Question 1

-Refer to the above figure. Which of the graphs is consistent with the long-run aggregate supply curve?

Accepted Answer

A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D 
A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D

Question 2

One tenet of classical economics is that

Accepted Answer

A)  the role of the government should be limited, since the market will always be self-correcting. 
B)  the government should intervene whenever necessary to avoid any unemployment. 
C)  wages and prices are "sticky downward." 
D)  the government should set a minimum wage slightly above the natural market equilibrium rate. 
A)  the role of the government should be limited, since the market will always be self-correcting. 
B)  the government should intervene whenever necessary to avoid any unemployment. 
C)  wages and prices are "sticky downward." 
D)  the government should set a minimum wage slightly above the natural market equilibrium rate.

Question 3

If equilibrium level of real Gross Domestic Product (GDP) is less than the full-employment real Gross Domestic Product (GDP) consistent with the position of the economy's long-run aggregate supply (LRAS) curve, then the difference between full-employment real Gross Domestic Product (GDP) and current equilibrium real Gross Domestic Product (GDP) is

Accepted Answer

A)  an aggregate demand shock. 
B)  an aggregate supply shock. 
C)  a recessionary gap. 
D)  an inflationary gap. 
A)  an aggregate demand shock. 
B)  an aggregate supply shock. 
C)  a recessionary gap. 
D)  an inflationary gap.

Question 4

The short-run aggregate supply curve in modern Keynesian analysis is

Accepted Answer

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

Question 5

Which of the following statements is true?

Accepted Answer

A)  There is a direct relationship between investment and the interest rate. 
B)  There is an inverse relationship between investment and the interest rate. 
C)  There is no relationship between investment and the interest rate. 
D)  Investment is always less than savings. 
A)  There is a direct relationship between investment and the interest rate. 
B)  There is an inverse relationship between investment and the interest rate. 
C)  There is no relationship between investment and the interest rate. 
D)  Investment is always less than savings.

Question 6

According to the classical model, an increase in aggregate demand would

Accepted Answer

A)  lead the economy to recession. 
B)  lead the economy to a deflationary cycle. 
C)  cause an adjustment to a higher price level. 
D)  raise real Gross Domestic Product (GDP) but leave the price level unchanged. 
A)  lead the economy to recession. 
B)  lead the economy to a deflationary cycle. 
C)  cause an adjustment to a higher price level. 
D)  raise real Gross Domestic Product (GDP) but leave the price level unchanged.

Question 7

Which of the following is an example of money illusion?

Accepted Answer

A)  An individual is willing to work more hours when the nominal wage rises by 5 percent and the overall price level rises by 4 percent. 
B)  An individual is willing to work more hours when the nominal wage rises by 5% and the overall price level rises by 7 percent. 
C)  An individual will neither increase nor decrease the number of hours she is willing to work when the nominal wage rises by 5 percent and the overall price level rises by 5 percent. 
D)  none of the above. 
A)  An individual is willing to work more hours when the nominal wage rises by 5 percent and the overall price level rises by 4 percent. 
B)  An individual is willing to work more hours when the nominal wage rises by 5% and the overall price level rises by 7 percent. 
C)  An individual will neither increase nor decrease the number of hours she is willing to work when the nominal wage rises by 5 percent and the overall price level rises by 5 percent. 
D)  none of the above.

Question 8

Why is wage and price flexibility an important assumption of the classical model?

Accepted Answer

A)  Flexible wages and prices guarantee that there will be no scarcity. 
B)  Flexible wages and prices allow business firms to fool their workers through the money illusion. 
C)  Flexible wages and prices allow business firms to fool their customers through the money illusion. 
D)  Flexible wages and prices allow markets to reach equilibrium. 
A)  Flexible wages and prices guarantee that there will be no scarcity. 
B)  Flexible wages and prices allow business firms to fool their workers through the money illusion. 
C)  Flexible wages and prices allow business firms to fool their customers through the money illusion. 
D)  Flexible wages and prices allow markets to reach equilibrium.

Question 9

Say's law implies that

Accepted Answer

A)  surpluses never occur. 
B)  surpluses or shortages are possible, but only for a short time. 
C)  there will always be unemployment. 
D)  shortages never occur. 
A)  surpluses never occur. 
B)  surpluses or shortages are possible, but only for a short time. 
C)  there will always be unemployment. 
D)  shortages never occur.

Question 10

If short-run aggregate supply is upward sloping, the assumption is that

Accepted Answer

A)  prices are perfectly sticky. 
B)  prices are set by government mandate. 
C)  prices are constant. 
D)  prices adjust gradually. 
A)  prices are perfectly sticky. 
B)  prices are set by government mandate. 
C)  prices are constant. 
D)  prices adjust gradually.

