Chapter 11

The Keynesian​ short-run aggregate supply​ (SRAS) curve is A. horizontal. Your answer is correct. B. vertical. C. downward sloping. D. upward sloping.

A horizontal.

One possible result of a fall in aggregate demand coupled with a stable​ short-run aggregate supply is A. a recession. Your answer is correct. B. an economic expansion. C. an increase in employment levels. D. a rise in the stock market.

A. a recession.

In the short​ run, if aggregate demand shifts to the left while the position of the​ short-run aggregate supply curve does NOT​ change, then A. a recessionary gap occurs. Your answer is correct. B. the level of economic activity rises. C. there is no change in real GDP and the price level. D. an inflationary gap occurs.

A. a recessionary gap occurs.

Which of the following causes a rightward shift of the​ short-run aggregate supply​ (SRAS) curve? A. a reduction in the price of a raw material Your answer is correct. B. an increase in the wage rate C. an decrease in​ firms' production without more inputs D. an increase in the overall price level

A. a reduction in the price of a raw material

Involuntary unemployment A. exists when there is an excess quantity of labor supplied. Your answer is correct. B. will increase as the wage rate falls. C. exists when there is a shortage of labor. D. occurs when the wage rate is below the equilibrium wage rate.

A. exists when there is an excess quantity of labor supplied.

Higher unemployment tends to be associated with A. lower real GDP. Your answer is correct. B. higher nominal GDP. C. higher real GDP. D. the classical model.

A. lower real GDP.

If your income and the price level both​ double, and you think you now have more real​ income, you are suffering from A. money illusion. Your answer is correct. B. diminishing marginal expectations. C. injections. D. leakages.

A. money illusion.

Holding the level of prices fixed implies that a given decrease in aggregate demand A. will have a larger effect on real GDP than would be the case if prices were more flexible. Your answer is correct. B. has a smaller effect on nominal GDP than when prices are more flexible. C. has the same effect on real GDP as when prices are more flexible. D. will have a smaller effect on real GDP than would be the case if prices were more flexible.

A. will have a larger effect on real GDP than would be the case if prices were more flexible.

Inflation caused by continually decreasing​ short-run aggregate supply is A. ​cost-push inflation. This is the correct answer. B. ​demand-push inflation. C. ​cost-pull inflation. D. ​demand-pull inflation.

A. ​cost-push inflation.

Which of the following is NOT an assumption of the classical​ system? A. There is no money illusion. B. Wages and prices are inflexible. Your answer is correct. C. Pure competition exists. D. People are motivated by self interest.

B. Wages and prices are inflexible.

Which of the following will NOT shift the​ short-run aggregate supply​ (SRAS) curve? A. a reduction in energy prices B. a change in the consumer spending Your answer is correct. C. technological progress D. a change in the wage rate

B. a change in the consumer spending

All items below will decrease short−run aggregate supply EXCEPT A. a decrease in labor supply. B. a decrease in the marginal tax rates. This is the correct answer. C. an increase in the prices of inputs. D. a decrease in training and education.

B. a decrease in the marginal tax rates.

In the short​ run, if aggregate demand shifts to the left while the position of the​ short-run aggregate supply curve does NOT​ change, then A. the level of economic activity rises. B. a recessionary gap occurs. Your answer is correct. C. an inflationary gap occurs. D. there is no change in real GDP and the price level.

B. a recessionary gap occurs.

In the classical​ model, an increase in aggregate demand will cause A. a decrease in actual​ output, or Gross Domestic Product​ (GDP). B. an increase in price level. Your answer is correct. C. a decrease in price level. D. an increase in actual​ output, or Gross Domestic Product​ (GDP).

B. an increase in price level.

​Say's Law says that A. people produce the goods they want. Your answer is not correct. B. desired expenditures will equal actual expenditures. This is the correct answer. C. the seller is sovereign. D. the consumer is sovereign.

B. desired expenditures will equal actual expenditures.

Demand-pull inflation is A. inflation caused by reductions in​ short-run aggregate supply. B. inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply. Your answer is correct. C. inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply. D. inflation caused by reductions in​ long-run aggregate supply.

B. inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply.

Along a​ short-run aggregate supply​ curve, which of the following is​ (are) held​ constant? A. aggregate demand. B. input prices. Your answer is correct. C. relative prices of goods and services D. real GDP.

B. input prices.

Along a​ short-run aggregate supply​ curve, which of the following is​ (are) held​ constant? A. relative prices of goods and services B. input prices. Your answer is correct. C. real GDP. D. aggregate demand.

B. input prices.

If your income and the price level both​ double, and you think you now have more real​ income, you are suffering from A. diminishing marginal expectations. B. money illusion. Your answer is correct. C. injections. D. leakages.

B. money illusion.

The equilibrating force in the credit market in the classical model is A. full employment. Your answer is not correct. B. the interest rate. This is the correct answer. C. the price level. D. fiscal policy.

B. the interest rate.

The equilibrating force in the credit market in the classical model is A. the price level. B. the interest rate. Your answer is correct. C. fiscal policy. D. full employment.

B. the interest rate.

In the classical​ model, A. full employment will never be reached. B. unemployment will never exist since workers will be willing to accept lower wages and will then be able to find work. Your answer is correct. C. unemployment will never exist because employers will be willing to pay the wage rate demanded by the workers. D. wages will go up but never go down.

