Question 1

The gap that exists when equilibrium real GDP is less than full-employment real GDP is

Accepted Answer

A)  the short-run aggregate supply curve. 
B)  money illusion. 
C)  a recessionary gap. 
D)  an inflationary gap. 
A)  the short-run aggregate supply curve. 
B)  money illusion. 
C)  a recessionary gap. 
D)  an inflationary gap.

Question 2

The net effect of a stronger dollar on real GDP is

Accepted Answer

A)  an increase in real GDP. 
B)  a decrease in real GDP. 
C)  an increase in the price level. 
D)  dependent on whether the increase in aggregate supply is more or less than the decrease in aggregate demand. 
A)  an increase in real GDP. 
B)  a decrease in real GDP. 
C)  an increase in the price level. 
D)  dependent on whether the increase in aggregate supply is more or less than the decrease in aggregate demand.

Question 3

-Refer to the above figure. Suppose the original long-run equilibrium was at point B. What could have caused the move to the current equilibrium?

Accepted Answer

A)  Decreases in the price level caused short-run aggregate supply to fall. 
B)  Input prices must have increased, causing long-run aggregate supply to increase. 
C)  Aggregate demand must have decreased. 
D)  A temporary reduction in production due to bad weather. 
A)  Decreases in the price level caused short-run aggregate supply to fall. 
B)  Input prices must have increased, causing long-run aggregate supply to increase. 
C)  Aggregate demand must have decreased. 
D)  A temporary reduction in production due to bad weather.

Question 4

-In the above figure, what are the long-run equilibrium price level and real GDP?

Accepted Answer

A)  130 and $12 trillion 
B)  130 and $11.5 trillion 
C)  120 and $11.5 trillion 
D)  120 and $12 trillion 
A)  130 and $12 trillion 
B)  130 and $11.5 trillion 
C)  120 and $11.5 trillion 
D)  120 and $12 trillion

Question 5

Assume equilibrium real GDP per year is equal to full-employment real GDP. Which of the following will cause a recessionary gap?

Accepted Answer

A)  an increase in aggregate demand 
B)  a reduction in aggregate demand 
C)  a discovery of a new raw material 
D)  a temporary reduction in the price of oil 
A)  an increase in aggregate demand 
B)  a reduction in aggregate demand 
C)  a discovery of a new raw material 
D)  a temporary reduction in the price of oil

Question 6

In the classical model, an increase in aggregate demand will cause

Accepted Answer

A)  an increase in actual output, or Gross Domestic Product (GDP). 
B)  a decrease in actual output, or Gross Domestic Product (GDP). 
C)  an increase in price level. 
D)  a decrease in price level. 
A)  an increase in actual output, or Gross Domestic Product (GDP). 
B)  a decrease in actual output, or Gross Domestic Product (GDP). 
C)  an increase in price level. 
D)  a decrease in price level.

Question 7

-Identify the 3 curves in the above figure.

Accepted Answer

A)  (1) is long-run aggregate supply, (2) is short-run aggregate supply, (3) is aggregate demand. 
B)  (1) is aggregate demand, (2) is short-run aggregate supply, (3) is long-run aggregate supply. 
C)  (1) is short-run aggregate supply, (2) is long-run aggregate supply, (3) is aggregate demand. 
D)  (1) is long-run aggregate supply, (2) is aggregate demand, (3) is short-run aggregate supply. 
A)  (1) is long-run aggregate supply, (2) is short-run aggregate supply, (3) is aggregate demand. 
B)  (1) is aggregate demand, (2) is short-run aggregate supply, (3) is long-run aggregate supply. 
C)  (1) is short-run aggregate supply, (2) is long-run aggregate supply, (3) is aggregate demand. 
D)  (1) is long-run aggregate supply, (2) is aggregate demand, (3) is short-run aggregate supply.

Question 8

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.

Question 9

A key component of the Keynesian model is that

Accepted Answer

A)  prices are sticky. 
B)  prices are flexible. 
C)  wages are flexible. 
D)  people are not fooled by money illusion. 
A)  prices are sticky. 
B)  prices are flexible. 
C)  wages are flexible. 
D)  people are not fooled by money illusion.

Question 10

A stronger U.S. dollar in world exchange markets means that

Accepted Answer

A)  a dollar buys more units of foreign currency than it could before. 
B)  a dollar buys less units of foreign currency than it could before. 
C)  a dollar buys the same amount of foreign currency than it could before, with gold backing up the value of the dollar. 
D)  foreigners sell the dollars that they have. 
A)  a dollar buys more units of foreign currency than it could before. 
B)  a dollar buys less units of foreign currency than it could before. 
C)  a dollar buys the same amount of foreign currency than it could before, with gold backing up the value of the dollar. 
D)  foreigners sell the dollars that they have.

Question 11

The short-run aggregate supply curve in modern Keynesian analysis represents the relationship between

Accepted Answer

A)  the real output of goods and services in the economy and the price level. 
B)  the real output of goods and services in the economy and the price level when people have fully adjusted their behavior. 
C)  the real output of goods and services in the economy and the price level when people have not fully adjusted their behavior. 
D)  the nominal output of goods and services and the real output of goods and services. 
A)  the real output of goods and services in the economy and the price level. 
B)  the real output of goods and services in the economy and the price level when people have fully adjusted their behavior. 
C)  the real output of goods and services in the economy and the price level when people have not fully adjusted their behavior. 
D)  the nominal output of goods and services and the real output of goods and services.

