Download homework 2 (chapter 33) eco 11 fall 2006 udayan roy

HOMEWORK 2 (CHAPTER 33) ECO 11 FALL 2006 UDAYAN ROY
Each correct answer is worth 1 point. The maximum score is 10 points.
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1. According to the classical economic theory (of the long run), changes in the money supply affect
a. real GDP.
b. real interest rates.
c. the price level.
d. All of the above are correct.
2. Most economists believe that classical economic theory is a good description of the world
a. in neither the short nor long run.
b. in the short run and in the long run.
c. in the short run, but not in the long run.
d. in the long run, but not in the short run.
3. Which of the sentences concerning the aggregate demand and aggregate supply model is correct?
a. The aggregate demand and supply model is nothing more than a large version of the model
of market demand and supply.
b. The price level adjusts to bring aggregate demand and supply into balance.
c. The aggregate supply curve shows the quantity of goods and services that households,
firms, and the government want to buy at each price.
d. All of the above are correct.
4. A decrease in the price level induces people to hold
a. less money, so they lend less, and the interest rate rises.
b. less money, so they lend more, and the interest rate falls.
c. more money, so they lend more, and the interest rate rises.
d. more money, so they lend less, and the interest rate falls.
5. A decrease in the price level causes the aggregate quantity of goods and services demanded to
increase because
a. wealth falls, interest rates rise, and the dollar appreciates.
b. wealth falls, interest rates rise, and the dollar depreciates.
c. wealth rises, interest rates rise, and the dollar appreciates.
d. wealth rises, interest rates fall, and the dollar depreciates.
6. Which of the following shifts aggregate demand curve to the right?
a. an increase in the money supply
b. an increase in net exports at every exchange rate
c. an investment tax credit
d. All of the above are correct.
7. If countries that imported from the United States went into recession, we would expect that U.S.
net exports would
a. rise, making aggregate demand (curve) shift right.
b. rise, making aggregate demand shift left.
c. fall, making aggregate demand shift right.
d. fall, making aggregate demand shift left.
8. The aggregate supply curve is upward sloping rather than vertical in
a. the short and long run.
b. neither the short nor long run.
c. the long run, but not the short run.
d. the short run, but not the long run.
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9. According to the sticky wage theory of the short-run aggregate supply curve if workers and firms
expected prices to rise by 2 percent but instead they rise by 3 percent, real wages
a. rise, so firms will hire more workers.
b. rise, so firms will hire fewer workers.
c. fall, so firms will hire more workers.
d. fall, so firms will hire fewer workers.
____ 10. Which of the following shifts the short-run, but not the long-run aggregate supply curve to the
right?
a. a decrease in the price level
b. a decrease in the expected price level
c. a decrease in the capital stock
d. an increase in the money supply
Price Level
A
B
D
C
Quantity of Output
____ 11. Refer to the figure above. An increase in the money supply would move the economy from C to
a. B in the short run and the long run.
b. D in the short run and the long run.
c. B in the short run and A in the long run.
d. D in the short run and C in the long run.
____ 12. An economic contraction caused by a shift in aggregate demand remedies itself over time as the
expected price level
a. rises, shifting aggregate demand right.
b. rises, shifting aggregate demand left.
c. falls, shifting aggregate supply right.
d. falls, shifting aggregate supply left.