Question 1

A recessionary gap occurs when

Accepted Answer

A)  aggregate demand falls, but other things remain constant. 
B)  short-run aggregate supply falls, but other things remain constant. 
C)  the short-run equilibrium level of real GDP is greater than the level consistent with the long-run aggregate supply curve. 
D)  the short-run equilibrium level of real GDP is less than the level consistent with the long-run aggregate supply curve. 
A)  aggregate demand falls, but other things remain constant. 
B)  short-run aggregate supply falls, but other things remain constant. 
C)  the short-run equilibrium level of real GDP is greater than the level consistent with the long-run aggregate supply curve. 
D)  the short-run equilibrium level of real GDP is less than the level consistent with the long-run aggregate supply curve.

Question 2

-Refer to the above figure. Which point or points represent(s) a long-run equilibrium?

Accepted Answer

A)  A only 
B)  B only 
C)  C only 
D)  both A and B 
A)  A only 
B)  B only 
C)  C only 
D)  both A and B

Question 3

The short-run aggregate supply curve would shift and the long-run aggregate supply curve would remain fixed if

Accepted Answer

A)  there was a temporary shock to aggregate demand. 
B)  there was a temporary shock that influenced the supply side. 
C)  there was a permanent increase in aggregate demand along with a permanent decrease in aggregate supply. 
D)  there was a permanent increase in aggregate demand. 
A)  there was a temporary shock to aggregate demand. 
B)  there was a temporary shock that influenced the supply side. 
C)  there was a permanent increase in aggregate demand along with a permanent decrease in aggregate supply. 
D)  there was a permanent increase in aggregate demand.

Question 4

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

Accepted Answer

A)  Pure competition. 
B)  Wages and prices are flexible. 
C)  People are motivated by self-interest. 
D)  Wage rigidity. 
A)  Pure competition. 
B)  Wages and prices are flexible. 
C)  People are motivated by self-interest. 
D)  Wage rigidity.

Question 5

-The reason that it is possible for the economy in the above figure to be at E2 rather than at E1 is that

Accepted Answer

A)  in the long run there is always less than full employment. 
B)  in the short run the economy can produce more than it can in a long-run full-adjustment situation. 
C)  AD always shifts outward and never shifts inward. 
D)  the economy must be in a recession. 
A)  in the long run there is always less than full employment. 
B)  in the short run the economy can produce more than it can in a long-run full-adjustment situation. 
C)  AD always shifts outward and never shifts inward. 
D)  the economy must be in a recession.

Question 6

In the classical model, a shift to the right in aggregate demand would result in

Accepted Answer

A)  a permanent increase in unemployment. 
B)  a permanent increase in real incomes. 
C)  an increase in the price level. 
D)  a permanent shift past full employment. 
A)  a permanent increase in unemployment. 
B)  a permanent increase in real incomes. 
C)  an increase in the price level. 
D)  a permanent shift past full employment.

Question 7

What is the shape of the modern short-run aggregate supply (SRAS) curve? Why?

Accepted Answer

The short-run aggregate supply curve is

Question 8

In the Keynesian model which includes the Keynesian short-run aggregate supply curve,

Accepted Answer

A)  an increase in aggregate demand would causes the price level to rise, but does not change the level of real GDP. 
B)  an increase in aggregate demand causes real GDP to rise without changing the price level. 
C)  an increase in aggregate demand changes neither the price level nor the level of real GDP. 
D)  an increase in aggregate demand causes real GDP and the price level to decrease. 
A)  an increase in aggregate demand would causes the price level to rise, but does not change the level of real GDP. 
B)  an increase in aggregate demand causes real GDP to rise without changing the price level. 
C)  an increase in aggregate demand changes neither the price level nor the level of real GDP. 
D)  an increase in aggregate demand causes real GDP and the price level to decrease.

Question 9

A decrease in aggregate demand will cause

Accepted Answer

A)  prices to fall according to classical economists, and unemployment to increase according to Keynes. 
B)  prices to fall and unemployment to increase according to both classical economists and Keynes. 
C)  aggregate supply to fall according to classical economists, and prices to fall according to Keynes. 
D)  aggregate supply to fall according to Keynes, and unemployment to increase according to classical economists. 
A)  prices to fall according to classical economists, and unemployment to increase according to Keynes. 
B)  prices to fall and unemployment to increase according to both classical economists and Keynes. 
C)  aggregate supply to fall according to classical economists, and prices to fall according to Keynes. 
D)  aggregate supply to fall according to Keynes, and unemployment to increase according to classical economists.

Question 10

A temporary increase in the price of oil would

Accepted Answer

A)  increase both short-run and long-run aggregate supply. 
B)  increase short-run aggregate supply and decrease long-run aggregate supply. 
C)  decrease short-run aggregate supply and leave long-run aggregate supply unchanged. 
D)  decrease both short-run and long-run aggregate supply. 
A)  increase both short-run and long-run aggregate supply. 
B)  increase short-run aggregate supply and decrease long-run aggregate supply. 
C)  decrease short-run aggregate supply and leave long-run aggregate supply unchanged. 
D)  decrease both short-run and long-run aggregate supply.

Question 11

In the classical model, how do shifts in aggregate demand affect real GDP?

Accepted Answer

A)  Real GDP will remain unchanged. 
B)  Increases in aggregate demand increase real GDP. 
C)  Increases in aggregate demand decrease real GDP. 
D)  Decreases in aggregate demand increase real GDP. 
A)  Real GDP will remain unchanged. 
B)  Increases in aggregate demand increase real GDP. 
C)  Increases in aggregate demand decrease real GDP. 
D)  Decreases in aggregate demand increase real GDP.

