Question 1

Suppose the nation is in a recession.As a result,the current macroeconomic equilibrium occurs along the flat portion of the aggregate supply curve.A moderate increase in aggregate demand is likely to

Accepted Answer

A)  increase the equilibrium price level with little effect on equilibrium real GDP.
B)  increase equilibrium real GDP with little effect on the price level.
C)  cause the price level to fall.
D)  decrease employment.E) B) and C)
F) A) and D)

Question 2

John Maynard Keynes would argue that massive government spending ___________ will pull us out of a depression.

Accepted Answer

The answer of John Maynard Keynes would argue that massive...

Question 3

The classical theory predicts that decreases in the supply of savings will _______ interest rates and _______ investment.

Accepted Answer

The answer of The classical theory predicts that decreases in...

Question 4

The line segment QR describes the region where

Accepted Answer

A)  increases in output do not cause higher prices because of a large portion of unemployed resources.
B)  prices and output increase together.
C)  increases in prices do not generate any increase in output.
D)  increases in prices cause decreases in output.E) None of the above
F) A) and B)

Question 5

-Curve YZ represents ____________.

Accepted Answer

A)  short-run aggregate demand
B)  long-run aggregate demand
C)  short-run aggregate supply
D)  long-run aggregate supplyE) All of the above
F) B) and C)

Question 6

In analyzing recessions,Keynes' view was that

Accepted Answer

A)  the economy may eventually recover by itself,but it takes too long.
B)  the government could stimulate aggregate purchases by reducing the budget deficit.
C)  the economy will never recover because wages and prices will never adjust downward.
D)  any cyclical unemployment will be short-lived,and thus there is no need for increased government spending.E) None of the above
F) C) and D)

Question 7

If the aggregate supply curve is horizontal,

Accepted Answer

A)  there are unemployed resources.
B)  the economy is inside the production possibilities frontier.
C)  it is possible to increase output,without driving up prices,by putting unemployed resources to work.
D)  All of the choices are correct.E) A) and B)
F) All of the above

Question 8

According to Keynesian theory

Accepted Answer

A)  changes in the equilibrium interest rate will not always equate saving and investment.
B)  prices and wages are flexible downward.
C)  Say's law is valid.
D)  savers and investors have identical motives.E) A) and B)
F) A) and C)

Question 9

Say's law

Accepted Answer

A)  was a basic pillar of classical economics.
B)  was a basic pillar of Keynesian economics.
C)  was formulated during the Great Depression.
D)  proves that we can never have full employment.E) A) and C)
F) All of the above

Question 10

When the average price level in the United States,relative to the average price levels in other countries,rises,this tends to

Accepted Answer

A)  raise imports and exports.
B)  lower imports and exports.
C)  raise imports and lower exports.
D)  lower imports and raise exports.E) A) and D)
F) A) and C)

Question 11

Classical employment theory holds that

Accepted Answer

A)  wages are flexible upward and downward in the long run.
B)  an excess of saving over investment (a surplus in the loanable funds market) at any given interest rate will cause the interest rate to fall.
C)  unemployment will cause wages and prices to decline.
D)  All of the choices are true of classical employment theory.E) B) and C)
F) All of the above

Question 12

The notion that "no man produces but with a view to consume or sell,"

Accepted Answer

A)  sums up Say's Law.
B)  can be restated as "supply creates it own demand."
C)  was said by David Ricardo,elaborating on Say's Law.
D)  All of the choices are correct.E) C) and D)
F) A) and D)

Question 13

The curve showing the amount of real output,or real GDP,that will be made available by sellers at various price levels is called the

Accepted Answer

A)  aggregate demand curve.
B)  real gross domestic investment curve.
C)  aggregate supply curve.
D)  Keynesian cross.
E)  aggregate individual demand curvE.F) None of the above
G) A) and D)

Question 14

In the Keynesian analysis of macroeconomic equilibrium,the key determinant of real GDP is

Accepted Answer

A)  national income.
B)  aggregate supply.
C)  aggregate demand.
D)  disposable income.E) A) and C)
F) B) and D)

Question 15

Keynes's analysis of the Great Depression led to which of the following recommendations regarding government policy?

