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Economics Today, 18e (Miller)
Chapter 11 Classical and Keynesian Macro Analyses
11.1 The Classical Model
1) Whom among the following was a classical economist?

A) Adam Smith
B) A. C. Pigou
C) David Ricardo
D) all of the above
Answer: D
Diff: 1
Topic: 11.1 The Classical Model
Learning Outcome: Macro-17: Discuss the fundamentals of key macroeconomic theories
AACSB: Analytical thinking
2) All of the following were classical economists EXCEPT

A) Adam Smith
B) A. C. Pigou
C) David Ricardo
D) John Maynard Keynes.
Answer: D
Diff: 1
3) Which of the following is NOT an assumption of the classical model?

A) Wages and prices are fixed.
B) People are motivated by the own self-interest.
C) Pure competition exists.
D) Buyers react to changes in relative prices.
Answer: A
Diff: 1
1
Copyright © 2016 Pearson Education, Inc.
4) The idea that supply creates its own demand is known as
A) the law of supply.
B) the law of demand.
C) Keynes' law.
D) Say's law.
Answer: D
Diff: 1
5) In the classical model, an increase in aggregate demand will cause

A) an increase in actual output, or Gross Domestic Product (GDP).
B) a decrease in actual output, or Gross Domestic Product (GDP).
C) an increase in price level.
D) a decrease in price level.
Answer: C
Diff: 1
6) Classical economists assumed that

A) prices were sticky.
B) individuals suffered from money illusion.
C) wages were inflexible.
D) none of the above.
Answer: D
Diff: 1
7) The first systematic attempt to explain the determinants of the price level and national levels
of income, employment, consumption and real Gross Domestic Product (GDP) was made by
________ economists.
A) Keynesian
B) supply-side
C) monetarist
D) classical
Answer: D
Diff: 1
2
8) Classical economists wrote from the 1770s to the ________.
A) 1850s
B) 1890s
C) 1930s
D) 1960s
Answer: C
Diff: 1
9) "Supply creates its own demand" is known as

A) Smith's law.
B) Say's law.
C) the circular flow.
D) the Ricardian dilemma.
Answer: B
Diff: 1
10) Say's law says that

A) consumption is greater than supply.
B) desired expenditures always equal actual expenditures.
C) people produce the goods they consume.
D) people consume the goods they produce.
Answer: B
Diff: 1
11) Say's law argues that

I. overproduction is typical in a market economy.
II. supply creates its own demand.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Answer: B
Diff: 1
3
12) Say's law states that
A) supply creates its own demand.
B) supply and demand are never equal.
C) demand may be greater than supply.
D) supply will usually be greater than demand.
Answer: A
Diff: 1
13) The classical model uses the assumption that

A) all wages and prices are flexible.
B) monopoly is widespread in the economy.
C) interest rates are not flexible.
D) economic markets are fragile and have no tendency to move towards an equilibrium.
Answer: A
Diff: 1
14) According to the classical model, the income generated by production is

A) enough to meet the needs of everyone in society.
B) enough to purchase all the goods and services produced.
C) fully spent on savings.
D) always insufficient to purchase all the goods and services produced.
Answer: B
Diff: 1
15) The implication of Say's law is that

A) Gross Domestic Product is the same whether we use the expenditure approach or the income
approach.
B) a barter economy is the most efficient economy.
C) increased consumption today leads to increased production tomorrow.
D) overproduction in a market economy is not possible.
Answer: D
Diff: 1
4
16) All the following are assumptions of the classical model EXCEPT
A) pure competition exists.
B) buyers and sellers react to nominal money prices rather than to relative prices.
C) people are motivated by self-interest.
D) wages and prices are flexible.
Answer: B
Diff: 2
17) Say's law explains

