Question 1

In early 2000s, oil prices were rising because of concern about the Iraqi and other situations, along with rapid growth in demand in the Far East.Prices eventually reached over $100 a barrel.How would most economists predict these high prices should affect the U.S.economy in terms of the AD/AS model?

Accepted Answer

A)  They would have no effect because oil prices are a microeconomic phenomenon.
B)  They do not change anything, but are evidence of a shift in the aggregated demand curve to the right.
C)  Because oil is an important input in many production processes, the higher prices should shift the short-run aggregate supply curve up (to the left) .
D)  Because oil is an important input in many production processes, the higher prices should shift the short-run aggregate supply curve down (to the right) .E) None of the above
F) B) and D)

Question 2

If a country is experiencing high inflation, other things equal, the expectations of worsening inflation in the future would probably:

Accepted Answer

A)  shift the AD curve to the left.
B)  shift the AD curve to the right.
C)  make the AD curve flatter.
D)  make the AD curve steeper.E) B) and C)
F) A) and C)

Question 3

In 1979, the Federal Reserve decided to tighten monetary policy in order to reduce inflation, which had risen to double-digit levels.The AD/AS model framework suggests that the short-run effect of this policy was to reduce:

Accepted Answer

A)  output primarily with little change in inflation.
B)  inflation primarily with little change in output.
C)  both inflation and output.
D)  neither inflation nor output.E) B) and C)
F) C) and D)

Question 4

The rapid development of Internet technologies during the 1990s allowed businesses to produce goods and services more cheaply than before and also gave rise to completely new services.We would show this change in the AD/AS model by moving the short-run aggregate:

Accepted Answer

A)  demand curve right with little change in short-run aggregate supply.
B)  demand curve left with little change in short-run aggregate supply.
C)  supply curve down (to the right)  with little change in aggregate demand.
D)  supply curve up with little change in aggregate demand.E) B) and C)
F) A) and D)

Question 5

In 1968, the government instituted a 26 percent income tax surcharge.In terms of the AS/AD model, this change should have:

Accepted Answer

A)  shifted the AD curve to the left.
B)  shifted the AD curve to the right.
C)  made the AD curve flatter.
D)  made the AD curve steeper.E) B) and C)
F) A) and D)

Question 6

If the dollar were to depreciate against major foreign currency, the dollar's depreciation should result in:

Accepted Answer

A)  an increase in U.S.exports and an outward shift of the U.S.aggregate demand curve.
B)  an increase in U.S.exports and an inward shift of the U.S.aggregate demand curve.
C)  a decrease in U.S.exports and an outward shift of the U.S.aggregate demand curve.
D)  a decrease in U.S.exports and an inward shift of the U.S.aggregate demand curve.E) B) and C)
F) C) and D)

Question 7

The shapes of the curves in the AS/AD model are based upon the:

Accepted Answer

A)  principle of substitution.
B)  principle of opportunity cost.
C)  relationship between a single good and its price.
D)  relationship between the price level and total output.E) C) and D)
F) B) and C)

Question 8

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 3 percent when the price rises by 6 percent and the multiplier is 2, then the slope of the aggregate demand curve is:

Accepted Answer

A)  -1/2.
B)  -1.
C)  -2.
D)  -3.E) A) and B)
F) None of the above

Question 9

An example of countercyclical fiscal policy is:

Accepted Answer

A)  raising government spending when the economy is above potential.
B)  raising government spending when the economy is at potential.
C)  reducing government spending when the economy is above potential.
D)  reducing government spending when the economy is below potential.E) A) and B)
F) None of the above

Question 10

If the U.S.government increases its expenditures (without any changes in taxes)  while the Federal Reserve Bank decreases the money supply:

Accepted Answer

A)  the AD curve would likely shift to the left.
B)  the AD curve would likely shift to the right.
C)  the AD curve would likely remain unchanged.
D)  what happens to the AD curve is unclear.E) A) and D)
F) A) and C)

Question 11

Some economists believe that the good times of the early 2000s were not sustainable due to:

Accepted Answer

A)  higher inflation rates.
B)  higher rates of crime.
C)  higher deflation rates.
D)  an unsustainable financial bubble.E) A) and D)
F) All of the above

Question 12

A shift in the long run aggregate supply curve will change:

Accepted Answer

A)  output but not the price level.
B)  the price level but not output.
C)  both output and the price level.
D)  neither output nor the price level.E) None of the above
F) B) and C)

Question 13

The paradox of thrift will not arise if:

Accepted Answer

A)  increases in saving are translated into identical increases in investment.
B)  increases in saving are translated into identical decreases in consumption.
C)  decreases in saving are translated into identical increases in investment.
D)  decreases in saving are translated into identical decreases in consumption.E) None of the above
F) A) and C)

Question 14

The short-run aggregate supply is most likely to shift down (to the right)  when actual output is:

Accepted Answer

A)  equal to potential output.
B)  less than potential output
C)  greater than potential output.
D)  not equal to potential output, regardless of whether it is above or below.E) All of the above
F) B) and C)

Question 15

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) A) and B)
F) A) and C)

Question 16

The short-run aggregate supply curve is most likely to shift down (to the right)  if:

Accepted Answer

A)  productivity falls.
B)  wages rise.
C)  sales taxes increase.
D)  input prices fall.E) B) and C)
F) A) and B)

