Question 1

The classical economists believed that shifts in the AD and SAS curves offset each other such that the

Accepted Answer

A)  price level rose and output fell unidirectionally given any change in aggregate demand 
B)  unemployment level is constant 
C)  price level is constant 
D)  price level is cyclical 
A)  price level rose and output fell unidirectionally given any change in aggregate demand 
B)  unemployment level is constant 
C)  price level is constant 
D)  price level is cyclical B

Question 2

Suppose the aggregate demand curve shifts rightward against an upward-sloping short-run aggregate supply curve. Real GDP would ________ while the price level ________.

Accepted Answer

A)  remain unchanged, rises 
B)  rise, rises 
C)  remain unchanged, falls 
D)  rise, remain unchanged 
E)  fall, rises 
A)  remain unchanged, rises 
B)  rise, rises 
C)  remain unchanged, falls 
D)  rise, remain unchanged 
E)  fall, rises B

Question 3

If the interest responsiveness of business firms investment is great then the

Accepted Answer

A)  IS curve is flatter and the AD curve is flatter. 
B)  IS curve is steeper and the AD curve is steeper. 
C)  IS curve is horizontal and the AD curve is perfectly vertical. 
D)  IS curve is horizontal and the AD curve is perfectly horizontal. 
A)  IS curve is flatter and the AD curve is flatter. 
B)  IS curve is steeper and the AD curve is steeper. 
C)  IS curve is horizontal and the AD curve is perfectly vertical. 
D)  IS curve is horizontal and the AD curve is perfectly horizontal. A

Question 4

The "quantity theory of money" was employed by Classical macroeconomists to predict changes in the price level. Changes in P were forecast to be

Accepted Answer

A)  proportional to changes in the money supply. 
B)  inversely proportional to changes in velocity. 
C)  proportional to changes in natural real GDP. 
D)  inversely proportional to changes in real GDP. 
A)  proportional to changes in the money supply. 
B)  inversely proportional to changes in velocity. 
C)  proportional to changes in natural real GDP. 
D)  inversely proportional to changes in real GDP.

Question 5

The fixed price level that was assumed in Chapters 3 through 5 implied that

Accepted Answer

A)  there is always full employment. 
B)  there is always less than full employment. 
C)  the aggregate supply curve is upward sloping to the left. 
D)  the aggregate supply curve is horizontal. 
A)  there is always full employment. 
B)  there is always less than full employment. 
C)  the aggregate supply curve is upward sloping to the left. 
D)  the aggregate supply curve is horizontal.

Question 6

An "easy money, easy fiscal" policy combination would shift AD

Accepted Answer

A)  upward to the left and raise the price level. 
B)  downward to the left and raise the price level. 
C)  upward to the right and raise the price level. 
D)  downward to the left and lower the price level. 
A)  upward to the left and raise the price level. 
B)  downward to the left and raise the price level. 
C)  upward to the right and raise the price level. 
D)  downward to the left and lower the price level.

Question 7

If firms hire workers until the real wage, W/P, is equal to the marginal product of labor, MPN, then the firm

Accepted Answer

A)  maximizes employment. 
B)  maximizes employment and profits. 
C)  maximizes profits. 
D)  minimizes "waste," such as pollution. 
A)  maximizes employment. 
B)  maximizes employment and profits. 
C)  maximizes profits. 
D)  minimizes "waste," such as pollution.

Question 8

Pigou's explanation of the existence of unemployment required

Accepted Answer

A)  wage "stickiness" or slowness of wages to adjust to changes in market conditions 
B)  fixed goods price or slowness of prices to adjust to changes in market conditions 
C)  Churchill's introduction of unemployment compensation 
D)  all of the above 
A)  wage "stickiness" or slowness of wages to adjust to changes in market conditions 
B)  fixed goods price or slowness of prices to adjust to changes in market conditions 
C)  Churchill's introduction of unemployment compensation 
D)  all of the above

Question 9

The Classical Economists believed that

Accepted Answer

A)  the cure for wage sickness was the passage of labor laws requiring the indexing of wages to changes in normal GDP. 
B)  the cure for unemployment was the passage of labor laws requiring the indexing of wages to changes in nominal GDP. 
C)  the cure for wage stickiness was to remedy market inefficiencies. 
D)  unemployment required active government intervention to manipulate AD. 
A)  the cure for wage sickness was the passage of labor laws requiring the indexing of wages to changes in normal GDP. 
B)  the cure for unemployment was the passage of labor laws requiring the indexing of wages to changes in nominal GDP. 
C)  the cure for wage stickiness was to remedy market inefficiencies. 
D)  unemployment required active government intervention to manipulate AD.

Question 10

If the current AD curve intersects the LAS curve at a positive price level, can self-correction be thwarted?

Accepted Answer

A)  No: it is inevitable. 
B)  Yes: via the Pigou effect. 
C)  Yes: via downwardly-rigid wages. 
D)  Yes: via monetary impotence. 
A)  No: it is inevitable. 
B)  Yes: via the Pigou effect. 
C)  Yes: via downwardly-rigid wages. 
D)  Yes: via monetary impotence.

