Question 1

In the simple Keynesian portion of the upward sloping short-run aggregate supply curve,

Accepted Answer

A)  equilibrium real GDP is demand-determined. 
B)  equilibrium real GDP is supply-determined. 
C)  equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand. 
D)  equilibrium real GDP is determined by both aggregate supply and aggregate demand. 
A)  equilibrium real GDP is demand-determined. 
B)  equilibrium real GDP is supply-determined. 
C)  equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand. 
D)  equilibrium real GDP is determined by both aggregate supply and aggregate demand.

Question 2

Suppose the euro appreciates against the dollar. This causes U.S. exports to become less expensive for consumers in the European Union, which would likely cause the U.S.

Accepted Answer

A)  aggregate supply to shift leftward. 
B)  aggregate supply to shift rightward. 
C)  aggregate demand to shift leftward. 
D)  aggregate demand to shift rightward. 
A)  aggregate supply to shift leftward. 
B)  aggregate supply to shift rightward. 
C)  aggregate demand to shift leftward. 
D)  aggregate demand to shift rightward.

Question 3

An individual who is suffering from money illusion is more concerned with

Accepted Answer

A)  relative prices than with nominal prices. 
B)  relative prices than with real prices. 
C)  nominal prices than with relative prices. 
D)  real prices than with nominal prices. 
A)  relative prices than with nominal prices. 
B)  relative prices than with real prices. 
C)  nominal prices than with relative prices. 
D)  real prices than with nominal prices.

Question 4

If your income and the price level both rise by 5 percent, and you think you now have more real income, you are suffering from

Accepted Answer

A)  diminishing marginal expectations. 
B)  leakages. 
C)  injections. 
D)  money illusion. 
A)  diminishing marginal expectations. 
B)  leakages. 
C)  injections. 
D)  money illusion.

Question 5

"Supply creates its own demand" implies that

Accepted Answer

A)  the very act of supplying a particular level of goods and services necessarily equals the level of goods and services demanded. 
B)  the very act of demanding a particular level of goods and services necessarily equals the level of goods and services supplied. 
C)  the government will buy up any surplus of goods and services in a country to avoid economic problems. 
D)  the very act of supplying a particular level of goods and services will not necessarily equal the level of goods and services demanded. 
A)  the very act of supplying a particular level of goods and services necessarily equals the level of goods and services demanded. 
B)  the very act of demanding a particular level of goods and services necessarily equals the level of goods and services supplied. 
C)  the government will buy up any surplus of goods and services in a country to avoid economic problems. 
D)  the very act of supplying a particular level of goods and services will not necessarily equal the level of goods and services demanded.

Question 6

In the classical view, if desired saving exceeds desired investment,

Accepted Answer

A)  government spending must fall. 
B)  government spending must rise. 
C)  the interest rate would decline. 
D)  the interest rate would increase. 
A)  government spending must fall. 
B)  government spending must rise. 
C)  the interest rate would decline. 
D)  the interest rate would increase.

Question 7

According to the classical economists, actual real GDP

Accepted Answer

A)  always equals actual aggregate income. 
B)  sometimes equals actual aggregate income. 
C)  never equals actual aggregate income. 
D)  is not related to aggregate income. 
A)  always equals actual aggregate income. 
B)  sometimes equals actual aggregate income. 
C)  never equals actual aggregate income. 
D)  is not related to aggregate income.

Question 8

-Consider the above figure. If the aggregate demand curve rose from AD1 to AD3, our nation would be experiencing

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  unemployment. 
D)  falling prices. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  unemployment. 
D)  falling prices.

Question 9

In the modern Keynesian model, over much of its range the short-run aggregate supply (SRAS) curve is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  upward sloping. 
D)  downward sloping. 
A)  horizontal. 
B)  vertical. 
C)  upward sloping. 
D)  downward sloping.

Question 10

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

Accepted Answer

A)  Pure competition exists. 
B)  People are motivated by self interest. 
C)  Wages and prices are inflexible. 
D)  There is no money illusion. 
A)  Pure competition exists. 
B)  People are motivated by self interest. 
C)  Wages and prices are inflexible. 
D)  There is no money illusion.

Question 11

Suppose we observe the price level increasing and real GDP decreasing. An explanation for this is that

Accepted Answer

A)  the dollar weakened and the effect on aggregate supply was less than the effect on aggregate demand. 
B)  the dollar weakened and the effect on aggregate supply was greater than the effect on aggregate demand. 
C)  the dollar strengthened and the effect on aggregate supply was less than the effect on aggregate demand. 
D)  the dollar strengthened and the effect on aggregate supply was greater than the effect on aggregate demand. 
A)  the dollar weakened and the effect on aggregate supply was less than the effect on aggregate demand. 
B)  the dollar weakened and the effect on aggregate supply was greater than the effect on aggregate demand. 
C)  the dollar strengthened and the effect on aggregate supply was less than the effect on aggregate demand. 
D)  the dollar strengthened and the effect on aggregate supply was greater than the effect on aggregate demand.

Question 12

According to the classical economists, an economy producing $15 trillion in goods and services

Accepted Answer

A)  may be producing too much since the needs of people may not be this great. 
B)  simultaneously generates the income necessary to purchase $15 trillion in goods and services. 
C)  is supplying $15 trillion in goods and services, but could be demanding more or less than $15 trillion in goods and services for a very long period of time. 
D)  could experience a permanent glut if no one has estimated the demand for goods and services in the economy. 
A)  may be producing too much since the needs of people may not be this great. 
B)  simultaneously generates the income necessary to purchase $15 trillion in goods and services. 
C)  is supplying $15 trillion in goods and services, but could be demanding more or less than $15 trillion in goods and services for a very long period of time. 
D)  could experience a permanent glut if no one has estimated the demand for goods and services in the economy.

