Question 1

What is the underlying assumption of the original, simplified Keynesian model?

Accepted Answer

A)  The relevant range of the short-run aggregate supply curve (SRAS) is vertical. 
B)  The relevant range of the aggregate supply curve (AS) is vertical. 
C)  The relevant range of the short-run aggregate supply curve (SRAS) is horizontal. 
D)  The relevant range of the long-run aggregate supply curve (LRAS) is horizontal. 
A)  The relevant range of the short-run aggregate supply curve (SRAS) is vertical. 
B)  The relevant range of the aggregate supply curve (AS) is vertical. 
C)  The relevant range of the short-run aggregate supply curve (SRAS) is horizontal. 
D)  The relevant range of the long-run aggregate supply curve (LRAS) is horizontal.

Question 2

In the classical model, the interest rate will adjust to equate

Accepted Answer

A)  consumption spending with real GDP. 
B)  saving with investment. 
C)  the economic growth rate with the growth rate of import spending. 
D)  export spending with import spending. 
A)  consumption spending with real GDP. 
B)  saving with investment. 
C)  the economic growth rate with the growth rate of import spending. 
D)  export spending with import spending.

Question 3

According to the above figure, what will the price level be in the new long-run equilibrium?

Accepted Answer

A)  115 
B)  110 
C)  100 
D)  Less than 100 
A)  115 
B)  110 
C)  100 
D)  Less than 100

Question 4

According to the classical economists, an economy producing $10 million in goods and services

Accepted Answer

A)  may be producing too much since the needs of people may not be this great. 
B)  simultaneously generates the income necessary to purchase $10 million in goods and services. 
C)  is supplying $10 million in goods and services, but could be demanding more or less than $10 million in goods and services for a very long period of time. 
D)  could experience a permanent surplus if no one has estimated the demand for goods and services in the economy. 
A)  may be producing too much since the needs of people may not be this great. 
B)  simultaneously generates the income necessary to purchase $10 million in goods and services. 
C)  is supplying $10 million in goods and services, but could be demanding more or less than $10 million in goods and services for a very long period of time. 
D)  could experience a permanent surplus if no one has estimated the demand for goods and services in the economy.

Question 5

In the classical view, if desired saving exceeds desired investment

Accepted Answer

A)  government spending must fall. 
B)  government spending must rise. 
C)  the interest rate would decline. 
D)  the interest rate would increase. 
A)  government spending must fall. 
B)  government spending must rise. 
C)  the interest rate would decline. 
D)  the interest rate would increase.

Question 6

The classical model uses the assumption that

Accepted Answer

A)  all wages and prices are flexible. 
B)  monopoly is widespread in the economy. 
C)  interest rates are not flexible. 
D)  economic markets are fragile and have no tendency to move towards an equilibrium. 
A)  all wages and prices are flexible. 
B)  monopoly is widespread in the economy. 
C)  interest rates are not flexible. 
D)  economic markets are fragile and have no tendency to move towards an equilibrium.

Question 7

Which one of the following statements is TRUE?

Accepted Answer

A)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the classical model. 
B)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model. 
C)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the idea that increases in aggregate demand will increase the price level but will leave real GDP unchanged. 
D)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with a vertical short-run aggregate supply curve. 
A)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the classical model. 
B)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model. 
C)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the idea that increases in aggregate demand will increase the price level but will leave real GDP unchanged. 
D)  The actual behavior of prices and real GDP during the decade of the 1930s is consistent with a vertical short-run aggregate supply curve.

Question 8

Which of the following will NOT shift the Keynesian short-run aggregate supply curve?

Accepted Answer

A)  a change in technology 
B)  a change in profit expectations 
C)  a change in input prices 
D)  a change in the price level 
A)  a change in technology 
B)  a change in profit expectations 
C)  a change in input prices 
D)  a change in the price level

Question 9

In the short run, an increase in the price level induces firms to expand production because

Accepted Answer

A)  prices of inputs are held constant, so the higher prices for firms' products imply that it is profitable to expand production. 
B)  each firm must keep its production level up to the level of its rivals, and some firms will expand production as the price level increases. 
C)  higher prices allow firms to hire more inputs by offering higher prices for inputs, which increases productivity and profits. 
D)  they can increase profits by increasing maintenance costs. 
A)  prices of inputs are held constant, so the higher prices for firms' products imply that it is profitable to expand production. 
B)  each firm must keep its production level up to the level of its rivals, and some firms will expand production as the price level increases. 
C)  higher prices allow firms to hire more inputs by offering higher prices for inputs, which increases productivity and profits. 
D)  they can increase profits by increasing maintenance costs.

Question 10

An upward sloping short-run aggregate supply curve suggests that

Accepted Answer

A)  real GDP is determined by aggregate supply. 
B)  prices and wages are completely inflexible. 
C)  prices and wages are completely flexible. 
D)  prices and wages adjust in part to short-run demand changes. 
A)  real GDP is determined by aggregate supply. 
B)  prices and wages are completely inflexible. 
C)  prices and wages are completely flexible. 
D)  prices and wages adjust in part to short-run demand changes.

