AP macro chapter 19 PS

question

Classical economists argued that: A) aggregate demand is inherently unstable in a capitalist economy B) the aggregate supply curve is horizontal to the full-employment level of output in the economy C) the unemployment rate in inversely related to the price level in the economy D) a laissez-fair policy of government is best in a capitalist economy
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D) a laissez-fair policy of government is best in a capitalist economy
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In the view of classical economist, the aggregate supply curve is: A) vertical B) horizontal C) up-sloping D) downsloping
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A) vertical
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According to the classical economic theory, the reason that firms do not change production behaviors when the price level decreases is because: A) output would rise along with product prices to leave real profits unchanged B) output and product prices would rise, offsetting any change in real profits or outputs C) input costs would fall along with product prices to leave real profits and outputs unchanged D) input costs would fall, but prices would rise, offsetting any change in real profits or output
answer

C) input costs would fall along with product prices to leave real profits and outputs unchanged
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In the view of classical economists, a decrease in aggregate demand results in: A) a permanent decrease i both the price level and domestic output B) a increase in both the price level and domestic output C)no change in either the price level or domestic output D) no change in domestic output, but a decrease in the price level
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D) no change in domestic output, but a decrease in the price level
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In the aggregate demand and aggregate supply model of the economy, the classical economist would view the aggregate demand curve as being: A) vertical and aggregate supply curve as being stab;e B) stable and the aggregate supply curve as being vertical C) horizontal and the aggregate supply curve as being stable D) stable and the aggregate supply curve as being horizontal
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B) stable and the aggregate supply curve as being vertical
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The aggregate supply curve in the Keynesian model is: A) vertical is the full employment output level B) horizontal to the full employment output level C) positive sloped to the full employment output level D) negatively sloped to the full employment
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B) horizontal to the full employment output level
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In Keynesian theory, a decrease in aggregate demand results in: A) a decrease in the price level and an increase in domestic output B)no change in domestic out, but a decrease in the price level C) no change in the price level, but a decrease in domestic output D) no change in either the price level or domestic output
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C) no change in the price level, but a decrease in domestic output
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In the aggregate demand and aggregate supply model of the economy, Keynesian economists would view the aggregate supply curve as being: A) horizontal to full-employment output and the aggregate demand curve as being unstable B) vertical across the price level and the aggregate demand curve as being stable C) horizontal to full-employment output and the aggregate demand curve as being stable D) vertical across the price level and the aggregate demand curve as being unstable
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A) horizontal to full-employment output and the aggregate demand curve as being unstable
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Graph A above illustrates the: A) Keynesian view of the macro B) classical view of the macro C) supply-side view of macro D) mainstream view of macro
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B) classical view of the macroeconomics
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Graph B above illustrates the A) Keynesian view of the macro B) classical view of the macro C) supply-side view of macro D) real business cycle view of macro
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A) Keynesian view of the macro-economy
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Refer to the above graphs. According to the classical theory, rapid price and wages adjustments will: A) keep the economy functions at its potential out, as shown in graph A B) keep the economy functioning with a level of unemployment, Q as shown in graph B C) not affect the price level because the aggregate supply curve is horizontal, as shown in graph B D) affect the real domestic output, as shown by the decrease from Qf to Qu due to a decrease in aggregate demand
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A) keep the economy functions at its potential out, as shown in graph A
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In graph A above, a decline in aggregate demand from AD1 to AD2 will: A) decrease real domestic output and employment at Qf B) increase the price level from to P2 to P1 C) temporarily cause an excess supply of AB D) produce a new price-output equilibrium at B
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C) temporarily cause an excess supply ofAB
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From the mainstream perspective, a major source of instability in the macro economy arises from significant change in: A) government spending B) consumer spending C) investment spending D) net exports
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C) investment spending
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From the mainstream perspective, a major source of instability in the macro economy arises from significant change in: A) price-level surprises B) aggregate supply shocks C) wage and price flexibility D) price misconceptions
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B) aggregate supply shocks
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In the mainstream view of macro economics: A) laissez fair capitalism is the best form of government policy B) increases in the supply of money will increase real output C) the variability of investment spending shifts aggregate demand D)prices and wages are flexible in a downward direction
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C) the variability of investment spending shifts aggregate demand
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Which is the basic equation underlying aggregate expenditures A) MV+PQ B) C+Ig=X+G C) GDP=MV+PQ D) C+Ig+X+G=GDP
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D) C+Ig+X+G=GDP
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According to the mainstream economists the basic determinant of real output, employment, and the price level is: A) information and people’s expectations B) level of aggregate expenditures C) incentive to work, save, and invest D) the supply of money
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B) the level of aggregate expenditures
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From the monetarist perspective: A) changes in investment spending are a major source of macroeconomic instability B)inappropriate monetary policy is the major source of macroeconomics stability C)adverse aggregate supply shocks are a major source of macroeconomic instability D) the fact that prices and wages are flexible is a major source of macroeconomic instability
answer

