ECN Chapter 10, ch 11 econ quiz, ch 10 econ quiz, Macroeconomics Quiz

The relationship between the quantity of goods and services supplied and the price level is called: A) aggregate demand. B) aggregate supply. C) aggregate investment. D) aggregate production.

B) aggregate supply

In the aggregate demand/aggregate supply model, long-run equilibrium occurs at the combination of output and prices where:

aggregate demand equals short-run and long-run aggregate supply.

Stabilization policy:

aims at keeping output and employment at their natural rates.

A favorable supply shock occurs when:

an oil cartel breaks up and oil prices fall.

When the Federal Reserve reduces the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.

lower; inward

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______.

negative; price level

Looking at the aggregate demand curve alone, one can tell ______ that will prevail in the economy.

neither the quantity of output nor the price level

If the short-run aggregate supply curve is horizontal, then a change in the money supply will change ______ in the short run and change ______ in the long run.

only output; only prices

If the short-run aggregate supply curve is horizontal, and if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

output and employment will decrease in the short run.

If the short-run aggregate supply curve is horizontal and the Fed increases the money supply, then:

output and employment will increase in the short run.

Assume that the economy begins in long-run equilibrium. Then the Fed reduces the money supply. In the short run ______, whereas in the long run, prices ______ and output returns to its original level.

output decreases and prices are unchanged; fall

An adverse supply shock ______ the short-run aggregate supply curve ______ the natural level of output.

raises; and may also lower

Stagflation occurs when prices ______ and output ______.

rise; falls

The "short run," represented by the recession that followed the decision to retire "greenbacks" after the Civil War, lasted approximately:

six years.

A decline in the Index of Supplier Deliveries is typically an indicator of a future ______ in economic production, and a narrowing of the interest rate spread between the 10-year Treasury note and 3-month Treasury bill is typically an indicator of a future ______ in economic production.

slowdown; slowdown

When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift: A) downward and to the left. B) downward and to the right. C) upward and to the left. D) upward and to the right.

A) downward and to the let

In the Keynesian-cross model, actual expenditures equal: A) GDP. B) the money supply. C) the supply of real balances. D) unplanned inventory investment.

A) GDP

The simple investment function shows that investment ______ as ______ increases. A) decreases; the interest rate B) increases; the interest rate C) decreases; government spending D) increases; government spending

A) decreases; the interest rate

The IS-LM model is generally used: A) only in the short run. B) only in the long run. C) both in the short run and the long run. D) in determining the price level.

A) only in the short run

An increase in income raises money ______ and ______ the equilibrium interest rate. A) demand; raises B) demand; lowers C) supply; raises D) supply; lowers

A) demand; raises

An increase in taxes shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis: A) downward and to the left. B) upward and to the right. C) upward and to the left. D) downward and to the right.

A) downward and to the left

Monetary neutrality, the irrelevance of the money supply in determining values of _____ variables, is generally thought to be a property of the economy in the long run. A) real B) nominal C) real and nominal D) neither real nor nominal

A) real

An increase in the interest rate: A) reduces planned investment, because the interest rate is the cost of borrowing to finance investment projects. B) increases planned investment, because people who make money from interest have more money to invest. C) has no effect on investment. D) may be caused by a drop in investment demand.

A) reduces planned investment because the interest rate is the cost of borrowing to finance investment projects

The IS curve shifts when any of the following economic variables change except: A) the interest rate. B) government spending. C) tax rates. D) the marginal propensity to consume.

A) the interest rate

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will: A) drop by 4 percent. B) drop by 2 percent. C) drop by 1 percent. D) remain unchanged.

B) drop by 2 percent

The short run refers to a period: A) of several days. B) during which prices are sticky and unemployment may occur. C) during which capital and labor are fully employed. D) during which there are no fluctuations.

B) during which prices are sticky and unemployment may occur

When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______. A) greater; inward B) greater; outward C) lower; inward D) lower; outward

B) greater; outward

Most economists believe that the classical dichotomy: A) holds approximately in both the short run and the long run. B) holds approximately in the long run but not at all in the short run. C) holds approximately in the short run but not at all in the long run. D) does not hold even approximately in either the long run or the short run.

