Question 1

In the classical model,

Accepted Answer

A)  the level of real GDP per year does not depend on the level of aggregate demand. 
B)  the level of GDP is demand determined. 
C)  changes in aggregate supply affect the price level, not real GDP. 
D)  the level of GDP determines prices independent of demand. 
A)  the level of real GDP per year does not depend on the level of aggregate demand. 
B)  the level of GDP is demand determined. 
C)  changes in aggregate supply affect the price level, not real GDP. 
D)  the level of GDP determines prices independent of demand.

Question 2

In the classical model, the aggregate supply curve

Accepted Answer

A)  is horizontal. 
B)  is positively sloped. 
C)  is consistent with the natural rate of unemployment. 
D)  is not related to the employment rate. 
A)  is horizontal. 
B)  is positively sloped. 
C)  is consistent with the natural rate of unemployment. 
D)  is not related to the employment rate.

Question 3

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 4

Inflation caused by continually decreasing short-run aggregate supply is

Accepted Answer

A)  cost-pull inflation. 
B)  cost-push inflation. 
C)  demand-pull inflation. 
D)  demand-push inflation. 
A)  cost-pull inflation. 
B)  cost-push inflation. 
C)  demand-pull inflation. 
D)  demand-push inflation.

Question 5

In the classical model, the aggregate supply curve is

Accepted Answer

A)  a horizontal line. 
B)  an upward sloping line. 
C)  a vertical line. 
D)  a combination of horizontal, upward sloping, and vertical lines. 
A)  a horizontal line. 
B)  an upward sloping line. 
C)  a vertical line. 
D)  a combination of horizontal, upward sloping, and vertical lines.

Question 6

-Refer to the above figure. An increase in aggregate demand between real Gross Domestic Product (GDP) levels Y0 and Y1

Accepted Answer

A)  would most likely result in some inflation. 
B)  would not increase output since the economy is already working at full capacity. 
C)  would have no effect on the price level. 
D)  would cause price levels to fall. 
A)  would most likely result in some inflation. 
B)  would not increase output since the economy is already working at full capacity. 
C)  would have no effect on the price level. 
D)  would cause price levels to fall.

Question 7

Saving represents

Accepted Answer

A)  a source of funds for business investment. 
B)  a normal part of the circular flow of income and output. 
C)  an injection to the circular flow of income and output. 
D)  a counter-example to Say's Law that the classical economists never considered. 
A)  a source of funds for business investment. 
B)  a normal part of the circular flow of income and output. 
C)  an injection to the circular flow of income and output. 
D)  a counter-example to Say's Law that the classical economists never considered.

Question 8

A congressman states, "If a government attempts to increase employment through increased government spending, all we will end up with is a higher price level." This congressman assumes that the

Accepted Answer

A)  aggregate demand curve is a horizontal line. 
B)  aggregate demand curve is a vertical line. 
C)  aggregate supply curve is a horizontal line. 
D)  aggregate supply curve is a vertical line. 
A)  aggregate demand curve is a horizontal line. 
B)  aggregate demand curve is a vertical line. 
C)  aggregate supply curve is a horizontal line. 
D)  aggregate supply curve is a vertical line.

Question 9

The classical model assumes that

Accepted Answer

A)  imperfect competition predominates in most markets. 
B)  people have money illusion. 
C)  wages and prices are flexible. 
D)  wages are flexible but prices are not. 
A)  imperfect competition predominates in most markets. 
B)  people have money illusion. 
C)  wages and prices are flexible. 
D)  wages are flexible but prices are not.

Question 10

The simplified Keynesian model

Accepted Answer

A)  holds the price level constant. 
B)  holds real GDP constant. 
C)  assumes investment and saving are always equal. 
D)  assumes unemployment is unrelated to real GDP. 
A)  holds the price level constant. 
B)  holds real GDP constant. 
C)  assumes investment and saving are always equal. 
D)  assumes unemployment is unrelated to real GDP.

Question 11

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

Accepted Answer

A)  Wages and prices are flexible. 
B)  People are motivated by self-interest. 
C)  Money illusion exists. 
D)  Pure competition exists. 
A)  Wages and prices are flexible. 
B)  People are motivated by self-interest. 
C)  Money illusion exists. 
D)  Pure competition exists.

