Question 1

All items below will decrease short-run aggregate supply EXCEPT

Accepted Answer

A)  a decrease in the marginal tax rates. 
B)  an increase in the prices of inputs. 
C)  a decrease in training and education. 
D)  a decrease in labor supply. 
A)  a decrease in the marginal tax rates. 
B)  an increase in the prices of inputs. 
C)  a decrease in training and education. 
D)  a decrease in labor supply.

Question 2

Assume equilibrium real GDP per year is equal to full-employment real GDP. If aggregate demand falls, then

Accepted Answer

A)  the price level will increase in the short run and decrease in the long run. 
B)  there will be an expansionary gap. 
C)  there will be a recessionary gap. 
D)  long-run aggregate supply will eventually decrease too. 
A)  the price level will increase in the short run and decrease in the long run. 
B)  there will be an expansionary gap. 
C)  there will be a recessionary gap. 
D)  long-run aggregate supply will eventually decrease too.

Question 3

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 4

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 5

All the following are assumptions of the classical model EXCEPT

Accepted Answer

A)  pure competition exists. 
B)  buyers and sellers react to nominal money prices rather than to relative prices. 
C)  people are motivated by self-interest. 
D)  wages and prices are flexible. 
A)  pure competition exists. 
B)  buyers and sellers react to nominal money prices rather than to relative prices. 
C)  people are motivated by self-interest. 
D)  wages and prices are flexible.

Question 6

According to modern Keynesian analysis, an increase in aggregate demand leads to a higher price level because the

Accepted Answer

A)  aggregate demand curve is upward sloping. 
B)  short-run aggregate supply curve is upward sloping. 
C)  aggregate demand curve is upward horizontal. 
D)  short-run aggregate supply curve is vertical. 
A)  aggregate demand curve is upward sloping. 
B)  short-run aggregate supply curve is upward sloping. 
C)  aggregate demand curve is upward horizontal. 
D)  short-run aggregate supply curve is vertical.

Question 7

Long-run unemployment in the classical model is considered to be impossible because

Accepted Answer

A)  the government will intervene to aid the unemployed. 
B)  job placement and training programs are rampant in the United States. 
C)  flexible prices and wages keep workers fully employed. 
D)  the labor supply is horizontal. 
A)  the government will intervene to aid the unemployed. 
B)  job placement and training programs are rampant in the United States. 
C)  flexible prices and wages keep workers fully employed. 
D)  the labor supply is horizontal.

Question 8

At higher rates of interest

Accepted Answer

A)  households save less because it is more expensive to save. 
B)  households save more because they get a greater return on their savings. 
C)  businesses demand more investment because future profitability is likely to be greater. 
D)  businesses demand more investment because there are more funds available to invest. 
A)  households save less because it is more expensive to save. 
B)  households save more because they get a greater return on their savings. 
C)  businesses demand more investment because future profitability is likely to be greater. 
D)  businesses demand more investment because there are more funds available to invest.

Question 9

The first systematic attempt to explain the determinants of the price level and national levels of income, employment, consumption and real Gross Domestic Product (GDP) was made by ________ economists.

Accepted Answer

A)  Keynesian 
B)  supply-side 
C)  monetarist 
D)  classical 
A)  Keynesian 
B)  supply-side 
C)  monetarist 
D)  classical

Question 10

Oil prices increased significantly in 2008. According to the Keynesian model, this increase in oil prices should have caused which of the following to occur?

Accepted Answer

A)  demand-pull inflation 
B)  demand-push inflation 
C)  cost-push inflation 
D)  cost-pull inflation 
A)  demand-pull inflation 
B)  demand-push inflation 
C)  cost-push inflation 
D)  cost-pull inflation

Question 11

The short-run aggregate supply (SRAS) curve represents the relationship between

Accepted Answer

A)  the price level and the real Gross Domestic Product (GDP) without full adjustment or full information. 
B)  the price level and the real Gross Domestic Product (GDP) without full adjustment but with full information. 
C)  the price level and the nominal Gross Domestic Product (GDP). 
D)  the decisions of producers and the decisions of consumers. 
A)  the price level and the real Gross Domestic Product (GDP) without full adjustment or full information. 
B)  the price level and the real Gross Domestic Product (GDP) without full adjustment but with full information. 
C)  the price level and the nominal Gross Domestic Product (GDP). 
D)  the decisions of producers and the decisions of consumers.

Question 12

According to the classical model, investment

Accepted Answer

A)  is a function of real GDP. 
B)  is a function of the nominal GDP. 
C)  is inversely related to the interest rate. 
D)  is influenced by the money illusion at low income levels. 
A)  is a function of real GDP. 
B)  is a function of the nominal GDP. 
C)  is inversely related to the interest rate. 
D)  is influenced by the money illusion at low income levels.

