Question 1

Which of the following would increase aggregate supply?

Accepted Answer

A)  increased training and education 
B)  a reduction in input prices 
C)  a discovery of new raw materials 
D)  all of the above 
A)  increased training and education 
B)  a reduction in input prices 
C)  a discovery of new raw materials 
D)  all of the above

Question 2

As real GDP per year increases along the short-run aggregate supply (SRAS) curve, the SRAS curve

Accepted Answer

A)  becomes increasingly steep. 
B)  begins to level out. 
C)  shifts inward. 
D)  does not change. 
A)  becomes increasingly steep. 
B)  begins to level out. 
C)  shifts inward. 
D)  does not change.

Question 3

The short-run aggregate supply curve is horizontal if

Accepted Answer

A)  resources were fully utilized. 
B)  there are unutilized resources in the economy. 
C)  resources are perfectly adaptable between production processes. 
D)  there are high inflation rates. 
A)  resources were fully utilized. 
B)  there are unutilized resources in the economy. 
C)  resources are perfectly adaptable between production processes. 
D)  there are high inflation rates.

Question 4

In the classical model, the aggregate supply curve is

Accepted Answer

A)  a horizontal line. 
B)  an upward sloping line. 
C)  a vertical line. 
D)  a combination of horizontal, upward sloping, and vertical lines. 
A)  a horizontal line. 
B)  an upward sloping line. 
C)  a vertical line. 
D)  a combination of horizontal, upward sloping, and vertical lines.

Question 5

Natural disasters like severe earthquakes are devastating to the economy as well as to the individuals harmed due to

Accepted Answer

A)  supply shocks. 
B)  demand shocks. 
C)  demand-pull inflation. 
D)  demand-pull deflation. 
A)  supply shocks. 
B)  demand shocks. 
C)  demand-pull inflation. 
D)  demand-pull deflation.

Question 6

In the classical view, flexible wage rates would assure

Accepted Answer

A)  low inflation. 
B)  high rates of unemployment. 
C)  high secular inflation rates. 
D)  full employment. 
A)  low inflation. 
B)  high rates of unemployment. 
C)  high secular inflation rates. 
D)  full employment.

Question 7

When the value of the dollar decreases, the net effect on the economy

Accepted Answer

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

Question 8

A key component of the Keynesian model is that

Accepted Answer

A)  prices are sticky. 
B)  prices are flexible. 
C)  wages are flexible. 
D)  people are not fooled by money illusion. 
A)  prices are sticky. 
B)  prices are flexible. 
C)  wages are flexible. 
D)  people are not fooled by money illusion.

Question 9

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

Accepted Answer

A)  Wages and prices are flexible. 
B)  People are motivated by self-interest. 
C)  Money illusion exists. 
D)  Pure competition exists. 
A)  Wages and prices are flexible. 
B)  People are motivated by self-interest. 
C)  Money illusion exists. 
D)  Pure competition exists.

Question 10

John Maynard Keynes developed his economic theories in the

Accepted Answer

A)  1890s. 
B)  1900s. 
C)  1930s. 
D)  1990s. 
A)  1890s. 
B)  1900s. 
C)  1930s. 
D)  1990s.

Question 11

The Keynesian short-run aggregate supply (SRAS) curve

Accepted Answer

A)  shows that real Gross Domestic Product (GDP) will increase only if the price level increases. 
B)  assumes a full-employment level of real Gross Domestic Product (GDP). 
C)  is horizontal. 
D)  does not reflect any changes in nominal Gross Domestic Product (GDP). 
A)  shows that real Gross Domestic Product (GDP) will increase only if the price level increases. 
B)  assumes a full-employment level of real Gross Domestic Product (GDP). 
C)  is horizontal. 
D)  does not reflect any changes in nominal Gross Domestic Product (GDP).

Question 12

In the above figure, an increase in aggregate demand has resulted in

Accepted Answer

A)  a decline in the price level. 
B)  economic growth. 
C)  an inflationary gap. 
D)  a recessionary gap. 
A)  a decline in the price level. 
B)  economic growth. 
C)  an inflationary gap. 
D)  a recessionary gap.