A) how long-term real Gross Domestic Product (GDP) stability is achieved in the classical
model.
B) how long-run real Gross Domestic Product (GDP) stability is achieved in the Keynesian
model.
C) how the economy can go into recession.
D) why economies experience business cycles.
Answer: A
Diff: 2
18) If a consumer buys less gasoline because gas prices increased by 100 percent, even though
all other prices have also increased by 100 percent, then
A) the consumer is paying too close attention to changes in relative prices.
B) wages and prices are too flexible.
C) the consumer has been fooled by money illusion.
D) inflation is not a problem in the economy.
Answer: C
Diff: 1
AACSB: Application of knowledge
5
19) Which of the following is an example of money illusion?
A) An individual is willing to work more hours when the nominal wage rises by 10 percent and
the overall price level rises by 5 percent.
B) An individual is willing to work more hours when the nominal wage rises by 10 percent and
the overall price level rises by 20 percent.
C) An individual will neither increase nor decrease the number of hours she is willing to work
when the nominal wage rises by 10 percent and the overall price level rises by 10 percent.
D) none of the above
Answer: B
Diff: 2
20) According to the circular flow of income and output, saving causes
A) total output to fall.
B) consumption expenditures and total output to fall.
C) consumption expenditures to fall short of total output.
D) investment spending to fall.
Answer: C
Diff: 1
21) One key assumption of the classical model is

A) government spending plays a major role.
B) money illusion cannot fool workers.
C) wages are sticky.
D) prices are sticky.
Answer: B
Diff: 2
22) Classical economists tend to

A) see unemployment as a persistent economic problem.
B) believe in Keynesian economics.
C) reject the equality of savings and investment.
D) support Say's law.
Answer: D
Diff: 1
6
23) In the classical model, an increase in the unemployment rate
A) will persist when the reduction in output is caused by a reduction in aggregate demand.
B) will result in an increase in the price level if the reduction in output is caused by a change in
aggregate demand.
C) will likely be temporary.
D) is a signal of demand-pull inflation.
Answer: C
Diff: 2
24) According to classical economists,

A) Say's law is not valid.
B) unemployment will not be a serious problem in a market economy.
C) wage levels are always "sticky."
D) demand stimulus is needed to produce full employment.
Answer: B
Diff: 1
25) In the classical model, aggregate demand and aggregate supply will
A) not exist.
B) intersect at less than full employment.
C) intersect at the point of full employment.
D) not intersect.
Answer: C
Diff: 1
26) An individual who is suffering from money illusion is more concerned with
A) relative prices than with nominal prices.
B) relative prices than with real prices.
C) nominal prices than with relative prices.
D) real prices than with nominal prices.
Answer: C
Diff: 1
7
27) An individual who suffers from money illusion will
A) feel that a doubling of prices and income improves his economic position.
B) concentrate on relative prices.
C) never be fooled by the impact of price changes on the purchasing power of income.
D) try to use counterfeit money.
Answer: A
Diff: 1
28) Suppose Paris thinks a 5 percent increase in her hourly wage as an incentive to work more
hours while the price level also increases by 5 percent. Paris is said to be suffering from
A) money illusion.
B) rationality.
C) irrationality.
D) the effects of competition.
Answer: A
Diff: 2
29) The classical model assumes that

A) imperfect competition predominates in most markets.
B) people have money illusion.
C) wages and prices are flexible.
D) wages are flexible but prices are not.
Answer: C
Diff: 1
30) All of the following are assumptions of the classical model EXCEPT
A) inflexible wages.
B) absence of money illusion.
C) pure competition.
D) self-interest of economic actors.
Answer: A
Diff: 1
8
31) One tenet of classical economics is that
A) the role of the government should be limited, since the market will always be self-correcting.
B) the government should intervene whenever necessary to avoid any unemployment.
C) wages and prices are "sticky downward."
D) the government should set a minimum wage slightly above the natural market equilibrium
rate.
Answer: A
Diff: 2
32) Which of the following statements is correct?

I. If other factors are held constant, the level of employment in the economy determines
real Gross Domestic Product (GDP).
II. According to classical economists, only voluntary unemployment exists in the long run.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Answer: C
Diff: 1
33) Which of the following statements about the classical model of the economy is FALSE?
A) Savings and investment will always be equal.
B) Wages and prices are flexible.
C) The economy will always move toward, or be at, full employment.
D) Individuals pursue the public interest, not their own self-interest.
Answer: D
Diff: 1
9
34) If you feel you are better off because you receive a 10 percent raise even when the price level
also increases by 10 percent, then you are a victim of the
A) real income effect.
B) money income effect.
C) money illusion.
D) real purchasing power effect.
Answer: C
Diff: 1

A) Wages and prices are flexible.
B) People are motivated by self-interest.
C) Money illusion exists.
D) Pure competition exists.
Answer: C
Diff: 1
36) A classical model of the economy predicts

