drilling and open drilling in Alaskan national parks, the result to aggregate supply would be to

The short-run aggregate supply (SRAS) curve represents the relationship between

Compare the effects of an increase in aggregate demand when the price level is fixed versus when it can change.

In the short run, an increase in the price level induces firms to expand production because

Suppose the U.S. dollar weakens against the euro (and against other major currencies). We know with certainty that this weakening of the dollar will cause which of the following to occur?

A major hurricane causes production problems in Gulf Coast region of the United States. This would cause

Individuals will increase their saving as

As real GDP per year increases along the short-run aggregate supply (SRAS) curve, the SRAS curve

In the Keynesian model, an aggregate demand shock

According to Keynes, the "stickiness" of wage rates could best be explained by

A change in tastes for U.S. produced goods will

According to the circular flow of income and output, saving causes

In the classical model, an increase in aggregate demand will lead to an increase in wage rates while a decrease in aggregate demand will

Money illusion is

Which one of the following statements is true?

Keynes and his followers believed that

Which of the following actions would cause the aggregate demand curve to shift to the left?

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

Measuring the Economys Performance

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

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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