B) holds approximately in the long run but not at all in the short run

In the Keynesian-cross model, if government purchases increase by 250, then the equilibrium level of income: A) increases by 250. B) increases by more than 250. C) decreases by 250. D) increases, but by less than 250.

B) increase by more than 250

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income: A) increases by 250. B) increases by more than 250. C) decreases by 250. D) increases, but by less than 250.

B) increases by more than 250

In the liquidity preference model, what adjusts to move the money market to equilibrium following a change in the money supply? A) planned spending B) the interest rate C) production D) the price level

B) the interest rate

When the LM curve is drawn, the quantity that is held fixed is: A) the nominal money supply. B) the real money supply. C) government spending. D) the tax rate.

B) the real money supply

A decrease in the real money supply, other things being equal, will shift the LM curve: A) downward and to the left. B) upward and to the left. C) downward and to the right. D) upward and to the right.

B) upward and to the left

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis: A) downward and to the left. B) upward and to the right. C) upward and to the left. D) downward and to the right.

B) upward and to the right

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. If the price level is fixed and the Fed wants to fix the interest rate at 7 percent, it should set the money supply at: A) 2,000. B) 1,800. C) 1,600. D) 1,400.

C) 1,600

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The equilibrium interest rate is ______ percent. A) 2 B) 4 C) 6 D) 8

C) 6

The long-run aggregate supply curve is vertical at the level of output:

at which unemployment is at its natural rate.

The economic response to the overnight reduction in the French money supply by 20 percent in 1724:

confirm the short-run neutrality of money because prices and wage did not adjust immediately.

Most economists believe that prices are:

flexible in the long run but many are sticky in the short run.

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P

higher; lower

If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in ______ prices and ______ output in the short run.

higher; lower

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P. A) higher; lower B) lower; higher C) higher; higher D) lower; lower

A) higher; lower

When planned expenditure is drawn on a graph as a function of income, the slope of the line is: A) zero. B) between zero and one. C) one. D) greater than one.

B) between zero and one

According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will: A) sell interest-earning assets in order to obtain non-interest-bearing money. B) purchase interest-earning assets in order to reduce holdings of non-interest-bearing money. C) purchase more goods and services. D) be content with their portfolios.

B) purchase interest-earning assets in order to reduce holdings of non-interest-bearing money

Long-run growth in real GDP is determined primarily by ______, while short-run movements in real GDP are associated with ______. A) variations in labor-market utilization; technological progress B) technological progress; variations in labor-market utilization C) money supply growth rates; changes in velocity D) changes in velocity; money supply growth rates

B) technological progress; variations in labor-market utilization

Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that: A) government spending increases the MPC more than tax cuts. B) the government-spending multiplier is larger than the tax multiplier. C) government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. D) increases in government spending increase planned spending, but tax cuts reduce planned spending.

B) the government-spending increases do not lead to unplanned changes in inventories, but tax cuts do

In the long run, the level of output is determined by the: A) interaction of supply and demand. B) money supply and the levels of government spending and taxation. C) amounts of capital and labor and the available technology. D) preferences of the public.

C) amounts of capital and labor and the available technology

The IS and LM curves together generally determine: A) income only. B) the interest rate only. C) both income and the interest rate. D) income, the interest rate, and the price level.

C) both income and the interest rate

Short-run fluctuations in output and employment are called: A) sectoral shifts. B) the classical dichotomy. C) business cycles. D) productivity slowdowns.

C) business cycles

Both Keynesians and supply-siders believe a tax cut will lead to growth: A) and both agree it works through incentive effects. B) but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand. C) but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects. D) and both agree it works through aggregate demand.

C) but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects

A difference between the economic long run and the short run is that: A) the classical dichotomy holds in the short run but not in the long run. B) monetary and fiscal policy affect output only in the long run. C) demand can affect output and employment in the short run, whereas supply is the ruling force in the long run. D) prices and wages are sticky in the long run only.