Accepted Answer

A)  An annually balanced budget.
B)  A decrease in government spending.
C)  An increase in government spending.
D)  An increase in taxes.
E)  Government should pursue a laissez-faire attitudE.F) A) and E)
G) A) and B)

Question 16

Which of the following assumptions is crucial to the classical macroeconomic model's assertion that the economy has built-in forces that automatically eliminate unemployment and quickly move the economy to its potential level of real GDP?

Accepted Answer

A)  Profit motive
B)  Rigid wages and prices
C)  Flexible wages and prices
D)  Natural rate of unemploymentE) A) and B)
F) A) and C)

Question 17

The classicals believed that when savings exceeds investment,

Accepted Answer

A)  demand is reduced and the economy will go into a recession.
B)  the interest rate will decline and equate savings and investment.
C)  an increase in supply will encourage higher investment spending.
D)  if savings is greater than investment unemployment would reduce savings.E) B) and C)
F) A) and B)

Question 18

The classical macroeconomic model argues that the economy has built-in forces that automatically eliminate unemployment and quickly move the economy to its full employment level of real GDP.Which assumption is critical to this argument?

Accepted Answer

A)  Rigid wages and prices
B)  Flexible wages and prices
C)  Natural rate of unemployment
D)  Profit motive
E)  None of the choices are correct.F) C) and D)
G) None of the above

Question 19

Which one of the following does NOT explain why the aggregate demand curve is downward sloping?

Accepted Answer

A)  The loanable funds effect
B)  The real balances effect
C)  The foreign purchases effect
D)  The interest rate effectE) None of the above
F) B) and C)

Question 20

The classical theory of the loanable funds market concluded that

Accepted Answer

A)  Saving and investment would not be equal because of changes in the volume of bank credit.
B)  An increase in the desire to save would increase the interest rate and lower the volume of investment.
C)  The interest rate would equate saving and investment and thereby undermine Say's law.
D)  The interest rate would equate saving and investment and thereby cause Say's law to be valiD.E) None of the above
F) All of the above

Exam 11: Classical and Keynesian Economics

In the Keynesian analysis of macroeconomic equilibrium,the key determinant of real GDP is

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The classical macroeconomic model argues that the economy has built-in forces that automatically eliminate unemployment and quickly move the economy to its full employment level of real GDP.Which assumption is critical to this argument?

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The line segment QR describes the region where

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If the aggregate supply curve is horizontal,

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According to Keynesian theory

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Say's law

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The curve showing the amount of real output,or real GDP,that will be made available by sellers at various price levels is called the

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The classicals believed that when savings exceeds investment,

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Keynes's analysis of the Great Depression led to which of the following recommendations regarding government policy?

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Which of the following assumptions is crucial to the classical macroeconomic model's assertion that the economy has built-in forces that automatically eliminate unemployment and quickly move the economy to its potential level of real GDP?

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-Curve YZ represents ____________.

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The classical theory predicts that decreases in the supply of savings will _______ interest rates and _______ investment.

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In analyzing recessions,Keynes' view was that

Correct AnswerverifiedShow Answer

John Maynard Keynes would argue that massive government spending ___________ will pull us out of a depression.

Correct AnswerverifiedShow Answer

Suppose the nation is in a recession.As a result,the current macroeconomic equilibrium occurs along the flat portion of the aggregate supply curve.A moderate increase in aggregate demand is likely to

Correct AnswerverifiedShow Answer

Which one of the following does NOT explain why the aggregate demand curve is downward sloping?

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When the average price level in the United States,relative to the average price levels in other countries,rises,this tends to

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The notion that "no man produces but with a view to consume or sell,"

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The classical theory of the loanable funds market concluded that

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Classical employment theory holds that

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The classical theory predicts that decreases in the supply of savings will _ interest rates and _ investment.

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