Question 1

In the AS/AD model, the repercussion that a change in aggregate quantity demanded has on production and subsequently on income and expenditures is called the:

Accepted Answer

A)  accelerator effect.
B)  expenditure effect.
C)  multiplier effect.
D)  money wealth effect.E) B) and C)
F) A) and B)

Question 2

According to Keynes, why might deflation create problems for an economy?

Accepted Answer

A)  Consumers might expect prices to fall further and cut back consumption now.
B)  In expectation of increased spending, too many entrepreneurs would begin businesses and most would fail.
C)  Producers might increase production to take advantage of falling input prices.
D)  People would drop out of unions because unions would become ineffective at keeping wages of members high.E) A) and B)
F) A) and C)

Question 3

Consider the following diagram  Demonstrate graphically and explain verbally the impact of a decrease of 50 in government spending on the AD curve in the diagram when the multiplier is 3.

Accepted Answer

The total impact of the decrease of 50 o...

Question 4

If actual output exceeds potential output, eventually:

Accepted Answer

A)  input prices will rise and output will fall.
B)  both input prices and output will rise.
C)  input prices will fall and output will rise.
D)  both input prices and output will fall.E) A) and B)
F) A) and C)

Question 5

Refer to the graph shown. In the graph, a recessionary gap exists if the price level is: 0 and the aggregate demand curve is AD0. B) P0 and the aggregate demand curve is AD1. C) P1 and the aggregate demand curve is AD0. D) P1 and the aggregate demand curve is AD1." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  P0 and the aggregate demand curve is AD0.
B)  P0 and the aggregate demand curve is AD1.
C)  P1 and the aggregate demand curve is AD0.
D)  P1 and the aggregate demand curve is AD1.E) A) and C)
F) B) and D)

Question 6

Refer to the graph shown. A decrease in production costs is likely to cause a movement from:

Accepted Answer

A)  C to D.
B)  B to D.
C)  B to A.
D)  C to A.E) C) and D)
F) None of the above

Question 7

Refer to the graph shown. No changes in fiscal policy are advisable when the economy is at point:

Accepted Answer

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

Question 8

An economy's resources:

Accepted Answer

A)  can never be overutilized.
B)  can always be overutilized.
C)  are always fully employed.
D)  can be overutilized, but only temporarily.E) B) and C)
F) C) and D)

Question 9

In the 1990s, the price level in Japan fell relative to the price level in the United States. If the exchange rate did not change, one would expect that:

Accepted Answer

A)  U.S. exports to Japan would rise and U.S. imports from Japan would decline.
B)  U.S. exports to Japan would decline and U.S. imports from Japan would rise.
C)  both U.S. exports to Japan and U.S. imports from Japan would rise.
D)  both U.S. exports to Japan and U.S. imports from Japan would fall.E) B) and D)
F) A) and C)

Question 10

A fall in the price level:

Accepted Answer

A)  reduces the value of money in peoples' pockets, so people buy less goods.
B)  reduces the value of money in peoples' pockets, so people buy more goods.
C)  increases the value of money in peoples' pockets, so people buy less goods.
D)  increases the value of money in peoples' pockets, so people buy more goods.E) B) and C)
F) A) and D)

Question 11

Explain the difference between the long run and short-run views of saving.

Accepted Answer

The long-run view of saving is that of t...

Question 12

What factors shift the short-run aggregate supply (SAS)curve? Explain the impact of changes in each factor on the SAS curve.

Accepted Answer

(a)Input prices.A rise (decline)in input...

Question 13

Governments are said to fine-tune the economy when they attempt to use fiscal policy to:

Accepted Answer

A)  offset fluctuations in aggregate supply.
B)  offset only large fluctuations in aggregate demand.
C)  keep the economy always at its target or potential level of income.
D)  eliminate unemployment.E) C) and D)
F) B) and D)

Question 14

Demonstrate graphically and explain verbally the comparison of the impact of a drop in the price level on the shape of the aggregate demand curve when the multiplier effect is positive to when it is zero.

Accepted Answer

With a multiplier effect of zero the AD ...

