Exam 2 B252 - Barnett

Which of the following is an assumption of the Keynesian Model?

A. There is little role for the government

B. Prices are sticky

C. People are motivated by self-interest

D. There is little focus on the short run

B. Prices are sticky

Which of the following is an assumption of the Classical Model?

A. People are motivated by self-interest

B. Government intervention should be minimal

C. The price level is fixed

D. Pure competition does not exist

A. People are motivated by self-interest

Using the AD-LRAS model, which of the following causes the price level to decrease and real potential GDP to increase?

A. decrease in the labor-force participation rate

B. Increase in productivity

C. Decrease in interest rates

D. Increase in household taxes

B. Increase in productivity

Using the AD-LRAS model, which of the following causes the price level to increase and real potential GDP to decrease?

A. decrease in interest rates

B. decrease in the labor-force participation rate

C. increase in productivity

D. increase in household taxes

B. decrease in the labor-force participation rate

Which of the following factors affect the aggregate demand curve?

A. Labor force

B. Productivity

C. Consumption

D. Imports

E. Exports

F. Education

G. Saving

H. Investment

I. Government Purchases

J. Technology

C. Consumption

D. Imports

E. Exports

H. Investment

I. Government Purchases

What would be the effect of a hurricane that damages buildings and roadways in the Gulf Coast?

LRAS______. AD______. The price level_______. GDP______.

Shifts left, does not change, increases, decreases

An increase in consumer spending causes the ______ curve to shift to the _____.

Aggregate Demand, right

An decrease in consumer spending causes the _______ curve to shift to the______.

Aggregate Demand, left

Which of the following would shift aggregate demand to the right?

Increasing Exports

Increasing Consumer Confidence

Which of the following would shift aggregate demand to the left?

Increasing exports

Increasing taxes

Using the AD-LRAS model, a decrease in capital accumulation cause the price level to_____ and potential real GDP to______

Increase, Decrease

Using the AD-LRAS model, a increase in capital accumulation cause the price level to_____ and potential real GDP to_____

Decrease, increase

Using the AD-LRAS model, an increase in capital accumulation and an increase in business taxes causes the Long-Run Aggregate Supply curve to______ and the Aggregate Demand curve to_____, respectively.

Shift right, Shift left

Using the AD-LRAS model, a decrease in capital accumulation and an increase in business taxes causes the Long-Run Aggregate Supply curve to_______ and the Aggregate Demand curve to_______, respectively.

Shift left, Shift left

Using the AD-LRAS model, an increase in capital accumulation and a decrease in business taxes causes the Long-Run Aggregate Supply curve to shift right and the Aggregate Demand curve to shift right , respectively.

Shift right, shift right

A decrease in the price level causes a ____ the Aggregate Demand curve.

Movement down along

An increase in the price level causes a ____ The aggregate Demand curve

Movement up along

Which of the following is not a possible result of a right shift of an aggregate supply curve?

A. Lower price level

B. Aggregate demand curve remains unchanged

C. Lower output

D. Higher output

C. Lower output

Which of the following is best for the economy?

A. Left shift of an aggregate supply curve

B. Left shift of an aggregate demand curve

C. Right shift of an aggregate supply curve

D. Right shift of the aggregate demand curve

C. Right shift of an aggregate supply curve

In the Neo Keynesian model used in class, what happens if businesses expect lower future profits while inflationary expectations increase simultaneously?

A. The price level decreases

B. The price level may increase, decrease or remain unchanged

C. Real GDP increases

D. Real GDP may increase, decrease or remain unchanged

E. Real GDP decreases

F. The price level increases

B. The price level may increase, decrease or remain unchanged

E. Real GDP decreases

In the Neo Keynesian model used in class, what happens with an investment tax increase?

A. The price level increases

B. The price level decreases

C. A recessionary gap occurs

D. Real GDP decreases

E. Real GDP increases

F. an inflationary gap occurs

B. The price level decreases

C. A recessionary gap occurs

D. Real GDP decreases

Which of the following is not a possible result of a right shift of an aggregate supply curve?

A. Aggregate demand curve remains unchanged

B. Lower price level

C. Lower output

D. Higher output

C. Lower output

Which of the following is best for the economy?

