1. Aggregate demand curves are
a. downward sloping.
b. upward sloping.
c. horizontal.
d. vertical.
2. As the price level falls, ceteris paribus, people holding some of their wealth in monetary form become
a. less wealthy and they buy less.
b. more wealthy and they buy more.
c. less wealthy and they buy more.
d. more wealthy and they buy less.
3. Suppose consumption decreases at each price level. As a result,
a. aggregate demand increases, and the AD curve shifts leftward.
b. aggregate demand decreases, and the AD curve shifts leftward.
c. aggregate demand increases, and the AD curve shifts rightward.
d. aggregate demand decreases, and the AD curve shifts rightward.
4. If we derive the Aggregate Demand curve from the equation of
exchange and if the Money supply and the Velocity of money are held
constant while the Price Level falls, then what happens to the Quantity
of RGDP demanded?
a. It increases as the AD shifts to the right.
b. It increases as there is a movement downward along the AD.
c. It decreases as the AD shifts to the left.
d. It decreases as there is a movement upward along the AD.
5. If we derive the Aggregate Demand curve from the equation of
exchange and hold the Velocity of Money constant, what is the only
thing that can make the AD shift?
a. An increase in Government spending.
b. A change in Taxes.
c. A change in the Price Level.
d. A change in the Money Supply.
6. A short-run aggregate supply curve shows
a. the amount of a particular good producers are willing and able to buy at a particular price, ceteris paribus.
b. the real output (Real GDP) producers are willing and able to sell at different price levels, ceteris paribus.
c. the real output (Real GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus.
d. the real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus.
7. Changes in which of the following will not cause the AS curve to shift?
a. the wage rate
b. prices of nonlabor inputs
c. the price level
d. productivity
e. All of the above will cause the AS curve to shift.
8. If foreign input prices, for a good such as oil, increase and the United States purchases those inputs, then
a. the U.S. AD curve will shift leftward and U.S. prices will fall.
b. the U.S. AD curve will shift rightward and U.S. prices will rise.
c. the U.S. AS curve will shift leftward and U.S. prices will rise.
d. the U.S. AS curve will shift rightward and U.S. prices will fall.
9. The intersection of the Short Run Aggregate Supply curve and the
Long Run Aggregate Supply curve indicates
a. long run equilibrium.
b. the end result of Say's Law.
c. the expected price level.
d. that a recession is about to start.
10. The short-run aggregate supply curve slopes upward because an increase in the price level leads to
a. an increase in profit in the short run that causes firms to produce more.
b. a decrease in profits in the short run that causes firms to produce more.
c. an increase in profits in the short run that causes firms to produce less.
d. a decrease in profits in the short run that causes firms to produce less.
11. Natural Real GDP is
a. less than full-employment Real GDP.
b. equal to full-employment Real GDP.
c. greater than full-employment Real GDP.
d. independent of full-employment Real GDP.
12. A recessionary gap exists when AD and SRAS
a. fail to intersect.
b. intersect to the right of Natural Real GDP.
c. intersect to the left of Natural Real GDP.
d. both have a positive slope.
13. In a self-regulating economy, inflationary and recessionary gaps produce shifts of the ________ curve that ________.
a. AD, maintain the short-run equilibrium point
b. AD, move the economy to a long-run equilibrium point
c. SRAS, maintain the short-run equilibrium point
d. SRAS, move the economy to a long-run equilibrium point
14. The Natural Level of Real GDP will increase (i.e., LRAS will shift
right) because of
a. an increase in capital equipment.
b. an improvement in technology.
c. an increase in the working age population.
d. all of the above.
15. The LRAS curve shows the Real GDP the economy is prepared to
a. demand at a single price level, assuming wage rates and all other input costs have fully adjusted to eliminate a recessionary or inflationary gap.
b. demand at different price levels, assuming wage rates and all other input costs have fully adjusted to eliminate a recessionary or inflationary gap.
c. supply at different price levels, assuming wage rates and all other input costs have fully adjusted to eliminate a recessionary or inflationary gap.
d. supply at a single price level, assuming wage rates and all other input costs have fully adjusted to eliminate a recessionary or inflationary gap.