A) full employment in the long run.
B) a 15 to 20 percent unemployment level whenever the economy is in equilibrium.
C) the same unemployment rates as the Keynesian model.
D) cyclical changes in the unemployment rate.
Answer: A
Diff: 1
37) A key assumption in the classical model is

A) sticky wages.
B) pure competition exists.
C) sticky prices.
D) the government plays a major role in economic problems.
Answer: B
Diff: 1
10
38) According to the classical model, more saving leads to more investment because
A) the people who save are the same people who invest.
B) the interest rate adjusts to keep investment equal to saving.
C) saving and investment are two sides of the same activity.
D) the interest rate is set by the federal government.
Answer: B
Diff: 1
39) At higher rates of interest

A) households save less and businesses invest more.
B) households save less and businesses invest less.
C) households save more and businesses invest less.
D) households save more and businesses invest more.
Answer: C
Diff: 1
40) The equilibrating force in the credit market in the classical model is
A) the interest rate.
B) the price level.
C) full employment.
D) fiscal policy.
Answer: A
Diff: 2
41) Classical economists argued that

A) there would always be an excess of saving over investment.
B) workers had money illusion.
C) excess savings would create unemployment.
D) a flexible interest rate would make saving equal to investment.
Answer: D
Diff: 1
11
42) According to classical economists, a decrease in the rate of interest will
A) increase unemployment.
B) increase consumer saving.
C) increase business investment.
D) increase business failures.
Answer: C
Diff: 1
43) Individuals will increase their saving as

A) the interest rate falls.
B) business investment falls.
C) the rate of unemployment increases.
D) the interest rate increases.
Answer: D
Diff: 1
44) In the classical model, desired saving

A) exceeds investment.
B) is inversely related to real income.
C) is equal to desired investment.
D) is less than desired investment.
Answer: C
Diff: 1
45) The classical economists argued that planned saving and planned investment will always be
equal because of changes in
A) the level of real disposable income.
B) the interest rate.
C) the price level.
D) wages.
Answer: B
Diff: 1
12
46) According to classical theory, desired saving always equals investment due to changes in
A) prices.
B) wages.
C) the interest rate.
D) taxes.
Answer: C
Diff: 1
47) In economics, investment is defined as

A) the spending by businesses on capital goods and inventories.
B) the spending by households on human capital and durable goods.
C) disposable income minus consumption.
D) disposable income plus consumption.
Answer: A
Diff: 1
48) With respect to unemployment, the classical model states that

A) unemployment of any kind cannot exist.
B) only voluntary unemployment exists.
C) unemployment fluctuates with the interest rate.
D) involuntary unemployment will always exceed voluntary unemployment.
Answer: B
Diff: 1
49) According to classical theory, full employment in the labor market occurs
A) whenever aggregate demand is less than aggregate supply.
B) at a wage rate at which quantity demanded equals quantity supplied.
C) only when the economy has just experienced a demand shock.
D) only when actual expenditures are greater than desired expenditures.
Answer: B
Diff: 1
13
50) In the classical model, what occurs if a wage of $20/hour results in unemployed workers?
A) The workers will go on strike to demand that more jobs be created.
B) Producers will quickly create more jobs and hire the unemployed workers, so unemployment
is short-lived.
C) The wage rate will drop, more workers will be hired, and the unemployment rate falls.
D) The government will step in and order firms to hire more workers.
Answer: C
Diff: 2
51) According to classical theory, total employment and real Gross Domestic Product (GDP) are
A) unrelated.
B) positively related.
C) inversely related.
D) negatively related.
Answer: B
Diff: 2
52) In the classical model, the aggregate supply curve is

