Question 1

The purpose of Keynesian analysis is to explain what to determines the
A)size of the labor force
B)price level
C)amount of money required in the economy
D)levels of national income, output and employment

Accepted Answer

Keynesian analysis primarily focuses on understanding the determinants of national income, output, and employment levels. It emphasizes the role of aggregate demand in influencing these economic indicators, rather than the size of the labor force, price level, or the amount of money required in the economy directly.

Question 2

In the Keynesian range of the SRAS, if AD shift to the right, then
A)the price level falls
B)the price level rises
C)real gdp is unchanged
D)the price level is unchanged

Accepted Answer

In the Keynesian range of the Short-Run Aggregate Supply (SRAS) curve, the economy is at a level of output where increases in demand do not lead to increases in prices, because there are enough idle resources (like labor) to meet the increased demand. Therefore, when Aggregate Demand (AD) shifts to the right, the price level remains unchanged, and output increases to meet the higher demand.

Question 3

If the aggregate supply curve is perfectly elastic as in the Keynesian model at low level of national incomes, as increase in AD will cause an increase in
A)the rate of inflation
B)the level of real national output
C)the government budget deficit
D)the level of consumer debt

Accepted Answer

In the Keynesian model, when the aggregate supply curve is perfectly elastic at low levels of national income, an increase in aggregate demand (AD) leads to an increase in the level of real national output without affecting the price level, hence not causing inflation. This scenario does not directly relate to changes in the government budget deficit or the level of consumer debt.

Question 4

Attempts to force inflation below no-accelerating inflation rate of unemployment (NAIRU) will cause:
A)inflation accelerate without any change in employment or output
B)inflation to decelerate with rising employment and output
C)inflation to decelerate with employment and output remaining the same
D)inflation to remain unchanged with fall in employment and output

Accepted Answer

Forcing inflation below the NAIRU typically results in accelerating inflation without impacting employment or output levels, as the economy tries to adjust back to its natural rate of unemployment.

Question 5

Which of the following is true with respect to the monetary approach to the balance of payments?
A)it views the balance of payments as an essentially monetary phenomenon
B)a balance of payments deficit results from an excess demand of money in the nation
C)a balance of payments surplus results from an excess supply of money
D)balance of payments disequilibrium are not automatically corrected in the long run

Accepted Answer

The monetary approach to the balance of payments views it as primarily a monetary phenomenon, emphasizing the role of the money supply, money demand, and how imbalances are corrected by changes in the domestic price level and exchange rates.

Question 6

According to monetarists, money supply constitutes
A)currency+ demand deposits
B)currency +demand deposits+time deposits
C)currency + demand deposits + equity shares
D)currency + all kinds of banks + deposits with other institutions + borrowing

Accepted Answer

The answer of According to monetarists, money supply constitutes
A)currency+ demand...

Question 7

According to monetary approach a revaluation of a nation's currency
A)increase the nation's demand for money
B)increase the nation's supply of money
C)reduces the nation's demand for money
D)reduces the nation's supply of money

Accepted Answer

A revaluation of a nation's currency makes domestic goods more expensive relative to foreign goods, reducing the demand for money as people hold less domestic currency for transactions.

Question 8

what is the foundation of monetarism?
A)quantity theory of money
B)demand theory
C)islm model
D)none of these

Accepted Answer

Monetarism is primarily based on the quantity theory of money, which posits that changes in the money supply have direct and proportional effects on the price level and thus on inflation and economic activity.

Question 9

Suppose that the money stock is $10 billion, each dollar generates $ 5worth of spending, and the NAIRU is 7%. According to the quantity theory of what is nominal GDP (income)
A)$ 350 million
B)$ 70 million
C)$ 35 million
D)$ 50 million

Accepted Answer

According to the quantity theory of money, nominal GDP is calculated by multiplying the money stock by the velocity of money. Here, the money stock is $10 billion and the velocity is 5, so nominal GDP is $10 billion * 5 = $50 billion.

Question 10

When there are vacancies in the job-market, but also high levels of unemployment, then we could say that this unemployment is?
A)cyclical
B)regional
C)seasonal
D)structural

Accepted Answer

This situation is indicative of structural unemployment, which occurs when there is a mismatch between the skills that workers offer and the skills demanded by employers. This can happen due to technological changes, shifts in the economy, or other factors that change the nature of job opportunities without necessarily reducing the overall number of jobs available.

Question 11

Demand-side unemployment is partly caused by:
A)imperfections in the labour market
B)occupational and geographic immobility of factors
C)demographic changes
D)a lack of aggregate demand

Accepted Answer

Demand-side unemployment, also known as cyclical unemployment, occurs when there is not enough demand for goods and services in the economy to provide jobs for everyone who wants one. This lack of demand leads to a decrease in production, which in turn leads to layoffs and unemployment. Therefore, it is directly related to a lack of aggregate demand.

Question 12

According to the basic classical model, an increase in the money supply will cause
A)employment to increase.
B)the price level to increase.
C)output to increase.
D)investment to increase.

Accepted Answer

In the classical model, an increase in the money supply is primarily seen as causing inflation, or an increase in the price level, without affecting real variables like employment, output, or investment in the long run.

Question 13

Why does a temporary decrease in government purchases decrease labour supply in the classical model?
A)the fall in government spending decreases labour demand, decreasing the real wage, and so people decrease their labour supply.
B)the decrease in current or future taxes needed to pay for the decrease in government purchases increases people\s wealth.
C)people prefer to work less when the government is doing less for them.
D)decreased government purchases make people worse off, so they work less hours.

Accepted Answer

A temporary decrease in government purchases implies lower current or future taxes, increasing individuals' perceived wealth, leading them to supply less labor as they feel wealthier.

Quiz 4: Keynesian Analysis, Monetary Approach, and Classical Model

The purpose of Keynesian analysis is to explain what to determines the

In the Keynesian range of the SRAS, if AD shift to the right, then

If the aggregate supply curve is perfectly elastic as in the Keynesian model at low level of national incomes, as increase in AD will cause an increase in

Attempts to force inflation below no-accelerating inflation rate of unemployment (NAIRU) will cause:

Which of the following is true with respect to the monetary approach to the balance of payments?

According to monetarists, money supply constitutes

According to monetary approach a revaluation of a nation's currency

what is the foundation of monetarism?

Suppose that the money stock is $10 billion, each dollar generates $ 5worth of spending, and the NAIRU is 7%. According to the quantity theory of what is nominal GDP (income)

When there are vacancies in the job-market, but also high levels of unemployment, then we could say that this unemployment is?

Demand-side unemployment is partly caused by:

According to the basic classical model, an increase in the money supply will cause

Why does a temporary decrease in government purchases decrease labour supply in the classical model?