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If factor markets were perfectly competitive, then full employment would be the normal condition and
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Assume you buried a $100 bill in a time capsule in 1970 and dug it up 40 years later. What would be its purchasing power in 2010?
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EC 305-Exam1-Ch5
Macro
| Question | Answer |
|---|---|
| If factor markets were perfectly competitive, then full employment would be the normal condition and | the AS-curve would be vertical |
| Assume you buried a $100 bill in a time capsule in 1970 and dug it up 40 years later. What would be its purchasing power in 2010? | $22 |
| The AS-curve is horizontal or very flat if | additional resources (especially labor) can be hired to produce additional output with little or no increase in existing prices |
| Which of the following was NOT true during the Great Depression? | investment as a share of GDP was below 3 percent |
| The level of GDP that corresponds to full employment in the labor market is called | potential GDP |
| Most economists prior to Keynes thought that | the economy always adjusted rapidly to full employment |
| The Keynesian AS-curve differs from the classical AS-curve, since Keynes | thought that nominal wages were rigid even when there was unemployment |
| The Keynesian aggregate supply curve implies that | the price level is unaffected by current levels of GDP |
| In the Keynesian aggregate supply curve case, | firms will always supply the amount of goods demanded at the existing price level |
| In which of the following cases will the AS-curve be horizontal? | if nominal wages do not change even if there is high unemployment |
| Given the Keynesian AS-curve, expansionary monetary policy will | increase the level of output but leave the price level unchanged |
| In the Keynesian supply curve case, a fiscal expansion will | increase equilibrium income but have no impact on prices |
| Which of the following is FALSE? | the AS-curve is more price elastic in the long run than in the short run |
| The AD-AS diagram used in this chapter | -uses the avg price level of all goods and services we buy as “price” -uses AS-curve that is relatively more price elastic in the med-run than the l-run -uses an AS-curve that is vertical in l-run and horizontal in the very s-run E)all of the above |
| Which of the following is NOT reflected in a shift of the AD-curve? | a change in real money balances due to a change in the price level |
| The slope of the AS-curve becomes steeper | -as nominal wages become more flexible -as the economy approaches full employment E)both A) and D) |
| A decrease in real money supply caused by an increase in the price level is graphically represented by | movement along the AD-curve to the left |
| The natural rate of unemployment is | the unemployment rate that exists when output is assumed to be at its full-employment level |
| Frictional unemployment is defined as | unemployment resulting from people shifting between jobs and looking for new jobs |
| If output is at its full-employment level, then | there is still some positive level of unemployment due to frictions in the labor market |
| A shift of the AD-curve to the left can be caused by | a decrease in government transfer payments |
| In the medium run, if government purchases are increased and nominal money supply is decreased, we can expect that | the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same |
| The AD-curve has a negative slope since | a decrease in the price level increases real money balances, leading to lower interest rates and increased spending |
| A shift of the AD-curve to the right could be caused by | a decrease in taxes |
| An increase in aggregate demand can be caused by | -an increase in government expenditures -an increase in nominal money supply -a decrease in taxes -an increase in business and consumer confidence E)all of the above |
| To maintain a fixed level of aggregate demand, the Fed would have to respond to a tax increase by | buying bonds in the open market |
| In a normal AD-AS diagram with an upward-sloping AS-curve, if the government wanted to maintain a fixed level of output, it would need to respond to a decrease in money supply by | increasing government spending |
| In the medium run, if government purchases are decreased and nominal money supply is increased, then we can expect that | interest rates will decrease, while output and prices may increase, decrease, or remain the same |
| In an AD-AS diagram with an upward-sloping AS-curve, if a tax decrease is combined with money expansion, | aggregate demand, the price level, and output will all increase |
| If government purchases and taxes are both increased by the same lump sum, we can expect the following in the medium run: | output, prices, and interest rates will all increase |
| In an AD-AS diagram with an upward-sloping AS-curve, an increase in money supply will | increase output and the price level but lower the interest rate |
| When nominal money supply is held constant and the price level increases, then | real money balances decrease and real interest rates increase |
| A decrease in nominal money supply will be reflected in | a shift of the AD-curve to the left |
| Expansionary fiscal policy is very effective in significantly increasing the level of output | if the economy is in a recession |
| Expansionary monetary policy will increase nominal GDP | -in the Keynesian case -in the classical case -in the medium run D)all of the above |
| In the classical supply curve case, monetary expansion will | leave Y and i unchanged but increase P |
| Assume investment is very interest sensitive and wages always adjust immediately to maintain an equilibrium in the labor market. Which of the following would be most effective in significantly increasing the level of output? | none of the above policies would succeed in significantly increasing the level of output |
| In which of the following cases is expansionary fiscal policy LEAST effective in increasing output? | if wages adjust rapidly to maintain equilibrium in the labor market |
| An increase in government purchases will not increase the level of output if | wages and prices are completely flexible |
| Fiscal policy will affect prices and interest rates but not the level of output if | the AS-curve is vertical |
| 41. In the AD-AS model, fiscal or monetary policy cannot affect the level of output in | the long run only |
| The income velocity of money can be calculated using the following formula | V = (PY)/M |
| If nominal GDP is $12,600 billion and nominal money supply is $6,300 billion, then the income velocity of money is | V = 2 |
| If restrictive monetary policy leads to a lower price level but leaves real output, employment, and real interest rates unchanged, then | -real money balances must be unchanged -money is said to be neutral E)both A) and D) |
| A large decrease in the income tax rate will most likely cause | -a fairly large increase in aggregate demand -a fairly small increase in aggregate supply -an increase in the price level D)all of the above |
| Supply-side economics involves policy measures designed to | -encourage technological progress -remove unnecessary government regulations -give investment tax credits to stimulate specific capital investments D)all of the above |
| Cutting income tax rates will most likely cause | a large shift in the AD-curve but a small shift in the AS-curve |
| When we say that potential GDP is exogenous with respect to the price level, we refer to | the fact that the long-run AS-curve shifts to the right over time |
| In the long run, as potential GDP grows at a steady pace and nominal money supply is continuously increased over time | the level of output is essentially determined by shifts in the AS-curve |
| As nominal money supply is steadily increased and the long-run AS-curve shifts to the right over time, we realize that | the price level increases or decreases depending on the respective shifts in the AD-curve and the AS-curve, but the level of output is essentially determined by the shifts in the AS-curve |
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