Question 1

In the standard supply demand model,a fall in price brings a market with a shortage of quantity demanded into equilibrium by increasing the quantity demanded and decreasing the quantity supplied.Why doesn't that work in the aggregate?

Accepted Answer

There are a number of reasons why.First,...

Question 2

Explain why the aggregate demand curve is downward sloping.(As the price level falls,the quantity of real output demanded increases. ).List five factors that might cause the AD curve to shift outward.

Accepted Answer

Three reasons why the aggregate quantity...

Question 3

The multiplier effect exists because:

Accepted Answer

A)  production and expenditures are interdependent.
B)  when one person increases expenditures, everyone decreases expenditures.
C)  production and expenditures are independent.
D)  production lowers expenditures.E) A) and D)
F) None of the above

Question 4

As a response to the 2008 recession, the U.S. government employed expansionary policy, and the economy returned to its level of potential output.

Accepted Answer

A) True 
 B)False

Question 5

According to the Keynesian model,

Accepted Answer

A)  wages are flexible because workers wouldn't otherwise be able to keep their jobs.
B)  the price level is somewhat fixed due to social forces, which keeps an economy from remaining at an equilibrium level of unemployment.
C)  prices are subject to significant fluctuations as demand and supply change.
D)  the government puts price controls on the economy, keeping the price level fixed.E) B) and C)
F) A) and B)

Question 6

Which of the following would shift the aggregate demand curve to the left?

Accepted Answer

A)  An increase in foreign income
B)  A depreciation in the value of the country's currency
C)  A higher future expected price level
D)  A decrease in exportsE) C) and D)
F) None of the above

Question 7

A recessionary gap exists when:

Accepted Answer

A)  aggregate demand exceeds output.
B)  actual output exceeds potential output.
C)  output exceeds aggregate demand.
D)  potential output exceeds actual output.E) A) and C)
F) None of the above

Question 8

If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:

Accepted Answer

A)  shift left by more than 20.
B)  shift left by less than 20.
C)  shift left by exactly 20.
D)  not shift at all.E) B) and C)
F) A) and B)

Question 9

An increase in aggregate demand in the long run, will change:

Accepted Answer

A)  output but not price level.
B)  the price level but not output.
C)  both output and the price level.
D)  neither output nor the price level.E) All of the above
F) A) and B)

Question 10

Refer to the graph shown. A decrease in aggregate demand in the short run is likely to cause a movement from:

Accepted Answer

A)  C to D.
B)  B to D.
C)  B to A.
D)  C to A.E) A) and B)
F) A) and C)

Question 11

If workers begin to expect more inflation in the future, then we would expect that the:

Accepted Answer

A)  short-run aggregate supply curve will shift up (to the left) .
B)  short-run aggregate supply curve will shift down (to the right) .
C)  short-run aggregate supply curve will not shift.
D)  aggregate demand curve will shift left.E) B) and D)
F) A) and D)

Question 12

Refer to the following graphs.  Which of the graphs correctly labels the axes of the AS/AD model?

Accepted Answer

A)  A
B)  B
C)  C
D)  DE) C) and D)
F) A) and B)

Question 13

At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in:

Accepted Answer

A)  a short-run equilibrium but not necessarily a long-run equilibrium.
B)  a long-run equilibrium but not necessarily a short-run equilibrium.
C)  both a short-run and a long-run equilibrium.
D)  neither a short-run nor a long-run equilibrium.E) None of the above
F) B) and C)

Question 14

What are the effects of an increase in aggregate demand (AD)in the short run and the long run? What is the effect of an increase in the short run aggregate supply (SAS)? What is the effect of an increase in Long run Aggregate Supply (LAS)?

Accepted Answer

The short run effect of an increase in A...

Question 15

Fiscal policy is:

Accepted Answer

A)  easy to enact and quick to affect the economy.
B)  easy to enact but slow to affect the economy.
C)  difficult to enact but quick to affect the economy.
D)  difficult to enact and slow to affect the economy.E) A) and B)
F) A) and C)

Question 16

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 5 percent when the price rises by 10 percent and the multiplier is 3, then the slope of the aggregate demand curve is:

Accepted Answer

A)  −1/2.
B)  −2/3.
C)  −2.
D)  −3.E) A) and D)
F) A) and C)

Question 17

What of the following would be the best example of a posted-price market?

