QUESTION 1 The Keynesian short-run aggregate supply curve is demonstrated graphi

Question

QUESTION 1

The Keynesian short-run aggregate supply curve is demonstrated graphically as a

downward sloping curve.

horizontal line.

vertical line.

upward sloping curve.

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QUESTION 2

The gap that exists when equilibrium real GDP is greater than the level of real GDP shown by the position of the long-run aggregate supply curve is

a recessionary gap.

the short-run aggregate supply curve.

money illusion.

an inflationary gap.

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QUESTION 3

The condition of fully flexible wages and prices was assumed by

no economists.

the classical economists.

the Keynesian economists.

modern economists.

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QUESTION 4

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

the unemployment rate usually rises dramatically along with the price level.

workers can be switched from counted to uncounted production.

existing capital equipment can be used more intensively.

wage rates rise almost simultaneously with the price level.

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QUESTION 5

Which of the following is NOT an assumption of the classical system?

Wages and prices are inflexible.

People are motivated by self interest.

There is no money illusion.

Pure competition exists.

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QUESTION 6

All the following are assumptions of the classical model EXCEPT

pure competition exists.

buyers and sellers react to nominal money prices rather than to relative prices.

wages and prices are flexible.

people are motivated by self-interest.

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QUESTION 7

The simple Keynesian model assumes that

there will never be any excess capacity in the short run.

gross private domestic investment exceeds net investment by the capital consumption allowance.

prices, especially the price of wages, are "sticky downward."

aggregate demand will always equal aggregate supply.

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QUESTION 8

The classical model assumes that

imperfect competition predominates in most markets.

wages are flexible but prices are not.

wages and prices are flexible.

people have money illusion.

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QUESTION 9

Government spending increased causing aggregate demand to increase.

Both the labor force and the population increased.

Winter storms cause factories in the north to be shut down for several weeks.

Unusually good weather causes the wheat crop to be larger than normal.

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QUESTION 10

1

2

4

5

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QUESTION 11

Which one of the following statements is true?

The shape of the Keynesian short-run aggregate supply curve is based on the conclusion that increases in aggregate demand can boost output in the short term.

The shape of the Keynesian short-run aggregate supply curve is based on the conclusion that there is no correlation between the level of real GDP and the employment level.

The shape of the Keynesian short-run aggregate supply curve is based on the conclusion that increases in aggregate demand will increase the price level, but will leave real GDP unaffected in the short term.

The shape of the Keynesian short-run aggregate supply curve is based on the conclusion that domestic workers are harmed by imports.

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QUESTION 12

Say's law explains

how long-term real Gross Domestic Product (GDP) stability is achieved in the classical model.

how the economy can go into recession.

why economies experience business cycles.

how long-run real Gross Domestic Product (GDP) stability is achieved in the Keynesian model.

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QUESTION 13

In a classical model,

equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand.

equilibrium real GDP is supply determined.

equilibrium real GDP is demand determined.

equilibrium real GDP is determined by both aggregate supply and aggregate demand.

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QUESTION 14

The original Keynesian economic theory states that

the economy naturally self-regulates so as to reach full employment quickly.

the short-run aggregate supply (SRAS) curve is always vertical.

wages tend to fall more quickly than the overall price level.

many prices would not decline even when aggregate demand decreases.

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QUESTION 15

If a shift in aggregate demand only affects real Gross Domestic Product (GDP), then the short-run aggregate supply (SRAS) curve must be

horizontal.

downward sloping.

vertical.

upward sloping.

downward sloping curve.

horizontal line.

vertical line.

upward sloping curve.

Explanation / Answer

Ans 1)

In short run supply curve will be vertical line

Hence option 3 is correct answer

Ans 2)

It is recessionary Gap Hence option A is correct answer

Ans 3)

The Classical economists Option B is correct answer

Ans 4)

Option C is correct answer as capital can be used more efficiently

Ans 5)

Option A ...Prices and wages are flexible is correct

Ans 6)

Option B

ANs 7)

Option C is correct ( As firms dont change their prices for short run)

Ans 8)

Option C is correct as prices and wages are flexible as per classical economics

Ans 14)

Option D is correct answer

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