C) demand can affect output and employment in the short run, whereas supply is the ruling force in the long run

The IS curve provides combinations of interest rates and income that satisfy equilibrium in the market for ______, and the LM curve provides combinations of interest rates and income that satisfy equilibrium in the market for ______. A) saving and investment; planned spending B) real-money balances; loanable funds C) goods and services; real money balances D) real-money balances; goods and services

C) goods and services; real money balances

The tax multiplier indicates how much ______ change(s) in response to a $1 change in taxes. A) the budget deficit B) consumption C) income D) real balances

C) income

An LM curve shows combinations of: A) taxes and government spending. B) nominal money balances and price levels. C) interest rates and income, which bring equilibrium in the market for real money balances. D) interest rates and income, which bring equilibrium in the market for goods and services.

C) interest rates and income, which bring equilibrium in the market for real money balances

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______. A) output; output B) prices; prices C) prices; output D) output; prices

C) prices; output

The LM curve shows combinations of ______ that are consistent with equilibrium in the market for real money balances. A) inflation and unemployment B) the price level and real output C) the interest rate and the level of income D) the interest rate and real money balances

C) the interest rate and the level of income

The natural level of output is: A) affected by aggregate demand. B) the level of output at which the unemployment rate is zero. C) the level of output at which the unemployment rate is at its natural level. D) permanent and unchangeable.

C) the level of output at which the unemployment rate is at its natural level

Tax cuts stimulate ______ by improving workers' incentive and expand ______ by raising households' disposable income. A) velocity; demand for loanable funds B) demand for loanable funds; velocity C) aggregate demand; aggregate supply D) aggregate supply; aggregate demand

D) aggregate supply; aggregate demand

In the IS-LM model, which two variables are influenced by the interest rate? A) supply of nominal money balances and demand for real balances B) demand for real money balances and government purchases C) supply of nominal money balances and investment spending D) demand for real money balances and investment spending

D) demand for real money balances and investment spending

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent: A) in both the short and long runs. B) in neither the short nor long run. C) in the short run but lead to unemployment in the long run. D) in the long run but lead to unemployment in the short run.

D) in the long run but lead to unemployment in the short run

In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures ______ for any given level of income. A) increase by 100 B) increase by more than 100 C) decrease by 100 D) increase, but by less than 100

D) increase, but by less than 100

An IS curve shows combinations of: A) taxes and government spending. B) nominal money balances and price levels. C) interest rates and income that bring equilibrium in the market for real balances. D) interest rates and income that bring equilibrium in the market for goods and services.

D) interest rates and income that bring equilibrium in the market for goods and services

Business cycles are: A) regular and predictable. B) irregular but predictable. C) regular but unpredictable. D) irregular and unpredictable.

D) irregular and unpredictable

According to the theory of liquidity preference, the supply of real money balances: A) decreases as the interest rate increases. B) increases as the interest rate increases. C) increases as income increases. D) is fixed.

D) is fixed

When a long-term aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve: A) slopes upward and to the right. B) slopes downward and to the right. C) is horizontal. D) is vertical.

D) is vertical

John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on: A) low levels of capital. B) an untrained labor force. C) inadequate technology. D) low aggregate demand.

D) low aggregate demand

The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______. A) positive; money supply B) negative; money supply C) positive; price level D) negative; price level

D) negative; price level

For the purposes of the Keynesian cross, planned expenditure consists of: A) planned investment. B) planned government spending. C) planned investment and government spending. D) planned investment, government spending, and consumption expenditures.

D) planned investment, government spending, and consumption expenditures

Aggregate supply is the relationship between the quantity of goods and services supplied and the: A) money supply. B) unemployment rate. C) interest rate. D) price level.

D) price level

Along an aggregate demand curve, which of the following are held constant? A) real output and prices B) nominal output and velocity C) the money supply and real output D) the money supply and velocity

D) the money supply and velocity

If a short-run equilibrium occurs at a level of output below the natural rate, then in the transition to the long run, prices will ______ and output will ______.

decrease; increase

The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant:

demand for real balances per unit of output.

