Econ Test 3

T/F: The level of employment in an economy determines its real GDP

True

All of the following will shift the short-run aggregate supply and the long run aggregate supply except for

a temporary change in input prices

In the labor market, full employment occurs at a _____ _____ at which demanded equals quantity supplied. That particular level of employment is associated with the full employment level of real GDP per year

a wage rate

The long-run aggregate supply curve will not shift if there is a change in

the price level

T/F: The classical economists believed that the leakage of saving would be matched by the injection of business investment

true

Now that the macroeconomy is in a​ disequilibrium, what happens in the labor​ market?

unemployment increases, which decreases wages

In the classical model, because LRAS is ______, the equilibrium level of real GDP is supply determined. Any changes in aggregate demand simply change the _____ ______

vertical; price level

After reading a recent​ best-seller documenting a growing population of low minus income elderly people who were ill minus prepared for​ retirement, most residents of this country decide to increase their saving at any given interest rate. What will happen to the: 1) Current equilibrium interest rate 2) Equilibrium real GDP 3) Equilibrium employment 4) Equilibrium investment 5) Equilibrium real GDP

1) Decrease 2) No effect 3) No effect 4) Increase 5) Increase

The classical model assumes that (4)

1) Pure competition exists 2) Wages and prices are completely flexible 3) Individuals are motivated by self interest 4) individuals cannot be fooled by money illusions

The Keynesian model was supported empirically by data from the decade of the

1930s

Suppose that an economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD. Given that there is decreased security about jobs and future income​, the new short run position of the economy finds itself in is termed

A recessionary gap

Which of the following will occur when aggregate supply remains stable but aggregate demand falls in the short​ run?

A recessionary gap is created

An economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD. Suppose that there is increased security about jobs and future income​, which of the following is the best explanation of the​ outcome?

Aggregate demand increases

Which of the following factors will shift the short run aggregate supply curve, but not the long-run AS?

An economy wide decrease in wages

Which of the following is the best example of uncounted​ production?

An employee recalibrating a machine to maintain production within satisfactory tolerance levels for machine partsAn

Which of the following would create​ demand-pull inflation?

An increase in household income

Suppose that the wage rate of labor decreased temporarily. The result of this would be best described by

An increase in the SRAS curve only

Which of the following would create​ cost-push inflation?

An increase in wages paid to workers

Which of the following statements best characterizes​ demand-pull and​ cost-push inflation?

Both are short run types of inflation

Suppose, there are fewer regulatory impediments to business. Which of the following best describes the result of this​ event?

Both the SR and LR aggregate supply curves shift outward

Suppose that aggregate demand were to decrease due to a stronger dollar. Which of the following would be the​ result?

Deflation only

In the Modern Keynesian Model the short run aggregate supply curve slopes upward. How could one explain the shape of the upward sloping​ short-run aggregate supply curve by only focusing on the capital​ input?

Existing machinery can be used longer hours

A stronger dollar contributes to inflation.

False

How could one explain the shape of the upward sloping​ short-run aggregate supply curve by only focusing on​ profits?

Firms are able to earn higher profits as long as the price level increases and the nominal wage rate remains constant.

The short run Keynesian supply curve is

Horizontal

The Modern Keynesian short run aggregate supply curve is best described by which of the following statements

It is very flat at low levels of real​ GDP; increases slightly as real GDP​ grows; and becomes very steep as real GDP surpasses full employment.

Which of the following is a possible explanation for sticky prices?

Labor contracts cause wages to be fixed over the contract period

Factors influencing long-run output

Labor, capital, technology

The lower the rate of interest, the ______ profitable it is to invest and the ______ the level of desired investment

More; higher

The Keynesian model argues that prices are sticky. One reason supporting this argument is that

Nominal wages are inflexible downwards

Which of the following is not one of the four major assumptions of the classical model?

People suffer from money illusion

What did Keynes mean when he said that prices are sticky?

Prices, especially the price of labor, are inflexible downard

Since the nominal wage is deemed inflexible, a decrease in aggregate demand causes firms to

Reduce their workforce

During the rapid adjustment period​ (that results from the change in the AD​ curve), the economy will immediately tend toward a price level that _________ and a level of real GDP that _______ before quickly returning to full employment.

Remains constant; decreases

Any unanticipated shifts in aggregate demand or supply are called aggregate demand or aggregate supply

Shocks

The Keynesian Model of the Macroeconomy argues that prices are sticky due to labor contracts and unions. This existence of sticky prices causes the _________________ to be horizontal

Short run aggregate supply

Inflation in an economy implies that

The average price level has increased over a stated period of time.

