Question 1

When the value of the dollar increases, the net effect on the economy

Accepted Answer

A)   will be an increase in short-run aggregate supply and a decrease in aggregate demand.
B)   will be decrease in short-run aggregate supply and an increase in aggregate demand.
C)   will be an increase in both aggregate demand and aggregate supply.
D)   will be a decrease in both aggregate demand and aggregate supply.

Question 2

One key assumption of the classical model is

Accepted Answer

A)   government spending plays a major role.
B)   money illusion cannot fool workers.
C)   wages are sticky.
D)   prices are sticky.

Question 3

The inflation associated with the oil price shocks in the 1970s after OPEC restricted the supply of oil is an example of

Accepted Answer

A)   cost-push inflation due to a supply shock.
B)   cost-push inflation due to a demand shock.
C)   demand-pull inflation due to a demand shock.
D)   demand-pull inflation due to a supply shock.

Question 4

In the classical model, desired saving

Accepted Answer

A)   exceeds investment.
B)   is inversely related to real income.
C)   is equal to desired investment.
D)   is less than desired investment.

Question 5

The short-run and long-run aggregate supply curves remain stable, and a decrease in aggregate demand occurs. What is the result in the short run?

Accepted Answer

A)   An increase in the price level and real GDP will occur.
B)   A period of expansion and a rise in the unemployment rate could occur.
C)   A period of recession and a rise in the unemployment rate could occur.
D)   The price level will fall but real GDP will remain the same.

Question 6

Which of the following statements is NOT true about Say's law?

Accepted Answer

A)   Desired expenditures will equal actual expenditures.
B)   Surpluses will be eliminated by falling prices and shortages will be eliminated by increasing prices.
C)   People produce more goods than they want for their own use only if they seek to trade them for other goods.
D)   Markets would be regularly hit by severe shortages and surpluses.

Question 7

According to the classical theory, the aggregate supply curve is

Accepted Answer

A)   downward sloping.
B)   horizontal.
C)   upward sloping.
D)   vertical.

Question 8

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.

Question 9

Classical economists wrote from the 1770s to the ________.

Accepted Answer

A)   1850s
B)   1890s
C)   1930s
D)   1960s

Question 10

In the classical model, a change in aggregate demand

Accepted Answer

A)   causes a change in long-run real GDP but not in the price level.
B)   causes a change in the price level but not in the long-run real GDP.
C)   causes changes in both the long-run real GDP and in the price level.
D)   has no effect on either real GDP or the price level.

Question 11

Which of the following is NOT a key assumption of the classical model?

Accepted Answer

A)   There is a single monopoly seller in many markets for goods and services.
B)   People cannot be fooled by money illusion.
C)   People are motivated by self-interest.
D)   Wages and prices are flexible.

Question 12

According to Keynes, involuntary unemployment is possible because of

Accepted Answer

A)   the existence of capital markets.
B)   long-term labor contracts and the existence of labor unions.
C)   government interference in the market economy.
D)   inflation.

Question 13

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.

Question 14

Say's law states that

Accepted Answer

A)   desired expenditures will equal actual expenditures.
B)   people produce only the goods they want.
C)   demand is always less than supply.
D)   overproduction is never possible because of limited resources.

Question 15

Along a short-run aggregate supply curve, which of the following is (are)  held constant?

Accepted Answer

A)   real GDP
B)   aggregate demand
C)   input prices.
D)   profits

Question 16

-The above figure presents the view of the economy according to

Accepted Answer

A)   Keynesian economics.
B)   classical economics.
C)   microanalysis.
D)   Ricardian economics.

Question 17

To explain the existence of excess capacity, Keynes argued that

Accepted Answer

A)   prices and wages are flexible, and eventually markets would go back to equilibrium.
B)   the long run average cost curve should not occur at the full employment level.
C)   the aggregate demand curve can be manipulated by advertising.
D)   prices and wages are inflexible in the downward direction.

Question 18

2 to AD3, our nation would have gone from A)  a recessionary gap to an inflationary gap. B)  a recessionary gap to full-employment real GDP. C)  an inflationary gap to full-employment GDP. D)  full-employment real GDP to an inflationary gap." class="answers-bank-image d-inline" rel="preload" >
-Consider the above figure. If the aggregate demand went from AD2 to AD3, our nation would have gone from

Accepted Answer

A)   a recessionary gap to an inflationary gap.
B)   a recessionary gap to full-employment real GDP.
C)   an inflationary gap to full-employment GDP.
D)   full-employment real GDP to an inflationary gap.

Question 19

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.

Question 20

The gap that exists when equilibrium real GDP is greater than the level of real GDP shown by the position of the long-run aggregate supply curve is

Accepted Answer

A)   the short-run aggregate supply curve.
B)   money illusion.
C)   a recessionary gap.
D)   an inflationary gap.

Exam 11: Classical and Keynesian Macro Analyses

Along a short-run aggregate supply curve, which of the following is (are) held constant?

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Classical economists wrote from the 1770s to the ________.

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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 AnswerverifiedShow Answer

The gap that exists when equilibrium real GDP is greater than the level of real GDP shown by the position of the long-run aggregate supply curve is

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According to Keynes, involuntary unemployment is possible because of

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In the classical model, a change in aggregate demand

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Which of the following statements is NOT true about Say's law?

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

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The inflation associated with the oil price shocks in the 1970s after OPEC restricted the supply of oil is an example of

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-The above figure presents the view of the economy according to

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In the classical model, desired saving

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-Consider the above figure. If the aggregate demand went from AD2 to AD3, our nation would have gone from

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According to the classical theory, the aggregate supply curve is

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One key assumption of the classical model is

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The short-run and long-run aggregate supply curves remain stable, and a decrease in aggregate demand occurs. What is the result in the short run?

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Which of the following is NOT a key assumption of the classical model?

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

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When the value of the dollar increases, the net effect on the economy

Correct AnswerverifiedShow Answer

Say's law states that

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To explain the existence of excess capacity, Keynes argued that

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-Consider the above figure. If the aggregate demand went from AD₂to AD₃,our nation would have gone from

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