Question 1

The classical economists believe that prices and wages quickly adjust to keep the economy operating at full employment.

Accepted Answer

A) True 
 B)False  True

Question 2

According to Keynes, what is the most important determinant of households' spending on goods and services?

Accepted Answer

A)  Price levels. 
B)  Interest rates. 
C)  Autonomous consumption. 
D)  Disposable income. 
A)  Price levels. 
B)  Interest rates. 
C)  Autonomous consumption. 
D)  Disposable income. D

Question 3

Keynes's macroeconomic theory explains that by shifting the aggregate demand the economy experiences less problems with unemployment but more problems with inflation.

Accepted Answer

A) True 
 B)False  False

Question 4

The net-exports effect is the direct relationship between net exports and the price level of an economy.

Accepted Answer

A) True 
 B)False

Question 5

The manipulation of spending to influence aggregate demand was first put forward because:

Accepted Answer

A)  the classical view of flexible prices and wages did not necessarily hold in reality. 
B)  unemployment often remained stubbornly high for too long during and after a
Depression. 
C)  inflation was extremely high during the Great Depression. 
D)  the classical view of flexible prices and wages did not necessarily hold in reality and unemployment often remained stubbornly high for too long during and after a
Depression. 
A)  the classical view of flexible prices and wages did not necessarily hold in reality. 
B)  unemployment often remained stubbornly high for too long during and after a
Depression. 
C)  inflation was extremely high during the Great Depression. 
D)  the classical view of flexible prices and wages did not necessarily hold in reality and unemployment often remained stubbornly high for too long during and after a
Depression.

Question 6

According to the net-exports effect, as the price level falls relative to the rest of the world:

Accepted Answer

A)  foreigners buy fewer goods. 
B)  foreigners buy more Australian goods. 
C)  the aggregate demand curve shifts to the left. 
D)  the aggregate demand curve shifts to the right. 
A)  foreigners buy fewer goods. 
B)  foreigners buy more Australian goods. 
C)  the aggregate demand curve shifts to the left. 
D)  the aggregate demand curve shifts to the right.

Question 7

Narrbegin Exhibit 14.2 Aggregate demand and supply   
-In Exhibit 14.2, if aggregate demand shifts from AD2 to AD1, real GDP will:

Accepted Answer

A)  not change and the price level will not change. 
B)  fall from $7 to $4 and the price level will not change. 
C)  fall from $4 to $3 and the price level will not change. 
D)  fall from $4 to $3 and the price level will fall from 120 to 100. 
A)  not change and the price level will not change. 
B)  fall from $7 to $4 and the price level will not change. 
C)  fall from $4 to $3 and the price level will not change. 
D)  fall from $4 to $3 and the price level will fall from 120 to 100.

Question 8

The marginal propensity to consume (MPC) is computed as the change in:

Accepted Answer

A)  consumption divided by the change in savings. 
B)  consumption resulted by a given change in disposable personal income. 
C)  consumption divided by the change in GDP. 
D)  consumption multiplied by the change in savings. 
A)  consumption divided by the change in savings. 
B)  consumption resulted by a given change in disposable personal income. 
C)  consumption divided by the change in GDP. 
D)  consumption multiplied by the change in savings.

Question 9

Which of the following will shift the aggregate demand curve to the right?

Accepted Answer

A)  Consumers becoming more pessimistic about the future. 
B)  A decrease in government spending. 
C)  An increase in business optimism. 
D)  A decrease in business optimism. 
A)  Consumers becoming more pessimistic about the future. 
B)  A decrease in government spending. 
C)  An increase in business optimism. 
D)  A decrease in business optimism.

Question 10

The fraction of each added dollar of disposable income that is used for consumption is called the:

Accepted Answer

A)  average propensity to consume (AP
C) . 
B)  autonomous consumption rate (ACR). 
C)  marginal consumption propensity (MCP). 
D)  marginal propensity to consume (MP
C) . 
E)  total propensity to consume (TP
C) . 
A)  average propensity to consume (AP
C) . 
B)  autonomous consumption rate (ACR). 
C)  marginal consumption propensity (MCP). 
D)  marginal propensity to consume (MP
C) . 
E)  total propensity to consume (TP
C) .