A) upward sloping.
B) downward sloping.
C) horizontal.
D) vertical.
Answer: D
Diff: 1
53) In the classical model, real Gross Domestic Product (GDP) per year is
A) due to supply conditions plus the extent of government intervention in the economy.
B) determined by supply and demand conditions together.
C) supply determined.
D) demand determined.
Answer: C
Diff: 1
14
54) Suppose an economy originally in long-run equilibrium experiences a decrease in aggregate
demand. According to the classical model
A) real Gross Domestic Product (GDP) will not change but the price level will fall.
B) real Gross Domestic Product (GDP) will fall, and then the price level will fall also.
C) the price level will not change but real Gross Domestic Product (GDP) will fall.
D) real Gross Domestic Product (GDP) will fall, wages will fall, but the prices of goods and
services will stay the same.
Answer: A
Diff: 1
55) In the classical model, a shift to the right in aggregate demand would result in
A) a permanent increase in unemployment.
B) a permanent increase in real incomes.
C) an increase in the price level.
D) a permanent shift past full employment.
Answer: C
Diff: 2
56) According to the classical theory, an inward shift in aggregate demand would reduce
A) real Gross Domestic Product (GDP) and the price level.
B) the price level but have no effect on real Gross Domestic Product (GDP).
C) real income but have no impact on the price Gross Domestic Product (GDP).
D) the price level but increase real Gross Domestic Product (GDP).
Answer: B
Diff: 1
57) According to classical theory, a shift in aggregate demand will affect

A) the price level only.
B) real Gross Domestic Product (GDP) only.
C) the level of employment only.
D) both real Gross Domestic Product (GDP) and the level of employment.
Answer: A
Diff: 1
15
58) According to the classical model, an increase in aggregate demand would
A) lead the economy to recession.
B) lead the economy to a deflationary cycle.
C) cause an adjustment to a higher price level.
D) raise real Gross Domestic Product (GDP) but leave the price level unchanged.
Answer: C
Diff: 3

A) upward sloping in the short run but vertical in the long run.
B) always vertical.
C) the same as the aggregate supply curve in the Keynesian model.
D) flat at low levels of output and then eventually slopes upward as output increases.
Answer: B
Diff: 1
60) According to the classical theory, the aggregate supply curve is

A) downward sloping.
B) horizontal.
C) upward sloping.
D) vertical.
Answer: D
Diff: 1
61) According to classical theory, any changes in aggregate demand will

A) lead to changes in the price level.
B) lead to changes in real Gross Domestic Product (GDP), but not in the price level.
C) lead to changes in both real Gross Domestic Product (GDP) and the price level.
D) have no affect on prices or real Gross Domestic Product (GDP).
Answer: A
Diff: 1
16
62) According to Say's law,
A) desired expenditures are always less than actual expenditures.
B) desired expenditures are always more than actual expenditures.
C) desired expenditures are always equal to actual expenditures.
D) desired expenditures cannot be compared with actual expenditures.
Answer: C
Diff: 1
63) Say's law implies that

A) the willingness to purchase other goods is unrelated to the production of goods and services.
B) producing goods and services generates the means and the willingness to purchase other
goods and services.
C) prices and wages are sticky downwards.
D) wages and prices are inflexible.
Answer: B
Diff: 1
64) In a classical model

A) equilibrium real GDP is supply determined.
B) equilibrium real GDP is demand determined.
C) equilibrium real GDP is determined by both aggregate supply and aggregate demand.
D) equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand.
Answer: A
Diff: 1
65) The condition of fully flexible wages and prices was assumed by
A) the classical economists.
B) the Keynesian economists.
C) modern economists.
D) no economists.
Answer: A
Diff: 1
17
66) The approach to understanding the determination of real GDP and the price level that
emphasizes flexible wages and prices and competitive markets is
A) the classical model.
B) the Keynesian model.
C) Adam Smith's Law.
D) the aggregate demand model.
Answer: A
Diff: 1
67) The classical economists assumed that

A) monopoly was widespread in the economy.
B) government intervention in the economic system was necessary and helpful.
C) wages and prices were inflexible, especially downward.
D) wages and prices were flexible.
Answer: D
Diff: 1
68) According to the classical economists, an economy producing $15 trillion in goods and
services
A) may be producing too much since the needs of people may not be this great.
B) simultaneously generates the income necessary to purchase $15 trillion in goods and services.
C) is supplying $15 trillion in goods and services, but could be demanding more or less than $15
trillion in goods and services for a very long period of time.
D) could experience a permanent glut if no one has estimated the demand for goods and services
in the economy.
Answer: B
Diff: 2
69) According to the classical economists, actual real GDP

