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| 1 | |
If we compare a market supply curve with the aggregate supply curve discussed in this chapter we realize that |
| | A) | the AS-curve is vertical in the long run and horizontal in the very short run |
| | B) | the AS-curve is vertical in the very short run and horizontal in the long run |
| | C) | the AS-curve can never be upward sloping |
| | D) | a market supply curve is more elastic in the short run and less elastic in the long run |
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| 2 | |
The level of output that corresponds to the full employment of the labor force |
| | A) | is also called potential GDP |
| | B) | is determined by the vertical AS-curve |
| | C) | continuously shifts to the right over time as technological advances take place |
| | D) | all of the above |
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| 3 | |
Full employment is always a normal condition |
| | A) | in the vertical AS-curve case |
| | B) | in the classical AS-curve case |
| | C) | if wages and prices are assumed to be perfectly flexible |
| | D) | all of the above |
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| 4 | |
The Keynesian AS-curve implies that |
| | A) | the economy is always at the full-employment level of output |
| | B) | the AS-curve is completely vertical |
| | C) | wages and prices are completely flexible |
| | D) | a change in spending will affect GDP but not the price level |
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| 5 | |
In the Keynesian AS-curve case, if the government cuts welfare payments, then |
| | A) | the price level will decrease, but the economy will remain at the full-employment level of output |
| | B) | the level of output will decrease but the price level will remain the same |
| | C) | the levels of output and prices will decrease |
| | D) | unemployment will increase, since wages and prices are completely flexible |
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| 6 | |
In the classical AS-curve case, if the Fed undertakes restrictive monetary policy, |
| | A) | the price level will decrease, but the economy will remain at the full-employment level of output |
| | B) | the price level will remain the same but the level of output will decrease |
| | C) | the levels of output and prices will decrease |
| | D) | interest rates will increase, but we will see no effect on either output or the price level |
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| 7 | |
The slope of the AS-curve becomes steeper |
| | A) | as wages and prices become more flexible |
| | B) | as wages become more rigid |
| | C) | as the economy moves further away from full employment |
| | D) | as the government implements expansionary fiscal policy |
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| 8 | |
If the unemployment rate is assumed to be at its natural rate, then |
| | A) | inflation cannot exist |
| | B) | the unemployment rate is zero |
| | C) | the unemployment rate is positive but at a level that exists when GDP is at its potential level |
| | D) | all unemployment is cyclical in nature |
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| 9 | |
In the medium run, an increase in oil prices will |
| | A) | increase the price level but reduce the level of output |
| | B) | lead to a decrease in aggregate demand |
| | C) | lead to an increase in aggregate demand |
| | D) | not affect the level of real output |
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| 10 | |
As the price level decreases and we move along the AD-curve, |
| | A) | real money balances and the real interest rate both decrease |
| | B) | real money balances decrease and the real interest rate increases |
| | C) | real money balances increase and the real interest rate decreases |
| | D) | real money balances and the real interest rate both increase |
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| 11 | |
Along the AD-curve nominal money supply is held constant. We can therefore explain that the AD-curve is downward sloping since, as the price level increases |
| | A) | the value of real consumption declines as goods and services become more expensive |
| | B) | real money balances decrease, leading to an increase in the interest rate and therefore a decrease in private spending |
| | C) | import goods become more expensive, so less of them are bought |
| | D) | real wages decrease and therefore people restrict their spending |
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| 12 | |
If we were to use the quantity theory of money to derive a simple equation for the AD-curve, then we would get |
| | A) | P = (MY)/V |
| | B) | P = M/Y |
| | C) | P = (MV)/Y |
| | D) | P = Y/(MV) |
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| 13 | |
The income velocity of money can be calculated in the following way: |
| | A) | V = M/Y |
| | B) | V = Y/M |
| | C) | V = M/(PY) |
| | D) | V = (PY)/M |
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| 14 | |
In an AD-AS diagram with an upward-sloping AS-curve, a decrease in nominal money supply |
| | A) | occurs naturally as we move along the AD-curve since any price increase will decrease money balances and therefore increase the interest rate |
| | B) | will decrease the level of output, the price level, and interest rates |
| | C) | will decrease the level of output since real wages will decrease |
| | D) | will increase interest rates, but decrease output and prices |
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| 15 | |
In an AD-AS diagram, an increase in nominal money supply is represented by |
| | A) | a shift of the AS-curve to the right |
| | B) | a shift of the AD-curve to the right |
| | C) | movement along the AD-curve from right to left |
| | D) | movement along the AD-curve from left to right |
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| 16 | |
A policy change that causes an increase in aggregate demand will |
| | A) | leave the level of output unaffected in the Keynesian case |
| | B) | leave the level of prices unaffected in the classical case |
| | C) | leave the level of prices unaffected in the Keynesian case |
| | D) | increase the level of output in the classical case |
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| 17 | |
The aggregate supply curve should be drawn |
| | A) | fairly flat when the economy is in a recession |
| | B) | fairly steep when the economy is in a boom |
| | C) | with an increasing upward slope as we approach the full employment level of output |
| | D) | all of the above |
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| 18 | |
If the government cuts income tax rates |
| | A) | there will be a fairly small shift in the long-run AS-curve |
| | B) | there will be a fairly large shift in the AD-curve |
| | C) | the price level most likely will increase |
| | D) | all of the above |
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| 19 | |
Supply-side economics |
| | A) | only affects the AS-curve significantly, even in the short run, and therefore is bound to lead to a decrease in prices and unemployment |
| | B) | is mostly “voodoo economics” that is sold by politicians as a simple way to fix the economy but has no real economic impact |
| | C) | entails tax cuts, other ways to achieve technological advances, and reductions of government regulation |
| | D) | is designed to shift the AS-curve to the right, but in actuality will only shift the AD-curve to the right |
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| 20 | |
As potential GDP grows over time |
| | A) | the level of output is essentially determined by shifts in the vertical AS-curve |
| | B) | the price level remains constant |
| | C) | the AD-curve shifts to the right due to a change in the average price level |
| | D) | the level of actual output can only change if the AD-curve shifts accordingly |
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