Question 17

Keynes believed the economy was:

Accepted Answer

A)  fluctuating around potential income.
B)  always at potential income.
C)  always moving away from potential income.
D)  always moving toward potential income.E) All of the above
F) A) and B)

Question 18

If potential output exceeds actual output, eventually:

Accepted Answer

A)  input prices will rise and output will fall.
B)  both input prices and output will rise.
C)  input prices will fall and output will rise.
D)  both input prices and output will fall.E) None of the above
F) All of the above

Question 19

Keynes believed equilibrium income was:

Accepted Answer

A)  not fixed at the economy's potential income.
B)  fixed at the economy's potential income.
C)  always below the economy's potential income.
D)  always above the economy's potential income.E) A) and B)
F) A) and C)

Question 20

A fiscal policy in which the government attempts to offset any change in aggregate expenditures that would create a business cycle is called a:

Accepted Answer

A)  supply-side policy.
B)  regulatory policy.
C)  countercyclical fiscal policy.
D)  laissez-faire policy.E) A) and B)
F) A) and C)

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

The rapid development of Internet technologies during the 1990s allowed businesses to produce goods and services more cheaply than before and also gave rise to completely new services.We would show this change in the AD/AS model by moving the short-run aggregate:

Correct Answer
verified

The shapes of the curves in the AS/AD model are based upon the:

Correct Answer
verified

If a country is experiencing high inflation, other things equal, the expectations of worsening inflation in the future would probably:

Correct Answer
verified

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

Correct Answer
verified

The short-run aggregate supply curve is most likely to shift down (to the right) if:

Correct Answer
verified

Keynes believed equilibrium income was:

Correct Answer
verified

If the U.S.government increases its expenditures (without any changes in taxes) while the Federal Reserve Bank decreases the money supply:

Correct Answer
verified

In 1968, the government instituted a 26 percent income tax surcharge.In terms of the AS/AD model, this change should have:

Correct Answer
verified

In 1979, the Federal Reserve decided to tighten monetary policy in order to reduce inflation, which had risen to double-digit levels.The AD/AS model framework suggests that the short-run effect of this policy was to reduce:

Correct Answer
verified

Keynes believed the economy was:

Correct Answer
verified

If potential output exceeds actual output, eventually:

Correct Answer
verified

A shift in the long run aggregate supply curve will change:

Correct Answer
verified

A fiscal policy in which the government attempts to offset any change in aggregate expenditures that would create a business cycle is called a:

Correct Answer
verified

Correct Answer
verified

An example of countercyclical fiscal policy is:

Correct Answer
verified

Some economists believe that the good times of the early 2000s were not sustainable due to:

Correct Answer
verified

The short-run aggregate supply is most likely to shift down (to the right) when actual output is:

Correct Answer
verified

If the dollar were to depreciate against major foreign currency, the dollar's depreciation should result in:

Correct Answer
verified

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 3 percent when the price rises by 6 percent and the multiplier is 2, then the slope of the aggregate demand curve is:

Correct Answer
verified

The paradox of thrift will not arise if:

Correct Answer
verified

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

The rapid development of Internet technologies during the 1990s allowed businesses to produce goods and services more cheaply than before and also gave rise to completely new services.We would show this change in the AD/AS model by moving the short-run aggregate:

Correct AnswerverifiedShow Answer

The shapes of the curves in the AS/AD model are based upon the:

Correct AnswerverifiedShow Answer

If a country is experiencing high inflation, other things equal, the expectations of worsening inflation in the future would probably:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The short-run aggregate supply curve is most likely to shift down (to the right) if:

Correct AnswerverifiedShow Answer

Keynes believed equilibrium income was:

Correct AnswerverifiedShow Answer

If the U.S.government increases its expenditures (without any changes in taxes) while the Federal Reserve Bank decreases the money supply:

Correct AnswerverifiedShow Answer

In 1968, the government instituted a 26 percent income tax surcharge.In terms of the AS/AD model, this change should have:

Correct AnswerverifiedShow Answer

In 1979, the Federal Reserve decided to tighten monetary policy in order to reduce inflation, which had risen to double-digit levels.The AD/AS model framework suggests that the short-run effect of this policy was to reduce:

Correct AnswerverifiedShow Answer

Keynes believed the economy was:

Correct AnswerverifiedShow Answer

If potential output exceeds actual output, eventually:

Correct AnswerverifiedShow Answer

A shift in the long run aggregate supply curve will change:

Correct AnswerverifiedShow Answer

A fiscal policy in which the government attempts to offset any change in aggregate expenditures that would create a business cycle is called a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An example of countercyclical fiscal policy is:

Correct AnswerverifiedShow Answer

Some economists believe that the good times of the early 2000s were not sustainable due to:

Correct AnswerverifiedShow Answer

The short-run aggregate supply is most likely to shift down (to the right) when actual output is:

Correct AnswerverifiedShow Answer

If the dollar were to depreciate against major foreign currency, the dollar's depreciation should result in:

Correct AnswerverifiedShow Answer

If the money wealth, interest rate, and international effects reduce the quantity of aggregate demand by 3 percent when the price rises by 6 percent and the multiplier is 2, then the slope of the aggregate demand curve is:

Correct AnswerverifiedShow Answer

The paradox of thrift will not arise if:

Correct AnswerverifiedShow Answer

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