Question 1

Suppose the minimum wage decreases. Given this event, we would expect which of the following to occur?
A) A decrease in the interest rate in the medium run.
B) No change in the real wage in the medium run.
C) A decrease in the aggregate price level and an increase in output in the short run.
D) A decrease in the natural rate of unemployment.
E) All of the above.

Accepted Answer

E

Question 2

Suppose that the current price level is equal to the expected price level. Given this information, we know with certainty that:
A) the unemployment rate is equal to the natural rate of unemployment.
B) only the goods market is in equilibrium.
C) the goods market and financial markets are in equilibrium.
D) the unemployment rate is zero.
E) both the price level and the expected price level are equal to one.

Accepted Answer

When the current price level is equal to the expected price level, it typically indicates that the economy is in a state of equilibrium, where the actual unemployment rate aligns with the natural rate of unemployment. This natural rate includes frictional and structural unemployment but not cyclical unemployment caused by economic downturns.

Question 3

Assume that the economy is initially operating at the natural level of output. An increase in the price of oil will cause which of the following in the medium run?
A) An increase in output and a decrease in the interest rate.
B) A decrease in unemployment, an increase in the nominal wage and an increase in the aggregate price level.
C) An increase in the interest rate.
D) An increase in the aggregate price level and no change in output.
E) A decrease in output and an increase in the aggregate price level.

Accepted Answer

C

Question 4

Assume that the economy is initially operating at the natural level of output. When the central bank controls the interest rate, an increase in the price target will cause:
A) a decrease in the interest rate in the medium run.
B) an increase in investment in the medium run.
C) an increase in consumption in the medium run.
D) no change in the nominal wage in the medium run.
E) no change in the real wage in the medium run.

Accepted Answer

The answer of Assume that the economy is initially operating...

Question 5

In the aggregate supply relation, the current price level depends in the medium run upon:
A) fiscal policy.
B) business confidence.
C) consumer confidence.
D) monetary policy.
E) the expected price level.

Accepted Answer

According to the aggregate supply relation, the current price level in the medium run depends upon the expected price level. This is because producers will adjust their output and prices based on their expectations of future prices. Thus, if they expect the price level to increase, they will increase their prices as well.

Question 6

If u > un, we know with certainty that:
A) P = Pe.
B) Y > Yn.
C) Y = Yn.
D) P > Pe.
E) P < Pe.

Accepted Answer

The answer of If u > un, we know with...

Question 7

The aggregate demand curve has its particular shape because of which of the following explanations?
A) A decrease in the aggregate price level will cause an increase in the real wage, a decrease in employment, and a decrease in output.
B) A decrease in the aggregate price level will cause a decrease in the interest rate and an increase in output.
C) As the aggregate price level increases, goods and services become relatively more expensive and individuals respond by decreasing the quantity demanded of goods and services.
D) An increase in the money supply will cause an increase in the interest rate, a decrease in investment, and a decrease in output.
E) An increase in the aggregate price level prompts the government to decrease government spending in the hope of bringing down prices.

Accepted Answer

A decrease in the aggregate price level leads to lower interest rates, which increases investment and consumption, thereby increasing output, which explains the downward slope of the aggregate demand curve.

Question 8

Assume that the economy is initially operating at the natural level of output. A decrease in consumer confidence will cause:
A) an increase in investment in the short run.
B) a decrease in investment in the short run.
C) an increase in the interest rate in the medium run.
D) an increase in investment in the medium run.
E) a decrease in the real wage in the medium run.

Accepted Answer

The answer of Assume that the economy is initially operating...

Question 9

Results obtained from the Taylor model suggest that the output effects of a change in the money supply are greatest after approximately how long?
A) Three quarters.
B) Two years.
C) Five years.
D) One quarter.
E) One month.

Accepted Answer

The Taylor model, which is a macroeconomic model, suggests that the effects of a change in the money supply on output are typically greatest after approximately three quarters.

Question 10

Results obtained from the Taylor model suggest that it takes roughly how long for the effects of money to become neutral?
A) Ten years.
B) Three months.
C) One year.
D) One month.
E) Four years.

Accepted Answer

The answer of Results obtained from the Taylor model suggest...

Question 11

Suppose the central bank implements expansionary monetary policy. Which of the following will occur in the short run?
A) An increase in output.
B) A decrease in unemployment.
C) An increase in the price level.
D) A decrease in the interest rate.
E) All of the above.

Accepted Answer

Expansionary monetary policy is aimed at increasing the money supply, which leads to lower interest rates and increased spending by consumers and businesses. This, in turn, leads to an increase in aggregate demand, causing an increase in output and a decrease in unemployment. However, the increase in spending can also lead to an increase in the price level due to higher demand for goods and services. Therefore, all of the above choices are correct.

Question 12

Suppose the economy is operating at a point where output is less than the natural level of output. Which of the following statements is correct given this information?
A) The employment rate is greater than the natural employment rate.
B) The price level will be higher next period than this period.
C) The price level is less than the expected price level.
D) Workers will revise upwards price expectations.
E) The unemployment rate is less than the natural unemployment rate.