Question 13

The short-run aggregate supply curve in modern Keynesian analysis represents the relationship between

Accepted Answer

A)  the real output of goods and services in the economy and the price level. 
B)  the real output of goods and services in the economy and the price level when people have fully adjusted their behavior. 
C)  the real output of goods and services in the economy and the price level when people have not fully adjusted their behavior. 
D)  the nominal output of goods and services and the real output of goods and services. 
A)  the real output of goods and services in the economy and the price level. 
B)  the real output of goods and services in the economy and the price level when people have fully adjusted their behavior. 
C)  the real output of goods and services in the economy and the price level when people have not fully adjusted their behavior. 
D)  the nominal output of goods and services and the real output of goods and services.

Question 14

Suppose the U.S. dollar weakens against the euro (and against other major currencies). We know with certainty that this weakening of the dollar will cause which of the following to occur?

Accepted Answer

A)  a recessionary gap 
B)  an inflationary gap 
C)  a deflationary gap 
D)  none of the above 
A)  a recessionary gap 
B)  an inflationary gap 
C)  a deflationary gap 
D)  none of the above

Question 15

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 16

Economic growth will NOT result in deflation if aggregate demand shifts

Accepted Answer

A)  outward to the right at the same speed as aggregate supply. 
B)  inward to the left at the same speed as aggregate supply. 
C)  outward to the right as aggregate supply shifts inward to the left. 
D)  inward to the left as aggregate supply shifts outward to the right. 
A)  outward to the right at the same speed as aggregate supply. 
B)  inward to the left at the same speed as aggregate supply. 
C)  outward to the right as aggregate supply shifts inward to the left. 
D)  inward to the left as aggregate supply shifts outward to the right.

Question 17

In the simple Keynesian portion of the upward sloping short-run aggregate supply curve

Accepted Answer

A)  equilibrium real GDP is demand-determined. 
B)  equilibrium real GDP is supply-determined. 
C)  equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand. 
D)  equilibrium real GDP is determined by both aggregate supply and aggregate demand. 
A)  equilibrium real GDP is demand-determined. 
B)  equilibrium real GDP is supply-determined. 
C)  equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand. 
D)  equilibrium real GDP is determined by both aggregate supply and aggregate demand.

Question 18

According to Keynes, wages are inflexible because

Accepted Answer

A)  of the minimum wage set by government. 
B)  of long-term contracts. 
C)  workers do not behave in their own self-interest. 
D)  workers are not rational. 
A)  of the minimum wage set by government. 
B)  of long-term contracts. 
C)  workers do not behave in their own self-interest. 
D)  workers are not rational.

Question 19

Classical economists assumed that

Accepted Answer

A)  prices were flexible. 
B)  individuals did not suffer from money illusion. 
C)  wages were flexible. 
D)  all of the above 
A)  prices were flexible. 
B)  individuals did not suffer from money illusion. 
C)  wages were flexible. 
D)  all of the above

Question 20

Refer to the above figure. At the initial long-run equilibrium, the price level is ________, and the price level will be ________.

Accepted Answer

A)  20; 45 
B)  20; 40 
C)  40; 45 
D)  20; 20 
A)  20; 45 
B)  20; 40 
C)  40; 45 
D)  20; 20

Exam 11: Classical and Keynesian Macro Analyses

Which of the following would increase aggregate supply?

As real GDP per year increases along the short-run aggregate supply (SRAS) curve, the SRAS curve

The short-run aggregate supply curve is horizontal if

In the classical model, the aggregate supply curve is

Natural disasters like severe earthquakes are devastating to the economy as well as to the individuals harmed due to

In the classical view, flexible wage rates would assure

When the value of the dollar decreases, the net effect on the economy

A key component of the Keynesian model is that

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

John Maynard Keynes developed his economic theories in the

The Keynesian short-run aggregate supply (SRAS) curve

In the above figure, an increase in aggregate demand has resulted in

The short-run aggregate supply curve in modern Keynesian analysis represents the relationship between

Suppose the U.S. dollar weakens against the euro (and against other major currencies). We know with certainty that this weakening of the dollar will cause which of the following to occur?

Economic growth will NOT result in deflation if aggregate demand shifts

In the simple Keynesian portion of the upward sloping short-run aggregate supply curve

According to Keynes, wages are inflexible because

Classical economists assumed that

Refer to the above figure. At the initial long-run equilibrium, the price level is ________, and the price level will be ________.

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

Refer to the above figure. At the initial long-run equilibrium, the price level is , and the price level will be .