Question 11

According to classical theory, full employment in the labor market occurs

Accepted Answer

A)  whenever aggregate demand is less than aggregate supply. 
B)  at a wage rate at which quantity demanded equals quantity supplied. 
C)  only when the economy has just experienced a demand shock. 
D)  only when actual expenditures are greater than desired expenditures. 
A)  whenever aggregate demand is less than aggregate supply. 
B)  at a wage rate at which quantity demanded equals quantity supplied. 
C)  only when the economy has just experienced a demand shock. 
D)  only when actual expenditures are greater than desired expenditures.

Question 12

Involuntary unemployment

Accepted Answer

A)  occurs when the wage rate is below the equilibrium wage rate. 
B)  exists when there is an excess quantity of labor supplied. 
C)  will increase as the wage rate falls. 
D)  exists when there is a shortage of labor. 
A)  occurs when the wage rate is below the equilibrium wage rate. 
B)  exists when there is an excess quantity of labor supplied. 
C)  will increase as the wage rate falls. 
D)  exists when there is a shortage of labor.

Question 13

All of the following are assumptions of the classical model EXCEPT

Accepted Answer

A)  inflexible wages. 
B)  absence of money illusion. 
C)  pure competition. 
D)  self-interest of economic actors. 
A)  inflexible wages. 
B)  absence of money illusion. 
C)  pure competition. 
D)  self-interest of economic actors.

Question 14

In the classical model, real Gross Domestic Product (GDP) per year is

Accepted Answer

A)  due to supply conditions plus the extent of government intervention in the economy. 
B)  determined by supply and demand conditions together. 
C)  supply determined. 
D)  demand determined. 
A)  due to supply conditions plus the extent of government intervention in the economy. 
B)  determined by supply and demand conditions together. 
C)  supply determined. 
D)  demand determined.

Question 15

A key assumption in the classical model is

Accepted Answer

A)  sticky wages. 
B)  pure competition exists. 
C)  sticky prices. 
D)  the government plays a major role in economic problems. 
A)  sticky wages. 
B)  pure competition exists. 
C)  sticky prices. 
D)  the government plays a major role in economic problems.

Question 16

The idea that "supply creates its own demand" is attributed to which of the following economists?

Accepted Answer

A)  Adam Smith 
B)  David Ricardo 
C)  J. B. Say 
D)  A. C. Pigou 
A)  Adam Smith 
B)  David Ricardo 
C)  J. B. Say 
D)  A. C. Pigou

Question 17

"According to Keynes, the economy is essentially a self-regulating system." Do you agree or disagree? Why?

Accepted Answer

Disagree. The inflexibility of prices me

Question 18

The Keynesian portion of the short-run aggregate supply (SRAS) curve

Accepted Answer

A)  is horizontal. 
B)  is vertical. 
C)  slopes upward. 
D)  slopes downward. 
A)  is horizontal. 
B)  is vertical. 
C)  slopes upward. 
D)  slopes downward.

Question 19

If the U.S. dollar becomes weaker in international foreign exchange markets, imported goods become more expensive. One result of this is that

Accepted Answer

A)  net exports decrease. 
B)  net exports increase. 
C)  domestic employment rises. 
D)  real Gross Domestic Product (GDP) increases. 
A)  net exports decrease. 
B)  net exports increase. 
C)  domestic employment rises. 
D)  real Gross Domestic Product (GDP) increases.

Question 20

The equilibrating force in the credit market in the classical model is

Accepted Answer

A)  the interest rate. 
B)  the price level. 
C)  full employment. 
D)  fiscal policy. 
A)  the interest rate. 
B)  the price level. 
C)  full employment. 
D)  fiscal policy.

Exam 11: Classical and Keynesian Macro Analyses

-Refer to the above figure. Which of the graphs is consistent with the long-run aggregate supply curve?

One tenet of classical economics is that

The short-run aggregate supply curve in modern Keynesian analysis is

Which of the following statements is true?

According to the classical model, an increase in aggregate demand would

Which of the following is an example of money illusion?

Why is wage and price flexibility an important assumption of the classical model?

Say's law implies that

If short-run aggregate supply is upward sloping, the assumption is that

According to classical theory, full employment in the labor market occurs

Involuntary unemployment

All of the following are assumptions of the classical model EXCEPT

In the classical model, real Gross Domestic Product (GDP) per year is

A key assumption in the classical model is

The idea that "supply creates its own demand" is attributed to which of the following economists?

"According to Keynes, the economy is essentially a self-regulating system." Do you agree or disagree? Why?

The Keynesian portion of the short-run aggregate supply (SRAS) curve

If the U.S. dollar becomes weaker in international foreign exchange markets, imported goods become more expensive. One result of this is that

The equilibrating force in the credit market in the classical model 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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