Question 1

The full-employment rate of output can

Accepted Answer

A)  be surpassed in the long run only if input prices are flexible. 
B)  not be surpassed in either the short run or the long run. 
C)  be surpassed only when firms are not yet producing at full capacity. 
D)  be surpassed only in the short run. 
A)  be surpassed in the long run only if input prices are flexible. 
B)  not be surpassed in either the short run or the long run. 
C)  be surpassed only when firms are not yet producing at full capacity. 
D)  be surpassed only in the short run.

Question 2

Demand-pull inflation is

Accepted Answer

A)  inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply. 
B)  inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply. 
C)  inflation caused by reductions in short-run aggregate supply. 
D)  inflation caused by reductions in long-run aggregate supply. 
A)  inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply. 
B)  inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply. 
C)  inflation caused by reductions in short-run aggregate supply. 
D)  inflation caused by reductions in long-run aggregate supply.

Question 3

Which one of the following statements is true?

Accepted Answer

A)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the classical model. 
B)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model. 
C)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the idea that increases in aggregate demand will increase the price level but will leave real GDP unchanged. 
D)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with a vertical short-run aggregate supply curve. 
A)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the classical model. 
B)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model. 
C)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the idea that increases in aggregate demand will increase the price level but will leave real GDP unchanged. 
D)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with a vertical short-run aggregate supply curve.

Question 4

According to Keynesian economics, if there are unutilized resources in the economy and aggregate demand decreases,

Accepted Answer

A)  real GDP will rise and price level will remain constant. 
B)  real GDP will fall and price level will remain constant. 
C)  real GDP will rise and price level will rise. 
D)  real GDP will rise and price level will fall. 
A)  real GDP will rise and price level will remain constant. 
B)  real GDP will fall and price level will remain constant. 
C)  real GDP will rise and price level will rise. 
D)  real GDP will rise and price level will fall.

Question 5

Keynes suggested that the short-run aggregate supply (SRAS) curve

Accepted Answer

A)  is vertical. 
B)  is horizontal. 
C)  slopes downward. 
D)  is not a relevant concept. 
A)  is vertical. 
B)  is horizontal. 
C)  slopes downward. 
D)  is not a relevant concept.

Question 6

Why did the classical economists think that large-scale unemployment was not possible in a market economy?

Accepted Answer

The classical economists accepted Say's

Question 7

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

Accepted Answer

A)  Government intervention is necessary for economic stability. 
B)  No one buyer or seller of a good or service can affect the price of the good or service. 
C)  People are motivated by self-interest. 
D)  People are not fooled by the money illusion. 
A)  Government intervention is necessary for economic stability. 
B)  No one buyer or seller of a good or service can affect the price of the good or service. 
C)  People are motivated by self-interest. 
D)  People are not fooled by the money illusion.

Question 8

Say's law states that

Accepted Answer

A)  supply creates its own demand. 
B)  supply and demand are never equal. 
C)  demand may be greater than supply. 
D)  supply will usually be greater than demand. 
A)  supply creates its own demand. 
B)  supply and demand are never equal. 
C)  demand may be greater than supply. 
D)  supply will usually be greater than demand.

Question 9

If there is a change in the U.S. endowment of factors of production, then there would be

Accepted Answer

A)  a shift in just LRAS. 
B)  a shift in both LRAS and SRAS. 
C)  shifts in just SRAS. 
D)  a movement along the SRAS curve. 
A)  a shift in just LRAS. 
B)  a shift in both LRAS and SRAS. 
C)  shifts in just SRAS. 
D)  a movement along the SRAS curve.

Question 10

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

Accepted Answer

A)  Buyers and sellers react to changes in relative prices. 
B)  Households want to maximize economic well being. 
C)  No single buyer or seller of a commodity can affect its price. 
D)  Wages and prices will move freely in the upward direction but not the downward direction. 
A)  Buyers and sellers react to changes in relative prices. 
B)  Households want to maximize economic well being. 
C)  No single buyer or seller of a commodity can affect its price. 
D)  Wages and prices will move freely in the upward direction but not the downward direction.

Question 11

In the classical model,

Accepted Answer

A)  a decrease in aggregate demand will lead to a decrease in the price level and a decrease in real GDP. 
B)  changes in aggregate supply leave real GDP unchanged. 
C)  a decrease in aggregate demand will lead to an increase in the price level and a decrease in real GDP. 
D)  changes in aggregate demand affect only the price level, not real GDP. 
A)  a decrease in aggregate demand will lead to a decrease in the price level and a decrease in real GDP. 
B)  changes in aggregate supply leave real GDP unchanged. 
C)  a decrease in aggregate demand will lead to an increase in the price level and a decrease in real GDP. 
D)  changes in aggregate demand affect only the price level, not real GDP.

Question 12

Say's law implies that

Accepted Answer

A)  the willingness to purchase other goods is unrelated to the production of goods and services. 
B)  producing goods and services generates the means and the willingness to purchase other goods and services. 
C)  prices and wages are sticky downwards. 
D)  wages and prices are inflexible. 
A)  the willingness to purchase other goods is unrelated to the production of goods and services. 
B)  producing goods and services generates the means and the willingness to purchase other goods and services. 
C)  prices and wages are sticky downwards. 
D)  wages and prices are inflexible.