16. Which of the following is most nearly consistent with Say's law?
a. When a person produces one good, he plans to demand other goods.
b. When a person produces a good, he plans to sell it.
c. When a person buys a good, he plans to pay for it with money.
d. When a person goes to work, he plans to produce.
17. According to Say's law, there can be
a. neither a general overproduction nor a general underproduction of goods.
b. a general overproduction but not a general underproduction of goods.
c. a general underproduction but not a general overproduction of goods.
d. both a general overproduction and a general underproduction of goods.
18. The classical economists felt that wages and prices were flexible in
a. neither the upward direction nor the downward direction.
b. the upward direction but not in the downward direction.
c. the downward direction but not in the upward direction.
d. both the upward and downward directions.
19. In the classical view of the credit market, a rise in saving produces a rise in investment via a
a. rising interest rate.
b. falling interest rate.
c. rising price level.
d. falling price level.
20. Keynes most likely believed that investment
a. is largely insensitive to changes in interest rates.
b. is largely sensitive to changes in interest rates.
c. is unrelated to business expectations.
d. is related to business expectations only during recessionary periods.
21. Keynes believed that
a. Say's law would hold in a laissez-faire economy.
b. the economy would always be near or on its production possibilities frontier.
c. wages and prices are often inflexible in the downward direction.
d. the equilibrium level of output will always be at the full-employment level of output.
22. Which statement is consistent with what Keynes believed about consumption and disposable income?
a. Consumption depends upon disposable income and falls as disposable income rises.
b. Consumption rises by the same amount as disposable income rises.
c. Consumption rises by less than disposable income rises.
d. Disposable income depends upon consumption.
23. The ratio of the change in consumption to the change in income is called the
a. marginal utility of consumption.
b. average utility of consumption.
c. marginal propensity to consume.
d. average propensity to consume.
24. If autonomous government spendingfr rises by $60 and, as a result, Real GDP rises by $300, then the marginal propensity to consume is ________.
a. .60
b. .70
c. .80
d. .90
e. none of the above
25. Which of the following is NOT an aspect of Keynesian economics?
a. Wages and prices tend to be inflexible downward.
b. Supply does not necessarily generate its own demand.
c. A weak direct relationship exists between saving and the interest rate.
d. Unemployment above natural unemployment is always a temporary phenomenon.
26. In the TE-TP (Keynesian) model, we assume the price level is ________, and this ________ the effect of the multiplier on Real GDP.
a. fixed, maximizes
b. fixed, minimizes
c. perfectly flexible, maximizes
d. perfectly flexible, minimizes
27. A balanced budget occurs when
a. the national debt is reduced to zero dollars.
b. a budget deficit during one year is matched by a budget surplus in the next year.
c. transfer payments equal tax receipts.
d. government expenditures equal tax receipts.
e. the deficit-GDP ratio equals one.
28. Suppose aggregate demand is too low to bring about the Natural Real GDP level. A Keynesian policy prescription would call for
a. an increase in taxes to close this recessionary gap.
b. a decrease in taxes to close this recessionary gap.
c. an increase in taxes to close this inflationary gap.
d. a decrease in taxes to close this inflationary gap.
29. Which of the following is an example of crowding out?
a. A decrease in the rate of growth of the stock of money decreases GDP.
b. A deficit causes an increase in interest rates that causes a decrease in investment spending.
c. An increase in tariffs causes a decrease in imports.
d. A decrease in government housing subsidies causes an increase in private spending on housing.
30. Which of the following is not an example of a "lag" that diminishes the potential impact of fiscal policy?
a. the data lag
b. the recessionary lag
c. the legislative lag
d. the transmission lag
e. none of the above, i.e., all are examples of such lags