Question 1

The classical dichotomy refers to the separation of:

Accepted Answer

A)  monetary and fiscal variables 
B)  predictable and unpredictable variables 
C)  endogenous and exogenous variables 
D)  real and nominal variables 
A)  monetary and fiscal variables 
B)  predictable and unpredictable variables 
C)  endogenous and exogenous variables 
D)  real and nominal variables D

Question 2

What are three alternative explanations for the upward slope of the short-run aggregate-supply curve? Do these explanations also apply in the long run?

Accepted Answer

Three alternative explanations for the upward slope of the short-run aggregate-supply curve are misperceptions, sticky wages and sticky prices. However, these conditions will not persist forever. As people adjust their expectations, misperceptions are corrected, nominal wages adjust and prices become unstuck. In the long run, the aggregate-supply curve is vertical rather than upward sloping.

Question 3

In the long run, it is the adjustment of expectations that shifts the short-run aggregate-supply curve that ensures the economy will reach equilibrium at the intersection of the aggregate-demand curve and the long-run aggregate-supply curve.

Accepted Answer

A) True 
 B)False  True

Question 4

Explain three alternative reasons why a fall in the price level increases the quantity of goods and services demanded.

Accepted Answer

a. Pigou's wealth effect: consumers feel

Question 5

Write each of the following words or phrases in the correct column in the table: costs of production, technology, income tax, sales tax, GST, interest rates, transfer payments, level of workers' productivity, cost of imported raw materials, government spending, savings, expectations about inflation, capital stock, level of labour force, a wage award, net exports.

Accepted Answer

The answer of Write each of the following words or...

Question 6

Which of the following conditions persist forever?

Accepted Answer

A)  Misperceptions 
B)  Sticky wages 
C)  Sticky prices 
D)  None of the above 
A)  Misperceptions 
B)  Sticky wages 
C)  Sticky prices 
D)  None of the above

Question 7

According to Okun's law, if real GDP grows at an average rate of 3 per cent, the unemployment rate remains unchanged.

Accepted Answer

A) True 
 B)False

Question 8

Most economists believe that classical economic theory is a good description of the world:

Accepted Answer

A)  in the short run, but not in the long run 
B)  in the long run, but not in the short run 
C)  in the short run and in the long run 
D)  in the nineteenth century, but not in the twentieth century 
A)  in the short run, but not in the long run 
B)  in the long run, but not in the short run 
C)  in the short run and in the long run 
D)  in the nineteenth century, but not in the twentieth century

Question 9

The combination of rising unemployment and rising price level is called stagflation.

Accepted Answer

A) True 
 B)False

Question 10

Economic growth is:

Accepted Answer

A)  bad for the economy as it reduces the standard of living 
B)  good for society to the extent that it allows everyone to enjoy a higher standard of living 
C)  bad for society as it allows producers to make more profit 
D)  bad for society because it creates more inequities 
E)  none of the above 
A)  bad for the economy as it reduces the standard of living 
B)  good for society to the extent that it allows everyone to enjoy a higher standard of living 
C)  bad for society as it allows producers to make more profit 
D)  bad for society because it creates more inequities 
E)  none of the above

Question 11

In the long run, the quantity of goods and services supplied depends on the economy's labour, capital, technology and overall level of prices.

Accepted Answer

A) True 
 B)False

Question 12

Keynes's interest-rate effect implies that a lower price level:

Accepted Answer

A)  reduces the interest rate and reduces the quantity of goods and services demanded 
B)  reduces the interest rate and increases the quantity of goods and services demanded 
C)  increases the interest rate and increases the quantity of goods and services demanded 
D)  increases the interest rate and reduces the quantity of goods and services demanded 
A)  reduces the interest rate and reduces the quantity of goods and services demanded 
B)  reduces the interest rate and increases the quantity of goods and services demanded 
C)  increases the interest rate and increases the quantity of goods and services demanded 
D)  increases the interest rate and reduces the quantity of goods and services demanded

Question 13

A prolonged period of falling incomes and rising unemployment is called:

