According to classical economics:
a. real GDP is determined by aggregate demand, while the equilibrium price level is determined by aggregate supply.
b. both real GDP and price level are determined by aggregate demand.
c. both real GDP and price level are determined by aggregate supply.
d. real GDP is determined by aggregate supply, while the equilibrium price level is determined by aggregate demand.
e. price level cannot be changed as prices and wages are perfectly rigid.
Question 2Ceteris paribus, if a 6 increase in price causes an 8 increase in quantity supplied, then:
a. supply is elastic.
b. supply is unit elastic.
c. supply is inelastic.
d. the supply curve is perfectly vertical.
Question 3Suppose the XYZ bank has excess reserves of 4,000 and demand deposits of 80,000 . If the required reserve ratio is 25 percent, the banks total reserves equal:
a. 16,000.
b. 20,000.
c. 24,000.
d. 84,000.
Question 4Ceteris paribus, if an 6 increase in quantity supplied is caused by an 8 increase in price, then:
a. supply is elastic.
b. supply is unit elastic.
c. supply is inelastic.
d. the supply curve is perfectly vertical.
Question 5Traditional classical economists believe that:
a. wage rates are perfectly flexible.
b. people do not have perfect information about the economy.
c. prices are fixed for long periods of time.
d. the price of resources, technology, and expectations cannot influence the equilibriumlevel of real GDP.
e. changes in aggregate demand change only the real GDP.
Question 6Which of the following is false?
a. The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans.
b. With a 10 required reserve ratio, a 10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by 1000.
c. With a 10 required reserve ratio, a 1,000 bond purchase by the Fed directly creates 1,000 in money in the form of bank deposits, and indirectly permits up to 9,000 in additional money to be created through the multiple expansion in bank deposits.
d. When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits.
Question 7The main reason why the traditional classical school ceased to be widely accepted was that:
a. it did not reflect the realities of the modern economy.
b. when Keynes received the Nobel Prize, the academic establishment started believinghis ideas.
c. it could not explain the persistence of the high levels of unemployment seen during the Great Depression.
d. it was too abstract to be completely understood.
e. it could not explain the relationship between inflation and unemployment.
Question 8The elasticity of supply coefficient for lobster is estimated to be equal to 0.6 . It is expected, therefore, that a 10 decrease in price would lead to:
a. a 6 decrease in the quantity of lobsters supplied.
b. a 6 increase in the quantity of lobsters supplied.
c. a 10 decrease in the quantity of lobsters supplied.
d. a 10 increase in the quantity of lobsters supplied.
Question 9If you go into a bank which faces a 10 required reserve ratio and borrow 1,000, the bank will ____ your checking account at the bank.
a. add 1,000 to
b. subtract 1,000 from
c. add 5,000 to
d. subtract 5,000 from
Question 10Which of the following is true of the classical model?
a. Changes in aggregate demand does not have any impact on the aggregate price level.
b. The aggregate supply curve is perfectly elastic.
c. An increase in aggregate demand increases the price level, output remaining unchanged.
d. Changes in aggregate demand determines the equilibrium output of the economy.
e. Real GDP and price level remain unchanged irrespective of changes in aggregate demand and supply.
Question 11The elasticity of supply coefficient for bicycles is estimated to be equal to 1.5 . It is expected, therefore, that a 4 increase in price would lead to:
a. a 4 decrease in the quantity of bicycles supplied.
b. a 4 increase in the quantity of bicycles supplied.
c. a 6 decrease in the quantity of bicycles supplied.
d. a 6 increase in the quantity of bicycles supplied.
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