Question 1

What effect does a stronger dollar have on aggregate supply? Why?

Accepted Answer

A stronger dollar means that U.S. residents can buy foreign goods more cheaply. Since some of the foreign goods will be raw materials and partially processed goods, input prices fall, which causes aggregate supply to increase.

Question 2

Q: How many economists does it take to screw in a light bulb? A: None. If the light bulb really needed changing, market forces would have already caused it to happen.
This joke represents the view of

Accepted Answer

A)  classical economists. 
B)  Keynesian economists. 
C)  economists who conclude that money illusion is widespread. 
D)  economists who conclude that wages and prices are inflexible. 
A)  classical economists. 
B)  Keynesian economists. 
C)  economists who conclude that money illusion is widespread. 
D)  economists who conclude that wages and prices are inflexible. A

Question 3

Keynes suggested that the short-run aggregate supply (SRAS) curve

Accepted Answer

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

Question 4

A stronger dollar leads to lower input prices for U.S. firms because

Accepted Answer

A)  U.S. workers are willing to work for less pay because of the stronger dollar. 
B)  U.S. producers of intermediate goods lower prices in order to benefit from the stronger dollar. 
C)  both imports of raw materials and intermediate goods are lower in prices. 
D)  both exports of raw materials and intermediate goods are lower in prices. 
A)  U.S. workers are willing to work for less pay because of the stronger dollar. 
B)  U.S. producers of intermediate goods lower prices in order to benefit from the stronger dollar. 
C)  both imports of raw materials and intermediate goods are lower in prices. 
D)  both exports of raw materials and intermediate goods are lower in prices.

Question 5

Equilibrium real GDP rises after the dollar strengthened. From this, we can conclude that

Accepted Answer

A)  the increase in aggregate demand was greater than the decrease in aggregate supply. 
B)  the decrease in aggregate demand was less than the increase in aggregate supply. 
C)  the decrease in aggregate demand was more than the increase in aggregate supply. 
D)  the increase in aggregate demand was less than the decrease in aggregate supply. 
A)  the increase in aggregate demand was greater than the decrease in aggregate supply. 
B)  the decrease in aggregate demand was less than the increase in aggregate supply. 
C)  the decrease in aggregate demand was more than the increase in aggregate supply. 
D)  the increase in aggregate demand was less than the decrease in aggregate supply.

Question 6

In the above figure, if the relevant aggregate demand curve is AD2, what are the short-run equilibrium price level and real GDP?

Accepted Answer

A)  130 and $12 trillion 
B)  130 and $11.5 trillion 
C)  120 and $11.5 trillion 
D)  120 and $12 trillion 
A)  130 and $12 trillion 
B)  130 and $11.5 trillion 
C)  120 and $11.5 trillion 
D)  120 and $12 trillion

Question 7

At higher rates of interest

Accepted Answer

A)  households save less and businesses invest more. 
B)  households save less and businesses invest less. 
C)  households save more and businesses invest less. 
D)  households save more and businesses invest more. 
A)  households save less and businesses invest more. 
B)  households save less and businesses invest less. 
C)  households save more and businesses invest less. 
D)  households save more and businesses invest more.

Question 8

If the U.S. dollar becomes weaker in international markets, the net effects will include

Accepted Answer

A)  a decrease in short-run aggregate supply (SRAS) and an increase in aggregate demand. 
B)  an increase in short-run aggregate supply (SRAS) and a decrease in aggregate demand. 
C)  a decrease in both short run aggregate supply (SRAS) and aggregate demand. 
D)  an increase in both short run aggregate supply (SRAS) and aggregate demand. 
A)  a decrease in short-run aggregate supply (SRAS) and an increase in aggregate demand. 
B)  an increase in short-run aggregate supply (SRAS) and a decrease in aggregate demand. 
C)  a decrease in both short run aggregate supply (SRAS) and aggregate demand. 
D)  an increase in both short run aggregate supply (SRAS) and aggregate demand.

