Exam

Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
For this question, assume that the economy is initially operating at the natural level of output. An increase in taxes will
cause which of the following?
1)
_______

A)
an increase in the aggregate price level, no change in output and no change in the interest rate in the medium run
B)
an increase in investment in the medium run
C)
a reduction in output and no change in the aggregate price level in the short run
D)
a reduction in employment and no change in the nominal wage in the short run

2)
For this question, assume that the economy is initially operating at the natural level of output. A one-time 7% increase in
the nominal money supply will cause
2)
_______

A)
a 7% increase in the real money supply in the medium run .
B)
a 7% increase in the price level in the medium run .
C)
a 7% reduction in the interest rate (i) in the medium run.
D)
all of the above

3)
Answer this question using the AS/AD model presented in the textbook. Which of the following would cause a reduction
in the natural level of output in the medium run?
3)
_______

A)
an increase in taxes
B)
a decrease in the money supply
C)

a decrease in government spending

D)
both A and C
E)
none of the above

4)
Which of the following represents the medium-run effect of a reduction in the money supply?
4)
_______

A)
an increase in the interest rate
B)
a decline in output
C)
a decrease in the price level
D)
all of the above
E)
none of the above

5)
Assume the economy is initially operating at the natural level of output. Now suppose that individuals decide to reduce
their desire to save. We know with certainty that which of the following will occur in the short run as a result of decreased
desire to save?
5)
_______

A)
greater investment
B)
no change in the economy at all
C)
an increase in the nominal wage
D)
higher output and lower investment
E)
less investment

6)
Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for a
tax cut. This fiscal expansion will, in the medium run, have no effect on which of the following?

6)
_______

A)
the interest rate
B)
the price level
C)
employment
D)
all of the above
E)
none of the above

7)
Results obtained from the Taylor model suggest that the effects of changes in the nominal money supply are neutral after
7)
_______
2 years.

A)

B)
4 years.
C)
6 years.
D)
8 years.

8)
Suppose the minimum wage increases. Given this event, we would expect which of the following to occur?
8)
_______

A)
an increase in the interest rate in the medium run
B)
no change in the real wage in the medium run
C)

an increase in the aggregate price level as output increases

D)
all of the above

9)
If Y > Yn, we know with certainty that
9)
_______
P < Pe.

A)

B)
P = Pe.
C)
P > Pe.
D)
u > un.

10)
Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for a
tax cut. This fiscal expansion will, in the short run, cause an increase in
10)
______

A)
the nominal wage.
B)
the price level.
C)
the interest rate.
D)
all of the above
E)
none of the above

11)

Which of the following will cause the aggregate demand curve will shift to the left?
11)
______

A)
an increase in taxes
B)
a decrease in the price level
C)
an increase in the money supply
D)
a rise in the price level
E)
an increase in consumer confidence

12)
For this question, assume that the economy is initially operating at the natural level of output. A fiscal contraction must
cause
12)
______

A)
no change in investment in the medium run.
B)
an increase in investment in the short run.
C)
a reduction in investment in the short run.
D)
an increase in investment in the medium run.
E)
none of the above

13)
For this question, assume that the economy is initially operating at the natural level of output. A monetary expansion will
cause
13)
______

A)
no change in the real wage in the medium run.
B)
no change in the nominal wage in the medium run.
C)
a reduction in the interest rate in the medium run.

D)
an increase in investment in the medium run.

14)
Results obtained from the Taylor model suggest that the output effects of a change in the money supply are greatest after
approximately how long?
14)
______
one month
one quarter
three quarters
four years
ten years

A)
B)
C)
D)
E)

15)
In the aggregate demand relation, a reduction in the price level causes output to increase because of its effect on
15)
______

A)
the interest rate.
B)
firms' markup over labor costs.
C)
government spending.
D)
the expected price level.
E)
the nominal wage.

16)
An increase in the aggregate price level will cause
16)
______

A)

an upward shift in the LM curve and an increase in the interest rate.

B)
a reduction in the interest rate and a rightward shift in the IS curve.
C)
an increase in investment and an increase in output.
D)
an ambiguous effect on investment.

