Question 1

A situation where expansionary monetary policies are ineffective because nominal interest rates are already low is called:

Accepted Answer

A)  a liquidity drop. 
B)  a liquidity trap. 
C)  a illiquidity drop. 
D)  an illiquidity trap. 
A)  a liquidity drop. 
B)  a liquidity trap. 
C)  a illiquidity drop. 
D)  an illiquidity trap.

Question 2

If the economy is at full employment equilibrium, an expansionary monetary policy increases the price level but not output.

Accepted Answer

A) True 
 B)False

Question 3

If the equilibrium output exceeds potential output:

Accepted Answer

A)  inflation usually increases. 
B)  aggregate demand increases. 
C)  unemployment rises. 
D)  the price level decreases. 
A)  inflation usually increases. 
B)  aggregate demand increases. 
C)  unemployment rises. 
D)  the price level decreases.

Question 4

If the investment curve is steep (i.e., investment is less sensitive to changes in the real interest rate), then an increase in government spending by $100 billion will cause:

Accepted Answer

A)  a decrease in investments larger than $100 billion. 
B)  a decrease in investments equal to $100 billion. 
C)  an increase in investments equal to $100 billion. 
D)  an increase in investments larger than $100 billion. 
A)  a decrease in investments larger than $100 billion. 
B)  a decrease in investments equal to $100 billion. 
C)  an increase in investments equal to $100 billion. 
D)  an increase in investments larger than $100 billion.

Question 5

When the economy is in a liquidity trap, one way to get the economy out of a recession is to:

Accepted Answer

A)  increase taxes. 
B)  increase government expenditures. 
C)  contract the money supply. 
D)  expand the money supply. 
A)  increase taxes. 
B)  increase government expenditures. 
C)  contract the money supply. 
D)  expand the money supply.

Question 6

The classical aggregate supply curve is:

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  downward sloping. 
D)  upward sloping. 
A)  vertical. 
B)  horizontal. 
C)  downward sloping. 
D)  upward sloping.

Question 7

Recall Application 3, "Increasing Health-Care Expenditures and Crowding Out," to answer the following questions:
-According to the application, as individuals become richer, sooner or later they will substitute spending away from _______ and into _______ .

Accepted Answer

A)  nursing homes; retirement communities 
B)  less expensive health care; more expensive health care 
C)  consumer durables; increasing their lifespan 
D)  consumer durables; stocks of HMO's 
A)  nursing homes; retirement communities 
B)  less expensive health care; more expensive health care 
C)  consumer durables; increasing their lifespan 
D)  consumer durables; stocks of HMO's

Question 8

Assuming that the economy is in the long run equilibrium at full employment, an increase in the money supply will cause a:

Accepted Answer

A)  proportional increase in the price level and no change in real GDP. 
B)  proportional reduction in the price level and an increase in real GDP. 
C)  proportional increase in the price level and an increase in real GDP. 
D)  proportional increase in the price level and a reduction in real GDP. 
A)  proportional increase in the price level and no change in real GDP. 
B)  proportional reduction in the price level and an increase in real GDP. 
C)  proportional increase in the price level and an increase in real GDP. 
D)  proportional increase in the price level and a reduction in real GDP.

Question 9

Suppose that an economy is currently producing a level of output that is greater than potential output. What impact will this situation have on the demand for money? Explain.

Accepted Answer

When output is greater than potential ou

Question 10

The aggregate supply curve shows the relationship between prices and the

Accepted Answer

A)  level of real GDP produced. 
B)  level of nominal GDP demanded. 
C)  level of nominal GDP produced. 
D)  level of real GDP demanded. 
A)  level of real GDP produced. 
B)  level of nominal GDP demanded. 
C)  level of nominal GDP produced. 
D)  level of real GDP demanded.

Question 11

If crowding out occurs in the long run and the government increases spending for non- investment projects such as defense, then the additional government spending:

Accepted Answer

A)  replaces a larger amount of private investment. 
B)  decreases total investment spending in the economy. 
C)  replaces an equivalent amount of private non- investment. 
D)  enhances private investment by the same amount. 
A)  replaces a larger amount of private investment. 
B)  decreases total investment spending in the economy. 
C)  replaces an equivalent amount of private non- investment. 
D)  enhances private investment by the same amount.

Question 12

Is money neutral in the short run? Explain.

Accepted Answer

Economists do not consider money to be n

Question 13

The concept of "market clearing" is adopted and defended by:

Accepted Answer

A)  fine- tuning economists. 
B)  Keynesian economists. 
C)  demand- side economists. 
D)  classical economists. 
A)  fine- tuning economists. 
B)  Keynesian economists. 
C)  demand- side economists. 
D)  classical economists.

Question 14

The view that the labor market quickly adjusts to reach equilibrium is consistent with the assumption of _______ aggregate supply curve.

Accepted Answer

A)  a vertical 
B)  an upward- sloping 
C)  a downward- sloping 
D)  a horizontal 
A)  a vertical 
B)  an upward- sloping 
C)  a downward- sloping 
D)  a horizontal

Question 15

According to Keynesian economics, prices and wages determine the level of output in the economy.

