Exam 11: Classical and Keynesian Macro Analyses

A) supply creates its own demand.
B) demand creates supply.
C) changes in supply create supply-side inflation.
D) changes in demand create demand-side inflation.

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A) A only
B) B only
C) C only
D) both A and B

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A) an aggregate demand shock.
B) an aggregate supply shock.
C) a recessionary gap.
D) an inflationary gap.

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A) businesses are unable to adjust quickly to changes in aggregate demand.
B) they cause deflation.
C) hyperinflation will likely occur.
D) union workers would likely quit and look for work elsewhere.

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A) Point A
B) Point B
C) Point C
D) Points A and C

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A) the level of real GDP per year does not depend on the level of aggregate demand.
B) the level of GDP is demand determined.
C) changes in aggregate supply affect the price level,not real GDP.
D) the level of GDP determines prices independent of demand.

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A) Savings and investment will always be equal.
B) Wages and prices are flexible.
C) The economy will always move toward,or be at,full employment.
D) Individuals pursue the public interest,not their own self-interest.

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A) aggregate demand curve is a horizontal line.
B) aggregate demand curve is a vertical line.
C) aggregate supply curve is a horizontal line.
D) aggregate supply curve is a vertical line.

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A) imperfect competition predominates in most markets.
B) people have money illusion.
C) wages and prices are flexible.
D) wages are flexible but prices are not.

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A) A decrease in aggregate demand was not possible according to the classical economists but was possible according to Keynes.
B) A decrease in aggregate demand has no short-run effects according to the classical economists but had significant effects according to Keynes.
C) Classical economists believed real GDP adjusted more than prices when aggregate demand fell,while Keynes argued that prices adjusted more than output.
D) Classical economists believed price adjusted more than output when aggregate demand fell,while Keynes argued real GDP adjusted more than prices.

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A) prices are inflexible and the economy is at full employment.
B) there are unemployed resources and prices do not increase when aggregate demand increases.
C) there are unemployed resources and prices do not decrease when aggregate supply increases.
D) there are no unemployed resources and prices do not increase when aggregate demand or supply increases.

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A) the economy is operating above the full-employment level and will eventually adjust back to long-run aggregate supply.
B) living standards are falling as employment and economic activity are too high.
C) the economy is operating below its long-run level and living standards are less than they would have been without the hurricane.
D) the hurricane is beneficial since it is increasing employment and replacing less efficient capital with newer and more efficient capital.

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A) aggregate demand is below the level consistent with full employment.
B) aggregate demand is above the level consistent with full employment.
C) aggregate supply and aggregate demand are not in short-run equilibrium.
D) aggregate supply decreases.

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A) 3 only
B) 4 only
C) 5 only
D) 4 or 5

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A) the real output of goods and services in the economy and the price level.
B) the real output of goods and services in the economy and the price level when people have fully adjusted their behavior.
C) the real output of goods and services in the economy and the price level when people have not fully adjusted their behavior.
D) the nominal output of goods and services and the real output of goods and services.

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A) The aggregate supply curve is downward sloping.
B) The aggregate supply curve is horizontal.
C) The aggregate supply curve is vertical.
D) The aggregate supply curve is not determined by the level of employment.

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A) prices.
B) wages.
C) the interest rate.
D) taxes.

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The major difference is the shape of the...

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