Question

21. According to the sticky-wage theory of the short-run aggregate supply curve, if workers and firms expected prices to rise by 3 percent, but instead prices rise by 1 percent, then a. employment and production rise. b. employment rises and production falls. c. employment falls and production rises. d. employment and production fall. 22. The aggregate demand and aggregate supply model implies monetary neutrality a. only in the short run. b. only in the long run. c. in both the short run and the long run. d. in neither the short run nor long run. 23. In the early 1930s in the United States, there was a a. large increase in output. In the early 1940s there was also a large increase in output. b. large increase in output. In the early 1940s there was a large decrease in output. c. large decrease in output. In the early 1940s there was a large increase in output. d. large decrease in output. In the early 1940s there was also a large decrease in output. 24. If households spend $90 of every $100 of after tax income, then the government purchases multiplier is a. 3 b. 5 c. 9 d. 10

Answer 1

21. According to the sticky-wage theory of the short-run aggregate supply curve, if workers and firms expected prices to rise by 3 per cent, but instead prices rise by 1 per cent, then (d) employment and production fall

Ans. (d)

22. The aggregate demand and aggregate supply model implies monetary neutrality (b) only in the long run. While modern versions of money neutrality theory assume that changes in the money supply might affect output or unemployment levels in the short run only, but neutrality is still assumed in the long run after money circulates throughout the economy

Ans. (b)

23.   In the early 1930s in the United States, there was a large decrease in output. In the early 1940s, there was a large increase in output. d. large decrease in output.

Ans. (c)

24. Given that MPC, c = 90/100 = 0.9, thus the government spending multiplier is given by the formula:

dY = 1/(1-c). dG

which gives multiplier = 10

Ans. (d)