A) always equals actual aggregate income.
B) sometimes equals actual aggregate income.
C) never equals actual aggregate income.
D) is not related to aggregate income.
Answer: A
Diff: 1
18
70) "Supply creates its own demand" is known as
A) Keynes' Rule.
B) the circular flow.
C) Smith's law.
D) Say's law.
Answer: D
Diff: 1
71) The concept that producing goods and services generates the means and the willingness to
purchase other goods and services is
A) the Keynesian approach.
B) money illusion.
C) Say's law.
D) cost-push inflation.
Answer: C
Diff: 1
72) Say's law states that

A) desired expenditures will equal actual expenditures.
B) people produce only the goods they want.
C) demand is always less than supply.
D) overproduction is never possible because of limited resources.
Answer: A
Diff: 2
73) Which of the following statements is NOT true about Say's law?
A) Desired expenditures will equal actual expenditures.
B) Surpluses will be eliminated by falling prices and shortages will be eliminated by increasing
prices.
C) People produce more goods than they want for their own use only if they seek to trade them
for other goods.
D) Markets would be regularly hit by severe shortages and surpluses.
Answer: D
Diff: 1
19
A) surpluses never occur.
B) surpluses or shortages are possible, but only for a short time.
C) there will always be unemployment.
D) shortages never occur.
Answer: B
Diff: 2
75) Which of the following is NOT true according to Say's law?

A) Supply creates its own demand.
B) No overproduction is possible in a market economy in the long run.
C) Desired expenditures will always be higher than actual expenditures.
D) Producing goods and services generates the means and the willingness to purchase other
goods and services.
Answer: C
Diff: 1
76) An assumption of the classical model is that

A) money illusion is widespread.
B) people make decisions based on nominal prices rather than real prices.
C) prices are flexible while wages are inflexible.
D) people are motivated by self-interest.
Answer: D
Diff: 1

A) Wages and prices are flexible.
B) Investment will lead to money illusion.
C) People are motivated by self-interest.
D) Pure competition exists.
Answer: B
Diff: 1
20
A) Buyers and sellers react to changes in relative prices.
B) Households want to maximize economic well being.
C) No single buyer or seller of a commodity can affect its price.
D) Wages and prices will move freely in the upward direction but not the downward direction.
Answer: D
Diff: 2
79) Given the assumptions of the classical model

A) the economy will often experience recessions and expansions.
B) expansion will be the normal condition, but recessions will often be severe and require
government intervention.
C) the macroeconomy is erratic, and problems will often be increased over time.
D) the market is a self-correcting mechanism.
Answer: D
Diff: 2
80) Jacob buys less soda when the price of soda rises 10 percent, while the prices of all other
goods also rise 10 percent. Jacob is
A) suffering from money illusion.
B) worrying too much about a coming recession.
C) behaving in accordance with classical economic theory.
D) paying too much attention to changes in relative prices.
Answer: A
Diff: 2
81) Joe's increase in wages has been identical to the increase in the price level. Joe thinks that he
is better off and has increased his expenditures. Joe's behavior is consistent with
A) Say's law.
B) the classical model.
C) a vertical aggregate supply curve.
D) money illusion.
Answer: D
Diff: 1
21
82) Money illusion is
A) a basic condition that all classical economists assume people have.
B) when people think they are better off when their income increases even though prices have
increased by the same amount.
C) when people are motivated by self-interest.
D) could not exist if the economy did not have competitive markets.
Answer: B
Diff: 1
83) Saving represents

A) a source of funds for business investment.
B) a normal part of the circular flow of income and output.
C) an injection to the circular flow of income and output.
D) a counter-example to Say's law that the classical economists never considered.
Answer: A
Diff: 2
84) Leakages in the circular flow model are

A) caused by people not acting rational.
B) possible when unemployment exists.
C) reflected in the vertical long-run aggregate supply curve.
D) caused by people saving instead of spending.
Answer: D
Diff: 1
85) In an economy with no government and no international trade, consumption expenditures

will be less than the total value of goods and services when
A) investment is zero.
B) saving is zero.
C) people save some of their income.
D) people barter rather than use money in making exchanges.
Answer: C
Diff: 1
22
86) Saving is not a problem in the classical model because
A) the classical economists assume that saving was beneficial to people for retirement.
B) saving would be spent by consumers eventually.
C) interest rates are flexible, and savings were channeled into investment.
D) savers and investors are the same people.
Answer: C
Diff: 2
87) Which of the following statements is TRUE?