Question 11

Cost-push inflation can be shown on an aggregate supply aggregate demand diagram as

Accepted Answer

A)  a rightward shift of the aggregate supply curve with no change in aggregate demand. 
B)  a rightward shift in the aggregate demand curve with no change in aggregate supply. 
C)  a leftward shift in the aggregate demand curve with no change in aggregate supply. 
D)  a leftward shift in the aggregate supply curve with no change in aggregate demand. 
A)  a rightward shift of the aggregate supply curve with no change in aggregate demand. 
B)  a rightward shift in the aggregate demand curve with no change in aggregate supply. 
C)  a leftward shift in the aggregate demand curve with no change in aggregate supply. 
D)  a leftward shift in the aggregate supply curve with no change in aggregate demand.

Question 12

According to Keynes, the classical model could not explain

Accepted Answer

A)  a recession or depression. 
B)  periods of rising unemployment. 
C)  a long-term economic decline. 
D)  periods of rising interest rates. 
A)  a recession or depression. 
B)  periods of rising unemployment. 
C)  a long-term economic decline. 
D)  periods of rising interest rates.

Question 13

According to classical economists

Accepted Answer

A)  Say's law is not valid. 
B)  unemployment will not be a serious problem in a market economy. 
C)  wage levels are always "sticky." 
D)  demand stimulus is needed to produce full employment. 
A)  Say's law is not valid. 
B)  unemployment will not be a serious problem in a market economy. 
C)  wage levels are always "sticky." 
D)  demand stimulus is needed to produce full employment.

Question 14

The concept that producing goods and services generates the means and the willingness to purchase other goods and services is

Accepted Answer

A)  the Keynesian approach. 
B)  money illusion. 
C)  Say's law. 
D)  secular deflation. 
A)  the Keynesian approach. 
B)  money illusion. 
C)  Say's law. 
D)  secular deflation.

Question 15

Inflation caused by continually decreasing short-run aggregate supply is

Accepted Answer

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

Question 16

Which one of the following statements is NOT true?

Accepted Answer

A)  The classical model assumes that people suffer from money illusion. 
B)  The classical model assumes that people are motivated by self-interest. 
C)  The classical model assumes that pure competition exists. 
D)  The classical model assumes that no single seller of a commodity can affect its price. 
A)  The classical model assumes that people suffer from money illusion. 
B)  The classical model assumes that people are motivated by self-interest. 
C)  The classical model assumes that pure competition exists. 
D)  The classical model assumes that no single seller of a commodity can affect its price.

Question 17

In the classical model, high unemployment due to a change in aggregate demand

Accepted Answer

A)  can persist for an indefinite period of time. 
B)  will return to its normal level quickly as wages adjust. 
C)  will persist if due to a supply shock but not if due to a demand shock. 
D)  never exists because unemployment can never deviate from its normal level. 
A)  can persist for an indefinite period of time. 
B)  will return to its normal level quickly as wages adjust. 
C)  will persist if due to a supply shock but not if due to a demand shock. 
D)  never exists because unemployment can never deviate from its normal level.

Question 18

If the price level should increase in the near term due to decreases in the short-run aggregate supply, the result would be

Accepted Answer

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

Question 19

An example of an aggregate supply shock is

Accepted Answer

A)  inflation caused by a surge in demand. 
B)  the reduction of oil supply by the OPEC nations in the early 1970s. 
C)  the increase in the labor force due to the baby-boomer generation reaching working age. 
D)  the increase in ice-cream sales every summer. 
A)  inflation caused by a surge in demand. 
B)  the reduction of oil supply by the OPEC nations in the early 1970s. 
C)  the increase in the labor force due to the baby-boomer generation reaching working age. 
D)  the increase in ice-cream sales every summer.

Question 20

Classical economists tend to

Accepted Answer

A)  see unemployment as a persistent economic problem. 
B)  believe in Keynesian economics. 
C)  reject the equality of savings and investment. 
D)  support Say's law. 
A)  see unemployment as a persistent economic problem. 
B)  believe in Keynesian economics. 
C)  reject the equality of savings and investment. 
D)  support Say's law.

Exam 11: Classical and Keynesian Macro Analyses

What is the underlying assumption of the original, simplified Keynesian model?

In the classical model, the interest rate will adjust to equate

According to the above figure, what will the price level be in the new long-run equilibrium?

According to the classical economists, an economy producing $10 million in goods and services

In the classical view, if desired saving exceeds desired investment

The classical model uses the assumption that

Which one of the following statements is TRUE?

Which of the following will NOT shift the Keynesian short-run aggregate supply curve?

In the short run, an increase in the price level induces firms to expand production because

An upward sloping short-run aggregate supply curve suggests that

Cost-push inflation can be shown on an aggregate supply aggregate demand diagram as

According to Keynes, the classical model could not explain

According to classical economists

The concept that producing goods and services generates the means and the willingness to purchase other goods and services is

Inflation caused by continually decreasing short-run aggregate supply is

Which one of the following statements is NOT true?

In the classical model, high unemployment due to a change in aggregate demand

If the price level should increase in the near term due to decreases in the short-run aggregate supply, the result would be

An example of an aggregate supply shock is

Classical economists tend to

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