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ECON303 FINAL > Econ303exam3chp11 > Flashcards

Econ303exam3chp11 Flashcards

1
Q

Suppose the government decided to tighten monetary policy and decrease government expenditures. In the short run in the Keynesian model, the effect of these policies would be to ________ the real interest rate and ________ the level of output.

A. lower; decrease	
B. lower; have an ambiguous effect on	
C. raise; decrease	
D. have an ambiguous effect on; decrease
A

D. have an ambiguous effect on; decrease

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2
Q

A problem with the use of aggregate demand management to stabilize the business cycle is that

A. monetary policy isn't available to use when interest rates are already rising because of higher inflation.	
B. the precise amount that output will change in response to monetary or fiscal policy isn't known.	
C. fiscal policy takes a long time to have any impact on the economy.	
D. monetary policy is difficult to use, because the decision-making process is long and complicated.
A

B. the precise amount that output will change in response to monetary or fiscal policy isn’t known.

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3
Q

Using the Keynesian model, the effect of a government-imposed ceiling on interest rates paid on personal checking accounts that is lower than the current market interest rate would be to cause ________ in the real interest rate and ________ in output in the short run.

A. a decrease; no change	
B. a decrease; a decrease	
C. an increase; a decrease	
D. a decrease; an increase
A

D. a decrease; an increase

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4
Q

In the Keynesian model in the long run, a decrease in the money supply will cause ________ in the real interest rate and ________ in the price level.

A. no change; an increase	
B. an increase; an increase	
C. no change; a decrease	
D. a decrease; a decrease
A

C. no change; a decrease

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5
Q

According to Keynesians, the primary source of business cycle fluctuations is

A. oil price shocks.	
B. aggregate demand shocks.	
C. consumer confidence shocks.	
D. productivity shocks.
A

B. aggregate demand shocks.

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6
Q

A model in which individual producers act as price setters, because there are only a few sellers and the product they sell is not standardized, is called

A. monopoly.	
B. imperfect competition.	
C. perfect competition.	
D. monopsony.
A

B. imperfect competition.

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7
Q

In the 1990s, nominal interest rates in Japan were approximately

A. 1000%.	
B. 10%.	
C. 100%.	
D. 0%.
A

D. 0%.

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8
Q

A situation in which expansionary monetary policy has no effect on the economy is known as

A. a depression.	
B. capital flight.	
C. macroeconomic stabilization.	
D. a liquidity trap.
A

D. a liquidity trap.

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9
Q

Because of price stickiness in the Keynesian model, a decline in investment demand will not cause the

A. IS curve to shift in the long run.	
B. IS curve to shift down and to the left in the short run.	
C. LM curve to shift in the long run.	
D. LM curve to shift down and to the right in the short run.
A

D. LM curve to shift down and to the right in the short run.

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10
Q

In the Keynesian model in the long run, an increase in the money supply will raise

A. the price level but not the level of output.	
B. neither the level of output nor the price level.	
C. both the level of output and the price level.	
D. the level of output but not the price level.
A

A. the price level but not the level of output.

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11
Q

In the long run in the Keynesian model, a beneficial supply shock would leave the economy with a higher level of output, but also a ________ real interest rate and a ________ price level.

A. higher; lower	
B. higher; higher	
C. lower; higher	
D. lower; lower
A

D. lower; lower

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12
Q

In the Keynesian model, short-run equilibrium occurs

A. where the IS curve intersects the FE line.	
B. where the IS and LM curves intersect.	
C. where the LM curve intersects the FE line.	
D. where the IS curve, LM curve, and FE lines intersect.
A

B. where the IS and LM curves intersect.

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13
Q

In the short run in the Keynesian model, a sharp increase in oil prices would leave the economy with a ________ level of output and a ________ real interest rate.