A) There is a direct relationship between investment and the interest rate.
B) There is an inverse relationship between investment and the interest rate.
C) There is no relationship between investment and the interest rate.
D) Investment is always less than savings.
Answer: B
Diff: 1
88) At higher rates of interest

A) households save less because it is more expensive to save.
B) households save more because they get a greater return on their savings.
C) businesses demand more investment because future profitability is likely to be greater.
D) businesses demand more investment because there are more funds available to invest.
Answer: B
Diff: 2
89) Regarding unemployment, the classical model implies that

A) unemployment always exists.
B) unemployment cannot exist.
C) voluntary unemployment is zero, but involuntary unemployment often is fairly high.
D) only voluntary unemployment exists.
Answer: D
Diff: 1
23
90) In the classical model,
A) unemployment will never exist since workers will be willing to accept lower wages and will
then be able to find work.
B) unemployment will never exist because employers will be willing to pay the wage rate
demanded by the workers.
C) wages will go up but never go down.
D) full employment will never be reached.
Answer: A
Diff: 1
91) Higher unemployment tends to be associated with

A) the classical model.
B) higher real GDP.
C) higher nominal GDP.
D) lower real GDP.
Answer: D
Diff: 1
92) In the classical model, high unemployment due to a change in aggregate demand
A) can persist for an indefinite period of time.
B) will return to its normal level quickly as wages adjust.
C) will persist if due to a supply shock but not if due to a demand shock.
D) never exists because unemployment can never deviate from its normal level.
Answer: B
Diff: 2
93) The aggregate supply curve in the classical model is

A) horizontal.
B) vertical.
C) upward sloping.
D) downward sloping.
Answer: B
Diff: 1
24
94) Which of the following statements is TRUE about the long-run and short-run aggregate
supply curve in the classical model?
A) The long-run aggregate supply curve is vertical, and the short-run curve is horizontal.
B) The long-run aggregate supply curve is not defined, and the short run curve is vertical.
C) The long-run and short-run curves start out horizontal and eventually become vertical.
D) The long-run curve is vertical, and there is no short-run curve since all adjustments occur
quickly.
Answer: D
Diff: 2
95) The classical model makes little distinction between the long run and short run because
A) the model has not been fully developed yet.
B) the classical economists knew that we are always operating in the short run.
C) current changes influence the long run, so it is not possible to plan for the future.
D) wages and prices adjust so fast that the economy is quickly moving towards the long run.
Answer: D
Diff: 1
96) In the classical model, the aggregate supply curve

A) is horizontal.
B) is positively sloped.
C) is consistent with the natural rate of unemployment.
D) is not related to the employment rate.
Answer: C
Diff: 1
97) In the classical model, an increase in aggregate demand will lead to an increase in wage rates
while a decrease in aggregate demand will
A) leave wages unchanged since workers will not take a cut in pay.
B) decrease wages.
C) increase wages since business will be desperate for labor.
D) change the price of capital.
Answer: B
Diff: 1
25
A) pure competition
D) wage rigidity
Answer: D
Diff: 2
99) In the classical model, a change in aggregate demand

A) causes a change in long-run real GDP but not in the price level.
B) causes a change in the price level but not in the long-run real GDP.
C) causes changes in both the long-run real GDP and in the price level.
D) has no effect on either real GDP or the price level.
Answer: B
Diff: 2
100) An economy in long-run equilibrium experiences an increase in aggregate demand.

According to the classical model,
A) the price level will rise first, then real GDP will increase.
B) the price level and real GDP will increase at the same time.
C) the price level will increase, but real GDP will not change.
D) the price level will increase, but real GDP will decrease.
Answer: C
Diff: 3
101) In the classical model

A) the level of real GDP per year does not depend on the level of aggregate demand.
B) the level of GDP is demand determined.
C) changes in aggregate supply affect the price level, not real GDP.
D) the level of GDP determines prices independent of demand.
Answer: A
Diff: 1
26
102) In the classical model
A) a decrease in aggregate demand will lead to a decrease in the price level and a decrease in real
GDP.
B) changes in aggregate supply leave real GDP unchanged.
C) a decrease in aggregate demand will lead to an increase in the price level and a decrease in
real GDP.
D) changes in aggregate demand affect only the price level, not real GDP.
Answer: D
Diff: 2
103) Which of the following is NOT a key assumption of the classical model?
A) There is a single monopoly seller in many markets for goods and services.
B) People cannot be fooled by money illusion.
D) Wages and prices are flexible.
Answer: A
Diff: 2