B. unemployment will never exist since workers will be willing to accept lower wages and will then be able to find work.

Oil prices increased significantly in 2008. According to the Keynesian​ model, this increase in oil prices should have caused which of the following to​ occur? A. ​demand-pull inflation B. ​cost-push inflation Your answer is correct. C. ​cost-pull inflation D. ​demand-push inflation

B. ​cost-push inflation

​Q: How many economists does it take to change a light​ bulb? ​A: All. Because then you will generate​ employment, more​ consumption, moving the aggregate demand curve to the right. This joke represents the view of A. classical economists. B. economists who contend that money illusion never occurs. C. Keynesian economists. Your answer is correct. D. economists who conclude that wages and prices are very flexible.

C. Keynesian economists.

Which of the following is NOT a major assumption of the classical​ model? A. Prices are flexible. B. People are motivated by​ self-interest. C. People can be fooled by money illusion. Your answer is correct. D. Wages are flexible.

C. People can be fooled by money illusion.

Why is there NO persistent unemployment in the classical​ model? A. The interest rate adjusts to eliminate unemployment. B. The rate of economic growth is always high enough to allow those who want to work at current wages to find jobs. C. The wage level adjusts to eliminate unemployment. Your answer is correct. D. Unionization creates job security for workers.

C. The wage level adjusts to eliminate unemployment.

One possible result of a fall in aggregate demand coupled with a stable​ short-run aggregate supply is A. an economic expansion. B. an increase in employment levels. C. a recession. Your answer is correct. D. a rise in the stock market.

C. a recession.

If there is a change in the U.S. endowment of factors of​ production, then there would be A. shifts in just SRAS. B. a shift in just LRAS. Your answer is not correct. C. a shift in both LRAS and SRAS. This is the correct answer. D. a movement along the SRAS curve.

C. a shift in both LRAS and SRAS.

​Say's Law says that A. the seller is sovereign. B. people produce the goods they want. Your answer is not correct. C. desired expenditures will equal actual expenditures. This is the correct answer. D. the consumer is sovereign.

C. desired expenditures will equal actual expenditures.

Suppose that the current price level is​ 110, real GDP is​ $100 billion, and​ long-run aggregate supply is​ $95 billion. We can conclude that A. the price level will fall and input prices will rise until real GDP pulls​ long-run aggregate supply up to​ $100 billion. B. aggregate demand will increase until both​ short-run and​ long-run aggregate supply equal​ $100 billion. C. input prices will rise until real GDP is​ $95 billion. Your answer is correct. D. the price level will fall until​ long-run aggregate supply shifts to​ $100 billion.

C. input prices will rise until real GDP is​ $95 billion.

Keynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product​ (GDP) to be​ "too low," then an appropriate policy action would be to A. reduce the money​ stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures. B. do​ nothing, because the economy is​ self-adjusting. C. raise government​ spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product​ (GDP) with little or no inflationary consequences. Your answer is correct. D. increase​ taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product​ (GDP) with little or no inflationary consequences.

C. raise government​ spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product​ (GDP) with little or no inflationary consequences.

In the classical​ model, an increase in the unemployment rate A. is a signal of​ demand-pull inflation. B. will result in an increase in the price level if the reduction in output is caused by a change in aggregate demand. C. will likely be temporary. Your answer is correct. D. will persist when the reduction in output is caused by a reduction in aggregate demand.

C. will likely be temporary.

Q: How many economists does it take to change a light​ bulb? ​A: All. Because then you will generate​ employment, more​ consumption, moving the aggregate demand curve to the right. This joke represents the view of A. economists who contend that money illusion never occurs. B. classical economists. C. economists who conclude that wages and prices are very flexible. D. Keynesian economists.

D. Keynesian economists.

If the U.S. dollar becomes weaker in international​ markets, the net effects will include A. an increase in​ short-run aggregate supply and a decrease in aggregate demand. B. an increase in both short run aggregate supply​ (SRAS) and aggregate demand. C. a decrease in both short run aggregate supply​ (SRAS) and aggregate demand. D. a decrease in​ short-run aggregate supply and an increase in aggregate demand.

D. a decrease in​ short-run aggregate supply and an increase in aggregate demand.

In the classical​ model, a shift to the right in aggregate demand would result in A. a permanent shift past full employment. B. a permanent increase in real incomes. C. a permanent increase in unemployment. D. an increase in the price level.

D. an increase in the price level.

In the short​ run, an increase in the price level induces firms to expand production because A. higher prices allow firms to hire more inputs by offering higher prices for​ inputs, which increases productivity and profits. Your answer is not correct. B. each firm must keep its production level up to the level of its​ rivals, and some firms will expand production as the price level increases. C. they can increase profits by increasing maintenance costs. D. prices of inputs are held​ constant, so the higher prices for​ firms' products imply that it is profitable to expand production.

D. prices of inputs are held​ constant, so the higher prices for​ firms' products imply that it is profitable to expand production

According to classical​ theory, shifts in aggregate demand will affect A. the level of employment only. B. both real Gross Domestic Product​ (GDP) and the level of employment. C. real Gross Domestic Product​ (GDP) only. Your answer is not correct. D. the price level only.

D. the price level only.

In the classical​ model, an increase in the unemployment rate A. will result in an increase in the price level if the reduction in output is caused by a change in aggregate demand. B. will persist when the reduction in output is caused by a reduction in aggregate demand. C. is a signal of​ demand-pull inflation. D. will likely be temporary.

D. will likely be temporary.