Download Chapter 12 Keynesian Business Cycle Theory: The Sticky Price Model

Macroeconomics, 3e (Williamson)
Chapter 12 Keynesian Business Cycle Theory: The Sticky Price Model
1) A labor contract in which future wage increases are adjusted in the light of future inflation is
called
A) a union contract.
B) an adjustable contract.
C) an indexed contract.
D) an inflation-adjusted contract.
Answer: C
Question Status: Previous Edition
2) In the Keynesian sticky wage model, Keynesian unemployment refers to the
A) number of workers receiving unemployment compensation.
B) number of workers who stop looking for work because they believe that they will not
find work.
C) difference between labor supply and labor demand at the sticky wage.
D) difference between labor supply and labor demand at the market clearing wage.
Answer: C
Question Status: Previous Edition
3) In the Keynesian sticky wage model, the aggregate supply curve is upward sloping because,
at the fixed nominal wage, an increase in the price level
A) increases the real wage and increases labor supply.
B) increases the real wage and increases labor demand.
C) decreases the real wage and increases labor supply.
D) decreases the real wage and increases labor demand.
Answer: D
Question Status: Previous Edition
4) In the Keynesian sticky wage model, an increase in the nominal wage shifts the aggregate
A) supply curve to the right.
B) supply curve to the left.
C) demand curve to the right.
D) demand curve to the left.
Answer: B
Question Status: Previous Edition
5) In the Keynesian sticky wage model, an increase in the price level
A) shifts the aggregate supply curve to the right.
B) shifts the aggregate supply curve to the left.
C) does not shift the aggregate supply curve.
D) shifts the aggregate supply curve in unpredictable ways.
Answer: C
Question Status: New
6) In the Keynesian sticky wage model, an increase in government expenses
A) shifts the aggregate supply curve to the right.
B) shifts the aggregate supply curve to the left.
C) does not shift the aggregate supply curve.
D) shifts the aggregate supply curve in unpredictable ways.
Answer: C
Question Status: New
7) In the Keynesian sticky wage model, a drop in current capital
A) shifts the aggregate supply curve to the right.
B) shifts the aggregate supply curve to the left.
C) does not shift the aggregate supply curve.
D) shifts the aggregate supply curve in unpredictable ways.
Answer: B
Question Status: New
8) In the Keynesian sticky wage model, an increase in current total factor productivity shifts
the aggregate
A) supply curve to the right.
B) supply curve to the left.
C) demand curve to the right.
D) demand curve to the left.
Answer: A
Question Status: Previous Edition
9) The IS in IS curve means
A) interest substitution.
B) interest sticky.
C) investment-savings.
D) intertemporal substitution.
Answer: C
Question Status: New
10) The IS curve in the Keynesian sticky wage model is identical to which of the following in the
intertemporal monetary model?
A) the output supply curve
B) the output demand curve
C) the labor demand curve
D) none of the above
Answer: B
Question Status: Previous Edition
11) The IS curve in the Keynesian sticky wage model represents output demand at different
levels of
A) the price level.
B) the real interest rate.
C) the nominal wage rate.
D) total factor productivity.
Answer: B
Question Status: Previous Edition
12) What shifts the IS curve to the right?
A) a decrease in government expenses
B) a decrease in future total factor productivity
C) an increase in current total factor productivity
D) an increase in the money supply
Answer: C
Question Status: New
13) The LM curve represents
A) output-price level combinations at which money supply and money demand are equal.
B) output-real interest rate combinations at which money supply and money demand are
equal.
C) real interest rate-price level combinations at which money supply and money demand
are equal.
D) none of the above.
Answer: B
Question Status: Previous Edition
14) The LM in LM curve means
A) long-run money.
B) liquidity market.
C) loan market.
D) lifetime money.
Answer: B
Question Status: New
15) The LM curve is upward sloping because
A) money demand is positively related to output and negatively related to the interest
rate.
B) money demand is positively related to output and the real money supply is negatively
related to the price level.
C) money demand is negatively related to the interest rate and the real money supply is
negatively related to the price level.
D) none of the above
Answer: A
Question Status: Previous Edition
16) An increase in current government purchases shifts the
A) IS curve to the right.
B) IS curve to the left.
C) LM curve to the right.
D) LM curve to the left.
Answer: A
Question Status: Previous Edition
17) An increase in the present value of taxes shifts the
A) IS curve to the right.
B) IS curve to the left.
C) LM curve to the right.
D) LM curve to the left.
Answer: B
Question Status: Previous Edition
18) An anticipated future increase in future income shifts the
A) IS curve to the right.
B) IS curve to the left.
C) LM curve to the right.
D) LM curve to the left.
Answer: A
Question Status: Previous Edition
19) An increase in future total factor productivity shifts the
A) IS curve to the right.
B) IS curve to the left.
C) LM curve to the right.