Question 13

Refer to the above figure. An increase in aggregate demand beyond real Gross Domestic Product (GDP) level Y1 would result in

Accepted Answer

A)  higher real GDP but not a higher price level. 
B)  a lower price level but no change in real GDP. 
C)  a higher price level but no change in real GDP. 
D)  a lower price level and an increases in real GDP. 
A)  higher real GDP but not a higher price level. 
B)  a lower price level but no change in real GDP. 
C)  a higher price level but no change in real GDP. 
D)  a lower price level and an increases in real GDP.

Question 14

If the price level kept increasing, the short-run aggregate supply (SRAS) curve would get steeper because

Accepted Answer

A)  all the unemployed would eventually be hired. 
B)  there are limits to how long workers can work long hours and capital can go without proper maintenance. 
C)  the rate at which capacity can be expanded increases indefinitely. 
D)  the long-run aggregate supply curve is horizontal. 
A)  all the unemployed would eventually be hired. 
B)  there are limits to how long workers can work long hours and capital can go without proper maintenance. 
C)  the rate at which capacity can be expanded increases indefinitely. 
D)  the long-run aggregate supply curve is horizontal.

Question 15

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

Accepted Answer

A)  Government intervention is necessary for economic stability. 
B)  No one buyer or seller of a good or service can affect the price of the good or service. 
C)  People are motivated by self-interest. 
D)  People are not fooled by the money illusion. 
A)  Government intervention is necessary for economic stability. 
B)  No one buyer or seller of a good or service can affect the price of the good or service. 
C)  People are motivated by self-interest. 
D)  People are not fooled by the money illusion.

Question 16

Which of the following can cause inflation?

Accepted Answer

A)  increases in short-run aggregate supply 
B)  increases in long-run aggregate supply 
C)  decreases in short-run aggregate supply 
D)  decreases in aggregate demand 
A)  increases in short-run aggregate supply 
B)  increases in long-run aggregate supply 
C)  decreases in short-run aggregate supply 
D)  decreases in aggregate demand

Question 17

Money illusion is

Accepted Answer

A)  a basic condition that all classical economists assume people have. 
B)  when people think they are better off when their income increases even though prices have increased by the same amount. 
C)  when people are motivated by self-interest. 
D)  could not exist if the economy did not have competitive markets. 
A)  a basic condition that all classical economists assume people have. 
B)  when people think they are better off when their income increases even though prices have increased by the same amount. 
C)  when people are motivated by self-interest. 
D)  could not exist if the economy did not have competitive markets.

Question 18

In economics, investment is defined as

Accepted Answer

A)  the spending by businesses on capital goods and inventories. 
B)  the spending by households on human capital and durable goods. 
C)  disposable income minus consumption. 
D)  disposable income plus consumption. 
A)  the spending by businesses on capital goods and inventories. 
B)  the spending by households on human capital and durable goods. 
C)  disposable income minus consumption. 
D)  disposable income plus consumption.

Question 19

For several years, the U.S. unemployment rate has been below the European unemployment rate. Offer a Keynesian explanation for this.

Accepted Answer

The aggregate supply curve in Europe is

Question 20

"Supply creates its own demand" is known as

Accepted Answer

A)  Keynes' Rule. 
B)  Murphy's law 
C)  Smith's law. 
D)  Say's law. 
A)  Keynes' Rule. 
B)  Murphy's law 
C)  Smith's law. 
D)  Say's law.

Exam 11: Classical and Keynesian Macro Analyses

All items below will decrease short-run aggregate supply EXCEPT

Assume equilibrium real GDP per year is equal to full-employment real GDP. If aggregate demand falls, then

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

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

All the following are assumptions of the classical model EXCEPT

According to modern Keynesian analysis, an increase in aggregate demand leads to a higher price level because the

Long-run unemployment in the classical model is considered to be impossible because

At higher rates of interest

The first systematic attempt to explain the determinants of the price level and national levels of income, employment, consumption and real Gross Domestic Product (GDP) was made by ________ economists.

Oil prices increased significantly in 2008. According to the Keynesian model, this increase in oil prices should have caused which of the following to occur?

The short-run aggregate supply (SRAS) curve represents the relationship between

According to the classical model, investment

Refer to the above figure. An increase in aggregate demand beyond real Gross Domestic Product (GDP) level Y1 would result in

If the price level kept increasing, the short-run aggregate supply (SRAS) curve would get steeper because

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

Which of the following can cause inflation?

Money illusion is

In economics, investment is defined as

For several years, the U.S. unemployment rate has been below the European unemployment rate. Offer a Keynesian explanation for this.

"Supply creates its own demand" is known as

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