Question 13

The exchange rate last month was $1= 3.2 Swiss francs. This month it is $1 = 3.12 Swiss francs. We can say that the value of the dollar

Accepted Answer

A)  fell, causing net exports to increase and aggregate demand to rise. 
B)  fell, causing net exports to decrease and aggregate demand to fall. 
C)  increased, causing net exports to decrease and aggregate demand to fall. 
D)  increased, causing net exports to decrease and aggregate demand to rise. 
A)  fell, causing net exports to increase and aggregate demand to rise. 
B)  fell, causing net exports to decrease and aggregate demand to fall. 
C)  increased, causing net exports to decrease and aggregate demand to fall. 
D)  increased, causing net exports to decrease and aggregate demand to rise.

Question 14

The short-run aggregate supply curve is a relationship between

Accepted Answer

A)  unemployment and real GDP. 
B)  inflation and time. 
C)  real GDP and price level. 
D)  capital goods and consumer goods. 
A)  unemployment and real GDP. 
B)  inflation and time. 
C)  real GDP and price level. 
D)  capital goods and consumer goods.

Question 15

Which of the of the following is a basic difference between the classical model and the Keynesian model in which the Keynesian short-run aggregate supply curve exists?

Accepted Answer

A)  The classical model assumes that the long run aggregate supply curve is vertical, while the Keynesian model assumes the long run aggregate supply curve is horizontal. 
B)  The classical model assumes that the position of the long run aggregate supply curve is determined by full employment, while the Keynesian model assumes that the long run aggregate supply curve will be to the left of full employment. 
C)  The classical model assumes that the level of real GDP is supply determined, while the Keynesian model assumes that it is demand determined. 
D)  The classical model uses real GDP, while the Keynesian model uses nominal GDP. 
A)  The classical model assumes that the long run aggregate supply curve is vertical, while the Keynesian model assumes the long run aggregate supply curve is horizontal. 
B)  The classical model assumes that the position of the long run aggregate supply curve is determined by full employment, while the Keynesian model assumes that the long run aggregate supply curve will be to the left of full employment. 
C)  The classical model assumes that the level of real GDP is supply determined, while the Keynesian model assumes that it is demand determined. 
D)  The classical model uses real GDP, while the Keynesian model uses nominal GDP.

Question 16

Equilibrium real GDP rises after the dollar strengthened. From this, we can conclude that

Accepted Answer

A)  the increase in aggregate demand was greater than the decrease in aggregate supply. 
B)  the decrease in aggregate demand was less than the increase in aggregate supply. 
C)  the decrease in aggregate demand was more than the increase in aggregate supply. 
D)  the increase in aggregate demand was less than the decrease in aggregate supply. 
A)  the increase in aggregate demand was greater than the decrease in aggregate supply. 
B)  the decrease in aggregate demand was less than the increase in aggregate supply. 
C)  the decrease in aggregate demand was more than the increase in aggregate supply. 
D)  the increase in aggregate demand was less than the decrease in aggregate supply.

Question 17

According to the classical model,

Accepted Answer

A)  long-term unemployment is unavoidable. 
B)  unemployment is a temporary phenomenon. 
C)  unemployment only exists during periods of war. 
D)  the natural rate of unemployment is zero. 
A)  long-term unemployment is unavoidable. 
B)  unemployment is a temporary phenomenon. 
C)  unemployment only exists during periods of war. 
D)  the natural rate of unemployment is zero.

Question 18

In the classical view, flexible wage rates would assure

Accepted Answer

A)  low inflation. 
B)  high rates of unemployment. 
C)  high secular inflation rates. 
D)  full employment. 
A)  low inflation. 
B)  high rates of unemployment. 
C)  high secular inflation rates. 
D)  full employment.

Question 19

Which one of the following statements is NOT true?

Accepted Answer

A)  The classical model assumes that people suffer from money illusion. 
B)  The classical model assumes that people are motivated by self-interest. 
C)  The classical model assumes that pure competition exists. 
D)  The classical model assumes that no single seller of a commodity can affect its price. 
A)  The classical model assumes that people suffer from money illusion. 
B)  The classical model assumes that people are motivated by self-interest. 
C)  The classical model assumes that pure competition exists. 
D)  The classical model assumes that no single seller of a commodity can affect its price.

Question 20

Whom among the following was a classical economist?

Accepted Answer

A)  Adam Smith 
B)  A. C. Pigou 
C)  David Ricardo 
D)  all of the above 
A)  Adam Smith 
B)  A. C. Pigou 
C)  David Ricardo 
D)  all of the above

Exam 11: Classical and Keynesian Macro Analyses

The full-employment rate of output can

Demand-pull inflation is

Which one of the following statements is true?

According to Keynesian economics, if there are unutilized resources in the economy and aggregate demand decreases,

Keynes suggested that the short-run aggregate supply (SRAS) curve

Why did the classical economists think that large-scale unemployment was not possible in a market economy?

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

Say's law states that

If there is a change in the U.S. endowment of factors of production, then there would be

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

In the classical model,

Say's law implies that

The exchange rate last month was $1= 3.2 Swiss francs. This month it is $1 = 3.12 Swiss francs. We can say that the value of the dollar

The short-run aggregate supply curve is a relationship between

Which of the of the following is a basic difference between the classical model and the Keynesian model in which the Keynesian short-run aggregate supply curve exists?

Equilibrium real GDP rises after the dollar strengthened. From this, we can conclude that

According to the classical model,

In the classical view, flexible wage rates would assure

Which one of the following statements is NOT true?

Whom among the following was a classical economist?

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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