Accepted Answer

A)  a recession 
B)  a boom 
C)  a business cycle 
D)  a depression 
A)  a recession 
B)  a boom 
C)  a business cycle 
D)  a depression

Question 14

If people's expectations about future price levels change:

Accepted Answer

A)  the short-run aggregate-supply curve shifts 
B)  the short-run aggregate-supply curve is not affected 
C)  the short-run aggregate-supply curve becomes vertical 
D)  the short-run aggregate-supply curve becomes horizontal 
E)  all of the above are possible 
A)  the short-run aggregate-supply curve shifts 
B)  the short-run aggregate-supply curve is not affected 
C)  the short-run aggregate-supply curve becomes vertical 
D)  the short-run aggregate-supply curve becomes horizontal 
E)  all of the above are possible

Question 15

The business cycle follows a regular and predictable pattern.

Accepted Answer

A) True 
 B)False

Question 16

We can use the aggregate demand and supply model to think about the long run as well as the short run. Using this framework, show the effects of (1) long-run growth in the money supply, and (2) long-run growth in GDP. Show that if the economy is growing, then the price level might fall over time even if the money supply is growing.

Accepted Answer

Growth in the money supply in the long r

Question 17

In a recession, real GDP falls and:

Accepted Answer

A)  unemployment may rise or fall 
B)  unemployment falls 
C)  unemployment rises 
D)  unemployment is unaffected 
A)  unemployment may rise or fall 
B)  unemployment falls 
C)  unemployment rises 
D)  unemployment is unaffected

Question 18

Which of the following statements about aggregate supply is correct?

Accepted Answer

A)  Shifts in aggregate supply can cause stagflation 
B)  Shifts in aggregate supply can cause a fall in output and a rise in prices 
C)  Shifts in aggregate supply can cause a recession 
D)  All of the above 
A)  Shifts in aggregate supply can cause stagflation 
B)  Shifts in aggregate supply can cause a fall in output and a rise in prices 
C)  Shifts in aggregate supply can cause a recession 
D)  All of the above

Question 19

When firms cut back production:

Accepted Answer

A)  they employ more people, so unemployment rises 
B)  they employ more people, so unemployment falls 
C)  they employ fewer people, so unemployment rises 
D)  they employ fewer people, so unemployment falls 
A)  they employ more people, so unemployment rises 
B)  they employ more people, so unemployment falls 
C)  they employ fewer people, so unemployment rises 
D)  they employ fewer people, so unemployment falls

Question 20

Using the real GDP measure, Australia did not have a recession. However other measures state otherwise. Identify and explain why these may be used valid evidence of a downturn, even though they are NOT used to measure the business cycle.

Accepted Answer

While we have used a fairly standard def

Exam 33: Aggregate Demand and Aggregate Supply

The classical dichotomy refers to the separation of:

What are three alternative explanations for the upward slope of the short-run aggregate-supply curve? Do these explanations also apply in the long run?

In the long run, it is the adjustment of expectations that shifts the short-run aggregate-supply curve that ensures the economy will reach equilibrium at the intersection of the aggregate-demand curve and the long-run aggregate-supply curve.

Explain three alternative reasons why a fall in the price level increases the quantity of goods and services demanded.

Which of the following conditions persist forever?

According to Okun's law, if real GDP grows at an average rate of 3 per cent, the unemployment rate remains unchanged.

Most economists believe that classical economic theory is a good description of the world:

The combination of rising unemployment and rising price level is called stagflation.

Economic growth is:

In the long run, the quantity of goods and services supplied depends on the economy's labour, capital, technology and overall level of prices.

Keynes's interest-rate effect implies that a lower price level:

A prolonged period of falling incomes and rising unemployment is called:

If people's expectations about future price levels change:

The business cycle follows a regular and predictable pattern.

In a recession, real GDP falls and:

Which of the following statements about aggregate supply is correct?

When firms cut back production:

Using the real GDP measure, Australia did not have a recession. However other measures state otherwise. Identify and explain why these may be used valid evidence of a downturn, even though they are NOT used to measure the business cycle.

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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