D) LM curve to the left.
Answer: A
Question Status: Previous Edition
20) A decrease in the capital stock shifts the
A) IS curve to the right.
B) IS curve to the left.
C) LM curve to the right.
D) LM curve to the left.
Answer: A
Question Status: Previous Edition
21) An increase in the money supply shifts the
A) IS curve to the right.
B) IS curve to the left.
C) LM curve to the right.
D) LM curve to the left.
Answer: C
Question Status: Previous Edition
22) An increase in the current price level shifts the
A) IS curve to the right.
B) IS curve to the left.
C) LM curve to the right.
D) LM curve to the left.
Answer: D
Question Status: Previous Edition
23) A positive shift in the money demand curve shifts the
A) IS curve to the right.
B) IS curve to the left.
C) LM curve to the right.
D) LM curve to the left.
Answer: D
Question Status: Previous Edition
24) In the Keynesian sticky wage model, the aggregate demand curve represents combinations
of
A) the price level and the level of output at which the goods market and the labor market
are in equilibrium.
B) the price level and the level of output at which the goods market and the money
market are in equilibrium.
C) the real interest rate and the level of output at which the goods market and the labor
market are in equilibrium.
D) the real interest rate and the level of output at which the goods market and the money
market are in equilibrium.
Answer: D
Question Status: Previous Edition
25) In the Keynesian sticky wage model, an increase in current government spending shifts
A) the aggregate supply curve to the right.
B) the aggregate supply curve to the left.
C) the aggregate demand curve to the right.
D) the aggregate demand curve to the left.
Answer: C
Question Status: Previous Edition
26) In the Keynesian sticky wage model, an increase in future total factor productivity shifts the
aggregate
A) supply curve to the right.
B) supply curve to the left.
C) demand curve to the right.
D) demand curve to the left.
Answer: C
Question Status: Previous Edition
27) In the Keynesian sticky wage model, an increase in the money supply shifts the aggregate
A) supply curve to the right.
B) supply curve to the left.
C) demand curve to the right.
D) demand curve to the left.
Answer: C
Question Status: Previous Edition
28) In the Keynesian sticky wage model, an increase in the money supply
A) has no effect on the price level.
B) causes a less than proportional increase in the price level.
C) causes an equiproportional increase in the price level.
D) causes a more than proportional increase in the price level.
Answer: B
Question Status: Previous Edition
29) In the Keynesian sticky wage model, an increase in the money supply
A) increases output and increases the real interest rate.
B) increases output and decreases the real interest rate.
C) decreases output and increases the real interest rate.
D) decreases output and decreases the real interest rate.
Answer: B
Question Status: Previous Edition
30) In the Keynesian sticky wage model, an increase in current government spending
A) increases output and increases the real interest rate.
B) increases output and decreases the real interest rate.
C) decreases output and increases the real interest rate.
D) decreases output and decreases the real interest rate.
Answer: A
Question Status: Previous Edition
31) In the Keynesian sticky wage model, an increase in current total factor productivity
A) increases output and increases the real interest rate.
B) increases output and decreases the real interest rate.
C) decreases output and increases the real interest rate.
D) decreases output and decreases the real interest rate.
Answer: B
Question Status: Previous Edition
32) In the Keynesian sticky wage model, an increase in future total factor productivity
A) increases output and increases the real interest rate.
B) increases output and decreases the real interest rate.
C) decreases output and increases the real interest rate.
D) decreases output and decreases the real interest rate.
Answer: A
Question Status: New
33) In the Keynesian sticky wage model, a rightward shift in the money demand schedule
A) increases output and increases the real interest rate.
B) increases output and decreases the real interest rate.
C) decreases output and increases the real interest rate.
D) decreases output and decreases the real interest rate.
Answer: C
Question Status: Previous Edition
34) In the Keynesian sticky wage model, an increase in the money supply has which impact on
output in the long run?
A) an increase
B) a decrease
C) none
D) It depends.
Answer: C
Question Status: New
35) When wages are sticky and there are only shocks to the money supply, money is
A) procyclical.
B) acyclical.
C) countercyclical.
D) It depends.
Answer: A
Question Status: New
36) When wages are sticky and there are only shocks to the money supply, prices are
A) procyclical.
B) acyclical.
C) countercyclical.
D) It depends.
Answer: A
Question Status: New
37) When wages are sticky and there are only shocks to current total factor productivity, money
is
A) procyclical.
B) acyclical.
C) countercyclical.
D) It depends.
Answer: B
Question Status: New
38) When wages are sticky and there are only shocks to current total factor productivity, prices
are
A) procyclical.
B) acyclical.
C) countercyclical.
D) It depends.
Answer: C
Question Status: New
39) Changes in the money supply in the Keynesian sticky wage model is not a likely explanation
of the typical business cycle because the model counterfactually predicts that
A) consumption is procyclical and the price level is procyclical.