Which of the following best exemplifies Say's Law

The production of a $4000 plasma TV set creates demand for others goods and service valued at $4000

The extent which real GDP responds to changes in the price level along the short-run aggregate supply curve is largely determined by

The speed with which input prices adjust and people become more fully informed; the ability of firms to use existing workers and capital more intensively; the ability of firms to hire additional inputs, particularly workers.

In the modern Keynesian Model the​ short-run aggregate curve slopes upward. How does this model explain the reason behind this upward sloping curve when it only addresses labor​ input?

The workers are switched from uncounted production to counted​ production, thus enabling the firm to expand output as the price level expands.

Suppose that the value of the US dollar​ ($) yesterday was​ $1 = 4 yen. Today the exchange rate changed such that​ $1 = 1 yen. One can say that the

US $ depreciated

Which of the following will increase both the​ short-run and​ long-run aggregate supply​ curves?

Younger workers in the labor force receive better and more training than their predecessors

​Cost-push inflation arises due to

a decrease in the short-run aggregate supply curve

According to the classical​ model, if the economy starts at full employment an increase in aggregate demand will cause all of the following to occur except

a decrease in wage rates

Demand-pull inflation arises due to

a depreciation of the US $

A depreciation of the U.S. dollar should result in

a higher price level but the impact on the level of real GDP depends on the magnitude of the shifts in the aggregate demand and​ short-run aggregate supply curves.

According to​ Keynes, when there is excess capacity in an​ economy, the equilibrium level of real GDP per year is determined by

aggregate demand

Suppose that an economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD. If there is decreased security about jobs and future income​, which of the following is the best description of the outcome in the​ economy?

aggregate demand decreases

Between early 2005 and late​ 2007, total planned expenditures by U.S. households substantially increased in response to an increase in the quantity of money in circulation. From a​ short-run Keynesian​ perspective, the predicted effects of this event on the equilibrium U.S. price level and equilibrium U.S. real GDP were

an increase in the price level along with an increase in equilibrium real GDP.

Given that the economy is currently in a long run equilibrium where SRAS​ = LRAS​ = AD there is increased security about jobs and future income the economy would then experience

an inflationary gap

The resulting spending gap between early 2005 and late 2007 when total planned expenditures by U.S. households substantially increased in response to an increase in the quantity of money in circulation can best be described as

an inflationary gap

classical model assumes prices ___________ so that the aggregate supply curve is ________ and the economy is always

are flexible; vertical; at full employment

Say's Law fits best in the _______ ______ since this philosophy placed great importance on ______ _______ to determine the _____ ___ ______

classical theory; aggregate supply; level of output

​Cost-push inflation is caused by persistent

decrease in Short Run aggregate supply

Keynesians believe that the aggregate supply curve is

horizontal in the short run

One of the main conclusions of Say's Law was that

if people supply goods in order to then demand​ goods, there can be no overproduction in a market economy and full employment will be the normal state of affairs.

The model of long-run equilibrium

is the same as the classical model

Since the modern Keynesian Model allows for some price​ response, the aggregate supply curve

is upward sloping

If an excess quantity of labor is supplied at a particular wage level, the wage level

must be above equilibrium

Thus, according to the Keynesian model full employment is

possible, but not guaranteed

An important difference between the Classical Model and the Keynesian Model is that

prices adjust to bring about equilibrium in the Classical Model and output adjusts to bring about an equilibrium in the Keynesian Model.

The modern Keynesian Model assumes that

prices respond to changes in aggregate demand, but not fully

As the wage decreases, the

quantity demanded of labor increases, while the law of supply reduces the number of workers seeking jobs

The keynesian model indicates that the economy will find an equilibrium, however the economy will not always

reach full employment

As the dollar becomes stronger in international foreign exchange​ markets, the​ short-run aggregate supply curve will shift to the​ ________ and the aggregate demand curve will shift to the​ ________.

right; left

Persistent inflation arises due to

the aggregate demand curve increasing by a larger proportion than the​ long-run aggregate supply curve.

When saving is introduced into the model, equilibrium occurs in the credit market through changes in the interest rate such that desired ______ equals desired ________ at the equilibrium rate of interest

saving; interest

Changes in factors of production that influence economic growth will

shift SRAS and LRAS

A short lived change in production input prices will

shift SRAS but not LRAS

If the prices were sticky, according to Keynes, this would then imply that the

short run aggregate supply is horizontal

If petroleum prices increase temporarily, the ________________ curve would shift to the _____

short-run aggregate supply curve; left

Say's Law asserts that

supply creates its own demand

Say's law states that ____ creates its own ____ and therefore desired expenditures will equal actual expenditures

supply; demand