A. lower; lower	
B. higher; higher	
C. higher; lower	
D. lower; higher
A

D. lower; higher

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14
Q

The theory that firms will be slow to change their products’ prices in response to changes in demand because there are costs to changing prices is called

A. gift exchange theory.	
B. transactions cost theory.	
C. menu cost theory.	
D. cost-benefit theory.
A

C. menu cost theory.

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15
Q

A firm is a price taker if it

A. takes its production costs into consideration in setting its price.	
B. takes consumer demand into consideration in setting its price.	
C. uses a pricing strategy to gain market share.	
D. always sells its output at the industry-determined price.
A

D. always sells its output at the industry-determined price.

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16
Q

In the Keynesian model in the short run, the amount of employment is determined by the effective labor demand curve and the level of

A. output.	
B. the supply of labor.	
C. the real interest rate.	
D. prices.
A

A. output.

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17
Q

When the demand for an imperfect competitor’s product is greater than it planned, the firm will

A. increase the price of the product until supply equals demand.	
B. allow a shortage of the product to develop, without changing the product's price.	
C. reduce the price until supply equals demand.	
D. meet the demand at its set price.
A

D. meet the demand at its set price.

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18
Q

The idea that, in order to avoid the costs of hiring and training, firms in a recession retain some workers they would otherwise lay off, is called

A. worker pooling.	
B. union busting.	
C. labor hoarding.	
D. the gift exchange motive.
A

C. labor hoarding.

19
Q

According to the menu cost theory, firms will be slow in changing their prices because

A. the cost of changing the price might exceed the additional profit the price change would generate.	
B. if prices changed frequently, individuals would reduce their demand for that good because of uncertainty.	
C. frequent price changes would be a sign of monopolistic behavior.	
D. demand for their product would fall because consumers would purchase goods from firms that had not raised their prices.
A

A. the cost of changing the price might exceed the additional profit the price change would generate.

20
Q

In the Keynesian model in the short run, a decrease in the money supply will cause

A. a decrease in the real interest rate and a decrease in output.	
B. an increase in the real interest rate but no change in output.	
C. a decrease in output and an increase in the real interest rate.	
D. no change in either the real interest rate or output.
A

C. a decrease in output and an increase in the real interest rate.

21
Q

In the Keynesian model, when the economy is not in long-run equilibrium, then the short-run equilibrium point is not on which curve?

A. SRAS	
B. LM	
C. IS	
D. FE
A

D. FE

22
Q

In setting the price of its product, a monopolistic competitor sets the price equal to its marginal cost plus an amount called the

A. markup.	
B. rent.	
C. menu cost.	
D. profit.
A

A. markup.

23
Q

According to Keynesians, the primary reason money is not neutral is

A. reverse causation.	
B. misperceptions over the aggregate price level.	
C. price stickiness.	
D. rational expectations.
A

C. price stickiness.

24
Q

In the Keynesian model in the long run, a decrease in the money supply will cause

A. a decrease in the real interest rate and a decrease in output.	
B. an increase in the real interest rate but no change in output.	
C. a decrease in output and an increase in the real interest rate.	
D. no change in either the real interest rate or output.
A

D. no change in either the real interest rate or output.

25
Q

In the Keynesian model in the short run, a decrease in government purchases causes output to ________ and the real interest rate to ________.

A. rise; rise	
B. fall; fall	
C. rise; fall	
D. fall; rise
A

B. fall; fall

26
Q

Worries about the zero bound from 2002 to 2005 led the Fed to

A. keep the Federal funds rate below the inflation rate.	
B. make more discount loans than usual.	
C. tighten monetary policy.	
D. increase reserve requirements on banks.
A

A. keep the Federal funds rate below the inflation rate.

27
Q

In the Keynesian model, the difference between using monetary and fiscal policy to eliminate a recession is that

A. an expansionary fiscal policy will leave the economy with a lower real interest rate than an expansionary monetary policy.	
B. monetary policy will eliminate a recession quicker than fiscal policy will.	
C. an expansionary monetary policy will leave the economy with a lower real interest rate than an expansionary fiscal policy.	
D. fiscal policy will eliminate a recession quicker than monetary policy will.
A

C. an expansionary monetary policy will leave the economy with a lower real interest rate than an expansionary fiscal policy.

28
Q

Recent research by Keynesians and classicals has led to

A. a reconciliation of the types of models they use.	
B. convincing evidence that TFP shocks are the dominant force affecting the business cycle.	
C. the recognition by classical economists that prices adjust very slowly.	
D. the refutation of the efficiency wage model.
A

A. a reconciliation of the types of models they use.

29
Q

Bernanke suggested methods for monetary policy to deal with the lower bound, including all of the following EXCEPT

A. expanding the size of the central bank balance sheet.	
B. tightening monetary policy more aggressively.	
C. altering the composition of assets held by the central bank.	
D. affecting interest rate expectations.
A

B. tightening monetary policy more aggressively.

30
Q

Using the Keynesian model, the effect of an increase in the effective tax rate on capital would be to cause ________ in the real interest rate and ________ in output in the short run.