B) the price level is procyclical and the real wage is countercyclical.
C) the real wage is countercyclical and the real money supply is procyclical.
D) the real money supply is procyclical and consumption is procyclical.
Answer: B
Question Status: Previous Edition
40) Changes in the money supply in the Keynesian sticky wage model are not a likely
explanation of the typical business cycle because the model counterfactually predicts
A) that consumption is countercyclical.
B) that the price level is procyclical.
C) that the real wage is countercyclical.
D) all of the above.
Answer: D
Question Status: Previous Edition
41) Investment demand shocks in the Keynesian sticky wage model are not a likely explanation
of the typical business cycle because the model counterfactually predicts that
A) consumption is procyclical, investment is procyclical, and average labor productivity is
countercyclical.
B) prices are procyclical, the real wage is countercyclical, and average labor productivity
is countercyclical.
C) prices are countercyclical, the real wage is countercyclical, and average labor
productivity is countercyclical.
D) employment is procyclical, prices are procyclical, and average labor productivity is
countercyclical.
Answer: B
Question Status: Previous Edition
42) The recession that is best explained as a response to monetary policy is the recession of
A) 1973-1974.
B) 1981-1982.
C) 1990-1991.
D) 2000-2001.
Answer: B
Question Status: Previous Edition
43) The Keynesian transmission mechanism for monetary policy asserts that changes in the
money supply
A) affect real interest rates, which affect the level of aggregate demand.
B) affect real interest rates, which affect the level of aggregate supply.
C) affect the price level, which affects the level of aggregate demand.
D) affect the price level, which affects the level of aggregate supply.
Answer: A
Question Status: Previous Edition
44) When there is Keynesian unemployment in the sticky wage model, a Pareto optimum can be
reached by
A) increasing the money supply or by increasing current government spending.
B) increasing the money supply or by decreasing current government spending.
C) decreasing the money supply or by increasing current government spending.
D) decreasing the money supply or by decreasing current government spending.
Answer: A
Question Status: Previous Edition
45) In comparing the outcomes of increasing government spending to reduce Keynesian
unemployment as opposed to increasing the money supply, the increase in government
spending results in
A) higher consumption and higher output.
B) higher consumption and lower output.
C) lower consumption and higher output.
D) lower consumption and lower output.
Answer: C
Question Status: Previous Edition
46) To support the argument for an active role for government in stabilizing the economy, it
must be true that
A) consumers are not rational and that not all wages and prices are flexible.
B) not all wages and prices are flexible and that government must be able to react quickly
enough.
C) government must be able to react quickly enough and that shocks to the economy be
primarily due to aggregate supply shocks.
D) shocks to the economy be primarily due to aggregate supply shocks and that
consumers are not rational.
Answer: B
Question Status: Previous Edition
47) Milton Friedman's assertion that the government abstain from stabilization policy can be
supported by
A) the fact that it takes time for the government to observe the true state of the economy.
B) the fact that it takes time for the government to implement policy.
C) the fact that it takes time for policy actions to affect the economy.
D) all of the above facts.
Answer: D
Question Status: Previous Edition
48) When the demand for money is unstable, it is best for the central bank to
A) target the price level.
B) target the real interest rate.
C) target the money supply.
D) refrain from stabilization policy.
Answer: B
Question Status: Previous Edition
49) Keynesian sticky price models, as opposed to Keynesian sticky wage models, are typically
called
A) administered cost models.
B) faulty pricing models.
C) menu cost models.
D) classical models.
Answer: C
Question Status: Previous Edition
50) How does the sticky wage model need to be modified to consider sticky prices?
A) The money supply is now endogenous.
B) The LM curve is now vertical.
C) The AS curve is now horizontal.
D) Nothing changes, just the amplitude of the movements.
Answer: C
Question Status: New
51) What do we need to assume about firms in the sticky price model?
A) They supply any demand at the given price.
B) They hire until the real wage equals the average labor productivity.
C) They maximize only current profits.
D) They adapt the price to current conditions.
Answer: A
Question Status: New
52) A classical objection to Keynesian sticky price models is that
A) it is easier for firms to change prices rather than change output.
B) it is cheaper for firms to change output rather than change prices.
C) sticky price models are internally inconsistent.
D) real shocks are more important than nominal shocks.
Answer: A
Question Status: Previous Edition
53) The Keynesian sticky price model has become less relevant over time because
A) the Federal Reserve believes less in it.
B) prices have become easier to adjust..
C) growth rates have increased.
D) laissez-faire is better.
Answer: B
Question Status: New
54) In response to a positive technology shock, which prediction of the sticky price model is
difficult to reconcile with the data?
A) Output increases.
B) Employment decreases.
C) The price level decreases.
D) Money is procyclical.
Answer: A
Question Status: New