B) inappropriate monetary policy is the major source of macroeconomics stability
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The view that changes in the money supply are the primary cause of change in real output and the price level is most closely associated with: A) rational expectations theory B) real business cycle theory C) mainstream economics D) monetarism
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D) monetarism
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From a monetarist perspective, instability in the macro economy rises from: A) secular trends in the economy B) the instability of velocity as a policy tool C) discretionary changes in monetary policy D) the use of monetary rule of monetary policy
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C) discretionary changes in monetary policy
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The equation of exchange is: A) MP=QV B) PV=MQ C) MV=PQ D) M=V/PQ
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C) MV=PQ
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Dividing nominal gross domestic product (GDP) by the money supply is a way to obtain: A) velocity of money B) monetary multiplier C) equation of exchange D) monetary rule
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A) velocity of money
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The number of times per year the average dollar is spent on final good services in the: A) monetary rule B) velocity of money C) asst demand for money D) transactions demand for money
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B) velocity of money
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The equation of exchange indicates that: A) MQ equals VP B) the velocity of money and the supply of money vary proportionately with one another C) other things being equal, an increase in V will increase P and/or Q D) other things being equal, M and P are inversely related
answer

C) other things being equal, an increase in V will increase P and/or Q
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In the monetarist equation of exchange, MV is the monetarist counterpart of: A) PQ/V B) P/Q C) In+G D) Ca+Ig+Xn+G
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D) C+IG+X+G
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Monetarists argue that the amount of money the public will want to hold depends primarily on the level of A) nominal GDP B) investment C) consumption D) prices
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A) nominal GDP
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The equation of exchange suggests that if the velocity of money and the quantity of goods and services are held constant, an: A) decrease in the money supply will increase the price level B) increase in the money supply will decrease the price level C) increase in the money supply will increase the price level D) decrease in the money supply will have no effect on the price level
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C) increase in the money supply will increase the price level
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From the strict monetarist perspective, a large increase in the money supply will have: A) a large impact on the velocity of money and a large impact on the nominal output B) a large impact on the velocity of money and a small impact on the nominal output C) no effect on the velocity of money and a large impact on nominal output D) no effect on the velocity of money and a small impact on nominal output
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C) no effect on the velocity of money and a large impact on nominal output
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If the velocity of money remains unchanged and with full employment in the economy, the equation of exchange predicts that a rise in the money supply will: A) increase prices B) increase interest rates C) increase real output D) decrease nominal GDP
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A) increase prices
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If the economy diverges from its full-employment output, new classical economics would suggest that: A) a change in the velocity of money would be all that is needed to return it to its full-employment output B) an improvement in insider-outsider relationships is all that is needed to return it to its full-employment output C) an efficiency wage in the economy would return it to its full-employment output D) internal mechanisms within the economy would automatically return it to its full-employment output
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D) internal mechanisms within the economy would automatically return it to its full-employment output
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Refer to the above graph. Assume that the economy is in initial equilibrium where AD1 intersects AS1. If there is an unanticipated increase in aggregate demand, then according to new classical economic the economy will self-correct with a: A) movement from point B to point A B) movement from point A to point B C) a shift from AS1 to AS2 D) a shift from AD2 to AD1
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C) a shift from AS1 to AS2
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Refer to the above graph. Assume that the economy is in initial equilibrium where AD1 intersects AS1. If there is an unanticipated increase in aggregate demand and the economy self-corrects, then the adjustment path would go from point. A) A to B B) A to B to C C) B to A to D D) A to B to C to D
answer

