Question 1

An individual who is suffering from money illusion is more concerned with

Accepted Answer

A)  relative prices than with nominal prices. 
B)  relative prices than with real prices. 
C)  nominal prices than with relative prices. 
D)  real prices than with nominal prices. 
A)  relative prices than with nominal prices. 
B)  relative prices than with real prices. 
C)  nominal prices than with relative prices. 
D)  real prices than with nominal prices.

Question 2

When the value of the dollar increases, 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 3

-Refer to the above figure. Suppose the economy had been at point A and now is at B. What could have caused the movement to B?

Accepted Answer

A)  Unusually good weather causes the wheat crop to be larger than normal. 
B)  Government spending increased causing aggregate demand to increase. 
C)  Winter storms cause factories in the north to be shut down for several weeks. 
D)  Both the labor force and the population increased. 
A)  Unusually good weather causes the wheat crop to be larger than normal. 
B)  Government spending increased causing aggregate demand to increase. 
C)  Winter storms cause factories in the north to be shut down for several weeks. 
D)  Both the labor force and the population increased.

Question 4

The full-employment rate of output can

Accepted Answer

A)  be surpassed in the long run only if input prices are flexible. 
B)  not be surpassed in either the short run or the long run. 
C)  be surpassed only when firms are not yet producing at full capacity. 
D)  be surpassed only in the short run. 
A)  be surpassed in the long run only if input prices are flexible. 
B)  not be surpassed in either the short run or the long run. 
C)  be surpassed only when firms are not yet producing at full capacity. 
D)  be surpassed only in the short run.

Question 5

According to Keynesian economics, if there are unutilized resources in the economy and aggregate demand increases

Accepted Answer

A)  real GDP will rise and price level will remain constant. 
B)  real GDP will fall and price level will remain constant. 
C)  real GDP will rise and price level will rise. 
D)  real GDP will rise and price level will fall. 
A)  real GDP will rise and price level will remain constant. 
B)  real GDP will fall and price level will remain constant. 
C)  real GDP will rise and price level will rise. 
D)  real GDP will rise and price level will fall.

Question 6

Refer to the above figure. Which of the graphs is consistent with the long-run aggregate supply curve?

Accepted Answer

A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D 
A)  Graph A 
B)  Graph B 
C)  Graph C 
D)  Graph D

Question 7

-The above figure presents the view of the economy according to

Accepted Answer

A)  Keynesian economics. 
B)  classical economics. 
C)  microanalysis. 
D)  Ricardian economics. 
A)  Keynesian economics. 
B)  classical economics. 
C)  microanalysis. 
D)  Ricardian economics.

Question 8

All of the following will shift the short-run aggregate supply (SRAS) curve EXCEPT

Accepted Answer

A)  a change in the price level. 
B)  a change in the price of labor. 
C)  a change in the prices of raw materials. 
D)  technological progress. 
A)  a change in the price level. 
B)  a change in the price of labor. 
C)  a change in the prices of raw materials. 
D)  technological progress.

Question 9

The horizontal portion of the short-run aggregate supply curve in which there is excessive unemployment and unused capacity in the economy is

Accepted Answer

A)  Say's law. 
B)  the classical short-run aggregate supply curve. 
C)  the Keynesian short-run aggregate supply curve. 
D)  exists when prices are flexible. 
A)  Say's law. 
B)  the classical short-run aggregate supply curve. 
C)  the Keynesian short-run aggregate supply curve. 
D)  exists when prices are flexible.

Question 10

Suppose we observe the price level increasing and real GDP decreasing. An explanation for this is that

Accepted Answer

A)  the dollar weakened and the effect on aggregate supply was less than the effect on aggregate demand. 
B)  the dollar weakened and the effect on aggregate supply was greater than the effect on aggregate demand. 
C)  the dollar strengthened and the effect on aggregate supply was less than the effect on aggregate demand. 
D)  the dollar strengthened and the effect on aggregate supply was greater than the effect on aggregate demand. 
A)  the dollar weakened and the effect on aggregate supply was less than the effect on aggregate demand. 
B)  the dollar weakened and the effect on aggregate supply was greater than the effect on aggregate demand. 
C)  the dollar strengthened and the effect on aggregate supply was less than the effect on aggregate demand. 
D)  the dollar strengthened and the effect on aggregate supply was greater than the effect on aggregate demand.