Question 13

Which of the following statements is correct? I. If other factors are held constant, the level of employment in the economy determines real Gross Domestic Product (GDP).
II) According to classical economists, only voluntary unemployment exists in the long run.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 14

In the classical model, aggregate demand and aggregate supply will

Accepted Answer

A)  not exist. 
B)  intersect at less than full employment. 
C)  intersect at the point of full employment. 
D)  not intersect. 
A)  not exist. 
B)  intersect at less than full employment. 
C)  intersect at the point of full employment. 
D)  not intersect.

Question 15

The first systematic attempt to explain the determinants of the price level and national levels of income, employment, consumption and real Gross Domestic Product (GDP) was made by ________ economists.

Accepted Answer

A)  Keynesian 
B)  supply-side 
C)  monetarist 
D)  classical 
A)  Keynesian 
B)  supply-side 
C)  monetarist 
D)  classical

Question 16

Assume equilibrium real GDP per year is equal to full-employment real GDP. If aggregate demand falls, then

Accepted Answer

A)  the price level will increase in the short run and decrease in the long run. 
B)  there will be an expansionary gap. 
C)  there will be a recessionary gap. 
D)  long-run aggregate supply will eventually decrease too. 
A)  the price level will increase in the short run and decrease in the long run. 
B)  there will be an expansionary gap. 
C)  there will be a recessionary gap. 
D)  long-run aggregate supply will eventually decrease too.

Question 17

Holding the level of prices fixed implies that a given increase in aggregate demand

Accepted Answer

A)  will have a smaller effect on real GDP than would be the case if prices were more flexible. 
B)  will have a larger effect on real GDP than would be the case if prices were more flexible. 
C)  has the same effect on real GDP as when prices are more flexible. 
D)  has a smaller effect on nominal GDP than when prices are more flexible. 
A)  will have a smaller effect on real GDP than would be the case if prices were more flexible. 
B)  will have a larger effect on real GDP than would be the case if prices were more flexible. 
C)  has the same effect on real GDP as when prices are more flexible. 
D)  has a smaller effect on nominal GDP than when prices are more flexible.

Question 18

The Keynesian short-run aggregate supply curve in the simplified Keynesian model is unrealistic because

Accepted Answer

A)  a vertical curve does not make economic sense. 
B)  prices and wages will never decrease. 
C)  the classical model is better in explaining how the economy operates. 
D)  some price adjustments do take place in the short run. 
A)  a vertical curve does not make economic sense. 
B)  prices and wages will never decrease. 
C)  the classical model is better in explaining how the economy operates. 
D)  some price adjustments do take place in the short run.

Question 19

Which of the following is NOT an event that causes BOTH the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve to shift?

Accepted Answer

A)  A change in an economy's endowments of the factors of production 
B)  Technological changes 
C)  A change in an economy's labor supply 
D)  A temporary change in the price of a key input 
A)  A change in an economy's endowments of the factors of production 
B)  Technological changes 
C)  A change in an economy's labor supply 
D)  A temporary change in the price of a key input

Question 20

All of the following will cause the aggregate supply curve to shift to the right EXCEPT

Accepted Answer

A)  discoveries of raw materials. 
B)  a reduction in input prices. 
C)  an increase in marginal tax rates. 
D)  a reduction in international trade barriers. 
A)  discoveries of raw materials. 
B)  a reduction in input prices. 
C)  an increase in marginal tax rates. 
D)  a reduction in international trade barriers.

Exam 11: Classical and Keynesian Macro Analyses

In the simple Keynesian portion of the upward sloping short-run aggregate supply curve,

Suppose the euro appreciates against the dollar. This causes U.S. exports to become less expensive for consumers in the European Union, which would likely cause the U.S.

An individual who is suffering from money illusion is more concerned with

If your income and the price level both rise by 5 percent, and you think you now have more real income, you are suffering from

"Supply creates its own demand" implies that

In the classical view, if desired saving exceeds desired investment,

According to the classical economists, actual real GDP

-Consider the above figure. If the aggregate demand curve rose from AD1 to AD3, our nation would be experiencing

In the modern Keynesian model, over much of its range the short-run aggregate supply (SRAS) curve is

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

Suppose we observe the price level increasing and real GDP decreasing. An explanation for this is that

According to the classical economists, an economy producing $15 trillion in goods and services

Which of the following statements is correct? I. If other factors are held constant, the level of employment in the economy determines real Gross Domestic Product (GDP). II) According to classical economists, only voluntary unemployment exists in the long run.

In the classical model, aggregate demand and aggregate supply will

The first systematic attempt to explain the determinants of the price level and national levels of income, employment, consumption and real Gross Domestic Product (GDP) was made by ________ economists.

Assume equilibrium real GDP per year is equal to full-employment real GDP. If aggregate demand falls, then

Holding the level of prices fixed implies that a given increase in aggregate demand

The Keynesian short-run aggregate supply curve in the simplified Keynesian model is unrealistic because

Which of the following is NOT an event that causes BOTH the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve to shift?

All of the following will cause the aggregate supply curve to shift to the right EXCEPT

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

-Consider the above figure. If the aggregate demand curve rose from AD₁to AD₃, our nation would be experiencing