B) A to B to C
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Refer to the above graph. Assume that the economy is in initial equilibrium where AD1 intersects AS1. If there is an unanticipated decrease in aggregate demand to AD2, then in the view of new classical economics the economy will self-correct with a: A) a shift from AS1 to AS2 B) a shift from AD2 to AD1 C) movement from point A to point E D) movement from point A to point D
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A) a shift from AS1 to AS2
question

Mainstream economists think that: A) market participants change their actions in response to anticipated price-level changes such that no change in real output occurs. B) the economy self-corrects when unanticipated events divert it from its full-employment level of real output C) the downward inflexibility of wages and prices may leave the economy stuck in a costly recession for long period D) significant change in technology and resource availability cause macroeconomic instability
answer

C) the downward inflexibility of wages and prices may leave the economy stuck in a costly recession for long period
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Which contributes to the downward inflexibility of wages according to mainstream economists: A) efficiency wages B) a monetary rule C) price-level surprises D) coordination failures
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A) efficiency wages
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Which view of economics typically views the market system as less than fully competitive, and therefore subject to macroeconomic instability A) monetarism B) mainstream economics C) real business cycle theory D) rational expectations theory
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B)mainstream economics
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The notion that the annual rate of increase in the money supply should be equal to the potential annual growth rate of real GDP best describe the: A) monetary rule B) velocity of money C) equation of exchange D) crowding-out effect
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A) monetary rule
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Refer to the above graph. Assume that the economy is initially in equilibrium at the intersection of AD1 and AS1. Then there is economic growth in the economy that shifts AS1 to AS2. With the shift from AS1 to AS2 the monetary rule would call for an increase in the money suppy such that: A) AD1 would shift to AD2 B) AD1 would shift to AD2 C) AD 1 would shift to AD4 D) AS2 would shift to AS1
answer

B) AD1 would shift to AD2
question

Monetarists argue that when an expansionary fiscal policy is financed through deficit spending: A) monetary policy becomes tight B) private investment spending will be crowded out C) the demand for money and interest rate decrease D) the investment demand curve becomes relatively steep
answer

B) private investment spending will be crowded out
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Which of the following statements best describes the monetarist views of crowding-out? Monetarists believe that: A) decreasing budge deficits increase interest rates and decrease private investment spending B) increasing budge deficits increase interest rates and decrease private investment spending C) crowding-out will seldom occur, and if it does it will not be complete D) crowding-out explains why there is the need for a zero rate of growth in the money supply
answer

B) increasing budge deficits increase interest rates and decrease private investment spending
question

Mainstream economists contend that the equation of exchange breaks down because: A) there is a tight relationship between the money supply and nominal GDP B) velocity is more variable and unpredictable than expected C) the money supply increases at a constant, not a variable rate D) nominal GDP is directly related to changed in the price level
answer

B) velocity is more variable and unpredictable than expected
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From the mainstream perspective, the crowding-out effect from the use of fiscal policy is: A) small, especially during a recession B) large, especially during a recession C) large because the velocity of money is high D) small because the velocity of money is low
answer

A) small, especially during a recession
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Which of the following ideas is associated with mainstream economics? A) capitalist economies tend to be able B) Monetary policy rules are desirable C) Fiscal policy is a useful stabilization tool D) Crowding-out of investment makes fiscal policy ineffective
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C) Fiscal policy is a useful stabilization tool
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Which economics perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy: A) monetarism B) mainstream economics C) rational expectations D) new classical economics
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B) mainstream economics
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Mainstream economists support: A) adoption of a monetary rule for increases in the money supply B) elimination of efficiency wages and insider-outsider relationship C) the requirement that the government annually balance its budget D) the use of discretionary monetary and fiscal policy for achieving major economic goals
answer

D) the use of discretionary monetary and fiscal policy for achieving major economic goals
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The policy position that the supply of money be increased at a constant rate each year is most closely associated with the views of: A) monetarists B) supply-side economists C) mainstream economists D) Keynesian economists
answer

A) monetarists

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