1.

Short-run fluctuations in output and employment are called:

A.

sectoral shifts.

B.

the classical dichotomy.

C.

business cycles.

D.

productivity slowdowns.



2.

Most economists believe that prices are:

A.

flexible in the short run but many are sticky in the long run.

B.

flexible in the long run but many are sticky in the short run.

C.

sticky in both the short and long runs.

D.

flexible in both the short and long runs.



3.

Possible explanations for sticky magazine prices include the hypotheses that the costs of charging the wrong price may ______, and perhaps customers ______ frequent price changes inconvenient.

A.

be great; do not find

B.

be great; find

C.

not be great; find

D.

not be great; do not find



4.

A difference between the economic long run and the short run is that:

A.

the classical dichotomy holds in the short run but not in the long run.

B.

monetary and fiscal policy affect output only in the long run.

C.

demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.

D.

prices and wages are sticky in the long run only.



5.

The relationship between the quantity of output demanded and the aggregate price level is called:

A.

aggregate demand.

B.

aggregate supply.

C.

aggregate output.

D.

aggregate consumption.



6.

If an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, using the quantity theory of money as a theory of aggregate demand, this curve slopes ______ to the right and gets ______ as it moves further to the right.

A.

downward; steeper

B.

downward; flatter

C.

upward; steeper

D.

upward; flatter



7.

According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P.

A.

higher; lower

B.

lower; higher

C.

higher; higher

D.

lower; lower



8.

The aggregate demand curve tells us possible:

A.

combinations of M and Y for a given value of P.

B.

combinations of M and P for a given value of Y.

C.

combinations of P and Y for a given value of M.

D.

results if the Federal Reserve reduces the money supply.



9.

When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______.

A.

greater; inward

B.

greater; outward

C.

lower; inward

D.

lower; outward



10.

Aggregate supply is the relationship between the quantity of goods and services supplied and the:

A.

money supply.

B.

unemployment rate.

C.

interest rate.

D.

price level.



11.

A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______.

A.

output; output

B.

prices; prices

C.

prices; output

D.

output; prices



12.

The natural level of output is:

A.

affected by aggregate demand.

B.

the level of output at which the unemployment rate is zero.

C.

the level of output at which the unemployment rate is at its natural level.

D.

permanent and unchangeable.



13.

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect:

A.

level of output but not prices.

B.

prices but not level of output.

C.

both prices and level of output.

D.

neither prices nor level of output.



14.

The short-run aggregate supply curve is horizontal at:

A.

a level of output determined by aggregate demand.

B.

the natural level of output.

C.

the level of output at which the economy's resources are fully employed.

D.

a fixed price level.



15.

The short run refers to a period:

A.

of several days.

B.

during which prices are sticky and unemployment may occur.

C.

during which capital and labor are fully employed.

D.

during which there are no fluctuations.



16.

If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ______ and output will ______.

A.

increase; increase

B.

decrease; decrease

C.

increase; decrease

D.

decrease; increase



17.

Stabilization policy:

A.

aims at keeping output and employment at their natural rates.

B.

always succeeds in keeping output and employment at their natural rates.

C.

is generally ineffective.

D.

does more harm than good.



18.

If the short-run aggregate supply curve is horizontal, and, if each member of the general public chooses to hold a larger fraction of his or her income as cash balances, then:

A.

output and employment will increase in the short run.

B.

output and employment will decrease in the short run.

C.

prices will increase in the short run.

D.

prices will decrease in the short run.



19.

A supply shock does not occur when:

A.

a drought destroys crops.

B.

unions push wages up.

C.

the Fed increases the money supply.

D.

an oil cartel increases world oil prices.



20.

If the short-run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in ______ prices and ______ output in the short run.

A.

higher; lower

B.

lower; higher

C.

higher; higher

D.

lower; lower



21.

In the short run an adverse supply shock causes:

A.

both prices and output to rise.

B.

prices to rise and output to fall.

C.

prices to fall and output to rise.

D.

both prices and output to fall.



22.

In the mid-1980s, oil prices ______, inflation was ______, and the unemployment rate ______.

A.

rose rapidly; high; rose

B.

rose slowly; moderate; high

C.

fell; low; declined

D.

fell; low; rose



23.

If the demand for money increases, but the Fed keeps the money supply the same, then in the short run output will:

A.

fall and in the long run prices will remain unchanged.

B.

remain unchanged and in the long run prices will fall.

C.

remain unchanged and in the long run prices will remain unchanged.

D.

fall and in the long run prices will fall.



24.

If Fed A cares only about keeping the price level stable and Fed B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:

A.

both Fed A and Fed B should increase the quantity of money.

B.

Fed A should increase the quantity of money whereas Fed B should keep it stable.

C.

Fed A should keep the quantity of money stable whereas Fed B should increase it.

D.

both Fed A and Fed B should keep the quantity of money stable.




STOP This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.