Question 11

The idea that government spending can be used to influence demand in an economy was first put forward by:

Accepted Answer

A)  Adam Smith. 
B)  John Howard. 
C)  Peter Costello. 
D)  John Maynard Keynes. 
A)  Adam Smith. 
B)  John Howard. 
C)  Peter Costello. 
D)  John Maynard Keynes.

Question 12

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

Accepted Answer

A)  People's desire to maintain real wealth holdings, the interest rate and international trade. 
B)  People's desire to increase the price level, the interest rate and the economic growth effect. 
C)  The interest rate, the economic growth effect and international trade. 
D)  Cost-pull inflation, demand-pull inflation and the need to maintain real wealth holdings. 
A)  People's desire to maintain real wealth holdings, the interest rate and international trade. 
B)  People's desire to increase the price level, the interest rate and the economic growth effect. 
C)  The interest rate, the economic growth effect and international trade. 
D)  Cost-pull inflation, demand-pull inflation and the need to maintain real wealth holdings.

Question 13

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:

Accepted Answer

A)  both real GDP and the price level will fall. 
B)  real GDP will fall and the price level will rise. 
C)  real GDP will rise and the price level will fall. 
D)  real GDP and the price level will rise. 
A)  both real GDP and the price level will fall. 
B)  real GDP will fall and the price level will rise. 
C)  real GDP will rise and the price level will fall. 
D)  real GDP and the price level will rise.

Question 14

As income grows, the consumption:

Accepted Answer

A)  decreases. 
B)  grows the same as income. 
C)  grows by less than income. 
D)  grows by more than income. 
A)  decreases. 
B)  grows the same as income. 
C)  grows by less than income. 
D)  grows by more than income.

Question 15

An increase in the price level caused by a rightward shift of the aggregate demand curve is called:

Accepted Answer

A)  cost-push inflation. 
B)  supply-shock inflation. 
C)  demand-shock inflation. 
D)  demand-pull inflation. 
A)  cost-push inflation. 
B)  supply-shock inflation. 
C)  demand-shock inflation. 
D)  demand-pull inflation.

Question 16

Keynes was not concerned with:

Accepted Answer

A)  problems of inflation but his theory helps to fight supply-push inflation. 
B)  problems of interest rates but his theory helps to fight deflation. 
C)  problems of investments but his theory helps to fight demand-pull inflation. 
D)  problems of inflation but his theory helps to fight demand-pull inflation. 
A)  problems of inflation but his theory helps to fight supply-push inflation. 
B)  problems of interest rates but his theory helps to fight deflation. 
C)  problems of investments but his theory helps to fight demand-pull inflation. 
D)  problems of inflation but his theory helps to fight demand-pull inflation.

Question 17

In the aggregate demand-output model, if an economy operates below equilibrium GDP, there will be:

Accepted Answer

A)  unplanned inventory depletion. 
B)  unplanned inventory accumulated. 
C)  a decrease in GDP. 
D)  a decrease in employment. 
A)  unplanned inventory depletion. 
B)  unplanned inventory accumulated. 
C)  a decrease in GDP. 
D)  a decrease in employment.

Question 18

Aggregate expenditures are the sum of:

Accepted Answer

A)  consumption, investment and government spending minus net exports. 
B)  consumption, government spending and net exports. 
C)  consumption, investment, government spending and net exports. 
D)  production, investment, government spending and net exports. 
A)  consumption, investment and government spending minus net exports. 
B)  consumption, government spending and net exports. 
C)  consumption, investment, government spending and net exports. 
D)  production, investment, government spending and net exports.

Question 19

The aggregate demand is:

Accepted Answer

A)  C + I + G + (X + M). 
B)  C + I + G - (X - M). 
C)  C + I + G*(X - M). 
D)  C + I + G + (X - M). 
A)  C + I + G + (X + M). 
B)  C + I + G - (X - M). 
C)  C + I + G*(X - M). 
D)  C + I + G + (X - M).

