Question 1

An increase in aggregate demand will tend to cause which of the following?

Accepted Answer

A)   a deflationary gap
B)   a recessionary gap
C)   cost-push inflation
D)   none of the aboveE) B) and D)
F) A) and B)

Question 2

The classical economists argued that planned saving and planned investment will always be equal because of changes in

Accepted Answer

A)   the level of real disposable income.
B)   the interest rate.
C)   the price level.
D)   wages.E) None of the above
F) B) and C)

Question 3

In the classical model, what is the result of an increase in aggregate demand?

Accepted Answer

A)   Real GDP increases, and the price level remains constant.
B)   Real GDP decreases, and the price level remains constant.
C)   The price level increases, and real GDP remains constant.
D)   The price level decreases, and real GDP remains constant.E) A) and D)
F) A) and C)

Question 4

Which of the following statements is TRUE about the long-run and short-run aggregate supply curve in the classical model?

Accepted Answer

A)   The long-run aggregate supply curve is vertical, and the short-run curve is horizontal.
B)   The long-run aggregate supply curve is not defined, and the short run curve is vertical.
C)   The long-run and short-run curves start out horizontal and eventually become vertical.
D)   The long-run curve is vertical, and there is no short-run curve since all adjustments occur quickly.E) None of the above
F) C) and D)

Question 5

Keynesian economists would likely argue that the classical model is which of the following?

Accepted Answer

A)   a long-run theory
B)   a short-run theory
C)   both a long-run and short-run theory
D)   a sticky price theoryE) A) and B)
F) A) and C)

Question 6

Which of the following will shift the Keynesian short-run aggregate supply curve downward and to the right?

Accepted Answer

A)   a rise in the price level
B)   a fall in the price level
C)   a decrease in input costs
D)   an increase in input costsE) B) and C)
F) A) and D)

Question 7

Involuntary unemployment

Accepted Answer

A)   occurs when the wage rate is below the equilibrium wage rate.
B)   exists when there is an excess quantity of labor supplied.
C)   will increase as the wage rate falls.
D)   exists when there is a shortage of labor.E) All of the above
F) A) and B)

Question 8

Consider the above figure. If the aggregate demand curve rose from AD1 to AD3, our nation would be experiencing

Accepted Answer

A)   an inflationary gap.
B)   a recessionary gap.
C)   unemployment.
D)   falling prices.E) B) and D)
F) A) and B)

Question 9

"Supply creates its own demand" implies that

Accepted Answer

A)   the very act of supplying a particular level of goods and services necessarily equals the level of goods and services demanded.
B)   the very act of demanding a particular level of goods and services necessarily equals the level of goods and services supplied.
C)   the government will buy up any surplus of goods and services in a country to avoid economic problems.
D)   the very act of supplying a particular level of goods and services will not necessarily equal the level of goods and services demanded.E) A) and D)
F) A) and C)

Question 10

Keynes suggested that the short-run aggregate supply (SRAS)  curve

Accepted Answer

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

Question 11

A stronger dollar leads to lower input prices for U.S. firms because

Accepted Answer

A)   U.S. workers are willing to work for less pay because of the stronger dollar.
B)   U.S. producers of intermediate goods lower prices in order to benefit from the stronger dollar.
C)   both imports of raw materials and intermediate goods are lower in prices.
D)   both exports of raw materials and intermediate goods are lower in prices.E) A) and B)
F) A) and C)

Question 12

According to the classical economists, actual real GDP

Accepted Answer

A)   always equals actual aggregate income.
B)   sometimes equals actual aggregate income.
C)   never equals actual aggregate income.
D)   is not related to aggregate income.E) All of the above
F) A) and B)

Question 13

Which of the following is NOT an assumption of the classical system?

Accepted Answer

A)   Pure competition exists.
B)   People are motivated by self interest.
C)   Wages and prices are inflexible.
D)   There is no money illusion.E) All of the above
F) A) and B)

Question 14

If the U.S. dollar becomes weaker in international markets, the net effects will include

Accepted Answer

A)   a decrease in short-run aggregate supply (SRAS)  and an increase in aggregate demand.
B)   an increase in short-run aggregate supply (SRAS)  and a decrease in aggregate demand.
C)   a decrease in both short run aggregate supply (SRAS)  and aggregate demand.
D)   an increase in both short run aggregate supply (SRAS)  and aggregate demand.E) B) and D)
F) A) and B)

Question 15

In the above figure, if the relevant aggregate demand curve is AD2, what are the short-run equilibrium price level and real GDP?