The dilemma facing the Federal Reserve in the event that an unfavorable supply shock moves the economy away from the natural rate of output is that monetary policy can either return output to the natural rate, but with a ______ price level, or allow the price level to return to its original level, but with a ______ level of output in the short run.

higher; lower

A 5 percent reduction in the money supply will, according to most economists, reduce prices 5 percent:

in the long run but lead to unemployment in the short run.

Monetary neutrality is a characteristic of the aggregate demand-aggregate supply model in:

in the long run, but not in the short run.

The version of Okun's law studied in Chapter 9 assumes that, with no change in unemployment, real GDP normally grows by 3 percent over a year. If the unemployment rate fell by 1 percentage point over a year, Okun's law predicts that real GDP would:

increase by 5 percent.

Over the business cycle, investment spending ______ consumption spending.

is more volatile than

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect:

level of output but not prices.

Long-run growth in real GDP is determined primarily by ______, while short-run movements in real GDP are associated with ______.

technological progress; variations in labor-market utilization

The natural level of output is:

the level of output at which the unemployment rate is at its natural level.

Leading economic indicators are:

variables that tend to fluctuate in advance of the overall economy.

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures ______ for any given level of income. A) increase by 100 B) increase by more than 100 C) decrease by 100 D) increase, but by less than 100

A) increase by 100

According to the theory of liquidity preference, the supply of nominal money balances: A) is chosen by the central bank. B) depends on the interest rate. C) varies with the price level. D) changes as the level of income changes.

A) is chosen by the central bank

In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier. A) is larger than B) equals C) is smaller than D) is the inverse of the

A) is larger than

The IS curve plots the relationship between the interest rate and ______ that arises in the market for ______. A) national income; goods and services B) the price level; goods and services C) national income; money D) the price level; money

A) national income; goods and services

Okun's law is the ______ relationship between real GDP and the ______. A) negative; unemployment rate B) negative; inflation rate C) positive; unemployment rate D) positive; inflation rate

A) negative; unemployment rate

According to the theory of liquidity preference, if the demand for real money balances exceeds the supply of real money balances, individuals will: A) sell interest-earning assets in order to obtain non-interest-bearing money. B) purchase interest-earning assets in order to reduce holdings of non-interest-bearing money. C) purchase fewer goods and services. D) be content with their portfolios.

A) sell interest-earning assets in order to obtain non-interest-bearing money

According to classical theory, national income depends on ______, while Keynes proposed that ______ determined the level of national income. A) aggregate demand; aggregate supply B) aggregate supply; aggregate demand C) monetary policy; fiscal policy D) fiscal policy; monetary policy

B) aggregate supply; aggregate demand

In the Keynesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy: A) increases the amount of money in the economy. B) changes income, which changes consumption, which further changes income. C) is government spending and, therefore, more powerful than private spending. D) changes the interest rate.

B) changes income, which changes consumption, which further changes income

Over the business cycle, investment spending ______ consumption spending. A) is inversely correlated with B) is more volatile than C) has about the same volatility as D) is less volatile than

B) is more volatile than

When firms experience unplanned inventory accumulation, they typically: A) build new plants. B) lay off workers and reduce production. C) hire more workers and increase production. D) call for more government spending.

B) lay off workers and reduce production

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of: A) liquidity preference. B) the government-purchases multiplier. C) unplanned inventory investment. D) real money balances.

C) unplanned inventory invesment

Leading economic indicators are: A) the most popular economic statistics. B) data that are used to construct the consumer price index and the unemployment rate. C) variables that tend to fluctuate in advance of the overall economy. D) standardized statistics compiled by the National Bureau of Economic Research.

C) variables that tend to fluctuate in advance of the overall economy

Equilibrium levels of income and interest rates are ______ related in the goods and services market, and equilibrium levels of income and interest rates are ______ related in the market for real money balances. A) positively; positively B) positively; negatively C) negatively; negatively D) negatively; positively

D) negatively; positively

The IS-LM model simultaneously determines equilibrium in two markets. a. Which two markets? b. What two variables adjust to bring equilibrium in the markets?

a. the IS-LM model simultaneously determines equilibrium in the goods market and the money market b. the interest rate and the real output are the two variables that adjust to bring equilibrium in both markets