17)
Which of the following events will cause an increase in the aggregate price level?
17)
______

A)
an increase in the unemployment rate
B)
a reduction in the markup
C)
an increase in the unemployment benefits
D)
a reduction in Pe
E)
none of the above

18)
A reduction in the price of oil will tend to cause which of the following?
18)
______

A)
no change in the interest rate in the medium run
B)
an increase in the aggregate price level as output increases
C)
an increase in investment in the medium run
D)
no change in the real wage in the medium run

19)
Suppose that the current price level is equal to the expected price level. Given this information, we know with certainty
that
19)

______

A)
both the price level and the expected price level are equal to one.
B)
the goods market and financial markets are in equilibrium.
C)
the unemployment rate is zero.
D)
the unemployment rate is equal to the natural rate of unemployment.
E)
none of the above

20)
For this question, assume that the economy is initially operating at the natural level of output. A reduction in consumer
confidence will cause
20)
______

A)
ambiguous effects on investment in the medium run.
B)
an increase in investment in the short run.
C)
a reduction in the real wage in the medium run.
D)
an increase in the interest rate in the medium run.
E)
none of the above

21)
For this question, assume that the economy is initially operating at the natural level of output. A simultaneous reduction
in taxes and reduction in the money supply will cause which of the following?
21)
______

A)
a reduction in investment in the medium run
B)
an increase in output and an increase in the aggregate price level in the short run
C)
an increase in the aggregate price level, no change in output, and no change in the interest rate in the medium run
D)
a reduction in output and a reduction in the nominal wage in the short run
E)

a reduction in the interest rate in the medium run

22)
An increase in the price of oil will tend to cause which of the following?
22)
______

A)
an increase in the natural rate of unemployment
B)
an increase in the interest rate
C)
an increase in the price level
D)
all of the above

23)
Results obtained from the Taylor model suggest that it takes roughly how long for the effects of money to become neutral?

23)
______
one month
three months
one year
four years
ten years

A)
B)
C)
D)
E)

24)
For this question, assume that the economy is initially operating at the natural level of output. A reduction in consumer
confidence will cause
24)
______

A)
an increase in the real wage in the medium run.
B)

ambiguous effects on the real wage in the medium run.

C)
no change in the real wage in the medium run.
D)
a reduction in the real wage in the medium run.

25)
The aggregate supply curve will shift up when which of the following occurs?
25)
______

A)
a reduction in the expected price level
B)
a reduction in firms' markup over labor costs
C)
a reduction in unemployment benefits
D)
all of the above
E)
none of the above

26)
The short-run aggregate supply curve (AS) presented in the textbook has its particular shape because of which of the
following explanations?
26)
______

A)
A drop in the nominal wage causes an increase in the amount of output that firms are willing to produce.
B)
An increase in the aggregate price level causes an increase in nominal money demand and an increase in the interest rate.
C)
A reduction in output causes a reduction in employment, an increase in unemployment, a reduction in the nominal wage
and a reduction in the price level.
D)
A reduction in the aggregate price level will cause a reduction in the interest rate and an increase in output.

27)
Suppose the central bank implements contractionary monetary policy. Which of the following will occur in the short run?

27)

______

A)
a decrease in the price level
B)
an increase in the interest rate
C)
a decrease in output
D)
all of the above
E)
none of the above

28)
If u > un, we know with certainty that
28)
______
P = Pe.

A)

B)
P < Pe.
C)
P > Pe.
D)
Y > Yn.

29)
The neutrality of money is consistent with which of the following statements?
29)
______

A)
Changes in the money supply will not affect the price level in the medium run.
B)
Changes in the money supply will not affect the price level in the short run.
C)
Changes in the money supply will not affect employment in the medium.

D)
Changes in the money supply will not affect employment in the short run.

30)
In the aggregate supply relation, the current price level depends upon
30)
______

A)
monetary policy.
B)
expected price level.
C)
fiscal policy.
D)
consumer confidence.
E)
all of the above

1)
B

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