Question :
101) Refer to Figure 28-4. The economy begins in equilibrium : 1384462
101) Refer to Figure 28-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. The initial effect is
A) a shift of the AD curve to AD1 and an increase in real GDP to Y1.
B) a shift of the AS curve to AS1 and a decrease in real GDP to Y2.
C) a shift of the AD curve to AD1, and then a shift back to AD0 to restore equilibrium at E0.
D) a simultaneous shift of AD to AD1 and AS to AS1, resulting in a new equilibrium at E2.
E) no change in the short-run equilibrium or level of real GDP.
102) Refer to Figure 28-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. What is the adjustment toward the new long-run equilibrium?
A) The AD curve shifts to AD1. The inflationary gap causes prices to rise, AS shifts to AS1 and equilibrium is restored at E3.
B) The AD curve shifts to AD1. The inflationary gap causes wages to rise, AS shifts to AS1 and equilibrium is restored at E2.
C) The AS curve shifts to AS1 which causes the AD curve to shift to AD1, resulting in a new equilibrium at E2.
D) The AD curve shifts to AD1. The increased money supply causes an increase in potential output and a new long-run equilibrium at E1.
E) The AD and AS curves shift to AD1 and AS1 simultaneously. The increased price level pushes them back to AD0 and AS0 and equilibrium is restored at E0.
103) Refer to Figure 28-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. What is the long-run effect of this change?
A) a higher price level
B) a higher price level and higher real GDP
C) higher real GDP
D) lower real GDP
E) no change in price level or real GDP
104) Refer to Figure 28-5. This economy begins in equilibrium with , and real GDP equal to potential GDP (with and ). At this initial equilibrium, the money supply is ________, the interest rate is ________, the price level is ________, and real GDP is ________.
A) $500 billion; 2%; 104; $800 billion
B) $500 billion; 2%; 102; $805 billion
C) $500 billion; 4%; 100; $800 billion
D) $540 billion; 3%; 100; $800 billion
E) $540 billion; 4%; 104; $805 billion
105) Refer to Figure 28-5. This economy begins in equilibrium with , and real GDP equal to potential GDP (with and ). Now suppose there is an increase in the money supply to $540 billion. The initial response in this economy is
A) an increase in the demand for money, causing a shift of the money demand curve to , and a fall in interest rate to 3%.
B) an increase in the demand for money, causing a shift of the money demand curve to , and a fall in the interest rate to 2%.
C) the AD and AS curves shift up simultaneously.
D) a movement down along the money demand curve to a lower interest rate at 2%.
E) an increase in the demand for money, causing a shift of the money demand curve to and the interest rate remains at 4%.
106) Refer to Figure 28-5. This economy begins in equilibrium with , and real GDP equal to potential GDP (with and ). Now suppose there is an increase in the money supply to $540 billion. After the initial effect on the interest rate, the next response in this economy is as follows:
A) the lower interest rate stimulates investment demand, which causes the AD curve to shift to . Real GDP rises to $805 billion and the price level rises to 102.
B) the lower interest rate stimulates an increase in the demand for money, which causes the MD curve to shift to . The interest rate rises to 3%.
C) the lower interest rate causes wages and other factor prices to rise, which causes the AS curve to shift to . Real GDP falls to $795 billion and the price level rises to 102.
D) the higher interest rate causes wages and other factor prices to rise, which causes the AS curve to shift to . Real GDP falls to $795 billion and the price level rises to 102.
107) Refer to Figure 28-5. This economy begins in equilibrium with , and real GDP equal to potential GDP (with and ). Now suppose there is an increase in the money supply to $540 billion. The short-run effects of this increase lead to the opening of a(n) ________ gap of ________.
A) recessionary; $5 billion
B) recessionary; $10 billion
C) inflationary; $5 billion
D) inflationary; $10 billion
E) There is no output gap.
108) Refer to Figure 28-6. The famous debate from the the 1950s and 1960s between Keynesians and Monetarists centred around the slopes of the money demand and investment demand curves. The Keynesians believed
A) the diagrams in part (ii) were more realistic than those in part (i), and therefore fiscal policy was a more effective method of stimulating aggregate demand than monetary policy.
B) the diagrams in part (ii) were more realistic than those in part (i), and therefore monetary policy was a more effective method of stimulating aggregate demand than fiscal policy.
C) the diagrams in part (i) were more realistic than those in part (ii), and therefore fiscal policy was a more effective method of stimulating aggregate demand than monetary policy.
D) the diagrams in part (i) were more realistic than those in part (ii), and therefore monetary policy was a more effective method of stimulating aggregate demand than fiscal policy.
109) Refer to Figure 28-6. The famous debate from the 1950s and 1960s between Keynesians and Monetarists centred around the slopes of the money demand and investment demand curves. The Monetarists believed
A) the diagrams in part (ii) were more realistic than those in part (i), and therefore fiscal policy was a more effective method of stimulating aggregate demand than monetary policy.
B) the diagrams in part (ii) were more realistic than those in part (i), and therefore monetary policy was a more effective method of stimulating aggregate demand than fiscal policy.
C) the diagrams in part (i) were more realistic than those in part (ii), and therefore fiscal policy was a more effective method of stimulating aggregate demand than monetary policy.
D) the diagrams in part (i) were more realistic than those in part (ii), and therefore monetary policy was a more effective method of stimulating aggregate demand than fiscal policy.
110) The view of the Classical economists regarding the “neutrality of money” was that
A) the allocation of resources is independent of the distribution of income.
B) the distribution of income is independent of the allocation of resources.
C) the real part of the economy cannot affect the level of money prices.
D) the quantity of money has no effect on any real variables in the economy.
E) money is neutral in its effect on absolute prices in the economy.
