Econ Today-Chapter 11 Quiz

Which one of the following statements is TRUE? a. The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model. b. The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the idea that increases in aggregate demand will increase the price level but will leave real GDP unchanged. c. The actual behavior of prices and real GDP during the decade of the 1930s is consistent with a vertical short-run aggregate supply curve. d. The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the classical model.

a. The actual behavior of prices and real GDP during the decade of the 1930s is consistent with the Keynesian model.

The gap that exists when equilibrium real GDP is less than full-employment real GDP is: a. a recessionary gap. b. money illusion. c. an inflationary gap. d. the short-run aggregate supply curve.

a. a recessionary gap.

In the classical model, a shift to the right in aggregate demand would result in a. an increase in the price level. b. a permanent increase in unemployment. c. a permanent shift past full employment. d. a permanent increase in real incomes.

a. an increase in the price level.

Refer to the above figure. The classical aggregate supply curve is represented by ________ and the Keynesian short-run aggregate supply curve is represented by ________. a. curve 2; curve 4 b. curve 2; curve 1 c. curve 3; curve 4 d. curve 2; curve 3

a. curve 2; curve 4

Regarding unemployment, the classical model implies that a. only voluntary unemployment exists. b. voluntary unemployment is zero, but involuntary unemployment often is fairly high. c. unemployment cannot exist. d. unemployment always exists.

a. only voluntary unemployment exists

The idea that supply creates its own demand is known as: a. Keynes' law. b. Say's law. c. the law of supply. d. the law of demand.

b. Say's law.

Which of the following will NOT shift the short-run aggregate supply (SRAS) curve? a. a reduction in the price of a raw material b. a change in the price level c. a change in the wage rate d. technological progress

b. a change in the price level

Which of the following will cause an increase in aggregate supply? a. an increase in marginal tax rates b. a decrease in input prices c. decreased competition d. an increase in the price level

b. a decrease in input prices

Joe's increase in wages has been identical to the increase in the price level. Joe thinks that he is better off and has increased his expenditures. Joe's behavior is consistent with: a. Say's law. b. money illusion. c. he classical model. d. a vertical aggregate supply curve

b. money illusion.

Refer to the above figure. Assume that B is the current long-run aggregate supply (LRAS) curve and that E is the current short-run aggregate supply (SRAS) curve. If a new discovery of large oil fields in Florida led to an increase in the nation's productive capacities, then we could expect the LRAS curve and the SRAS curve to: a. move to A and F. b. move to C and F. c. remain B and E. d. move to A and D.

b. move to C and F.

In the classical model, real Gross Domestic Product (GDP) per year is a. due to supply conditions plus the extent of government intervention in the economy. b. supply determined. c. demand determined. d. determined by supply and demand conditions together.

b. supply determined

An inflationary gap occurs when a. the short-run equilibrium level of real GDP is less than long-run aggregate supply. b. the short-run equilibrium level of real GDP is greater than long-run aggregate supply. c. short-run aggregate supply falls, but other things remain constant. d.aggregate demand falls, but other things remain constant.

b. the short-run equilibrium level of real GDP is greater than long-run aggregate supply.

Demand-pull inflation occurs: a. when the aggregate supply curve shifts to the right, while aggregate demand remains stable. b. when the aggregate demand curve shifts to the right, while aggregate supply remains stable. c. when the aggregate supply curve shifts to the left, while aggregate demand remains stable. d. when the aggregate demand curve shifts to the left, while aggregate supply remains stable.

b. when the aggregate demand curve shifts to the right, while aggregate supply remains stable.

Refer to the above figure. Which point or points represent(s) a short-run equilibrium? a. A only b. B only c. C only d. both A and B

c. C only

The Keynesian model is basically a. a combination of long- and short-run theories. b. a theory about the economy in both the long run and the short run. c. a short-run theory. d. a long-run theory.

c. a short-run theory.

In the classical model, a. wages will go up but never go down. b. full employment will never be reached. c. unemployment will never exist since workers will be willing to accept lower wages and will then be able to find work. d. unemployment will never exist because employers will be willing to pay the wage rate demanded by the workers.

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

Cost-push inflation occurs: a. when the aggregate supply curve shifts to the right, while aggregate demand remains stable. b. when the aggregate supply curve shifts to the left, while aggregate demand remains stable. c. when the aggregate demand curve shifts to the left, while aggregate supply remains stable. d. when the aggregate demand curve shifts to the right, while aggregate supply remains stable.

c. when the aggregate demand curve shifts to the left, while aggregate supply remains stable.

The three curves in the above figure are: a. (1) the aggregate supply curve, (2) the short-run aggregate demand curve, and (3) the longrun aggregate demand curve. b. (1) the long-run aggregate supply curve, (2) the short-run aggregate supply curve, and (3) the aggregate demand curve. c. (1) the long-run aggregate supply curve, (2) the aggregate demand curve, and (3) the shortrun aggregate supply curve. d. (1) the short-run aggregate supply curve, (2) the aggregate demand curve, and (3) the longrun aggregate supply curve.

d. (1) the short-run aggregate supply curve, (2) the aggregate demand curve, and (3) the longrun aggregate supply curve.

Which of the following is NOT an assumption of the classical system? a. People are motivated by self interest. b. There is no money illusion. c. Pure competition exists. d. Wages and prices are inflexible.

d. Wages and prices are inflexible.

According to classical theory, full employment in the labor market occurs a. only when the economy has just experienced a demand shock. b. only when actual expenditures are greater than desired expenditures. c. whenever aggregate demand is less than aggregate supply. d. at a wage rate at which quantity demanded equals quantity supplied.

d. at a wage rate at which quantity demanded equals quantity supplied.

Keynes argued that an economy could be in equilibrium when the economy was a. operating with some unutilized productive capacity. b. trying to operate at some output level beyond its potential capacity. c. operating at maximum potential capacity. d. operating either at full productive capacity or at less than full capacity.

d. operating either at full productive capacity or at less than full capacity.

Refer to the above figure. Assume that B is the current long-run aggregate supply (LRAS) curve and E is the current short-run aggregate supply (SRAS) curve. If a 90-day embargo of oil from the Middle East to the United States were announced, and if after that 90-day period oil prices were expected to return to normal pre-embargo prices, then you would expect: a. the LRAS and the SRAS to remain at B and E, respectively. b. the LRAS to remain at B, but the SRAS to shift to F. c. the LRAS to shift to C, and the SRAS to shift to F. d. the LRAS to remain at B, but the SRAS to shift to D.

d. the LRAS to remain at B, but the SRAS to shift to D. (?)

Which of the following is NOT an assumption of the classical model? a. pure competition b. People are motivated by self-interest. c. Wages and prices are flexible. d. wage rigidity

d. wage rigidity