Multiple choice questions:
Question 1
A necessary condition for the classical model to work is that __________.
A. wages and prices are fully flexible
B. prices, but not wages, are fully flexible
C. wages and prices are not fully flexible
D. wages, but not prices, are fully flexible
Question 2
Suppose that the unemployment rate is __________ the natural rate. We would expect prices to fall, money demand to fall, interest rates to fall, and total demand to __________.
A. above; rise
B. above; fall
C. below; rise
D. below; fall
Question 3
Since the long-run Phillips curve is vertical at the natural unemployment rate, what type of trade-off is there between employment and inflation?
A. There is no trade-off between employment and inflation.
B. There is a constant trade-off between employment and inflation.
C. There is a linear trade-off between employment and inflation.
D. Employment and inflation are indirectly proportional (the one goes up, the other goes down..
Question 4
What is the name for the inflation rate that people forecast and use to set the money wage rate and other money prices?
A. the equilibrium inflation rate
B. the fixed-money inflation rate
C. the potential inflation rate
D. the expected inflation rate
Question 5
Keynes expressed doubts that that the economy would __________.
A. ever return to full-employment
B. ever move away from full-employment
C. recover from a major recession without active policy
D. recover from the effects of higher prices
Question 6
A decrease in aggregate demand that brings a movement down along the aggregate supply curve lowers the price level and __________ real GDP.
A. does not affect
B. decreases
C. increases
D. varies with
Question 7
To lower the expected inflation rate, the Fed must take actions that will __________ the actual inflation rate.
A. decelerate
B. accelerate
C. increase
D. decrease
Question 8
The Federal Reserve can use monetary policy to __________.
A. change output in the long run, but not the short run
B. change output in the short run, but not the long run
C. change output in both the short run and the long run
D. Monetary policy has no effect on output
Question 9
In the long run, a decrease in the money supply __________.
A. has no effect on real interest rates, investment, or output
B. increases real interest rates, decreases investment, and decreases output
C. increases real interest rates, increases investment, and decreases output
D. decreases real interest rates, decreases investment, and decreases output
Question 10
Say's law from a classical economic perspective __________.
A. states that supply creates its own demand
B. explains the classical idea that the value of GDP will equal the demand for goods and services
C. supports economists belief that neither surplus nor shortage would ever exist when production and demand are equal for goods and services
D. all of the above