The gdp gap shrinks

Question 1

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its ________ and its ________.

a. natural level of output; cyclical unemployment rate

b. potential GDP; natural rate of unemployment

c. long term growth; cyclical unemployment

d. real GDP; natural rate of unemployment

Question 2

The ________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment?

a. market forces

b. Keynesian

c. neoclassical

d. flexible wage and price

Question 3

Which of the following represents a Keynesian point of view of macroeconomics?

a. creating increases in aggregate demand to reduce unemployment

b. aggregate supply is the primary determinate of economic output

c. focus on long-term growth in the economy

d. vertical aggregate supply

Question 4

Consumption, investment, government spending, exports, and imports are:

a. some of the opposing elements found in a market-orientated economy.

b. all complementary elements of a market-orientated economy.

c. some of the building blocks of Keynesian analysis.

d. all components of aggregate demand.

Question 5

In the neoclassical model, the AS curve shifts to the right over time as________ and potential GDP expands.

a. the level of real output drops

b. aggregate demand increases

c. productivity increases

d. the macroeconomy adjusts back to real GDP

Question 6

The shape of the ________ involves a tradeoff between unemployment and inflation.

a. Keynesian demand curve

b. aggregate supply curve

c. Phillips curve

d. aggregate demand curve

Question 7

In the Keynesian version of the AD/AS model, which of the following should you use to represent the AS curve?

a. the AS curve shifting as potential GDP expands

b. a horizontal line drawn at the existing aggregate price level

c. an upward sloping curve with a vertical top

d. the AS curve shifting as productivity increases

Question 8

A horizontal AS curve means that changes in GDP will be caused by:

a. changes in potential output.

b. changes in aggregate demand.

c. cyclical unemployment

Question 9

Fill in the blanks. As disposable income increases, consumption expenditures ________ and autonomous consumption will ________.

a. decrease; increase

b. decrease; remain the same

c. increase; increase

d. increase; remain the same

Question 10

If John's consumption expenditure increases from $2500 to $3500 when his disposable income increases from $4000 to $6000, then which of the following is true?

a. John's consumption function has shifted.

b. John's consumption function has a slope of 0.5.

c. John is dissaving.

d. John's consumption function has a slope of 0.2.

Question 11

The GDP gap shrinks

a. as the government uses discretionary fiscal policy to reduce the budget deficit.

b. as the Fed contracts the economy.

c. as the economy recovers from recession.

Question 12

Over the long run, the GDP gap

a. tends to be positive.

b. tends to be zero.

c. tends to be negative.

Question 13

A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of:

a. real unemployment.

b. aggregate demand.

c. cyclical unemployment.

Question 14

What is the best explanation for the slope of the Neoclassical part of the aggregate supply curve?

a. an increase in aggregate demand causes real output to grow and the price level to increase.

b. an increase in aggregate demand when the economy is operating below potential output is causes real output to grow, with no effect on the price level.

c. an increase in aggregate demand when the economy is operating at potential output causes the price level to rise, with no effect on real output.

Question 15

An accurate interpretation of the long-run aggregate supply curve acknowledges both that real GDP does not vary with the price level and:

a. the amount of cyclical unemployment is zero.

b. the amount of structural unemployment is zero.

c. the amount of frictional unemployment is zero

d. the total amount of unemployment is zero.

Question 16

Which of the following accurately contrasts short-run and long-run equilibrium?

a. In short-run equilibrium, the aggregate demand curve intersects the short-run aggregate supply curve; in the long-run equilibrium, the aggregate demand curve intersects the long-run aggregate expenditures curve.

b. In short-run equilibrium, the aggregate demand curve intersects the short-run aggregate supply curve; in the long-run equilibrium, the aggregate demand curve intersects the long-run aggregate supply curve.

c. In short-run equilibrium, the aggregate demand curve intersects the short-run aggregate supply curve; in long-run equilibrium, the aggregate demand curve intersects the short-run aggregate supply curves.

Question 17

If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur?

a. a rise in unemployment

b. less consumption and more saving

c. increase in price inflation

d. adjustment back to potential GDP

Question 18

The Keynesian model focuses more on ________ and the neo-classical model focuses more on ________.

a. Short term fluctuations caused by business cycles, long-run determinants of output and employment.

b. Short term fluctuations caused by technological change and labor force growth, long-run determinants of output and employment.

c. Long-run determinants of output and employment, short term fluctuations caused by business cycles.