Question 1

To combat inflation in 1955 and 1956, the Fed reduced the money supply. 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) A) and D)
F) All of the above

Question 2

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) None of the above
F) A) and C)

Question 3

According to Keynes there is a difference between equilibrium income and potential income.Explain this difference.

Accepted Answer

The key idea of Keynes was that in the s...

Question 4

What are the three ways that falling asset prices can affect aggregate demand?

Accepted Answer

A fall in asset prices can decrease expe...

Question 5

The paradox of thrift occurs when:

Accepted Answer

A)  an increase in saving raises output.
B)  an increase in saving reduces output.
C)  saving is unrelated to output.
D)  a decrease in saving reduces output.E) B) and C)
F) A) and D)

Question 6

Explain what will happen to the SAS curve if productivity increases.

Accepted Answer

An increase in productivity wi...

Question 7

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) A) and B)
F) All of the above

Question 8

In the summer of 1953, the Korean War ended and government expenditures decreased. 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) A) and D)
F) A) and C)

Question 9

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

Accepted Answer

A)  An increase in foreign income
B)  An appreciation of the value of a country's currency
C)  A lower future expected price level
D)  An increase in importsE) A) and D)
F) C) and D)

Question 10

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

Question 11

The target rate of unemployment is:

Accepted Answer

A)  difficult to determine.
B)  always equal to the actual unemployment rate.
C)  changing but easy to estimate.
D)  constant.E) B) and C)
F) None of the above

Question 12

According to Keynes, market economies:

Accepted Answer

A)  never experience significant declines in aggregate demand.
B)  quickly recover after they experience a significant decline in aggregate demand.
C)  may recover slowly after they experience a significant decline in aggregate demand.
D)  are constantly experiencing a significant declines in aggregate demand.E) B) and C)
F) B) and D)

Question 13

If productivity and wages both rise by 3 percent, then the aggregate supply curve shifts up.

Accepted Answer

A) True 
 B)False

Question 14

A rise in the U.S. price level will cause:

Accepted Answer

A)  both exports and imports to increase.
B)  both exports and imports to decrease.
C)  exports to increase and imports to decrease.
D)  exports to decrease and imports to increase.E) C) and D)
F) None of the above

Question 15

Describe two ways in which the macro AS/AD model differs from the micro supply and demand model.

Accepted Answer

The first difference deals with what is ...

Question 16

Imagine you are the chief economist on the President's Council of Economic Advisers.The President has asked you to develop a policy that she can announce during her upcoming State of the Union Address.Your staff knows the President has a fondness for the SAS-AD model.Unfortunately,you can't you give her solid policy prescriptions based on that model because you do not know the location of the LAS curve.Explain why that is a serious problem.

Accepted Answer

Unfortunately,on the basis of an AD-SAS ...

Question 17

Refer to the graph shown. In the graph, if the price level is P1 and the aggregate demand curve is AD0 then the economy is: 1 and the aggregate demand curve is AD0 then the economy is:   A) in a recessionary gap. B) in an inflationary gap. C) in a long-run equilibrium. D) fully employed." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)  in a recessionary gap.
B)  in an inflationary gap.
C)  in a long-run equilibrium.
D)  fully employed.E) A) and B)
F) A) and C)

Question 18

The interest rate effect helps to explain why:

Accepted Answer

A)  an increase in the price level reduces the quantity of aggregate demand.
B)  an increase in the price level raises investment.
C)  a decrease in the price level reduces the quantity of aggregate demand.
D)  a decrease in the price level reduces investment.E) All of the above
F) A) and B)

Question 19

A fall in a foreign country's income will most likely cause:

Accepted Answer

A)  a reduction in U.S. exports, so the U.S. aggregate demand curve shifts left.
B)  a reduction in U.S. exports, so the U.S. aggregate demand curve shifts right.
C)  an increase in U.S. exports, so the U.S. aggregate demand curve shifts left.
D)  an increase in U.S. exports, so the U.S. aggregate demand curve shifts right.E) C) and D)
F) B) and D)

Question 20

Refer to the graph shown. In 1930, the United States passed the Smoot-Hawley Tariff Act, which raised tariffs on imported goods at an average of 60 percent. Other countries retaliated with similar tariffs and world output declined. The effect of the decline in foreign output on the U.S. AD curve can be shown by a movement from:

Accepted Answer

A)  A to B.
B)  A to C.
C)  A to D.
D)  B to A.E) B) and C)
F) All of the above

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

If productivity and wages both rise by 3 percent, then the aggregate supply curve shifts up.