Accepted Answer

A) True 
 B)False

Question 16

According to classical economists, a reduction in aggregate demand should result in:

Accepted Answer

A)  an increase in the unemployment rate. 
B)  a reduction in the price level. 
C)  a decrease in real GDP. 
D)  all of the above 
A)  an increase in the unemployment rate. 
B)  a reduction in the price level. 
C)  a decrease in real GDP. 
D)  all of the above

Question 17

The process by which changes in wages and prices causing further changes in wages and prices is called:

Accepted Answer

A)  the snowball effect. 
B)  the vicious cycle. 
C)  a wage - price spiral. 
D)  the business cycle. 
A)  the snowball effect. 
B)  the vicious cycle. 
C)  a wage - price spiral. 
D)  the business cycle.

Question 18

If prices and wages were fully flexible, then the economy behaves in the way that Keynes predicted.

Accepted Answer

A) True 
 B)False

Question 19

If left alone, the recession experienced by an economy will cause the short- run

Accepted Answer

A)  aggregate demand curve to shift downward until the equilibrium GDP is back at full employment. 
B)  aggregate supply curve to shift upward until the equilibrium GDP is back at full employment. 
C)  aggregate supply curve to shift downward until the equilibrium GDP is back at full employment. 
D)  aggregate demand curve to shift upward until the equilibrium GDP is back at full employment. 
A)  aggregate demand curve to shift downward until the equilibrium GDP is back at full employment. 
B)  aggregate supply curve to shift upward until the equilibrium GDP is back at full employment. 
C)  aggregate supply curve to shift downward until the equilibrium GDP is back at full employment. 
D)  aggregate demand curve to shift upward until the equilibrium GDP is back at full employment.

Question 20

Did Keynes believe that Say's Law was right? Explain.

Accepted Answer

No. Keynes believed that there could be

A situation where expansionary monetary policies are ineffective because nominal interest rates are already low is called:

If the economy is at full employment equilibrium, an expansionary monetary policy increases the price level but not output.

If the equilibrium output exceeds potential output:

If the investment curve is steep (i.e., investment is less sensitive to changes in the real interest rate), then an increase in government spending by $100 billion will cause:

When the economy is in a liquidity trap, one way to get the economy out of a recession is to:

The classical aggregate supply curve is:

Recall Application 3, "Increasing Health-Care Expenditures and Crowding Out," to answer the following questions: -According to the application, as individuals become richer, sooner or later they will substitute spending away from _ and into _ .

Assuming that the economy is in the long run equilibrium at full employment, an increase in the money supply will cause a:

Suppose that an economy is currently producing a level of output that is greater than potential output. What impact will this situation have on the demand for money? Explain.

The aggregate supply curve shows the relationship between prices and the

If crowding out occurs in the long run and the government increases spending for non- investment projects such as defense, then the additional government spending:

Is money neutral in the short run? Explain.

The concept of "market clearing" is adopted and defended by:

The view that the labor market quickly adjusts to reach equilibrium is consistent with the assumption of _______ aggregate supply curve.

According to Keynesian economics, prices and wages determine the level of output in the economy.

According to classical economists, a reduction in aggregate demand should result in:

The process by which changes in wages and prices causing further changes in wages and prices is called:

If prices and wages were fully flexible, then the economy behaves in the way that Keynes predicted.

If left alone, the recession experienced by an economy will cause the short- run

Did Keynes believe that Say's Law was right? Explain.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 15: Modern Macroeconomics: From the Short Run to the Long Run

A situation where expansionary monetary policies are ineffective because nominal interest rates are already low is called:

If the economy is at full employment equilibrium, an expansionary monetary policy increases the price level but not output.

If the equilibrium output exceeds potential output:

If the investment curve is steep (i.e., investment is less sensitive to changes in the real interest rate), then an increase in government spending by $100 billion will cause:

When the economy is in a liquidity trap, one way to get the economy out of a recession is to:

The classical aggregate supply curve is:

Recall Application 3, "Increasing Health-Care Expenditures and Crowding Out," to answer the following questions: -According to the application, as individuals become richer, sooner or later they will substitute spending away from _______ and into _______ .

Assuming that the economy is in the long run equilibrium at full employment, an increase in the money supply will cause a:

Suppose that an economy is currently producing a level of output that is greater than potential output. What impact will this situation have on the demand for money? Explain.

The aggregate supply curve shows the relationship between prices and the

If crowding out occurs in the long run and the government increases spending for non- investment projects such as defense, then the additional government spending:

Is money neutral in the short run? Explain.

The concept of "market clearing" is adopted and defended by:

The view that the labor market quickly adjusts to reach equilibrium is consistent with the assumption of _______ aggregate supply curve.

According to Keynesian economics, prices and wages determine the level of output in the economy.

According to classical economists, a reduction in aggregate demand should result in:

The process by which changes in wages and prices causing further changes in wages and prices is called:

If prices and wages were fully flexible, then the economy behaves in the way that Keynes predicted.

If left alone, the recession experienced by an economy will cause the short- run

Did Keynes believe that Say's Law was right? Explain.

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Recall Application 3, "Increasing Health-Care Expenditures and Crowding Out," to answer the following questions: -According to the application, as individuals become richer, sooner or later they will substitute spending away from _ and into _ .