Accepted Answer

A)   130 and $12 trillion
B)   130 and $11.5 trillion
C)   120 and $11.5 trillion
D)   120 and $12 trillionE) B) and D)
F) A) and B)

Question 16

One tenet of classical economics is that

Accepted Answer

A)   the role of the government should be limited, since the market will always be self-correcting.
B)   the government should intervene whenever necessary to avoid any unemployment.
C)   wages and prices are "sticky downward."
D)   the government should set a minimum wage slightly above the natural market equilibrium rate.E) B) and C)
F) B) and D)

Question 17

At higher rates of interest

Accepted Answer

A)   households save less and businesses invest more.
B)   households save less and businesses invest less.
C)   households save more and businesses invest less.
D)   households save more and businesses invest more.E) A) and D)
F) All of the above

Question 18

Q: How many economists does it take to screw in a light bulb? A: None. If the light bulb really needed changing, market forces would have already caused it to happen.
This joke represents the view of

Accepted Answer

A)   classical economists.
B)   Keynesian economists.
C)   economists who conclude that money illusion is widespread.
D)   economists who conclude that wages and prices are inflexible.E) B) and D)
F) A) and D) A

Question 19

What effect does a stronger dollar have on aggregate supply? Why?

Accepted Answer

A stronger dollar means that U.S. residents can buy foreign goods more cheaply. Since some of the foreign goods will be raw materials and partially processed goods, input prices fall, which causes aggregate supply to increase.

Question 20

Equilibrium real GDP rises after the dollar strengthened. From this, we can conclude that

Accepted Answer

A)   the increase in aggregate demand was greater than the decrease in aggregate supply.
B)   the decrease in aggregate demand was less than the increase in aggregate supply.
C)   the decrease in aggregate demand was more than the increase in aggregate supply.
D)   the increase in aggregate demand was less than the decrease in aggregate supply.E) A) and D)
F) C) and D)

Exam 11: Classical and Keynesian Macro Analyses

An increase in aggregate demand will tend to cause which of the following?

Correct AnswerverifiedShow Answer

The classical economists argued that planned saving and planned investment will always be equal because of changes in

Correct AnswerverifiedShow Answer

In the classical model, what is the result of an increase in aggregate demand?

Correct AnswerverifiedShow Answer

Which of the following statements is TRUE about the long-run and short-run aggregate supply curve in the classical model?

Correct AnswerverifiedShow Answer

Keynesian economists would likely argue that the classical model is which of the following?

Correct AnswerverifiedShow Answer

Which of the following will shift the Keynesian short-run aggregate supply curve downward and to the right?

Correct AnswerverifiedShow Answer

Involuntary unemployment

Correct AnswerverifiedShow Answer

Consider the above figure. If the aggregate demand curve rose from AD1 to AD3, our nation would be experiencing

Correct AnswerverifiedShow Answer

"Supply creates its own demand" implies that

Correct AnswerverifiedShow Answer

Keynes suggested that the short-run aggregate supply (SRAS) curve

Correct AnswerverifiedB

A stronger dollar leads to lower input prices for U.S. firms because

Correct AnswerverifiedShow Answer

According to the classical economists, actual real GDP

Correct AnswerverifiedShow Answer

Which of the following is NOT an assumption of the classical system?

Correct AnswerverifiedShow Answer

If the U.S. dollar becomes weaker in international markets, the net effects will include

Correct AnswerverifiedShow Answer

In the above figure, if the relevant aggregate demand curve is AD2, what are the short-run equilibrium price level and real GDP?

Correct AnswerverifiedShow Answer

One tenet of classical economics is that

Correct AnswerverifiedShow Answer

At higher rates of interest

Correct AnswerverifiedShow Answer

Q: How many economists does it take to screw in a light bulb? A: None. If the light bulb really needed changing, market forces would have already caused it to happen. This joke represents the view of

Correct AnswerverifiedA

What effect does a stronger dollar have on aggregate supply? Why?

Correct AnswerverifiedA stronger dollar means that U.S. residents can buy foreign goods more cheaply. Since some of the foreign goods will be raw materials and partially processed goods, input prices fall, which causes aggregate supply to increase.

Equilibrium real GDP rises after the dollar strengthened. From this, we can conclude that

Correct AnswerverifiedShow Answer

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B

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A

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A stronger dollar means that U.S. residents can buy foreign goods more cheaply. Since some of the foreign goods will be raw materials and partially processed goods, input prices fall, which causes aggregate supply to increase.

Correct Answer
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