Question 20

When the AS curve is vertical at the full-employment GDP, the effect/s of a change in AD:

Accepted Answer

A)  is a change in the price level. 
B)  are changes in the demand and the price levels. 
C)  is a change in the output level. 
D)  is a change in the quality. 
A)  is a change in the price level. 
B)  are changes in the demand and the price levels. 
C)  is a change in the output level. 
D)  is a change in the quality.

The classical economists believe that prices and wages quickly adjust to keep the economy operating at full employment.

According to Keynes, what is the most important determinant of households' spending on goods and services?

Keynes's macroeconomic theory explains that by shifting the aggregate demand the economy experiences less problems with unemployment but more problems with inflation.

The net-exports effect is the direct relationship between net exports and the price level of an economy.

The manipulation of spending to influence aggregate demand was first put forward because:

According to the net-exports effect, as the price level falls relative to the rest of the world:

Narrbegin Exhibit 14.2 Aggregate demand and supply -In Exhibit 14.2, if aggregate demand shifts from AD₂ to AD₁, real GDP will:

The marginal propensity to consume (MPC) is computed as the change in:

Which of the following will shift the aggregate demand curve to the right?

The fraction of each added dollar of disposable income that is used for consumption is called the:

The idea that government spending can be used to influence demand in an economy was first put forward by:

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:

As income grows, the consumption:

An increase in the price level caused by a rightward shift of the aggregate demand curve is called:

Keynes was not concerned with:

In the aggregate demand-output model, if an economy operates below equilibrium GDP, there will be:

Aggregate expenditures are the sum of:

The aggregate demand is:

When the AS curve is vertical at the full-employment GDP, the effect/s of a change in AD:

Thinking Like an Economist

Applying Graphs to Economics

Production Possibilities and Opportunity Cost

Market Demand and Supply

Markets in Action

Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Policy Issues: Housing Affordability and Climate Change

Measuring the Size of the Economy

Business Cycles and Economic Growth

Inflation and Unemployment

The Monetary and Financial System

Macroeconomic Policy I: Monetary Policy

Macroeconomic Policy II: Fiscal Policy

International Trade and Finance

Filters

Exam 15: A Simple Model of the Macro Economy

The classical economists believe that prices and wages quickly adjust to keep the economy operating at full employment.

According to Keynes, what is the most important determinant of households' spending on goods and services?

Keynes's macroeconomic theory explains that by shifting the aggregate demand the economy experiences less problems with unemployment but more problems with inflation.

The net-exports effect is the direct relationship between net exports and the price level of an economy.

The manipulation of spending to influence aggregate demand was first put forward because:

According to the net-exports effect, as the price level falls relative to the rest of the world:

Narrbegin Exhibit 14.2 Aggregate demand and supply -In Exhibit 14.2, if aggregate demand shifts from AD2 to AD1, real GDP will:

The marginal propensity to consume (MPC) is computed as the change in:

Which of the following will shift the aggregate demand curve to the right?

The fraction of each added dollar of disposable income that is used for consumption is called the:

The idea that government spending can be used to influence demand in an economy was first put forward by:

Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?

Suppose workers become pessimistic about their future employment, which causes them to save more and spend less. If the economy is on the intermediate range of the aggregate supply curve, then:

As income grows, the consumption:

An increase in the price level caused by a rightward shift of the aggregate demand curve is called:

Keynes was not concerned with:

In the aggregate demand-output model, if an economy operates below equilibrium GDP, there will be:

Aggregate expenditures are the sum of:

The aggregate demand is:

When the AS curve is vertical at the full-employment GDP, the effect/s of a change in AD:

Thinking Like an Economist

Applying Graphs to Economics

Production Possibilities and Opportunity Cost

Market Demand and Supply

Markets in Action

Elasticity of Demand and Supply

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Policy Issues: Housing Affordability and Climate Change

Measuring the Size of the Economy

Business Cycles and Economic Growth

Inflation and Unemployment

The Monetary and Financial System

Macroeconomic Policy I: Monetary Policy

Macroeconomic Policy II: Fiscal Policy

International Trade and Finance

Filters

Narrbegin Exhibit 14.2 Aggregate demand and supply -In Exhibit 14.2, if aggregate demand shifts from AD₂ to AD₁, real GDP will: