Question 1

The hands-off view of the classical school rests on which of the following two simple propositions about markets?

Accepted Answer

A) Demand creates its own supply and markets are basically competitive. 
B) Industrial policy is inevitable and all prices are flexible. 
C) Market failure occurs and prices are rigid. 
D) Wages are sticky downwards and market failure is inevitable. 
E) Markets are basically competitive and prices are flexible.

Question 2

The net-exports effect is the direct relationship between net exports and the price level of an economy.

Accepted Answer

A) True 
 B)False

Question 3

The theory that supply creates its own demand is called Say's Law.

Accepted Answer

A) True 
 B)False

Question 4

The aggregate supply curve shows the relationship between the price level and the level of nominal GDP produced by the nation's economy.

Accepted Answer

A) True 
 B)False

Question 5

According to classical theory,if the aggregate demand curve decreased and the economy experienced unemployment,then:

Accepted Answer

A) the economy would remain in this condition indefinitely. 
B) the government must increase spending to restore full employment. 
C) prices and wages would fall quickly to restore full employment. 
D) the supply of money would increase until the economy returned to full employment.

Question 6

The aggregate demand curve shows how real GDP purchased varies with changes in:

Accepted Answer

A) unemployment. 
B) output. 
C) the price level. 
D) the interest rate.

Question 7

The horizontal axis used in the aggregate demand curve measures:

Accepted Answer

A) the amount of all final goods and services included in real GDP. 
B) the value of all final goods and services included in nominal GDP. 
C) the value of all intermediate goods and services. 
D) the value of all final goods and services included in real GDP.

Question 8

The net exports effect is the _____ relationship between net exports and the price level of an economy.

Accepted Answer

A) inverse 
B) independent 
C) direct 
D) linear

Question 9

The aggregate demand curve shows:

Accepted Answer

A) that people are willing to buy more goods and services at a lower average price level. 
B) an increase in average price level. 
C) that people are willing to buy less goods and services at a lower average price level. 
D) supply is lagging behind demand.

Question 10

When the AS curve is vertical at the full-employment GDP,the effect/s of a change in AD:

Accepted Answer

A) is a change in the price level. 
B) are changes in the demand and the price levels. 
C) is a change in the output level. 
D) is a change in the quality.

Question 11

The pre-Keynesian or classical economic theory viewed the long-run aggregate supply curve for the economy to be:

Accepted Answer

A) horizontal at the full-employment level of real GDP. 
B) positively sloped at the full-employment level of real GDP. 
C) vertical at the full-employment level of real GDP. 
D) backward bending at the full-employment level of real GDP. 
E) downward sloping at all ranges of output.

Question 12

Much of the nation's capital stock is idle during a recession and therefore firms have incentives to invest in more.

Accepted Answer

A) True 
 B)False

Question 13

The interest-rate effect is the impact on:

Accepted Answer

A) the value of all final goods and services produced during a given time period based on current prices. 
B) the value of all final goods and services produced during a given time period based on the prices existing in a selected base year. 
C) the value of all intermediate goods and services sold during a given time period. 
D) the value of all raw materials extracted during a given time period based on the prices existing in a selected base year.

Question 14

The aggregate demand is:

Accepted Answer

A) C + I + G + (X + M). 
B) C + I + G - (X - M). 
C) C + I + G*(X - M). 
D) C + I + G + (X - M).

Question 15

Which range is not a part of the aggregate supply curve?

Accepted Answer

A) Keynesian range. 
B) Intermediate range. 
C) Classical range. 
D) Neo-Classical range.

Question 16

________ noted that the aggregate demand is not necessarily always equal to total production.

Accepted Answer

A) Churchill 
B) Smith 
C) Say 
D) Keynes

Question 17

The manipulation of spending to influence aggregate demand was first put forward because:

Accepted Answer

A) the classical view of flexible prices and wages did not necessarily hold in reality. 
B) unemployment often remained stubbornly high for too long during and after a depression. 
C) inflation was extremely high during the Great Depression. 
D) aggregate demand rose too quickly during the Great Depression. 
E) the classical view of flexible prices and wages did not necessarily hold in reality and unemployment often remained stubbornly high for too long during and after a depression.

Question 18

The aggregate supply curve is:

Accepted Answer

A) always vertical. 
B) always horizontal. 
C) a summation of individual supply curves and is always upward sloping. 
D) horizontal, vertical and upward sloping.

Question 19

Other factors held constant,an increase in resource prices will shift the aggregate:

Accepted Answer

A) demand curve leftward. 
B) demand curve rightward. 
C) supply curve leftward. 
D) supply curve rightward.

Question 20

Marginal propensity to consume:

Accepted Answer

A) is the change in production resulting from a given change in disposable income. 
B) shows the amount households want to spend on goods and services at different levels of disposable income. 
C) is the change in consumption resulting from a given change in disposable income. 
D) is the change in saving resulting from a given change in disposable income.

Exam 14: A simple model of the macro economy

The hands-off view of the classical school rests on which of the following two simple propositions about markets?

The net-exports effect is the direct relationship between net exports and the price level of an economy.

The theory that supply creates its own demand is called Say's Law.

The aggregate supply curve shows the relationship between the price level and the level of nominal GDP produced by the nation's economy.

According to classical theory,if the aggregate demand curve decreased and the economy experienced unemployment,then:

The aggregate demand curve shows how real GDP purchased varies with changes in:

The horizontal axis used in the aggregate demand curve measures:

The net exports effect is the _____ relationship between net exports and the price level of an economy.

The aggregate demand curve shows:

When the AS curve is vertical at the full-employment GDP,the effect/s of a change in AD:

The pre-Keynesian or classical economic theory viewed the long-run aggregate supply curve for the economy to be:

Much of the nation's capital stock is idle during a recession and therefore firms have incentives to invest in more.

The interest-rate effect is the impact on:

The aggregate demand is:

Which range is not a part of the aggregate supply curve?

________ noted that the aggregate demand is not necessarily always equal to total production.

The manipulation of spending to influence aggregate demand was first put forward because:

The aggregate supply curve is:

Other factors held constant,an increase in resource prices will shift the aggregate:

Marginal propensity to consume: