Question 1

National savings is likely to decline for all of the following reasons EXCEPT

Accepted Answer

A) increase in expected future income. 
B) increase in government purchases. 
C) increased consumer pessimism. 
D) tax cuts (assuming Ricardian equivalence does not hold). 
A) increase in expected future income. 
B) increase in government purchases. 
C) increased consumer pessimism. 
D) tax cuts (assuming Ricardian equivalence does not hold).

Question 2

The Polish experience indicates that

Accepted Answer

A) the aggregate supply curve is vertical, even in the short run. 
B) changes in the expected price level do not affect aggregate supply. 
C) the transition from a centrally planned to a market economy can result in an upward shift in the short-run aggregate supply curve. 
D) increases in the factor productivity will shift the long-run aggregate supply curve to the left. 
A) the aggregate supply curve is vertical, even in the short run. 
B) changes in the expected price level do not affect aggregate supply. 
C) the transition from a centrally planned to a market economy can result in an upward shift in the short-run aggregate supply curve. 
D) increases in the factor productivity will shift the long-run aggregate supply curve to the left.

Question 3

A decline in money demand is

Accepted Answer

A) expansionary because it results in a decline in the real interest rate. 
B) expansionary because it results in an increase in the nominal money supply. 
C) contractionary because it results in a decline in the real interest rate. 
D) contractionary because it results in a decline in the nominal money supply. 
A) expansionary because it results in a decline in the real interest rate. 
B) expansionary because it results in an increase in the nominal money supply. 
C) contractionary because it results in a decline in the real interest rate. 
D) contractionary because it results in a decline in the nominal money supply.

Question 4

A shift of the AD curve

Accepted Answer

A) to the right is considered expansionary, and a shift to the left is considered contractionary. 
B) to the left is considered expansionary, and a shift to the right is considered contractionary. 
C) to the right or to the left is considered contractionary. 
D) to the right or to the left is considered expansionary. 
A) to the right is considered expansionary, and a shift to the left is considered contractionary. 
B) to the left is considered expansionary, and a shift to the right is considered contractionary. 
C) to the right or to the left is considered contractionary. 
D) to the right or to the left is considered expansionary.

Question 5

Which of the following is the correct expression for short-run aggregate supply in the new classical view?

Accepted Answer

A) Y = Y + a(P - Pe) 
B) Y = Y + a(P - Pe) 
C) Y = Y + a(P + Pe) 
D) Y = Y + a(P + Pe) 
A) Y = Y + a(P - Pe) 
B) Y = Y + a(P - Pe) 
C) Y = Y + a(P + Pe) 
D) Y = Y + a(P + Pe)

Question 6

In the new Keynesian view, the larger the proportion of firms in the economy with sticky prices,

Accepted Answer

A) the steeper the SRAS curve will be. 
B) the flatter the SRAS curve will be. 
C) the greater the increase in the price level for a given shift in the AD curve. 
D) the less effective is fiscal policy in increasing output. 
A) the steeper the SRAS curve will be. 
B) the flatter the SRAS curve will be. 
C) the greater the increase in the price level for a given shift in the AD curve. 
D) the less effective is fiscal policy in increasing output.

Question 7

Some economists argue that persistently high unemployment rates in many European countries in the early 1980s resulted from

Accepted Answer

A) the movement to a common currency. 
B) the sharp decline in oil prices. 
C) low inflation rates. 
D) hysteresis. 
A) the movement to a common currency. 
B) the sharp decline in oil prices. 
C) low inflation rates. 
D) hysteresis.

Question 8

According to the Ricardian equivalence proposition,

Accepted Answer

A) saving equals investment only at full employment. 
B) a decline in the demand for money results in an equivalent increase in the demand for nonmoney assets. 
C) the increase in current income from a tax cut is offset by higher taxes in the future to pay off the debt. 
D) government spending is the equivalent of investment spending. 
A) saving equals investment only at full employment. 
B) a decline in the demand for money results in an equivalent increase in the demand for nonmoney assets. 
C) the increase in current income from a tax cut is offset by higher taxes in the future to pay off the debt. 
D) government spending is the equivalent of investment spending.

Question 9

The Federal Reserve pursued an expansionary monetary policy during 1964 in order to

Accepted Answer

A) pull the United States out of a deep recession. 
B) counteract the effects of a deep cut in federal income taxes. 
C) keep interest rates from rising. 
D) bring down the inflation rate. 
A) pull the United States out of a deep recession. 
B) counteract the effects of a deep cut in federal income taxes. 
C) keep interest rates from rising. 
D) bring down the inflation rate.

Question 10

The aggregate supply curve represents levels of output that producers are willing to sell at

Accepted Answer

A) each level of the real interest rate. 
B) each level of real GDP. 
C) each price level. 
D) each inflation rate. 
A) each level of the real interest rate. 
B) each level of real GDP. 
C) each price level. 
D) each inflation rate.

Question 11

If the economy is initially at equilibrium and an unexpected decline in aggregate demand takes place, in the short run aggregate output will

Accepted Answer

A) fall in the new classical view, but not in the new Keynesian view. 
B) fall in the new Keynesian view, but not in the new classical view. 
C) fall in both the new Keynesian and new classical views. 
D) remain at full employment in both the new classical and new Keynesian views. 
A) fall in the new classical view, but not in the new Keynesian view. 
B) fall in the new Keynesian view, but not in the new classical view. 
C) fall in both the new Keynesian and new classical views. 
D) remain at full employment in both the new classical and new Keynesian views.

Question 12

Which of the following statements is correct?