Question 9

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 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

In the classical model, what is the result of an increase in aggregate demand?

Accepted Answer

A)  Real GDP increases, and the price level remains constant. 
B)  Real GDP decreases, and the price level remains constant. 
C)  The price level increases, and real GDP remains constant. 
D)  The price level decreases, and real GDP remains constant. 
A)  Real GDP increases, and the price level remains constant. 
B)  Real GDP decreases, and the price level remains constant. 
C)  The price level increases, and real GDP remains constant. 
D)  The price level decreases, and real GDP remains constant.

Question 12

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 13

Keynesian economists would likely argue that the classical model is which of the following?

Accepted Answer

A)  a long-run theory 
B)  a short-run theory 
C)  both a long-run and short-run theory 
D)  a sticky price theory 
A)  a long-run theory 
B)  a short-run theory 
C)  both a long-run and short-run theory 
D)  a sticky price theory

Question 14

"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 15

Which of the following will shift the Keynesian short-run aggregate supply curve downward and to the right?

Accepted Answer

A)  a rise in the price level 
B)  a fall in the price level 
C)  a decrease in input costs 
D)  an increase in input costs 
A)  a rise in the price level 
B)  a fall in the price level 
C)  a decrease in input costs 
D)  an increase in input costs

Question 16

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 17

Which of the following statements is TRUE about the long-run and short-run aggregate supply curve in the classical model?

Accepted Answer

A)  The long-run aggregate supply curve is vertical, and the short-run curve is horizontal. 
B)  The long-run aggregate supply curve is not defined, and the short run curve is vertical. 
C)  The long-run and short-run curves start out horizontal and eventually become vertical. 
D)  The long-run curve is vertical, and there is no short-run curve since all adjustments occur quickly. 
A)  The long-run aggregate supply curve is vertical, and the short-run curve is horizontal. 
B)  The long-run aggregate supply curve is not defined, and the short run curve is vertical. 
C)  The long-run and short-run curves start out horizontal and eventually become vertical. 
D)  The long-run curve is vertical, and there is no short-run curve since all adjustments occur quickly.

Question 18

An increase in aggregate demand will tend to cause which of the following?

Accepted Answer

A)  a deflationary gap 
B)  a recessionary gap 
C)  cost-push inflation 
D)  none of the above 
A)  a deflationary gap 
B)  a recessionary gap 
C)  cost-push inflation 
D)  none of the above

Question 19

The classical economists argued that planned saving and planned investment will always be equal because of changes in

Accepted Answer

A)  the level of real disposable income. 
B)  the interest rate. 
C)  the price level. 
D)  wages. 
A)  the level of real disposable income. 
B)  the interest rate. 
C)  the price level. 
D)  wages.

Question 20

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.

Exam 11: Classical and Keynesian Macro Analyses

What effect does a stronger dollar have on aggregate supply? Why?

Q: How many economists does it take to screw in a light bulb? A: None. If the light bulb really needed changing, market forces would have already caused it to happen. This joke represents the view of

Keynes suggested that the short-run aggregate supply (SRAS) curve

A stronger dollar leads to lower input prices for U.S. firms because

Equilibrium real GDP rises after the dollar strengthened. From this, we can conclude that

In the above figure, if the relevant aggregate demand curve is AD2, what are the short-run equilibrium price level and real GDP?

At higher rates of interest

If the U.S. dollar becomes weaker in international markets, the net effects will include

Involuntary unemployment

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

In the classical model, what is the result of an increase in aggregate demand?

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

Keynesian economists would likely argue that the classical model is which of the following?

"Supply creates its own demand" implies that

Which of the following will shift the Keynesian short-run aggregate supply curve downward and to the right?

One tenet of classical economics is that

Which of the following statements is TRUE about the long-run and short-run aggregate supply curve in the classical model?

An increase in aggregate demand will tend to cause which of the following?

The classical economists argued that planned saving and planned investment will always be equal because of changes in

According to the classical economists, actual real GDP

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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