Assume the economy is in short-run equilibrium at a real GDP above its potential real GDP. According to classical theory, which of the following policies should be followed?
a. The Federal Reserve should use open market operations and buy U.S. government securities.
b. The Federal Reserve should not follow a fixed rule.
c. The federal government should cut taxes.
d. Fiscal policy and monetary policy should not be activist.
QUESTION 2A GDP price chain price index number of 120.0 for a given year indicates that prices in that year are 20 percent higher than prices in the base year.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 3In the aggregate demand and aggregate supply model,
a. the factors that cause the demand curves in both models to slope downward are the same.
b. the factors that cause the supply curves in both models to slope upward are the same.
c. the upward-sloping aggregate demand curve intersects the downward-sloping aggregate supply curve to determine the economy's price level and GDP.
d. the upward-sloping aggregate supply curve intersects the downward-sloping aggregate demand curve to determine the economy's price level and GDP.
e. the price level never changes even with shifts in aggregate demand and aggregate supply.
QUESTION 4Assume the economy is operating at a real GDP above full-employment real GDP. Classical economists would prescribe which of the following policies?
a. Nonintervention
b. Active monetary policy
c. Contractionary
d. Expansionary
QUESTION 5If the GDP chain price index in a given year is less than 100, real GDP in that year would be greater than nominal GDP.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 6The aggregate supply curve will be vertical when:
a. output can be increased without an increase in the price level.
b. the economy is operating at full-employment capacity.
c. output and price level rise together.
d. the aggregate demand curve is shifting to the left.
e. aggregate demand is absent.
QUESTION 7Assuming the economy is in a recession, Keynesian economists predict that:
a. wages will remain fixed.
b. monetary policy will sell government securities.
c. higher wages will shift the short-run aggregate supply curve leftward.
d. lower wages will shift the short-run aggregate supply curve rightward.
QUESTION 8All changes in nominal GDP are due to price changes.
a. True
b. False
Indicate whether the statement is true or false
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