Question 11

If the equilibrium level of real GDP per year is greater than the full-employment level of GDP, then

Accepted Answer

A)  a recessionary gap occurs. 
B)  the economy is at full employment with no price changes. 
C)  the economy expands the level of real GDP. 
D)  an inflationary gap occurs. 
A)  a recessionary gap occurs. 
B)  the economy is at full employment with no price changes. 
C)  the economy expands the level of real GDP. 
D)  an inflationary gap occurs.

Question 12

Which one of the following statements is TRUE?

Accepted Answer

A)  The classical model cannot explain periods of prolonged unemployment. 
B)  The Keynesian model cannot explain periods of prolonged unemployment. 
C)  The Keynesian model assumes complete flexibility of wages and prices. 
D)  The Keynesian model shows that the level of real GDP is supply-determined. 
A)  The classical model cannot explain periods of prolonged unemployment. 
B)  The Keynesian model cannot explain periods of prolonged unemployment. 
C)  The Keynesian model assumes complete flexibility of wages and prices. 
D)  The Keynesian model shows that the level of real GDP is supply-determined.

Question 13

Why is persistent unemployment a possibility in the Keynesian model but NOT in the classical model?

Accepted Answer

A)  The Keynesian model assumes that people work for motives other than those of earning an income for themselves and supporting a family. 
B)  The Keynesian model assumes that nominal wages are inflexible downward. 
C)  The Keynesian model assumes that the level of real GDP is inflexible. 
D)  The Keynesian model assumes that workers can lose their jobs to foreign competition during economic downturns. 
A)  The Keynesian model assumes that people work for motives other than those of earning an income for themselves and supporting a family. 
B)  The Keynesian model assumes that nominal wages are inflexible downward. 
C)  The Keynesian model assumes that the level of real GDP is inflexible. 
D)  The Keynesian model assumes that workers can lose their jobs to foreign competition during economic downturns.

Question 14

After some tornadoes in Alabama, unemployment is low as there is a great deal of construction work and businesses run at full capacity. This suggests that

Accepted Answer

A)  the economy is operating above the full-employment level and will eventually adjust back to long-run aggregate supply. 
B)  living standards are falling as employment and economic activity are too high. 
C)  the economy is operating below its long-run level and living standards are less than they would have been without the hurricane. 
D)  the hurricane is beneficial since it is increasing employment and replacing less efficient capital with newer and more efficient capital. 
A)  the economy is operating above the full-employment level and will eventually adjust back to long-run aggregate supply. 
B)  living standards are falling as employment and economic activity are too high. 
C)  the economy is operating below its long-run level and living standards are less than they would have been without the hurricane. 
D)  the hurricane is beneficial since it is increasing employment and replacing less efficient capital with newer and more efficient capital.

Question 15

Why is there NO persistent unemployment in the classical model?

Accepted Answer

A)  The wage level adjusts to eliminate unemployment. 
B)  The interest rate adjusts to eliminate unemployment. 
C)  The rate of economic growth is always high enough to allow those who want to work at current wages to find jobs. 
D)  Unionization creates job security for workers. 
A)  The wage level adjusts to eliminate unemployment. 
B)  The interest rate adjusts to eliminate unemployment. 
C)  The rate of economic growth is always high enough to allow those who want to work at current wages to find jobs. 
D)  Unionization creates job security for workers.

Question 16

According to classical theory, desired saving always equals investment due to changes in

Accepted Answer

A)  prices. 
B)  wages. 
C)  the interest rate. 
D)  taxes. 
A)  prices. 
B)  wages. 
C)  the interest rate. 
D)  taxes.