Question 11

The long-run aggregate supply curve is

Accepted Answer

A)  vertical at the natural level of income. 
B)  horizontal at the natural price level. 
C)  upward-sloping for all income levels below the natural level of income. 
D)  downward-sloping for all income levels above the natural level of income. 
A)  vertical at the natural level of income. 
B)  horizontal at the natural price level. 
C)  upward-sloping for all income levels below the natural level of income. 
D)  downward-sloping for all income levels above the natural level of income.

Question 12

Figure 7-5  
-In the figure above, from point A sudden increases in the price of crude oil would move us to point

Accepted Answer

A)  B. 
B)  C. 
C)  D. 
D)  E. 
E)  F. 
A)  B. 
B)  C. 
C)  D. 
D)  E. 
E)  F.

Question 13

The slope of the AD curve is important because it explains the

Accepted Answer

A)  responsiveness of consumers to changes in the price level. 
B)  impact on Y and P for a given change in the SAS curve. 
C)  responsiveness of money demand to price changes. 
D)  responsiveness of business firms to price changes. 
A)  responsiveness of consumers to changes in the price level. 
B)  impact on Y and P for a given change in the SAS curve. 
C)  responsiveness of money demand to price changes. 
D)  responsiveness of business firms to price changes.

Question 14

A fiscal expansion will

Accepted Answer

A)  raise both the price level and real income in the long run. 
B)  reduce both the price level and the real income in the short run. 
C)  raise real income but leave the price level unaffected in the long run. 
D)  raise both the price level and real income in the short run. 
A)  raise both the price level and real income in the long run. 
B)  reduce both the price level and the real income in the short run. 
C)  raise real income but leave the price level unaffected in the long run. 
D)  raise both the price level and real income in the short run.

Question 15

At any AD/SAS intersection to the left of LAS, excess ________ in the labor market is putting ________ pressure on the nominal wage.

Accepted Answer

A)  supply, upward 
B)  supply, downward 
C)  demand, upward 
D)  demand, downward 
A)  supply, upward 
B)  supply, downward 
C)  demand, upward 
D)  demand, downward

Question 16

A flatter IS curve implies that the aggregate demand curve will be

Accepted Answer

A)  steeper and the k1 multiplier becomes larger. 
B)  flatter and the k1 multiplier becomes smaller. 
C)  unaffected and the k1 multiplier becomes smaller. 
D)  vertical and the k1 multiplier becomes smaller. 
A)  steeper and the k1 multiplier becomes larger. 
B)  flatter and the k1 multiplier becomes smaller. 
C)  unaffected and the k1 multiplier becomes smaller. 
D)  vertical and the k1 multiplier becomes smaller.

Question 17

The short-run aggregate supply curve slopes upward because, with a given equilibrium wage rate, a higher actual price level will

Accepted Answer

A)  reduce the actual real wage and induce firms to hire more labor. 
B)  shift the labor supply curve. 
C)  increase the aggregate demand for goods, so that output will rise. 
D)  All of these. 
A)  reduce the actual real wage and induce firms to hire more labor. 
B)  shift the labor supply curve. 
C)  increase the aggregate demand for goods, so that output will rise. 
D)  All of these.

Question 18

Suppose we have an initial equilibrium with curves IS0 and LM0. The price level then rises. At every point on LM0 there is now an excess ________ real balances, which is eliminated at each income level by a ________ in the interest rate, meaning that the new LM curve is ________ LM0.

Accepted Answer

A)  demand for, fall, above 
B)  demand for, fall, below 
C)  demand for, rise, above 
D)  supply of, rise, above 
E)  supply of, fall, below 
A)  demand for, fall, above 
B)  demand for, fall, below 
C)  demand for, rise, above 
D)  supply of, rise, above 
E)  supply of, fall, below

Question 19

The "marginal product of labor" curve describes

Accepted Answer

A)  how much more labor is hired when the price of output rises by $1. 
B)  how much more labor is hired when the nominal wage falls by $1. 
C)  how much more output is produced by hiring one more unit of labor. 
D)  how much more revenue is earned by producing one more unit of output. 
A)  how much more labor is hired when the price of output rises by $1. 
B)  how much more labor is hired when the nominal wage falls by $1. 
C)  how much more output is produced by hiring one more unit of labor. 
D)  how much more revenue is earned by producing one more unit of output.

Question 20

In the figure above, from initial point A, suppose AD0 shifts to AD1. Under the assumptions of classical macroeconomics, we would

Accepted Answer

A)  stay at point A. 
B)  almost immediately move to and then stay at point B. 
C)  almost immediately move to and then stay at point C. 
D)  almost immediately move to and then stay at point E. 
A)  stay at point A. 
B)  almost immediately move to and then stay at point B. 
C)  almost immediately move to and then stay at point C. 
D)  almost immediately move to and then stay at point E.

The classical economists believed that shifts in the AD and SAS curves offset each other such that the

Suppose the aggregate demand curve shifts rightward against an upward-sloping short-run aggregate supply curve. Real GDP would while the price level .

