Question : 21) Refer to Figure 18.1. According to Keynes, an expansionary : 1381261

21) Refer to Figure 18.1. According to Keynes, an expansionary monetary policy in the long run and after all the adjustments have been made

A) does not increase equilibrium output.

B) increases equilibrium output above Y1.

C) decreases equilibrium output below Y1.

D) increases equilibrium output above Y1 and decreases the price level below P1.

22) Refer to Figure 18.1. According to monetarists, an expansionary fiscal policy in the long run and after all the adjustments have been made

A) does not increase equilibrium output or the price level.

B) increases equilibrium output above Y1, but does not change the price level.

C) increases the price level above P1, but does not change equilibrium output.

D) increases equilibrium output above Y1 and decreases the price level below P1.

23) Which of the following represents the Lucas supply function?

A) Y = f(Pe – P)

B) Y = f(Pe + P)

C) Y = f(P + Pe)

D) Y = f(P – Pe)

24) With the Lucas supply function, a price surprise means

A) actual price is greater than expected price.

B) actual price is less than expected price.

C) actual price equals expected price.

D) actual price is either greater than or lower than expected price.

25) According to the Lucas supply function, if a firm mistakenly perceives that all prices are going up because its own output price is going up, it will

A) decrease its production.

B) increase its production.

C) keep its production level constant.

D) increase expectations regarding its own output price.

26) Assume that the substitution effect dominates the income effect. When workers experience a positive price surprise, they

A) correctly perceive that their real wage rate has fallen, which leads them to work fewer hours.

B) incorrectly perceive that their real wage rate has fallen, which leads them to work fewer hours.

C) correctly perceive that their real wage rate has risen, which leads them to work more hours.

D) incorrectly perceive that their real wage rate has risen, which leads them to work more hours.

27) According to the Lucas supply function, workers who experience a positive price surprise will work fewer hours when

A) there is no substitution effect from a positive price surprise.

B) there is no income effect from a positive price surprise.

C) the substitution effect dominates the income effect.

D) the income effect dominates the substitution effect.

28) According to the Lucas supply function, workers who experience a positive price surprise will work more hours when

A) there is no substitution effect from a positive price surprise.

B) there is no income effect from a positive price surprise.

C) the substitution effect dominates the income effect.

D) the income effect dominates the substitution effect.

29) According to the Lucas supply function, the amount of output produced is NOT related to the price level if

A) people’s expectations of the price level are higher than the actual price level.

B) people’s expectations of the price level are on target.

C) people’s expectations of the price level are lower than the actual price level.

D) people’s expectations of the price level are either higher or lower than the actual price level.

30) According to the Lucas supply function, the economy will produce more output when

A) prices are unexpectedly higher than when prices are at their expected level.

B) wages are below the expected level.

C) prices are unexpectedly lower than when prices are at their expected level.

D) prices are exactly equal to the expected level.