Question 17

Assume equilibrium real GDP per year is equal to full-employment real GDP. Which of the following will cause a recessionary gap?

Accepted Answer

A)  an increase in aggregate demand 
B)  a reduction in aggregate demand 
C)  a discovery of a new raw material 
D)  a temporary reduction in the price of oil 
A)  an increase in aggregate demand 
B)  a reduction in aggregate demand 
C)  a discovery of a new raw material 
D)  a temporary reduction in the price of oil

Question 18

According to Keynes, involuntary unemployment is possible because of

Accepted Answer

A)  the existence of capital markets. 
B)  long-term labor contracts. 
C)  government interference in the market economy. 
D)  flexible wages. 
A)  the existence of capital markets. 
B)  long-term labor contracts. 
C)  government interference in the market economy. 
D)  flexible wages.

Question 19

The long-run aggregate supply curve is vertical at $100 billion, but the short-run aggregate supply curve intersects the aggregate demand curve at $120 billion. From this, we know that

Accepted Answer

A)  the economy is operating below full capacity in the short run, and will have to adjust by hiring more workers, thus reducing unemployment. 
B)  the price level is too high. The only way long-run equilibrium can be restored is to lower the price level. 
C)  adjustments will have to occur so that the long-run aggregate supply equals $120 billion. 
D)  adjustments will have to occur so that the short-run aggregate supply intersects the aggregate demand curve at $100 billion. 
A)  the economy is operating below full capacity in the short run, and will have to adjust by hiring more workers, thus reducing unemployment. 
B)  the price level is too high. The only way long-run equilibrium can be restored is to lower the price level. 
C)  adjustments will have to occur so that the long-run aggregate supply equals $120 billion. 
D)  adjustments will have to occur so that the short-run aggregate supply intersects the aggregate demand curve at $100 billion.

Question 20

If a consumer buys less gasoline because gas prices decreased by 10 percent, even though all other prices have also decreased by 10 percent, then

Accepted Answer

A)  the consumer is paying too close attention to changes in relative prices. 
B)  wages and prices are too flexible. 
C)  the consumer has been fooled by money illusion. 
D)  inflation is not a problem in the economy. 
A)  the consumer is paying too close attention to changes in relative prices. 
B)  wages and prices are too flexible. 
C)  the consumer has been fooled by money illusion. 
D)  inflation is not a problem in the economy.

Exam 11: Classical and Keynesian Macro Analyses

An individual who is suffering from money illusion is more concerned with

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

-Refer to the above figure. Suppose the economy had been at point A and now is at B. What could have caused the movement to B?

The full-employment rate of output can

According to Keynesian economics, if there are unutilized resources in the economy and aggregate demand increases

Refer to the above figure. Which of the graphs is consistent with the long-run aggregate supply curve?

-The above figure presents the view of the economy according to

All of the following will shift the short-run aggregate supply (SRAS) curve EXCEPT

The horizontal portion of the short-run aggregate supply curve in which there is excessive unemployment and unused capacity in the economy is

Suppose we observe the price level increasing and real GDP decreasing. An explanation for this is that

If the equilibrium level of real GDP per year is greater than the full-employment level of GDP, then

Which one of the following statements is TRUE?

Why is persistent unemployment a possibility in the Keynesian model but NOT in the classical model?

After some tornadoes in Alabama, unemployment is low as there is a great deal of construction work and businesses run at full capacity. This suggests that

Why is there NO persistent unemployment in the classical model?

According to classical theory, desired saving always equals investment due to changes in

Assume equilibrium real GDP per year is equal to full-employment real GDP. Which of the following will cause a recessionary gap?

According to Keynes, involuntary unemployment is possible because of

The long-run aggregate supply curve is vertical at $100 billion, but the short-run aggregate supply curve intersects the aggregate demand curve at $120 billion. From this, we know that

If a consumer buys less gasoline because gas prices decreased by 10 percent, even though all other prices have also decreased by 10 percent, then

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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