A. a decrease; no change	
B. a decrease; a decrease	
C. an increase; an increase	
D. no change; a decrease
A

B. a decrease; a decrease

31
Q

Using the Keynesian model, the effect of a decrease in the effective tax rate on capital would be to cause ________ in the real interest rate and ________ in output in the long run.

A. an increase; an increase	
B. no change; a decrease	
C. a decrease; no change	
D. an increase; no change
A

D. an increase; no change

32
Q

In the Keynesian model, the difference between no intervention by the government during a recession and intervention using expansionary monetary or fiscal policy is that no intervention will return the economy to its equilibrium level of output

A. faster than intervention will and at a lower price level.	
B. slower than intervention will and at a higher price level.	
C. faster than intervention will and at a higher price level.	
D. slower than intervention will and at a lower price level.
A

D. slower than intervention will and at a lower price level.

33
Q

Easy monetary policy and tight fiscal policy lead to

A. roughly unchanged real interest rates.	
B. high real interest rates.	
C. low real interest rates.	
D. roughly unchanged real interest rates only when Ricardian equivalence holds; otherwise, low real interest rates.
A

C. low real interest rates.

34
Q

The cost to a firm of producing one more unit of output

A. usually equals the firm's price for monopolistically competitive firms.	
B. is the firm's marginal cost.	
C. usually exceeds the firm's price.	
D. is significantly less than the firm's price for purely competitive firms operating in long-run equilibrium.
A

B. is the firm’s marginal cost.

35
Q

In the Keynesian model, firms are best characterized as

A. monopolistically competitive.	
B. irrational.	
C. price takers.	
D. perfectly competitive.
A

A. monopolistically competitive.

36
Q

Suppose the government decided to ease monetary policy and then increase taxes. In the short run in the Keynesian model, the effect of these policies would be to ________ the real interest rate and ________ the level of output.

A. have an ambiguous effect on; increase	
B. lower; increase	
C. lower; have an ambiguous effect on	
D. lower; decrease
A

C. lower; have an ambiguous effect on

37
Q

In the Keynesian model, money is

A. neutral in the short run, but not in the long run.	
B. neutral in neither the short run nor the long run.	
C. neutral in both the short run and the long run.	
D. neutral in the long run, but not in the short run.
A

D. neutral in the long run, but not in the short run.

38
Q

If the menu cost theory is true, then firms that change prices less frequently than other firms are likely to be in

A. less competitive industries.	
B. growing, rather than declining, industries.	
C. service, rather than manufacturing, industries.	
D. more competitive industries.
A

A. less competitive industries.

39
Q

In the Keynesian model, an increase in government purchases affects output by

A. increasing aggregate demand as national saving declines.	
B. increasing saving to pay for future taxes, lowering the real interest rate, and shifting the IS curve to the left.	
C. increasing labor supply, because workers feel effectively poorer.	
D. increasing the real interest rate due to crowding out, reducing aggregate demand.
A

A. increasing aggregate demand as national saving declines.

40
Q

The Keynesian theory is consistent with the business cycle fact that inflation is

A. countercyclical and lagging.	
B. countercyclical and leading.	
C. procyclical and leading.	
D. procyclical and lagging.
A

D. procyclical and lagging.

41
Q

The distinguishing feature that determines whether an analysis is classical or Keynesian is

A. the assumption about the transmission mechanism of monetary policy.	
B. the slope of the aggregate demand curve.	
C. the speed of price adjustment.	
D. the degree of monopoly power in the economy.
A

C. the speed of price adjustment.

42
Q

The use of macroeconomic policies to smooth or moderate the business cycle is known as

A. discretionary policy.	
B. aggregate supply management.	
C. automatic stabilization.	
D. aggregate demand management.
A

D. aggregate demand management.

43
Q

The 1980s were characterized by ________ monetary policy and ________ fiscal policy.

A. tight; easy	
B. tight; tight	
C. easy; tight	
D. easy; easy
A

A. tight; easy

ECON303 FINAL (4 decks)

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