Correct Answer
verified

The target rate of unemployment is:

Correct Answer
verified

In the summer of 1953, the Korean War ended and government expenditures decreased. In terms of the AS/AD model, this change should have:

Correct Answer
verified

What are the three ways that falling asset prices can affect aggregate demand?

Correct Answer
verified
A fall in asset prices can decrease expe...
View Answer

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

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

A rise in the U.S. price level will cause:

Correct Answer
verified

Explain what will happen to the SAS curve if productivity increases.

Correct Answer
verified
An increase in productivity wi...
View Answer

A fall in a foreign country's income will most likely cause:

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Unfortunately,on the basis of an AD-SAS ...
View Answer

The interest rate effect helps to explain why:

Correct Answer
verified

The paradox of thrift will not arise if:

Correct Answer
verified

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

Correct Answer
verified

According to Keynes there is a difference between equilibrium income and potential income.Explain this difference.

Correct Answer
verified
The key idea of Keynes was that in the s...
View Answer

To combat inflation in 1955 and 1956, the Fed reduced the money supply. In terms of the AS/AD model, this change should have:

Correct Answer
verified

The paradox of thrift occurs when:

Correct Answer
verified

Refer to the graph shown. In the graph, if the price level is P₁ and the aggregate demand curve is AD₀then the economy is:

Correct Answer
verified

Describe two ways in which the macro AS/AD model differs from the micro supply and demand model.

Correct Answer
verified
The first difference deals with what is ...
View Answer

According to Keynes, market economies:

Correct Answer
verified

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

If productivity and wages both rise by 3 percent, then the aggregate supply curve shifts up.

Correct AnswerverifiedShow Answer

The target rate of unemployment is:

Correct AnswerverifiedShow Answer

In the summer of 1953, the Korean War ended and government expenditures decreased. In terms of the AS/AD model, this change should have:

Correct AnswerverifiedShow Answer

What are the three ways that falling asset prices can affect aggregate demand?

Correct AnswerverifiedA fall in asset prices can decrease expe...View AnswerShow Answer

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

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

A rise in the U.S. price level will cause:

Correct AnswerverifiedShow Answer

Explain what will happen to the SAS curve if productivity increases.

Correct AnswerverifiedAn increase in productivity wi...View AnswerShow Answer

A fall in a foreign country's income will most likely cause:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedUnfortunately,on the basis of an AD-SAS ...View AnswerShow Answer

The interest rate effect helps to explain why:

Correct AnswerverifiedShow Answer

The paradox of thrift will not arise if:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to Keynes there is a difference between equilibrium income and potential income.Explain this difference.

Correct AnswerverifiedThe key idea of Keynes was that in the s...View AnswerShow Answer

To combat inflation in 1955 and 1956, the Fed reduced the money supply. In terms of the AS/AD model, this change should have:

Correct AnswerverifiedShow Answer

The paradox of thrift occurs when:

Correct AnswerverifiedShow Answer

Refer to the graph shown. In the graph, if the price level is P1 and the aggregate demand curve is AD0 then the economy is:

Correct AnswerverifiedShow Answer

Describe two ways in which the macro AS/AD model differs from the micro supply and demand model.

Correct AnswerverifiedThe first difference deals with what is ...View AnswerShow Answer

According to Keynes, market economies:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A fall in asset prices can decrease expe...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An increase in productivity wi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Unfortunately,on the basis of an AD-SAS ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The key idea of Keynes was that in the s...
View Answer

Correct Answer
verified

Correct Answer
verified

Refer to the graph shown. In the graph, if the price level is P₁ and the aggregate demand curve is AD₀then the economy is:

Correct Answer
verified

Correct Answer
verified
The first difference deals with what is ...
View Answer

Correct Answer
verified