Question 12

-Consider the above figure. If the aggregate demand fell from AD1 to AD2, our nation would be experiencing

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  overemployment. 
D)  rising prices. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  overemployment. 
D)  rising prices.

Question 13

An inflationary gap occurs when

Accepted Answer

A)  aggregate demand falls, but other things remain constant. 
B)  short-run aggregate supply falls, but other things remain constant. 
C)  the short-run equilibrium level of real GDP is greater than long-run aggregate supply. 
D)  the short-run equilibrium level of real GDP is less than long-run aggregate supply. 
A)  aggregate demand falls, but other things remain constant. 
B)  short-run aggregate supply falls, but other things remain constant. 
C)  the short-run equilibrium level of real GDP is greater than long-run aggregate supply. 
D)  the short-run equilibrium level of real GDP is less than long-run aggregate supply.

Question 14

Suppose an economy originally in long-run equilibrium experiences a decrease in aggregate demand. According to the classical model,

Accepted Answer

A)  real Gross Domestic Product (GDP) will not change but the price level will fall. 
B)  real Gross Domestic Product (GDP) will fall, and then the price level will fall also. 
C)  the price level will not change but real Gross Domestic Product (GDP) will fall. 
D)  real Gross Domestic Product (GDP) will fall, wages will fall, but the prices of goods and services will stay the same. 
A)  real Gross Domestic Product (GDP) will not change but the price level will fall. 
B)  real Gross Domestic Product (GDP) will fall, and then the price level will fall also. 
C)  the price level will not change but real Gross Domestic Product (GDP) will fall. 
D)  real Gross Domestic Product (GDP) will fall, wages will fall, but the prices of goods and services will stay the same.

Question 15

If the economy is near full capacity, the effect of a negative aggregate demand shock is to

Accepted Answer

A)  increase the level of aggregate demand. 
B)  cause the price level to fall. 
C)  increase the firm's cost of producing at every level of output. 
D)  increase the level of employment. 
A)  increase the level of aggregate demand. 
B)  cause the price level to fall. 
C)  increase the firm's cost of producing at every level of output. 
D)  increase the level of employment.

Question 16

If the equilibrium level of real GDP per year is greater than the full-employment level of GDP, then

Accepted Answer

A)  a recessionary gap occurs. 
B)  the economy is at full employment with no price changes. 
C)  the economy expands the level of real GDP. 
D)  an inflationary gap occurs. 
A)  a recessionary gap occurs. 
B)  the economy is at full employment with no price changes. 
C)  the economy expands the level of real GDP. 
D)  an inflationary gap occurs.

Question 17

One effect of a stronger dollar is

Accepted Answer

A)  an increase in U.S. exports and a reduction in U.S. imports. 
B)  a reduction in U.S. exports and an increase in U.S. imports. 
C)  an increase in net exports. 
D)  an increase in both imports and exports. The effect on net exports is uncertain. 
A)  an increase in U.S. exports and a reduction in U.S. imports. 
B)  a reduction in U.S. exports and an increase in U.S. imports. 
C)  an increase in net exports. 
D)  an increase in both imports and exports. The effect on net exports is uncertain.

Question 18

Economic growth due to labor force expansion or capital investments will result in I. A leftward shift of short-run aggregate supply.
II) A rightward shift in long-run aggregate supply.

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 19

According to Say's law,

Accepted Answer

A)  desired expenditures are always less than actual expenditures. 
B)  desired expenditures are always more than actual expenditures. 
C)  desired expenditures are always equal to actual expenditures. 
D)  desired expenditures cannot be compared with actual expenditures. 
A)  desired expenditures are always less than actual expenditures. 
B)  desired expenditures are always more than actual expenditures. 
C)  desired expenditures are always equal to actual expenditures. 
D)  desired expenditures cannot be compared with actual expenditures.

Question 20

If the economy is operating at a point at which short-run aggregate supply is horizontal, then

Accepted Answer

A)  real GDP cannot expand. 
B)  real GDP cannot contract. 
C)  increases in aggregate demand do not increase the price level. 
D)  then increases in aggregate demand do not increase real GDP. 
A)  real GDP cannot expand. 
B)  real GDP cannot contract. 
C)  increases in aggregate demand do not increase the price level. 
D)  then increases in aggregate demand do not increase real GDP.

Exam 11: Classical and Keynesian Macro Analyses

A recessionary gap occurs when

-Refer to the above figure. Which point or points represent(s) a long-run equilibrium?

The short-run aggregate supply curve would shift and the long-run aggregate supply curve would remain fixed if

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

-The reason that it is possible for the economy in the above figure to be at E2 rather than at E1 is that

In the classical model, a shift to the right in aggregate demand would result in

What is the shape of the modern short-run aggregate supply (SRAS) curve? Why?

In the Keynesian model which includes the Keynesian short-run aggregate supply curve,

A decrease in aggregate demand will cause

A temporary increase in the price of oil would

In the classical model, how do shifts in aggregate demand affect real GDP?

-Consider the above figure. If the aggregate demand fell from AD1 to AD2, our nation would be experiencing

An inflationary gap occurs when

Suppose an economy originally in long-run equilibrium experiences a decrease in aggregate demand. According to the classical model,

If the economy is near full capacity, the effect of a negative aggregate demand shock is to

If the equilibrium level of real GDP per year is greater than the full-employment level of GDP, then

One effect of a stronger dollar is

Economic growth due to labor force expansion or capital investments will result in I. A leftward shift of short-run aggregate supply. II) A rightward shift in long-run aggregate supply.

According to Say's law,

If the economy is operating at a point at which short-run aggregate supply is horizontal, then

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

-The reason that it is possible for the economy in the above figure to be at E₂ rather than at E₁ is that

-Consider the above figure. If the aggregate demand fell from AD₁to AD₂, our nation would be experiencing