Question 1

According to Say’s Law, what is the relationship between supply and demand in the classical model?

Accepted Answer

Supply creates its own demand, so desired expenditures always equal actual expenditures.

Question 2

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

Accepted Answer

The government actively manages aggregate demand.

Question 3

In the classical model, what ensures that the amount of credit demanded equals the amount supplied in the credit market?

Accepted Answer

The interest rate adjusts to equate saving and investment.

Question 4

If the price level and wages both double, but a worker believes they are better off, this is an example of:

Accepted Answer

Money illusion

Question 5

Which of the following best describes the shape of the long-run aggregate supply (LRAS) curve in the classical model?

Accepted Answer

Vertical at the full-employment level of real GDP

Question 6

Keynesian economists argue that in the short run, wages and prices are:

Accepted Answer

Sticky downward, preventing the economy from self-correcting quickly

Question 7

In the Keynesian model, what is the effect of an increase in aggregate demand when the economy is operating below full employment?

Accepted Answer

Real GDP increases without a change in the price level

Question 8

Which of the following events would cause a leftward shift in the short-run aggregate supply (SRAS) curve but not the long-run aggregate supply (LRAS) curve?

Accepted Answer

A temporary increase in oil prices

Question 9

Suppose the economy is at full employment and aggregate demand decreases. According to the classical model, what will happen in the long run?

Accepted Answer

Wages and prices will fall, restoring full employment.

Question 10

Which of the following best describes demand-pull inflation?

Accepted Answer

Inflation caused by increases in aggregate demand not matched by increases in aggregate supply

Question 11

A recessionary gap exists when:

Accepted Answer

Equilibrium real GDP is less than full-employment real GDP

Question 12

Which of the following would shift both the short-run and long-run aggregate supply curves to the right?

Accepted Answer

An increase in the capital stock

Question 13

If the short-run aggregate supply curve shifts leftward while aggregate demand remains stable, what type of inflation is most likely to occur?

Accepted Answer

Cost-push inflation

Question 14

Which of the following is a likely result of an inflationary gap?

Accepted Answer

Equilibrium real GDP exceeds full-employment real GDP

Question 15

In the classical model, what is the effect of an increase in aggregate demand on real GDP and the price level?

Accepted Answer

The price level rises, but real GDP remains at full employment

Question 16

Which of the following best explains why the Keynesian short-run aggregate supply curve is horizontal over much of its range?

Accepted Answer

Wages and prices are sticky, so output can increase without raising the price level

Question 17

Suppose a country experiences a sudden, permanent reduction in its oil reserves. What is the likely effect on its aggregate supply curves?

Accepted Answer

Both the SRAS and LRAS curves shift leftward

Question 18

Which of the following scenarios best illustrates cost-push inflation?

Accepted Answer

A sudden increase in energy prices causes the SRAS curve to shift left, raising the price level.

Question 19

Which of the following is a key difference between the classical and Keynesian models regarding unemployment?

Accepted Answer

The classical model assumes wages adjust to eliminate unemployment, while the Keynesian model allows for persistent unemployment due to sticky wages.

Classical and Keynesian Macro Analyses: Short-Run Equilibrium, Aggregate Supply, and Inflation

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