Question 1

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 2

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 3

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

Question 4

-Refer to the above figure.Which point or points represent(s)a long-run equilibrium?

Accepted Answer

A) A only 
B) B only 
C) C only 
D) both A and B 
A) A only 
B) B only 
C) C only 
D) both A and B

Question 5

Which of the following statements about the classical model of the economy is FALSE?

Accepted Answer

A) Savings and investment will always be equal. 
B) Wages and prices are flexible. 
C) The economy will always move toward,or be at,full employment. 
D) Individuals pursue the public interest,not their own self-interest. 
A) Savings and investment will always be equal. 
B) Wages and prices are flexible. 
C) The economy will always move toward,or be at,full employment. 
D) Individuals pursue the public interest,not their own self-interest.

Question 6

Which point or points on the above figure illustrate a short-run equilibrium?

Accepted Answer

A) Point A 
B) Point B 
C) Point C 
D) Points A and C 
A) Point A 
B) Point B 
C) Point C 
D) Points A and C

Question 7

A recessionary gap results when

Accepted Answer

A) aggregate demand is below the level consistent with full employment. 
B) aggregate demand is above the level consistent with full employment. 
C) aggregate supply and aggregate demand are not in short-run equilibrium. 
D) aggregate supply decreases. 
A) aggregate demand is below the level consistent with full employment. 
B) aggregate demand is above the level consistent with full employment. 
C) aggregate supply and aggregate demand are not in short-run equilibrium. 
D) aggregate supply decreases.

Question 8

A congressman states,"If a government attempts to increase employment through increased government spending,all we will end up with is a higher price level." This congressman assumes that the

Accepted Answer

A) aggregate demand curve is a horizontal line. 
B) aggregate demand curve is a vertical line. 
C) aggregate supply curve is a horizontal line. 
D) aggregate supply curve is a vertical line. 
A) aggregate demand curve is a horizontal line. 
B) aggregate demand curve is a vertical line. 
C) aggregate supply curve is a horizontal line. 
D) aggregate supply curve is a vertical line.

Question 9

-Refer to the above figure.Suppose we are at E   and the dollar weakens.Which aggregate supply curve must apply if the price level increases?

Accepted Answer

A) 3 only 
B) 4 only 
C) 5 only 
D) 4 or 5 
A) 3 only 
B) 4 only 
C) 5 only 
D) 4 or 5

Question 10

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 11

According to Say's law,

Accepted Answer

A) supply creates its own demand. 
B) demand creates supply. 
C) changes in supply create supply-side inflation. 
D) changes in demand create demand-side inflation. 
A) supply creates its own demand. 
B) demand creates supply. 
C) changes in supply create supply-side inflation. 
D) changes in demand create demand-side inflation.

Question 12

Which of the following is a true statement?

Accepted Answer

A) A decrease in aggregate demand was not possible according to the classical economists but was possible according to Keynes. 
B) A decrease in aggregate demand has no short-run effects according to the classical economists but had significant effects according to Keynes. 
C) Classical economists believed real GDP adjusted more than prices when aggregate demand fell,while Keynes argued that prices adjusted more than output. 
D) Classical economists believed price adjusted more than output when aggregate demand fell,while Keynes argued real GDP adjusted more than prices. 
A) A decrease in aggregate demand was not possible according to the classical economists but was possible according to Keynes. 
B) A decrease in aggregate demand has no short-run effects according to the classical economists but had significant effects according to Keynes. 
C) Classical economists believed real GDP adjusted more than prices when aggregate demand fell,while Keynes argued that prices adjusted more than output. 
D) Classical economists believed price adjusted more than output when aggregate demand fell,while Keynes argued real GDP adjusted more than prices.

Question 13

The classical model assumes that

Accepted Answer

A) imperfect competition predominates in most markets. 
B) people have money illusion. 
C) wages and prices are flexible. 
D) wages are flexible but prices are not. 
A) imperfect competition predominates in most markets. 
B) people have money illusion. 
C) wages and prices are flexible. 
D) wages are flexible but prices are not.