Question 15

In the early 1930s, U.S. government expenditures increased as part of the New Deal without any change in taxes. This:

Accepted Answer

A)  shifted the AD curve to the left.
B)  shifted the AD curve to the right.
C)  made the AD curve flatter.
D)  made the AD curve steeper.E) A) and B)
F) B) and C)

Question 16

Keynes argued that, for the period that he was writing about:

Accepted Answer

A)  the long run is a more important policy concern than the short run.
B)  the short run is a more important policy concern than the long run.
C)  both the short run and the long run are equally important.
D)  the distinction between the short run and the long run is irrelevant.E) A) and C)
F) None of the above

Question 17

With an upward-sloping short-run aggregate supply curve, firms respond to a change in aggregate demand by adjusting:

Accepted Answer

A)  both prices and quantities in the short run.
B)  prices but not quantities in the short run.
C)  quantities but not prices in the short run.
D)  neither prices nor quantities in the short run.E) All of the above
F) B) and D)

Question 18

Refer to the graph shown. A policy that cuts government spending would be most appropriate when the economy is at point:

Accepted Answer

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

Question 19

At points on the short-run aggregate supply curve, but to the right of the long-run aggregate supply curve, resources are:

Accepted Answer

A)  overutilized, making it more likely that the short-run aggregate supply curve will shift up (to the left) .
B)  overutilized, making it more likely that the short-run aggregate supply curve will shift down (to the right) .
C)  underutilized, making it more likely that the short-run aggregate supply curve will shift up (to the left) .
D)  underutilized, making it more likely that the short-run aggregate supply curve will shift down (to the right) .E) C) and D)
F) A) and B)

Question 20

Refer to the graph shown. If the price level is P1, then: 1, then:   A) input prices will fall and output will rise in the long run. B) both input prices and output will fall in the long run. C) input prices will rise and output will fall in the long run. D) both input prices and output will rise in the long run." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  input prices will fall and output will rise in the long run.
B)  both input prices and output will fall in the long run.
C)  input prices will rise and output will fall in the long run.
D)  both input prices and output will rise in the long run.E) A) and B)
F) B) and D)

Exam 26: The Keynesian Short-Run Policy Model: Demand-Side Policies

In the 1990s, the price level in Japan fell relative to the price level in the United States. If the exchange rate did not change, one would expect that:

Correct AnswerverifiedShow Answer

Refer to the graph shown. A policy that cuts government spending would be most appropriate when the economy is at point:

Correct AnswerverifiedShow Answer

If actual output exceeds potential output, eventually:

Correct AnswerverifiedShow Answer

In the AS/AD model, the repercussion that a change in aggregate quantity demanded has on production and subsequently on income and expenditures is called the:

Correct AnswerverifiedShow Answer

Keynes argued that, for the period that he was writing about:

Correct AnswerverifiedShow Answer

In the early 1930s, U.S. government expenditures increased as part of the New Deal without any change in taxes. This:

Correct AnswerverifiedShow Answer

A fall in the price level:

Correct AnswerverifiedShow Answer

According to Keynes, why might deflation create problems for an economy?

Correct AnswerverifiedShow Answer

Refer to the graph shown. If the price level is P1, then:

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An economy's resources:

Correct AnswerverifiedShow Answer

Explain the difference between the long run and short-run views of saving.

Correct AnswerverifiedThe long-run view of saving is that of t...View AnswerShow Answer

Refer to the graph shown. A decrease in production costs is likely to cause a movement from:

Correct AnswerverifiedShow Answer

What factors shift the short-run aggregate supply (SAS)curve? Explain the impact of changes in each factor on the SAS curve.

Correct Answerverified(a)Input prices.A rise (decline)in input...View AnswerShow Answer

Governments are said to fine-tune the economy when they attempt to use fiscal policy to:

Correct AnswerverifiedShow Answer

Consider the following diagram Demonstrate graphically and explain verbally the impact of a decrease of 50 in government spending on the AD curve in the diagram when the multiplier is 3.

Correct AnswerverifiedThe total impact of the decrease of 50 o...View AnswerShow Answer

Refer to the graph shown. No changes in fiscal policy are advisable when the economy is at point:

Correct AnswerverifiedShow Answer

Refer to the graph shown. In the graph, a recessionary gap exists if the price level is:

Correct AnswerverifiedShow Answer

With an upward-sloping short-run aggregate supply curve, firms respond to a change in aggregate demand by adjusting:

Correct AnswerverifiedShow Answer

Demonstrate graphically and explain verbally the comparison of the impact of a drop in the price level on the shape of the aggregate demand curve when the multiplier effect is positive to when it is zero.

Correct AnswerverifiedWith a multiplier effect of zero the AD ...View AnswerShow Answer

At points on the short-run aggregate supply curve, but to the right of the long-run aggregate supply curve, resources are:

Correct AnswerverifiedShow Answer

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Refer to the graph shown. If the price level is P₁, then:

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The long-run view of saving is that of t...
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(a)Input prices.A rise (decline)in input...
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The total impact of the decrease of 50 o...
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With a multiplier effect of zero the AD ...
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