Question 1

-Consider the above figure. If the aggregate demand fell from AD1 to AD2, our nation would be experiencing

Accepted Answer

A)  an inflationary gap. 
B)  a recessionary gap. 
C)  overemployment. 
D)  rising prices. 
A)  an inflationary gap. 
B)  a recessionary gap. 
C)  overemployment. 
D)  rising prices.

Question 2

A short-run equilibrium occurs

Accepted Answer

A)  at the intersection of the long-run aggregate supply curve and the aggregate demand curve. 
B)  at the intersection of the short-run aggregate supply curve and the long-run aggregate supply curve. 
C)  at the intersection of the short-run aggregate supply curve and the aggregate demand curve. 
D)  at the real GDP associated with full employment. 
A)  at the intersection of the long-run aggregate supply curve and the aggregate demand curve. 
B)  at the intersection of the short-run aggregate supply curve and the long-run aggregate supply curve. 
C)  at the intersection of the short-run aggregate supply curve and the aggregate demand curve. 
D)  at the real GDP associated with full employment.

Question 3

Suppose the economy in the diagram below is in long-run equilibrium. If government spending decreases and causes a movement from point A to point B in the diagram below, what are the short-run effects? Explain fully.

Accepted Answer

@#IMG-DLM& In the above figure, point A is the ori

Question 4

In the Keynesian model in which the Keynesian short-run aggregate supply curve exists

Accepted Answer

A)  the short-run aggregate supply curve determines real GDP. 
B)  the aggregate demand curve determines the price level. 
C)  unemployment cannot persist for long periods of time. 
D)  aggregate demand determines real GDP per year. 
A)  the short-run aggregate supply curve determines real GDP. 
B)  the aggregate demand curve determines the price level. 
C)  unemployment cannot persist for long periods of time. 
D)  aggregate demand determines real GDP per year.

Question 5

What is TRUE when the credit market is in equilibrium?

Accepted Answer

A)  Desired saving equals desired investment. 
B)  Desired employment equals the number of jobs available. 
C)  Desired consumption spending equals the total of saving plus investment. 
D)  The legal minimum wage equals the actual wage. 
A)  Desired saving equals desired investment. 
B)  Desired employment equals the number of jobs available. 
C)  Desired consumption spending equals the total of saving plus investment. 
D)  The legal minimum wage equals the actual wage.

Question 6

The Keynesian portion of the short-run aggregate supply (SRAS) curve

Accepted Answer

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

Question 7

-Refer to the above figure. Assume that B is the current long-run aggregate supply (LRAS) curve and that E is the current short-run aggregate supply (SRAS) curve. If a new discovery of large oil fields in Florida led to an increase in the nation's productive capacities, then we could expect the LRAS curve and the SRAS curve to

Accepted Answer

A)  remain B and E. 
B)  move to A and D. 
C)  move to C and F. 
D)  move to A and F. 
A)  remain B and E. 
B)  move to A and D. 
C)  move to C and F. 
D)  move to A and F.

Question 8

Say's law argues that I. overproduction is typical in a market economy.
II) supply creates its own demand.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 9

In the Keynesian model which includes the Keynesian short-run aggregate supply curve

Accepted Answer

A)  an increase in aggregate demand would causes the price level to rise, but does not change the level of real GDP. 
B)  an increase in aggregate demand causes real GDP to rise without changing the price level. 
C)  an increase in aggregate demand changes neither the price level nor the level of real GDP. 
D)  an increase in aggregate demand causes real GDP and the price level to decrease. 
A)  an increase in aggregate demand would causes the price level to rise, but does not change the level of real GDP. 
B)  an increase in aggregate demand causes real GDP to rise without changing the price level. 
C)  an increase in aggregate demand changes neither the price level nor the level of real GDP. 
D)  an increase in aggregate demand causes real GDP and the price level to decrease.

Question 10

What shape did the short-run aggregate supply curve have during the 1930s, according to Keynes? Explain.

Accepted Answer

Keynes argued the short-run aggregate su

Question 11

-Refer to the above figure. If the aggregate demand curve shifts beyond AD5, which of the following would we NOT expect?

Accepted Answer

A)  strong demand-pull inflation 
B)  no increase in real Gross Domestic Product (GDP) 
C)  strong and rapid increases in the price level 
D)  increases in real net domestic product 
A)  strong demand-pull inflation 
B)  no increase in real Gross Domestic Product (GDP) 
C)  strong and rapid increases in the price level 
D)  increases in real net domestic product

Question 12

How does the original, simplified Keynesian model compare with modern Keynesian analysis?