Accepted Answer

When output is less than the natural level, the price level is typically lower than expected because demand is weak, leading to lower-than-expected inflation or deflation.

Question 13

If Y > Yn, we know with certainty that:
A) P = Pe.
B) P < Pe.
C) u > un.
D) P > Pe.
E) u = un,.

Accepted Answer

According to the ideal gas law, PV=nRT, when Y > Yn, the pressure (P) must be greater than the equilibrium pressure (Pe) to maintain the same temperature (T) and number of moles (n). Therefore, P > Pe.

Question 14

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:
A) the output level.
B) the price level.
C) the interest rate.
D) the nominal wage.
E) All of the above.

Accepted Answer

A tax cut increases disposable income, leading to higher consumer spending. This boosts aggregate demand, causing an increase in the output level (A) and price level (B) in the short run. The higher demand for goods and services often leads to an increase in the demand for money, which can push up the interest rate (C). Additionally, as demand for labor increases to produce more goods, nominal wages (D) may also rise.

Question 15

Which of the following will cause the aggregate demand curve to shift to the right?
A) A decrease in taxes.
B) A decrease in the money supply.
C) A decrease in consumer confidence.
D) A decrease in the price level.
E) An increase in the price level.

Accepted Answer

A decrease in taxes increases consumers' disposable income, leading to higher spending and thus shifting the aggregate demand curve to the right.

Question 16

Assume the economy is initially operating at the natural level of output. Suppose that individuals decide to increase their saving. We know that this increased desire to save will be "neutral" in:
A) both the short run and the medium run.
B) the short run, but not the medium run.
C) the medium run and the long run.
D) neither the medium run nor the short run.
E) the medium run, but not the long run.

Accepted Answer

The answer of Assume the economy is initially operating at...

Question 17

In the aggregate supply relation, an increase in current output causes:
A) an increase in the expected price level and an upward shift of the AS curve.
B) a shift of the aggregate supply curve.
C) a change in the expected price level this year.
D) an increase in the current price level.
E) an increase in the markup over labour costs.

Accepted Answer

An increase in current output typically leads to an increase in the current price level due to higher demand for goods and services, which can cause prices to rise.

Question 18

At the current level of output, suppose the actual price level is greater than the price level that individuals expect. We know that:
A) any subsequent decrease in the aggregate price level will cause an increase in the real money supply and a rightward shift in the aggregate demand curve.
B) output is currently less than the natural level of output.
C) the interest rate will tend to rise as the economy adjusts to this situation.
D) the AS curve will tend to shift down over time.
E) the nominal wage will tend to decrease as individuals revise their expectations of the price level.

Accepted Answer

When the actual price level is greater than expected, it typically leads to higher interest rates as the economy adjusts, due to increased demand for money and potential inflationary pressures.

Question 19

For this question, assume that the economy is initially operating at the natural level of output. A fiscal contraction must cause:
A) an increase in investment in the short run.
B) a decrease in investment in the short run.
C) no change in investment in the medium run.
D) no change in investment in the short run.
E) an increase in investment in the medium run.

Accepted Answer

The answer of For this question, assume that the economy...

Question 20

Assume that the economy is initially operating at the natural level of output. An increase in the minimum wage will cause:
A) an increase in the nominal wage in the medium run.
B) no change in the real wage in the medium run.
C) an increase in the real wage in the medium run.
D) a decrease in the real wage in the medium run.
E) a decrease in the nominal wage in the medium run.

Accepted Answer

The answer of Assume that the economy is initially operating...

Quiz 7: Putting All Markets Together: the Asad Model

Suppose the minimum wage decreases. Given this event, we would expect which of the following to occur?

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

Assume that the economy is initially operating at the natural level of output. An increase in the price of oil will cause which of the following in the medium run?

Assume that the economy is initially operating at the natural level of output. When the central bank controls the interest rate, an increase in the price target will cause:

In the aggregate supply relation, the current price level depends in the medium run upon:

If u > un, we know with certainty that:

The aggregate demand curve has its particular shape because of which of the following explanations?

Assume that the economy is initially operating at the natural level of output. A decrease in consumer confidence will cause:

Results obtained from the Taylor model suggest that the output effects of a change in the money supply are greatest after approximately how long?

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

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

Suppose the economy is operating at a point where output is less than the natural level of output. Which of the following statements is correct given this information?

If Y > Yn, we know with certainty that:

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:

Which of the following will cause the aggregate demand curve to shift to the right?

Assume the economy is initially operating at the natural level of output. Suppose that individuals decide to increase their saving. We know that this increased desire to save will be "neutral" in:

In the aggregate supply relation, an increase in current output causes:

At the current level of output, suppose the actual price level is greater than the price level that individuals expect. We know that:

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

Assume that the economy is initially operating at the natural level of output. An increase in the minimum wage will cause: