Question

1. The vertical axis for an aggregate demand curve measures

   		real income.
   		nominal GDP per year.
   		the price level.
   		real GDP per year.

2.5 points   

QUESTION 5

1. A price level increase tends to reduce net exports, thereby reducing the amount of real goods and services purchased in the United States. Economists refer to this phenomenon as

   		the Gross Domestic Product (GDP) effect.
   		the barrier effect.
   		the open-economy effect.
   		the wealth effect.

2.5 points   

QUESTION 6

1. An aggregate demand curve

   		does not shift, unlike individual or market demand curves.
   		shifts to the right when population decreases and shifts to the left when population increases.
   		shifts to the right when the price level increases and to the left when the price level falls.
   		shifts to the right when any non-price-level change that increases aggregate spending occurs.

2.5 points   

QUESTION 7

1. The shape of the aggregate demand curve does not tell us anything about how the total dollar value of spending will ultimately be divided between output and prices. For this we need

   		information about the standard of living in the country.
   		to know how far from the origin the aggregate demand curve is.
   		an long-run aggregate supply curve.
   		information that only the Consumers' Price Index can provide.

2.5 points   

QUESTION 8

1. If aggregate demand is stable and there is economic growth, the economy will experience

   		secular degeneration.
   		secular decline.
   		secular deflation.
   		secular depreciation.

2.5 points   

QUESTION 9

1. If consumers' confidence in the economy rises,

   		aggregate demand will shift rightward and the price level will fall.
   		aggregate demand will shift rightward and the price level will rise.
   		aggregate demand will shift leftward and the price level will rise.
   		aggregate demand will shift leftward and the price level will fall.

2.5 points   

QUESTION 10

1. If the long-run aggregate supply declines

   		there will be no change in price level and real GDP.
   		there will be inflation.
   		there will be stable prices.
   		there will be deflation.

2.5 points   

QUESTION 11

1. One tenet of classical economics is that

   		the government should intervene whenever necessary to avoid any unemployment.
   		the role of the government should be limited, since the market will always be self-correcting.
   		wages and prices are "sticky downward."
   		the government should set a minimum wage slightly above the natural market equilibrium rate.

2.5 points   

QUESTION 12

1. According to classical theory, total employment and real Gross Domestic Product (GDP) are

   		unrelated.
   		negatively related.
   		positively related.
   		inversely related.

2.5 points   

QUESTION 13

1. Long-run unemployment in the classical model is considered to be impossible because

   		job placement and training programs are rampant in the United States.
   		flexible prices and wages keep workers fully employed.
   		the labor supply is horizontal.
   		the government will intervene to aid the unemployed.

2.5 points   

QUESTION 14

1. The classical model makes little distinction between the long-run and short-run because

   		the model has not been fully developed yet.
   		prices adjust so fast that the economy is quickly moving towards the long-run.
   		current changes influence the long run, so it is not possible to plan for the future.
   		the classical economists knew that we are always operating in the short run.

2.5 points   

QUESTION 15

1. What is the underlying assumption of the simplified Keynesian model?

   		The relevant range of the short-run aggregate supply curve (SRAS) is vertical.
   		The relevant range of the short-run aggregate supply curve (SRAS) is horizontal.
   		The relevant range of the aggregate supply curve (AS) is vertical.
   		The relevant range of the long-run aggregate supply curve (LRAS) is horizontal.

2.5 points   

QUESTION 16

1. A decrease in aggregate demand will cause

   		aggregate supply to fall according to Keynes, and unemployment to increase according to classical economists.
   		aggregate supply to fall according to classical economists, and prices to fall according to Keynes.
   		prices to fall according to classical economists, and unemployment to increase according to Keynes.
   		prices to fall and unemployment to increase according to both classical economists and Keynes.

2.5 points   

QUESTION 17

1. All items below will decrease the short-run aggregate supply curve EXCEPT

   		a decrease in labor supply.
   		a decrease in training and education.
   		a decrease in the marginal tax rates.
   		an increase in the prices of inputs.

Answer 1

1. The vertical axis for an aggregate demand curve measures real GDP per year. Hence,option(D) is correct.

2. Economists refers to this phenomenon as the open economy effect. Hence, option(C) is correct.

3. An aggregate demand curve shifts to the right when any non price level change that increases aggregate spending occurs. Hence,option(D) is correct.

4. The shape of the aggregate demand curve does not tell us anything about how the total dollar value of spending will ultimately be divided between output and prices. For this we need a long run aggregate supply curve. Hence,option(C) is correct.

5. If aggregate demand is stable and there is economic growth, the economy will experience secular deflation. Hence,option(C) is correct.

6. If consumers' confidence in the economy rises, aggregate demand will shift rightward and the price level will rise. Hence,option(B) is correct.

7. If the long run aggregate supply declines ,there will be inflation. Hence,option(B) is correct.