Question 14

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 15

What is the major difference between the classical model and the Keynesian model? Explain.

Accepted Answer

The major difference is the shape of the

Question 16

What is true of the aggregate supply curve in the classical model?

Accepted Answer

A) The aggregate supply curve is downward sloping. 
B) The aggregate supply curve is horizontal. 
C) The aggregate supply curve is vertical. 
D) The aggregate supply curve is not determined by the level of employment. 
A) The aggregate supply curve is downward sloping. 
B) The aggregate supply curve is horizontal. 
C) The aggregate supply curve is vertical. 
D) The aggregate supply curve is not determined by the level of employment.

Question 17

After a small hurricane in Florida,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 18

In the classical model,

Accepted Answer

A) the level of real GDP per year does not depend on the level of aggregate demand. 
B) the level of GDP is demand determined. 
C) changes in aggregate supply affect the price level,not real GDP. 
D) the level of GDP determines prices independent of demand. 
A) the level of real GDP per year does not depend on the level of aggregate demand. 
B) the level of GDP is demand determined. 
C) changes in aggregate supply affect the price level,not real GDP. 
D) the level of GDP determines prices independent of demand.

Question 19

In an economic downturn,sticky wages and prices reduce the economy's speed of adjustment because

Accepted Answer

A) businesses are unable to adjust quickly to changes in aggregate demand. 
B) they cause deflation. 
C) hyperinflation will likely occur. 
D) union workers would likely quit and look for work elsewhere. 
A) businesses are unable to adjust quickly to changes in aggregate demand. 
B) they cause deflation. 
C) hyperinflation will likely occur. 
D) union workers would likely quit and look for work elsewhere.

Question 20

According to Keynes,once a system attains an economy-wide equilibrium,

Accepted Answer

A) there may or may not be excess productive capacity. 
B) planned consumption will be zero. 
C) planned investment will be zero. 
D) the economy will be at full productive capacity. 
A) there may or may not be excess productive capacity. 
B) planned consumption will be zero. 
C) planned investment will be zero. 
D) the economy will be at full productive capacity.

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

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

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

-Refer to the above figure.Which point or points represent(s)a long-run equilibrium?

Which of the following statements about the classical model of the economy is FALSE?

Which point or points on the above figure illustrate a short-run equilibrium?

A recessionary gap results when

A congressman states,"If a government attempts to increase employment through increased government spending,all we will end up with is a higher price level." This congressman assumes that the

-Refer to the above figure.Suppose we are at E and the dollar weakens.Which aggregate supply curve must apply if the price level increases?

According to Say's law,

Which of the following is a true statement?

The classical model assumes that

The short-run aggregate supply curve is horizontal when

What is the major difference between the classical model and the Keynesian model? Explain.

What is true of the aggregate supply curve in the classical model?

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

In the classical model,

In an economic downturn,sticky wages and prices reduce the economy's speed of adjustment because

According to Keynes,once a system attains an economy-wide equilibrium,

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

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Exam 11: Classical and Keynesian Macro Analyses

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

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

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

-Refer to the above figure.Which point or points represent(s)a long-run equilibrium?

Which of the following statements about the classical model of the economy is FALSE?

Which point or points on the above figure illustrate a short-run equilibrium?

A recessionary gap results when

A congressman states,"If a government attempts to increase employment through increased government spending,all we will end up with is a higher price level." This congressman assumes that the

-Refer to the above figure.Suppose we are at E and the dollar weakens.Which aggregate supply curve must apply if the price level increases?

According to Say's law,

Which of the following is a true statement?

The classical model assumes that

The short-run aggregate supply curve is horizontal when

What is the major difference between the classical model and the Keynesian model? Explain.

What is true of the aggregate supply curve in the classical model?

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

In the classical model,

In an economic downturn,sticky wages and prices reduce the economy's speed of adjustment because

According to Keynes,once a system attains an economy-wide equilibrium,

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

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters