Question 1

What is Y - S equal to?

Accepted Answer

A)   I
B)   C - T
C)   I + G
D)   C

Question 2

In the view of the Classical economists, a increase in aggregate demand leads to

Accepted Answer

A)   lower output levels.
B)   a higher price level.
C)   higher output levels.
D)   a lower price level. B

Question 3

According to Classical economists, investment is __________ related to the __________.

Accepted Answer

A)   directly; interest rate
B)   directly; level of GDP
C)   inversely; interest rate
D)   inversely; level of GDP

Question 4

In an economy without government or a foreign sector the equilibrium level of output occurs when

Accepted Answer

A)   actual saving equals actual investment.
B)   actual saving equals desired investment.
C)   desired saving equals desired investment.
D)   desired saving equals actual investment.

Question 5

Which of the following is not a factor in the equation of exchange?

Accepted Answer

A)   Money velocity
B)   Money supply
C)   The price level
D)   Nominal income

Question 6

In the Classical model, the aggregate supply curve determines the

Accepted Answer

A)   price level.
B)   inflation rate.
C)   level of output.
D)   money supply.

Question 7

In the Classical system, the total output of goods and services and total employment are determined by all of the following except

Accepted Answer

A)   the interest rate.
B)   the labor force.
C)   the supply of capital.
D)   existing technology.

Question 8

In an economy with no government or foreign sector, which of the following always holds true, ex-post?

Accepted Answer

A)   Consumption equals investment.
B)   Velocity equals money demand.
C)   Saving equals consumption.
D)   Saving equals investment.

Question 9

The price level is 3, total output is 500, and the money supply is 200. The velocity of money is

Accepted Answer

A)   7.5.
B)   2.5.
C)   2.0.
D)   None of the above.

Question 10

According to Classical interest rate theory, rising interest rates will

Accepted Answer

A)   increase the demand for money.
B)   decrease the demand for money.
C)   increase investment expenditures.
D)   increase the saving rate.

Question 11

Modern Monetarists argue that the velocity of money is

Accepted Answer

A)   constant.
B)   the inverse of the money multiplier.
C)   unmeasurable.
D)   predictable.

Question 12

If the inflation rate is 5 percent and the real rate of interest is 3 percent, the nominal interest rate is

Accepted Answer

A)   8 percent.
B)   5 percent.
C)   3 percent.
D)   2 percent.

Question 13

Which of the following ensures full employment in the Classical model?

Accepted Answer

A)   Wage and price flexibility
B)   The equation of exchange
C)   Inventory adjustment
D)   Constant velocity

Question 14

According to rational expectations theory,

Accepted Answer

A)   increasing the money supply to reduce unemployment will always be successful.
B)   decreasing the money supply to reduce unemployment will usually be successful.
C)   increasing the money supply to reduce unemployment will not be successful because of an offsetting decrease in prices.
D)   increasing the money supply to reduce unemployment will not be successful because of an offsetting increase in prices.

Question 15

In the Classical model, a decrease in the money supply __________ the real GDP and __________ the price level.

Accepted Answer

A)   leaves unchanged; leaves unchanged
B)   leaves unchanged; lowers
C)   lowers; lowers
D)   lowers; leaves unchanged

Question 16

In the Classical model, a decrease in saving will result in saving being __________ than investment which will cause the interest rate to __________.

Accepted Answer

A)   greater; rise
B)   greater; fall
C)   less; rise
D)   less; fall

Question 17

What is Y - C equal to?

Accepted Answer

A)   S
B)   S + T
C)   I + G
D)   T

Question 18

Assume that consumption spending is equal to $600, government spending is $100 billion, and GDP is $800 billion. If net exports are equal to zero, investment spending must be

Accepted Answer

A)   $700 billion.
B)   $600 billion.
C)   $500 billion.
D)   $100 billion. D

Question 19

In the Classical view, the money supply determines

Accepted Answer

A)   interest rates.
B)   the saving rate.
C)   aggregate supply.
D)   the price level. D

Question 20

In the Classical system, the interest rate is determined by all of the following except

Accepted Answer

A)   the thriftiness of the public.
B)   the money supply.
C)   the productivity of capital.
D)   investment.

Exam 22: The Classical Foundations

What is Y - S equal to?

Correct AnswerverifiedShow Answer

In the view of the Classical economists, a increase in aggregate demand leads to

Correct AnswerverifiedB

According to Classical economists, investment is __________ related to the __________.

Correct AnswerverifiedShow Answer

In an economy without government or a foreign sector the equilibrium level of output occurs when

Correct AnswerverifiedShow Answer

Which of the following is not a factor in the equation of exchange?

Correct AnswerverifiedShow Answer

In the Classical model, the aggregate supply curve determines the

Correct AnswerverifiedShow Answer

In the Classical system, the total output of goods and services and total employment are determined by all of the following except

Correct AnswerverifiedShow Answer

In an economy with no government or foreign sector, which of the following always holds true, ex-post?

Correct AnswerverifiedShow Answer

The price level is 3, total output is 500, and the money supply is 200. The velocity of money is

Correct AnswerverifiedShow Answer

According to Classical interest rate theory, rising interest rates will

Correct AnswerverifiedShow Answer

Modern Monetarists argue that the velocity of money is

Correct AnswerverifiedShow Answer

If the inflation rate is 5 percent and the real rate of interest is 3 percent, the nominal interest rate is

Correct AnswerverifiedShow Answer

Which of the following ensures full employment in the Classical model?

Correct AnswerverifiedShow Answer

According to rational expectations theory,

Correct AnswerverifiedShow Answer

In the Classical model, a decrease in the money supply __________ the real GDP and __________ the price level.

Correct AnswerverifiedShow Answer

In the Classical model, a decrease in saving will result in saving being __________ than investment which will cause the interest rate to __________.

Correct AnswerverifiedShow Answer

What is Y - C equal to?

Correct AnswerverifiedShow Answer

Assume that consumption spending is equal to $600, government spending is $100 billion, and GDP is $800 billion. If net exports are equal to zero, investment spending must be

Correct AnswerverifiedD

In the Classical view, the money supply determines

Correct AnswerverifiedD

In the Classical system, the interest rate is determined by all of the following except

Correct AnswerverifiedShow Answer

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B

According to Classical economists, investment is related to the .

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In the Classical model, a decrease in the money supply the real GDP and the price level.

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In the Classical model, a decrease in saving will result in saving being than investment which will cause the interest rate to .

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D

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D

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