Accepted Answer

A)  The original Keynesian model assumed price flexibility whereas the modern analysis does not. 
B)  In both cases, the short-run aggregate supply curve (SRAS) is horizontal. 
C)  Modern analysis shows an upward sloping SRAS to reflect some price flexibility. The original Keynesian model's SRAS is horizontal and assumes sticky prices. 
D)  all of the above 
A)  The original Keynesian model assumed price flexibility whereas the modern analysis does not. 
B)  In both cases, the short-run aggregate supply curve (SRAS) is horizontal. 
C)  Modern analysis shows an upward sloping SRAS to reflect some price flexibility. The original Keynesian model's SRAS is horizontal and assumes sticky prices. 
D)  all of the above

Question 13

In the classical model, desired saving

Accepted Answer

A)  exceeds investment. 
B)  is inversely related to real income. 
C)  is equal to desired investment. 
D)  is less than desired investment. 
A)  exceeds investment. 
B)  is inversely related to real income. 
C)  is equal to desired investment. 
D)  is less than desired investment.

Question 14

Inflation that is caused solely by an increase in aggregate demand is called

Accepted Answer

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

Question 15

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

Accepted Answer

A)  workers can be switched from counted to uncounted production. 
B)  existing capital equipment can be used more intensively. 
C)  wage rates rise almost simultaneously with the price level. 
D)  the unemployment rate usually rises dramatically along with the price level. 
A)  workers can be switched from counted to uncounted production. 
B)  existing capital equipment can be used more intensively. 
C)  wage rates rise almost simultaneously with the price level. 
D)  the unemployment rate usually rises dramatically along with the price level.

Question 16

In the classical model, an increase in aggregate demand will lead to an increase in wage rates while a decrease in aggregate demand will

Accepted Answer

A)  leave wages unchanged since workers will not take a cut in pay. 
B)  decrease wages. 
C)  increase wages since business will be desperate for labor. 
D)  change the price of capital. 
A)  leave wages unchanged since workers will not take a cut in pay. 
B)  decrease wages. 
C)  increase wages since business will be desperate for labor. 
D)  change the price of capital.

Question 17

Suppose the euro appreciates against the dollar. This causes U.S. exports to become less expensive for consumers in the European Union, which would likely cause the U.S.

Accepted Answer

A)  aggregate supply to shift leftward. 
B)  aggregate supply to shift rightward. 
C)  aggregate demand to shift leftward. 
D)  aggregate demand to shift rightward. 
A)  aggregate supply to shift leftward. 
B)  aggregate supply to shift rightward. 
C)  aggregate demand to shift leftward. 
D)  aggregate demand to shift rightward.

Question 18

The aggregate supply curve in the classical model is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  upward sloping. 
D)  downward sloping. 
A)  horizontal. 
B)  vertical. 
C)  upward sloping. 
D)  downward sloping.

Question 19

The short-run aggregate supply curve is horizontal when

Accepted Answer

A)  prices are inflexible and the economy is at full employment. 
B)  there are unemployed resources and prices do not increase when aggregate demand increases. 
C)  there are unemployed resources and prices do not decrease when aggregate supply increases. 
D)  there are no unemployed resources and prices do not increase when aggregate demand or supply increases. 
A)  prices are inflexible and the economy is at full employment. 
B)  there are unemployed resources and prices do not increase when aggregate demand increases. 
C)  there are unemployed resources and prices do not decrease when aggregate supply increases. 
D)  there are no unemployed resources and prices do not increase when aggregate demand or supply increases.

Question 20

Given the assumptions of the classical model

Accepted Answer

A)  the economy will often experience recessions and expansions. 
B)  expansion will be the normal condition, but recessions will often be severe and require government intervention. 
C)  the macroeconomy is erratic, and problems will often be increased over time. 
D)  the market is a self-correcting mechanism. 
A)  the economy will often experience recessions and expansions. 
B)  expansion will be the normal condition, but recessions will often be severe and require government intervention. 
C)  the macroeconomy is erratic, and problems will often be increased over time. 
D)  the market is a self-correcting mechanism.

Exam 11: Classical and Keynesian Macro Analyses

-Consider the above figure. If the aggregate demand fell from AD1 to AD2, our nation would be experiencing

A short-run equilibrium occurs

Suppose the economy in the diagram below is in long-run equilibrium. If government spending decreases and causes a movement from point A to point B in the diagram below, what are the short-run effects? Explain fully.

In the Keynesian model in which the Keynesian short-run aggregate supply curve exists

What is TRUE when the credit market is in equilibrium?

The Keynesian portion of the short-run aggregate supply (SRAS) curve

Say's law argues that I. overproduction is typical in a market economy. II) supply creates its own demand.

In the Keynesian model which includes the Keynesian short-run aggregate supply curve

What shape did the short-run aggregate supply curve have during the 1930s, according to Keynes? Explain.

-Refer to the above figure. If the aggregate demand curve shifts beyond AD5, which of the following would we NOT expect?

How does the original, simplified Keynesian model compare with modern Keynesian analysis?

In the classical model, desired saving

Inflation that is caused solely by an increase in aggregate demand is called

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

In the classical model, an increase in aggregate demand will lead to an increase in wage rates while a decrease in aggregate demand will

Suppose the euro appreciates against the dollar. This causes U.S. exports to become less expensive for consumers in the European Union, which would likely cause the U.S.

The aggregate supply curve in the classical model is

The short-run aggregate supply curve is horizontal when

Given the assumptions of the classical model

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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