Question 1

Monetary policy:

Accepted Answer

A)   Is controlled by Congress.
B)   Refers to the use of government spending.
C)   Shifts the aggregate supply curve.
D)   Is controlled by the Federal Reserve.E) A) and D)
F) B) and C)

Question 2

Ceteris paribus,based on the real balances effect,if the price level falls:

Accepted Answer

A)   Wealth decreases.
B)   Purchasing power increases.
C)   Real income decreases.
D)   Business profits increase.E) A) and B)
F) B) and C)

Question 3

Unlike the Classical economists,Keynes asserted that:

Accepted Answer

A)   Laissez-faire would lead to macro equilibrium.
B)   The economy was inherently unstable.
C)   Markets would naturally self-adjust.
D)   Wages and prices were flexible.E) B) and C)
F) A) and C)

Question 4

Which of the following explanations of the business cycle focuses on both aggregate supply and aggregate demand shifts?

Accepted Answer

A)   Monetarist explanations
B)   Keynesian explanations
C)   Supply-side explanations
D)   Eclectic explanationsE) A) and C)
F) A) and B)

Question 5

Keynes believed that small disturbances in the economy would be made even greater by the market mechanism and thus government intervention was required.

Accepted Answer

A) True 
 B)False

Question 6

For macro equilibrium to occur,aggregate demand must equal aggregate supply at a fairly low price level.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following economic theories focus on aggregate demand to explain changes in unemployment and inflation?

Accepted Answer

A)   Classical and supply-side
B)   Keynesian and monetarist
C)   Classical and Keynesian
D)   Classical but not monetaristE) B) and D)
F) A) and C)

Question 8

Controversies between Keynesian,monetarist,supply-side,and eclectic theories focus on:

Accepted Answer

A)   The shape and sensitivity of aggregate supply and aggregate demand curves.
B)   The existence or nonexistence of the aggregate supply curve.
C)   The importance of international balances to the economy.
D)   The usefulness of aggregate demand and supply in analyzing macro equilibrium.E) A) and C)
F) B) and C)

Question 9

Which of the following causes the aggregate supply curve to shift to the left,ceteris paribus?

Accepted Answer

A)   An increase in the cost of labor
B)   A decrease in the money supply
C)   An increase in government spending on goods
D)   A decrease in interest ratesE) A) and C)
F) B) and D)

Question 10

According to Say's Law,all goods produced will be sold:

Accepted Answer

A)   As long as the government establishes the correct price.
B)   Because technology is constantly improving.
C)   If prices are flexible and free to change.
D)   If trade barriers protect domestic production.E) None of the above
F) B) and C)

Question 11

Table 11.1-Aggregate supply and demand 
-In Table 11.1,at which of the following price levels would a surplus occur?

Accepted Answer

A)   100
B)   110
C)   120
D)   130E) A) and B)
F) A) and C)

Question 12

According to Keynes:

Accepted Answer

A)   Small disturbances in prices and output are always short term.
B)   The economy is inherently stable.
C)   Government intervention in the economy is necessary at times.
D)   High unemployment is always a temporary situation.E) All of the above
F) A) and C)

Question 13

The aggregate demand curve is downward sloping because,ceteris paribus:

Accepted Answer

A)   People are willing and able to buy more goods and services at lower average prices.
B)   People buy fewer goods and services at lower average incomes.
C)   A higher average price level induces producers to offer more output.
D)   A higher average price level causes incomes to increase.E) A) and C)
F) B) and D)

Question 14

Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should:

Accepted Answer

A)   Cut taxes and/or increase government spending.
B)   Cut taxes and/or reduce government spending.
C)   Raise taxes and/or increase government spending.
D)   Raise taxes and/or reduce government spending.E) None of the above
F) All of the above

Question 15

If an economy is experiencing a recession,the Keynesian approach to achieving full employment is to:

Accepted Answer

A)   Follow a policy of laissez faire.
B)   Relax immigration standards.
C)   Reduce government regulations.
D)   Use tax cuts or more government spending or both.E) A) and B)
F) B) and D)

Question 16

If,at the prevailing price level,the aggregate quantity supplied exceeds the aggregate quantity demanded,the price level will tend to fall.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is definitely true if the economy is in macro equilibrium?

Accepted Answer

A)   The price level is optimal,but the output level may not be
B)   The output level is optimal,but the price level may not be
C)   The price level and the output level are both optimal
D)   The price level and the output level may or may not be optimalE) B) and C)
F) C) and D)

Question 18

The difference between market demand and aggregate demand is that:

Accepted Answer

A)   Market demand applies to all individuals,and aggregate demand does not.
B)   Aggregate demand applies to a specific good,and market demand does not.
C)   Policy levers work through market demand but not aggregate demand.
D)   Aggregate demand applies to all goods and market demand applies to a specific good.E) All of the above
F) C) and D)

Question 19

Ceteris paribus,a rightward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to _______.

Accepted Answer

A)   Increase;increase
B)   Increase;decrease
C)   Decrease;increase
D)   Decrease;decreaseE) C) and D)
F) All of the above

Question 20

According to Keynesian theory,the correct fiscal policy action to stimulate the economy would be to:

Accepted Answer

A)   Raise taxes to increase aggregate demand.
B)   Increase the money supply to increase aggregate supply.
C)   Increase government expenditures to increase aggregate demand.
D)   Increase education spending to increase aggregate supply.E) C) and D)
F) B) and D)

Exam 11: Aggregate Supply and Demand

Which of the following economic theories focus on aggregate demand to explain changes in unemployment and inflation?

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Unlike the Classical economists,Keynes asserted that:

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Monetary policy:

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Which of the following explanations of the business cycle focuses on both aggregate supply and aggregate demand shifts?

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Which of the following causes the aggregate supply curve to shift to the left,ceteris paribus?

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If an economy is experiencing a recession,the Keynesian approach to achieving full employment is to:

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Which of the following is definitely true if the economy is in macro equilibrium?

Correct AnswerverifiedShow Answer

Keynes believed that small disturbances in the economy would be made even greater by the market mechanism and thus government intervention was required.

Correct AnswerverifiedShow Answer

According to Say's Law,all goods produced will be sold:

Correct AnswerverifiedShow Answer

Table 11.1-Aggregate supply and demand -In Table 11.1,at which of the following price levels would a surplus occur?

Correct AnswerverifiedShow Answer

The difference between market demand and aggregate demand is that:

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Controversies between Keynesian,monetarist,supply-side,and eclectic theories focus on:

Correct AnswerverifiedShow Answer

For macro equilibrium to occur,aggregate demand must equal aggregate supply at a fairly low price level.

Correct AnswerverifiedShow Answer

According to Keynesian theory,the correct fiscal policy action to stimulate the economy would be to:

Correct AnswerverifiedShow Answer

The aggregate demand curve is downward sloping because,ceteris paribus:

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Ceteris paribus,based on the real balances effect,if the price level falls:

Correct AnswerverifiedShow Answer

Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should:

Correct AnswerverifiedShow Answer

Ceteris paribus,a rightward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to _______.

Correct AnswerverifiedShow Answer

According to Keynes:

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If,at the prevailing price level,the aggregate quantity supplied exceeds the aggregate quantity demanded,the price level will tend to fall.

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Ceteris paribus,a rightward shift of the aggregate supply curve will cause the equilibrium price level to _ and equilibrium real output to _.

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