If the interest responsiveness of business firms investment is great then the

The "quantity theory of money" was employed by Classical macroeconomists to predict changes in the price level. Changes in P were forecast to be

The fixed price level that was assumed in Chapters 3 through 5 implied that

An "easy money, easy fiscal" policy combination would shift AD

If firms hire workers until the real wage, W/P, is equal to the marginal product of labor, MPN, then the firm

Pigou's explanation of the existence of unemployment required

The Classical Economists believed that

If the current AD curve intersects the LAS curve at a positive price level, can self-correction be thwarted?

The long-run aggregate supply curve is

Figure 7-5 -In the figure above, from point A sudden increases in the price of crude oil would move us to point

The slope of the AD curve is important because it explains the

A fiscal expansion will

At any AD/SAS intersection to the left of LAS, excess in the labor market is putting pressure on the nominal wage.

A flatter IS curve implies that the aggregate demand curve will be

The short-run aggregate supply curve slopes upward because, with a given equilibrium wage rate, a higher actual price level will

Suppose we have an initial equilibrium with curves IS0 and LM0. The price level then rises. At every point on LM0 there is now an excess real balances, which is eliminated at each income level by a in the interest rate, meaning that the new LM curve is LM0.

The "marginal product of labor" curve describes

In the figure above, from initial point A, suppose AD0 shifts to AD1. Under the assumptions of classical macroeconomics, we would

What Is Macroeconomics

The Measurement of Income, Prices, and Unemployment

Spending, Income, and Interest Rates

Monetary and Fiscal Policy in the Is-Lm Model

The Government Budget, Foreign Borrowing, and the Twin Deficits

International Trade, Exchange Rates, and Macroeconomic Policy

Inflation: Its Causes and Cures

The Goals of Stabilization Policy: Low Inflation and Low Unemployment

The Theory of Economic Growth

The Big Questions of Economic Growth

The Government Budget, the Public Debt, and Social Security

Money and Financial Markets

Stabilization Policy in the Closed and Open Economy

The Economics of Consumption Behavior

The Economics of Investment Behavior

New Classical Macro Confronts New Keynesian Macro

Conclusion: Where We Stand

Filters

Exam 7: Aggregate Demand, Aggregate Supply, and the Self-Correcting Economy

The classical economists believed that shifts in the AD and SAS curves offset each other such that the

Suppose the aggregate demand curve shifts rightward against an upward-sloping short-run aggregate supply curve. Real GDP would ________ while the price level ________.

If the interest responsiveness of business firms investment is great then the

The "quantity theory of money" was employed by Classical macroeconomists to predict changes in the price level. Changes in P were forecast to be

The fixed price level that was assumed in Chapters 3 through 5 implied that

An "easy money, easy fiscal" policy combination would shift AD

If firms hire workers until the real wage, W/P, is equal to the marginal product of labor, MPN, then the firm

Pigou's explanation of the existence of unemployment required

The Classical Economists believed that

If the current AD curve intersects the LAS curve at a positive price level, can self-correction be thwarted?

The long-run aggregate supply curve is

Figure 7-5 -In the figure above, from point A sudden increases in the price of crude oil would move us to point

The slope of the AD curve is important because it explains the

A fiscal expansion will

At any AD/SAS intersection to the left of LAS, excess ________ in the labor market is putting ________ pressure on the nominal wage.

A flatter IS curve implies that the aggregate demand curve will be

The short-run aggregate supply curve slopes upward because, with a given equilibrium wage rate, a higher actual price level will

Suppose we have an initial equilibrium with curves IS0 and LM0. The price level then rises. At every point on LM0 there is now an excess ________ real balances, which is eliminated at each income level by a ________ in the interest rate, meaning that the new LM curve is ________ LM0.

The "marginal product of labor" curve describes

In the figure above, from initial point A, suppose AD0 shifts to AD1. Under the assumptions of classical macroeconomics, we would

What Is Macroeconomics

The Measurement of Income, Prices, and Unemployment

Spending, Income, and Interest Rates

Monetary and Fiscal Policy in the Is-Lm Model

The Government Budget, Foreign Borrowing, and the Twin Deficits

International Trade, Exchange Rates, and Macroeconomic Policy

Inflation: Its Causes and Cures

The Goals of Stabilization Policy: Low Inflation and Low Unemployment

The Theory of Economic Growth

The Big Questions of Economic Growth

The Government Budget, the Public Debt, and Social Security

Money and Financial Markets

Stabilization Policy in the Closed and Open Economy

The Economics of Consumption Behavior

The Economics of Investment Behavior

New Classical Macro Confronts New Keynesian Macro

Conclusion: Where We Stand

Filters

Suppose the aggregate demand curve shifts rightward against an upward-sloping short-run aggregate supply curve. Real GDP would while the price level .

At any AD/SAS intersection to the left of LAS, excess in the labor market is putting pressure on the nominal wage.

Suppose we have an initial equilibrium with curves IS0 and LM0. The price level then rises. At every point on LM0 there is now an excess real balances, which is eliminated at each income level by a in the interest rate, meaning that the new LM curve is LM0.