A. Left shift of the aggregate demand curve

B. Right shift of the aggregate demand curve

C. Left shift of an aggregate supply curve

D. Right shift of an aggregate supply curve

D. Right shift of an aggregate supply curve

In the Neo Keynesian model used in class, what happens if businesses expect higher future profits while inflationary expectation decrease simultaneously?

-The price level may increase, decrease or remain unchanged

-Real GDP increases

In the Neo Keynesian model used in class, what happens with an investment tax increase?

- A recessionary gap occurs

- The price level decreases

- Real GDP decreases

Which of the following are characteristics associated with the Keynesian Model?

- Aggregate demand primarily affects economic growth (Real GDP)

- Short run view

- Inflexible prices

In the AD/AS model assume 2022 began with potential real GDP = $13.7 trillion, while actual real GDP = $14 trillion and the Price Level (GDP Deflator) = 210. A year later the Price Level = 212 and actual real GDP = $14.1. Based on their relative effects on the AD/AS model, which of the following scenarios best explains this new outcome?

increase in consumer spending is MORE than the effect of a decrease in natural gas prices

Suppose we observe the price level has increased and actual real GDP has decreased. Using the AD/AS model, an explanation for this is

Wages have increased

Which of the following is an example of a positive supply shock?

Large decrease in input prices

What is the short-run effect on output and the price level of a positive supply shock?

Output rises and the price level falls

Which of the following only affects the short run aggregate supply curve?

- Inflationary expectations

- Input prices

Which of the following affect both the long-run and short run aggregate supply curves?

- Technology

- Productivity

- Quantity of labor

- Human capital

In the Neo Keynesian model used in class, what is the shape of short run aggregate supply?

Upward sloping curve

According to Keynes, one explanation for inflexible (sticky) prices is

long-term labor contracts

Aggregate expenditure includes all of the following components except

Savings

According to the aggregate expenditure model in class, the primary determinant of consumption and saving is

Disposable income

If the price of a firm's bond increases, then the

Cost of external funds decreases

Which of the following is an example of indirect financing?

Chase bank lends money to a customer

What statement is true about the market for loanable funds?

Borrowers are part of the demand line and lenders are part of the supply line

Hypothetical National Data: 2022:Q2 2022:Q3

Gross Saving & Investment: $3,093.4 $3,051.5

Interest Rates 2.93% 2.97%

Using the loanable funds market model explain this change in saving, investment and interest rates from the second quarter (Q2) of 2022 to the third quarter (Q3) of 2022.

The supply for loanable funds decreased more than the demand for loanable funds increased

Why is the demand for loanable funds downward sloping?

- There are more profitable investment projects that a firm can undertake with lower interest rates

- There are less profitable investment projects that a firm can undertake with higher interest rates

According to the loanable funds model, which of the following will decrease the equilibrium level of investment and decrease the equilibrium interest rate, holding everything else constant?

A decrease in technological change would cause these changes

According to the loanable funds model, which of the following will increase the equilibrium level of investment and increase the equilibrium interest rate, holding everything else constant?

A decrease in business taxes would cause these changes

What happens in the loanable funds market if consumers decide to be less frugal and save less out of their income?

Supply shifts left

According to the loanable funds model, if a government changes from an income tax to a consumption tax, what happens to interest rates, savings, borrowing and investment?

Interest rate decreases while savings, borrowing, and investment increase

According to the loanable funds model, if a government changes from a consumption tax to an income tax, what happens to interest rates, savings, borrowing, and investment?

Interest rates increase while savings, borrowing, and investment decrease

From an initial long-run equilibrium, if aggregate demand grows slower than long-run and short-run aggregate supply, then the proper fiscal policy is to

increase government purchases

Automatic stabilizers have the effect of

reducing inflationary and recessionary gaps

Which of the following is an example of discretionary fiscal policy?

decrease in lump-sum taxes

What does a decrease in federal government purchases do to the Neo-Keynesian model used in class

It shift aggregate demand left

if the government increases taxes, what happens to the price index and the actual real GDP holding all else constant?

In this case, the price index decrease and the actual real GDP decreases