Question 12

All of the following will shift the short-run aggregate supply (SRAS) curve EXCEPT

Accepted Answer

A)  a change in the price level. 
B)  a change in the price of labor. 
C)  a change in the price of a needed raw material. 
D)  technological progress. 
A)  a change in the price level. 
B)  a change in the price of labor. 
C)  a change in the price of a needed raw material. 
D)  technological progress.

Question 13

According to Keynes, the classical model could not explain

Accepted Answer

A)  a recession or depression. 
B)  periods of rising unemployment. 
C)  a long-term economic decline. 
D)  periods of rising interest rates. 
A)  a recession or depression. 
B)  periods of rising unemployment. 
C)  a long-term economic decline. 
D)  periods of rising interest rates.

Question 14

An inflationary gap is the amount by which

Accepted Answer

A)  total planned production exceeds total planned real expenditures in the long run. 
B)  the short-run equilibrium level of nominal GDP is above the short-run level of real GDP. 
C)  the short-run equilibrium level of nominal GDP is below the short-run level of real GDP. 
D)  the short-run equilibrium level of real GDP is above the full-employment level of real GDP. 
A)  total planned production exceeds total planned real expenditures in the long run. 
B)  the short-run equilibrium level of nominal GDP is above the short-run level of real GDP. 
C)  the short-run equilibrium level of nominal GDP is below the short-run level of real GDP. 
D)  the short-run equilibrium level of real GDP is above the full-employment level of real GDP.

Question 15

When the value of the dollar decreases, 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 16

In the classical model, high unemployment due to a change in aggregate demand

Accepted Answer

A)  can persist for an indefinite period of time. 
B)  will return to its normal level quickly as wages adjust. 
C)  will persist if due to a supply shock but not if due to a demand shock. 
D)  never exists because unemployment can never deviate from its normal level. 
A)  can persist for an indefinite period of time. 
B)  will return to its normal level quickly as wages adjust. 
C)  will persist if due to a supply shock but not if due to a demand shock. 
D)  never exists because unemployment can never deviate from its normal level.

Question 17

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 18

Which of the following will NOT shift the short-run aggregate supply (SRAS) curve?

Accepted Answer

A)  A change in the wage rate 
B)  Technological progress 
C)  A reduction in the price of a raw material 
D)  A change in the price level 
A)  A change in the wage rate 
B)  Technological progress 
C)  A reduction in the price of a raw material 
D)  A change in the price level

Question 19

If the price level should increase in the near term due to decreases in the short-run aggregate supply, the result would be

Accepted Answer

A)  demand-pull inflation. 
B)  demand-pull recession. 
C)  cost-push inflation. 
D)  cost-pull expansion. 
A)  demand-pull inflation. 
B)  demand-pull recession. 
C)  cost-push inflation. 
D)  cost-pull expansion.

Question 20

The Keynesian short-run aggregate supply curve

Accepted Answer

A)  is horizontal. 
B)  is vertical. 
C)  reflects the fact that real GDP is supply-determined. 
D)  reflects the fact that real GDP does not vary with changes in aggregate demand. 
A)  is horizontal. 
B)  is vertical. 
C)  reflects the fact that real GDP is supply-determined. 
D)  reflects the fact that real GDP does not vary with changes in aggregate demand.

Exam 11: Classical and Keynesian Macro Analyses

In the classical model,

In the classical model, the aggregate supply curve

Classical economists assumed that

Inflation caused by continually decreasing short-run aggregate supply is

In the classical model, the aggregate supply curve is

-Refer to the above figure. An increase in aggregate demand between real Gross Domestic Product (GDP) levels Y0 and Y1

Saving represents

A congressman states, "If a government attempts to increase employment through increased government spending, all we will end up with is a higher price level." This congressman assumes that the

The classical model assumes that

The simplified Keynesian model

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

All of the following will shift the short-run aggregate supply (SRAS) curve EXCEPT

According to Keynes, the classical model could not explain

An inflationary gap is the amount by which

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

In the classical model, high unemployment due to a change in aggregate demand

According to classical theory, any changes in aggregate demand will

Which of the following will NOT shift the short-run aggregate supply (SRAS) curve?

If the price level should increase in the near term due to decreases in the short-run aggregate supply, the result would be

The Keynesian short-run aggregate supply curve

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

Filters

-Refer to the above figure. An increase in aggregate demand between real Gross Domestic Product (GDP) levels Y₀ and Y₁