Question 12

The horizontal portion of the short-run aggregate supply curve in which there is excessive unemployment and unused capacity in the economy is

Accepted Answer

A)  Say's law. 
B)  the classical short-run aggregate supply curve. 
C)  the Keynesian short-run aggregate supply curve. 
D)  exists when prices are flexible. 
A)  Say's law. 
B)  the classical short-run aggregate supply curve. 
C)  the Keynesian short-run aggregate supply curve. 
D)  exists when prices are flexible.

Question 13

According to modern Keynesian analysis, an increase in aggregate demand leads to a higher price level because the

Accepted Answer

A)  aggregate demand curve is upward sloping. 
B)  short-run aggregate supply curve is upward sloping. 
C)  aggregate demand curve is upward horizontal. 
D)  short-run aggregate supply curve is vertical. 
A)  aggregate demand curve is upward sloping. 
B)  short-run aggregate supply curve is upward sloping. 
C)  aggregate demand curve is upward horizontal. 
D)  short-run aggregate supply curve is vertical.

Question 14

-Refer to the above figure. Assume that B is the current long-run aggregate supply (LRAS) curve and E is the current short-run aggregate supply (SRAS) curve. If a 90-day embargo of oil from the Middle East to the United States were announced, and if after that 90-day period oil prices were expected to return to normal pre-embargo prices, then you would expect

Accepted Answer

A)  the LRAS and the SRAS to remain at B and E, respectively. 
B)  the LRAS to remain at B, but the SRAS to shift to D. 
C)  the LRAS to remain at B, but the SRAS to shift to F. 
D)  the LRAS to shift to C, and the SRAS to shift to F. 
A)  the LRAS and the SRAS to remain at B and E, respectively. 
B)  the LRAS to remain at B, but the SRAS to shift to D. 
C)  the LRAS to remain at B, but the SRAS to shift to F. 
D)  the LRAS to shift to C, and the SRAS to shift to F.

Question 15

Other things being equal, if input prices rise in a country, then there would be

Accepted Answer

A)  cost-push inflation. 
B)  demand-pull inflation. 
C)  cost-push deflation. 
D)  more production and a lower price level. 
A)  cost-push inflation. 
B)  demand-pull inflation. 
C)  cost-push deflation. 
D)  more production and a lower price level.

Question 16

-Refer to the above figure. Assume that B is the current long-run aggregate supply (LRAS) curve and that E is the current short-run aggregate supply (SRAS) curve. If a new discovery of large oil fields in Florida led to an increase in the nation's productive capacities, then we could expect the LRAS curve and the SRAS curve to

Accepted Answer

A)  remain B and E. 
B)  move to A and D. 
C)  move to C and F. 
D)  move to A and F. 
A)  remain B and E. 
B)  move to A and D. 
C)  move to C and F. 
D)  move to A and F.

Question 17

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

Accepted Answer

A)  Wages and prices are fixed. 
B)  People are motivated by the own self-interest. 
C)  Pure competition exists. 
D)  Buyers react to changes in relative prices. 
A)  Wages and prices are fixed. 
B)  People are motivated by the own self-interest. 
C)  Pure competition exists. 
D)  Buyers react to changes in relative prices.

Question 18

The relationship between the price level and the real Gross Domestic Product (GDP) without full adjustment or full information is represented by

Accepted Answer

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

Question 19

Suppose aggregate demand is increasing over time. Would the modern Keynesian model assume that the price level would always be constant? Explain.

Accepted Answer

No. Eventually full employment would be

Question 20

According to the classical model, desired saving is

Accepted Answer

A)  a function of real GDP. 
B)  equal to desired investment. 
C)  identical to the demand for saving at each level of real GDP. 
D)  affected by the money illusion at low income levels. 
A)  a function of real GDP. 
B)  equal to desired investment. 
C)  identical to the demand for saving at each level of real GDP. 
D)  affected by the money illusion at low income levels.

Exam 11: Classical and Keynesian Macro Analyses

The gap that exists when equilibrium real GDP is less than full-employment real GDP is

The net effect of a stronger dollar on real GDP is

-Refer to the above figure. Suppose the original long-run equilibrium was at point B. What could have caused the move to the current equilibrium?

-In the above figure, what are the long-run equilibrium price level and real GDP?

Assume equilibrium real GDP per year is equal to full-employment real GDP. Which of the following will cause a recessionary gap?

In the classical model, an increase in aggregate demand will cause

-Identify the 3 curves in the above figure.

A short-run equilibrium occurs

A key component of the Keynesian model is that

A stronger U.S. dollar in world exchange markets means that

The short-run aggregate supply curve in modern Keynesian analysis represents the relationship between

The horizontal portion of the short-run aggregate supply curve in which there is excessive unemployment and unused capacity in the economy is

According to modern Keynesian analysis, an increase in aggregate demand leads to a higher price level because the

Other things being equal, if input prices rise in a country, then there would be

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

The relationship between the price level and the real Gross Domestic Product (GDP) without full adjustment or full information is represented by

Suppose aggregate demand is increasing over time. Would the modern Keynesian model assume that the price level would always be constant? Explain.

According to the classical model, desired saving is

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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