Accepted Answer

A)  Auctions on eBay.com
B)  Computers at Apple.com
C)  Stock prices at Schwab.com
D)  Grain on the Mercantile ExchangeE) All of the above
F) None of the above

Question 18

Suppose output exceeds potential output and contractionary fiscal policy is enacted. According to the AS/AD model, in the long run, this fiscal policy will produce:

Accepted Answer

A)  a lower output level and a lower price level than would have occurred if no action were taken.
B)  a lower price level than would otherwise have occurred if no action were taken.
C)  a lower output level than would otherwise have occurred if no action were taken.
D)  neither a lower price level nor a lower output level than would otherwise have occurred if no action were taken.E) A) and D)
F) B) and C)

Question 19

Refer to the graph shown. In the graph, if the price level is P0 and the aggregate demand curve is AD0, then the economy is in: 0 and the aggregate demand curve is AD0, then the economy is in:   A) a recessionary gap. B) an inflationary gap. C) a long-run equilibrium. D) a short-run equilibrium but not a long-run equilibrium." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  a recessionary gap.
B)  an inflationary gap.
C)  a long-run equilibrium.
D)  a short-run equilibrium but not a long-run equilibrium.E) None of the above
F) A) and C)

Question 20

According to the short-run aggregate supply curve, firms are most likely to respond to an increase in aggregate demand by raising:

Accepted Answer

A)  prices.
B)  production.
C)  both production and prices.
D)  neither production nor prices.E) A) and C)
F) None of the above

Exam 26: The Keynesian Short-Run Policy Model: Demand-Side Policies

What are the effects of an increase in aggregate demand (AD)in the short run and the long run? What is the effect of an increase in the short run aggregate supply (SAS)? What is the effect of an increase in Long run Aggregate Supply (LAS)?

Correct AnswerverifiedThe short run effect of an increase in A...View AnswerShow Answer

In the standard supply demand model,a fall in price brings a market with a shortage of quantity demanded into equilibrium by increasing the quantity demanded and decreasing the quantity supplied.Why doesn't that work in the aggregate?

Correct AnswerverifiedThere are a number of reasons why.First,...View AnswerShow Answer

Fiscal policy is:

Correct AnswerverifiedShow Answer

If workers begin to expect more inflation in the future, then we would expect that the:

Correct AnswerverifiedShow Answer

An increase in aggregate demand in the long run, will change:

Correct AnswerverifiedShow Answer

What of the following would be the best example of a posted-price market?

Correct AnswerverifiedShow Answer

Explain why the aggregate demand curve is downward sloping.(As the price level falls,the quantity of real output demanded increases. ).List five factors that might cause the AD curve to shift outward.

Correct AnswerverifiedThree reasons why the aggregate quantity...View AnswerShow Answer

As a response to the 2008 recession, the U.S. government employed expansionary policy, and the economy returned to its level of potential output.

Correct AnswerverifiedShow Answer

According to the short-run aggregate supply curve, firms are most likely to respond to an increase in aggregate demand by raising:

Correct AnswerverifiedShow Answer

The multiplier effect exists because:

Correct AnswerverifiedShow Answer

Refer to the graph shown. A decrease in aggregate demand in the short run is likely to cause a movement from:

Correct AnswerverifiedShow Answer

At the intersection of the short-run aggregate supply curve and the aggregate demand curve, the economy is in:

Correct AnswerverifiedShow Answer

Refer to the graph shown. In the graph, if the price level is P0 and the aggregate demand curve is AD0, then the economy is in:

Correct AnswerverifiedShow Answer

Suppose output exceeds potential output and contractionary fiscal policy is enacted. According to the AS/AD model, in the long run, this fiscal policy will produce:

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A recessionary gap exists when:

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According to the Keynesian model,

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Refer to the following graphs. Which of the graphs correctly labels the axes of the AS/AD model?

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If a fall in foreign income decreases domestic aggregate expenditures by 20, the AD curve will:

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Which of the following would shift the aggregate demand curve to the left?

Correct AnswerverifiedShow Answer

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 5 percent when the price rises by 10 percent and the multiplier is 3, then the slope of the aggregate demand curve is:

Correct AnswerverifiedShow Answer

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The short run effect of an increase in A...
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There are a number of reasons why.First,...
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Three reasons why the aggregate quantity...
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Refer to the graph shown. In the graph, if the price level is P₀ and the aggregate demand curve is AD_0,then the economy is in:

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