Question 1

Which of the following is false?

Accepted Answer

A)  The classical economists believed that the economy was basically stable.
B)  Keynes believed that full employment was a "rare occurrence."
C)  Keynes argued that the interest rate was the most important factor in determining the level of investment demand in an economy.
D)  The classical economists used the laws of supply and demand to prove the validity of Say's law.E) All of the above
F) A) and D)

Question 2

Keynesian theory

Accepted Answer

A)  Established the validity of Say's Law.
B)  Assumes that supply creates its own demand.
C)  Is primarily demand-oriented.
D)  Assigns much importance to aggregate supply and the average price level.E) All of the above
F) B) and C)

Question 3

At equilibrium GDP

Accepted Answer

A)  Savings = investment,but aggregate demand does not equal aggregate supply.
B)  Savings = investment and aggregate demand = aggregate supply.
C)  Savings does not equal investment and aggregate demand does not equal aggregate supply.
D)  Savings does not equal investment,but aggregate demand = aggregate supply.E) A) and B)
F) B) and C)

Question 4

Keynes's analysis of the Great Depression led to which of the following recommendations regarding government policy?

Accepted Answer

A)  An annually balanced budget.
B)  A decrease in government spending.
C)  An increase in government spending.
D)  An increase in taxes.
E)  Government should pursue a laissez-faire attitude.F) D) and E)
G) A) and E)

Question 5

Which best describes the classical theory of employment?

Accepted Answer

A)  We will always have a great deal of unemployment.
B)  We will usually have a great deal of unemployment.
C)  We will occasionally have some unemployment,but our economy will automatically move back toward full employment.
D)  We never have any unemployment.E) A) and B)
F) None of the above

Question 6

Which one of the following does NOT explain why the aggregate demand curve is downward sloping?

Accepted Answer

A)  The loanable funds effect
B)  The real balances effect
C)  The foreign purchases effect
D)  The interest rate effectE) A) and B)
F) All of the above

Question 7

According to Keynes,the primary cause of large-scale unemployment is inadequate ____.

Accepted Answer

The answer of According to Keynes,the primary cause of large-scale...

Question 8

It is _____ that in the classical model,prices and wages are fixed;it is _____ that according to the classical economists,full employment is the norm.

Accepted Answer

A)  true;true
B)  false;false
C)  false;true
D)  true;falseE) B) and C)
F) B) and D)

Question 9

If the rate of interest did not equate saving and investment and total output was greater than total spending,the classical economist argued,competition would tend to force

Accepted Answer

A)  product and resource prices down.
B)  product prices up and resource prices down.
C)  product prices up and resource prices up.
D)  product prices down and resource prices up.E) A) and D)
F) C) and D)

Question 10

If the economy is in the vertical portion of the AS curve,what will be the effect of an increase in the price level on output produced?

Accepted Answer

A)  Output will increase at a very rapid rate
B)  Output will not change
C)  Output will only slightly increase
D)  Output change cannot be predicted from information givenE) B) and D)
F) C) and D)

Question 11

Keynes and the classicals used _____ aggregate demand and supply apparatuses and came to _____ conclusions.

Accepted Answer

A)  the same;the same
B)  different;different
C)  the same;different
D)  different;the sameE) A) and B)
F) B) and C)

Question 12

If an economy is currently operating at its potential level of real GDP,an increase in aggregate demand will

Accepted Answer

A)  increase the price level.
B)  decrease the price level.
C)  cause stagflation.
D)  produce long-run economic growth.E) A) and B)
F) A) and C)

Question 13

When the price level falls

Accepted Answer

A)  aggregate demand shifts to the left.
B)  all prices of individual goods and services decrease.
C)  aggregate demand shifts to the right.
D)  aggregate quantity demanded increases.
E)  the interest rate will increase.F) B) and D)
G) B) and C)

Question 14

Aggregate demand will decrease when there are

Accepted Answer

A)  decreases in government spending.
B)  increases in consumer and business confidence.
C)  increases in inflationary expectations.
D)  decreases in the price level.
E)  declines in the demand for money.F) B) and D)
G) A) and B)

Question 15

Which of the following is false?

Accepted Answer

A)  Keynes believed that the economy was basically unstable.
B)  The classical economists believed that full employment was a "rare occurrence."
C)  Keynes argued that the expected rate of profit was the most important factor in determining the level of investment demand in an economy.
D)  The classical economists used the laws of supply and demand to prove the validity of Say's Law.E) B) and C)
F) B) and D)

Question 16

Consumption is a function of ____.

Accepted Answer

The answer of Consumption is a function of ____....

Question 17

If aggregate demand increases and,as a result,real domestic output and employment increase but the price level remains unchanged,we can assume that

Accepted Answer

A)  the money supply has declined.
B)  aggregate demand intersects aggregate supply in the Keynesian range of the aggregate supply curve.
C)  aggregate demand intersects aggregate supply in the intermediate range of the aggregate supply curve.
D)  aggregate demand intersects aggregate supply in the classical range of the aggregate supply curve.E) All of the above
F) C) and D)

Question 18

Unintended inventory changes

Accepted Answer

A)  precipitate explosive inflations of highly unstable stagflation.
B)  are less important in Keynesian than in classical models.
C)  ensure that planned saving is always equal to planned investment.
D)  are signals to business firms to increase or cut production.E) A) and C)
F) C) and D)

Question 19

When the price level falls,the purchasing power of people's liquid assets rises,they feel richer,and they tend to spend more.This sequence describes the ________ _______.

Accepted Answer

The answer of When the price level falls,the purchasing power...

Question 20

For Keynes,the most important determinant of employment and output is ____.

Accepted Answer

The answer of For Keynes,the most important determinant of employment...

Exam 11: Classical and Keynesian Economics

Keynesian theory

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If the economy is in the vertical portion of the AS curve,what will be the effect of an increase in the price level on output produced?

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Consumption is a function of ____.

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If the rate of interest did not equate saving and investment and total output was greater than total spending,the classical economist argued,competition would tend to force

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Aggregate demand will decrease when there are

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Which one of the following does NOT explain why the aggregate demand curve is downward sloping?

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At equilibrium GDP

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According to Keynes,the primary cause of large-scale unemployment is inadequate ____.

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If aggregate demand increases and,as a result,real domestic output and employment increase but the price level remains unchanged,we can assume that

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Unintended inventory changes

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Keynes's analysis of the Great Depression led to which of the following recommendations regarding government policy?

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It is _____ that in the classical model,prices and wages are fixed;it is _____ that according to the classical economists,full employment is the norm.

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When the price level falls

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Keynes and the classicals used _____ aggregate demand and supply apparatuses and came to _____ conclusions.

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Which of the following is false?

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For Keynes,the most important determinant of employment and output is ____.

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If an economy is currently operating at its potential level of real GDP,an increase in aggregate demand will

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Which best describes the classical theory of employment?

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Which of the following is false?

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When the price level falls,the purchasing power of people's liquid assets rises,they feel richer,and they tend to spend more.This sequence describes the ________ _______.

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It is _ that in the classical model,prices and wages are fixed;it is _ that according to the classical economists,full employment is the norm.

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Keynes and the classicals used _ aggregate demand and supply apparatuses and came to _ conclusions.

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When the price level falls,the purchasing power of people's liquid assets rises,they feel richer,and they tend to spend more.This sequence describes the __ _.

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