Accepted Answer

A) New classicals believe that the aggregate supply curve is a vertical line in both the short run and the long run. 
B) Both new classicals and new Keynesians believe that the aggregate supply curve is vertical in the long run. 
C) New Keynesians believe that the aggregate supply curve is vertical in the short run but not in the long run. 
D) New Keynesians believe that the aggregate supply curve slopes upward in the long run. 
A) New classicals believe that the aggregate supply curve is a vertical line in both the short run and the long run. 
B) Both new classicals and new Keynesians believe that the aggregate supply curve is vertical in the long run. 
C) New Keynesians believe that the aggregate supply curve is vertical in the short run but not in the long run. 
D) New Keynesians believe that the aggregate supply curve slopes upward in the long run.

Question 13

Everything else being constant, a lower real interest rate

Accepted Answer

A) increases desired saving and net exports. 
B) decreases desired saving but increases net exports. 
C) increases desired saving and investment. 
D) increases desired investment but decreases net exports. 
A) increases desired saving and net exports. 
B) decreases desired saving but increases net exports. 
C) increases desired saving and investment. 
D) increases desired investment but decreases net exports.

Question 14

According to the new classical view, aggregate output will differ from full-employment output

Accepted Answer

A) whenever saving does not equal investment. 
B) only if the actual price level does not equal the expected price level. 
C) only if the federal government's expenditures are greater than its tax receipts. 
D) whenever imports exceed exports. 
A) whenever saving does not equal investment. 
B) only if the actual price level does not equal the expected price level. 
C) only if the federal government's expenditures are greater than its tax receipts. 
D) whenever imports exceed exports.

Question 15

Points along the aggregate demand curve represent combinations of the price level and current output for which

Accepted Answer

A) the money market and the goods market are in equilibrium, but the market for nonmoney assets may not be. 
B) the goods market and the market for nonmoney assets are in equilibrium, but the money market may not be. 
C) the money market and the market for nonmoney assets are in equilibrium, but the goods market may not be. 
D) the money market, the market for nonmoney assets, and the goods market must all be in equilibrium. 
A) the money market and the goods market are in equilibrium, but the market for nonmoney assets may not be. 
B) the goods market and the market for nonmoney assets are in equilibrium, but the money market may not be. 
C) the money market and the market for nonmoney assets are in equilibrium, but the goods market may not be. 
D) the money market, the market for nonmoney assets, and the goods market must all be in equilibrium.

Question 16

The simultaneous equilibrium of the money, nonmoney asset, and goods markets is known as

Accepted Answer

A) nominal GDP. 
B) potential GDP. 
C) general equilibrium. 
D) full equilibrium. 
A) nominal GDP. 
B) potential GDP. 
C) general equilibrium. 
D) full equilibrium.

Question 17

If wages and prices in long-term contracts were fully indexed,

Accepted Answer

A) prices would be more sticky in the short run. 
B) prices would be more sticky in the long run. 
C) prices would be less sticky in the short run. 
D) the stickiness of prices would not be affected. 
A) prices would be more sticky in the short run. 
B) prices would be more sticky in the long run. 
C) prices would be less sticky in the short run. 
D) the stickiness of prices would not be affected.

Question 18

Which of the following will NOT shift the short-run aggregate supply function?

Accepted Answer

A) Changes in labor costs 
B) Changes in the costs of nonlabor inputs 
C) Changes in the price level 
D) Changes in the expected price level 
A) Changes in labor costs 
B) Changes in the costs of nonlabor inputs 
C) Changes in the price level 
D) Changes in the expected price level

Question 19

If the expected price level increases at the same time that the federal government cuts taxes, in the short run

Accepted Answer

A) aggregate output and the price level will both increase. 
B) aggregate output will increase, but the price level will fall. 
C) aggregate output and the price level will both fall. 
D) the price level will increase, but aggregate output may either increase or decrease. 
A) aggregate output and the price level will both increase. 
B) aggregate output will increase, but the price level will fall. 
C) aggregate output and the price level will both fall. 
D) the price level will increase, but aggregate output may either increase or decrease.

Question 20

An increase in all of the following will increase AD EXCEPT

Accepted Answer

A) investment. 
B) savings. 
C) exports. 
D) government spending. 
A) investment. 
B) savings. 
C) exports. 
D) government spending.

Exam 25: Aggregate Demand and Aggregate Supply

National savings is likely to decline for all of the following reasons EXCEPT

The Polish experience indicates that

A decline in money demand is

A shift of the AD curve

Which of the following is the correct expression for short-run aggregate supply in the new classical view?

In the new Keynesian view, the larger the proportion of firms in the economy with sticky prices,

Some economists argue that persistently high unemployment rates in many European countries in the early 1980s resulted from

According to the Ricardian equivalence proposition,

The Federal Reserve pursued an expansionary monetary policy during 1964 in order to

The aggregate supply curve represents levels of output that producers are willing to sell at

If the economy is initially at equilibrium and an unexpected decline in aggregate demand takes place, in the short run aggregate output will

Which of the following statements is correct?

Everything else being constant, a lower real interest rate

According to the new classical view, aggregate output will differ from full-employment output

Points along the aggregate demand curve represent combinations of the price level and current output for which

The simultaneous equilibrium of the money, nonmoney asset, and goods markets is known as

If wages and prices in long-term contracts were fully indexed,

Which of the following will NOT shift the short-run aggregate supply function?

If the expected price level increases at the same time that the federal government cuts taxes, in the short run

An increase in all of the following will increase AD EXCEPT

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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