National Income - Question Bank

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National Income

Q1. If people have rational expectations, a monetary policy contraction that is announced and is credible could (Select one answer) (a) reduce inflation with little or no increase in unemployment. (b) increase inflation but it would decrease unemployment by an unusually large amount. (c) increase inflation with little or no decrease in unemployment. (d) reduce inflation but it would increase unemployment by an unusually large amount.

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Q2. Which of the following is not a reason why the aggregate demand curve slopes downward? (Select one answer) (a) The exchange-rate effect (b) The wealth effect. (c) The classical dichotomy/monetary neutrality effects. (d) The interest-rate effect. (e) All of these answers are reasons why the aggregate-demand curve slopes downward.

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Q3. Which of the following events shifts the short-run aggregate supply curve to the right? (Select one answer) (a) a decrease in the money supply (b) a drop in oil prices (c) an increase in government spending on military equipment (d) an increase in price expectations

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Q5. The upward-sloping aggregate supply curve indicates that (Select one answer) (a) as firms increase their level of output, the cost of producing an extra unit increases (b) an increase in aggregate demand causes little, if any increase in real output (c) the economy is operating in the long run (d) any increase in aggregate demand causes the output of producers to fall because the general price level rises

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Q6. A group of modern economists who believe that markets clear very rapidly and that expanding the money supply will always increase prices rather than employment are the (Select one answer) (a) Keynesians (b) Monetarists (c) New Classical school (d) Post-Keynesians

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Q7. Those who hold the classical view of the labour market are likely to believe that (Select one answer) (a) monetary, but not fiscal policy will have an effect on output and employment. (b) fiscal but not monetary policy will have an effect on output and employment. (c) both monetary and fiscal policy will have an effect on output and employment. (d) neither monetary nor fiscal policy will have an effect on output and employment.

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Q8. An important difference between the approaches of the classical and Keynesian economists use to achieve a macroeconomic equilibrium is that (Select one answer) (a) Keynesian economists actively promote the use of fiscal policy; the classical economists do not (b) Keynesian economists actively promote the use of monetary policy to improve aggregate economic performance; classical economists do not (c) classical economists believe that monetary policy will certainly affect the level of output; Keynesians believe that money growth affects only prices (d) classical economists believe that fiscal policy is an effective tool for achieving economic stability; Keynesians do not

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Q9. Under New Classical macroeconomics monetary policy (Select one answer) (a) affects the level of equilibrium output (b) affects the composition of equilibrium output (c) affects both the level and composition of equilibrium output (d) none of the above

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Q11. In the classical model, given an initial aggregate equilibrium at full employment, the long run effect of an increase in government spending is (Select one answer) (a) an increase in the price level (b) an upward shift of the aggregate demand curve (c) a constant level of output (d) all of the above

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Q12. According to the model of aggregate supply and aggregate demand, in the long run, an increase in the money supply should cause (Select one answer) (a) prices to rise and output to rise. (b) prices to fall and output to remain unchanged. (c) prices to fall and output to fall. (d) prices to rise and output to remain unchanged.

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