A) wages and prices are not flexible.
B) people supply goods and services to the market because they want to consume other goods
and services.
C) government regulation is needed to prevent shortages from becoming a problem.
D) government regulation is needed to prevent surpluses from becoming a problem.
Answer: B
Diff: 2
105) In the classical model, the interest rate will adjust to equate
A) consumption spending with real GDP.
B) saving with investment.
C) the economic growth rate with the growth rate of import spending.
D) export spending with import spending.
Answer: B
Diff: 2
27
106) Why is there NO persistent unemployment in the classical model?
A) The wage level adjusts to eliminate unemployment.
B) The interest rate adjusts to eliminate unemployment.
C) The rate of economic growth is always high enough to allow those who want to work at
current wages to find jobs.
D) Unionization creates job security for workers.
Answer: A
Diff: 2
107) Which of the following is NOT an assumption of the classical system?

A) Pure competition exists.
B) People are motivated by self interest.
C) Wages and prices are inflexible.
D) There is no money illusion.
Answer: C
Diff: 1
108) In the classical model, changes in interest rates will always ensure that
A) consumption equals production.
B) saving equals investment.
C) consumption equals investment.
D) consumption equals income.
Answer: B
Diff: 2
109) The concept of Say's law can be summed up by the phrase,

A) "supply creates its own demand."
B) "demand creates its own supply."
C) "supply and demand are equivalent concepts."
D) "supply and demand are irrelevant concepts."
Answer: A
Diff: 1
28
110) Full employment in the classical model is maintained by
A) flexible interest rates.
B) flexible wage rates.
C) flexible prices.
D) flexible income.
Answer: B
Diff: 1

A) a horizontal line.
B) an upward sloping line.
C) a vertical line.
D) a combination of horizontal, upward sloping, and vertical lines.
Answer: C
Diff: 1
112) In the classical model, a rightward shift in the aggregate demand curve will, in the long run,
A) increase real GDP and the price level.
B) increase real GDP and will not change the price level.
C) decrease real GDP and will not change the price level.
D) not change real GDP and will increase the price level.
Answer: D
Diff: 2
113) Why is wage and price flexibility an important assumption of the classical model?
A) Flexible wages and prices guarantee that there will be no scarcity.
B) Flexible wages and prices allow business firms to fool their workers through the money
illusion.
C) Flexible wages and prices allow business firms to fool their customers through the money
illusion.
D) Flexible wages and prices allow markets to reach equilibrium.
Answer: D
Diff: 2
29
114) Which one of the following statements is NOT true?
A) The classical model assumes that people suffer from money illusion.
B) The classical model assumes that people are motivated by self-interest.
C) The classical model assumes that pure competition exists.
D) The classical model assumes that no single seller of a commodity can affect its price.
Answer: A
Diff: 1
115) What is TRUE when the credit market is in equilibrium?

A) Desired saving equals desired investment.
B) Desired employment equals the number of jobs available.
C) Desired consumption spending equals the total of saving plus investment.
D) The legal minimum wage equals the actual wage.
Answer: A
Diff: 2
116) What is TRUE of the aggregate supply curve in the classical model?
A) The aggregate supply curve is downward sloping.
B) The aggregate supply curve is horizontal.
C) The aggregate supply curve is vertical.
D) The aggregate supply curve is not determined by the level of employment.
Answer: C
Diff: 2
117) Long-run aggregate supply curve in the classical model

A) is the level of real GDP corresponding to 100 percent labor force participation.
B) is the level of real GDP corresponding to the natural rate of unemployment.
C) is a downward sloping line.
D) is determined by the capital stock of the economy, not the labor force.
Answer: B
Diff: 2
30
118) In the classical model, what is the result of an increase in aggregate demand?
A) Real GDP increases, and the price level remains constant.
B) Real GDP decreases, and the price level remains constant.
C) The price level increases, and real GDP remains constant.
D) The price level decreases, and real GDP remains constant.
Answer: C
Diff: 2
119) Which one of the following is TRUE?

A) The intersection of aggregate demand and aggregate supply identifies an equilibrium interest
rate and an equilibrium wage level.
B) The intersection of aggregate demand and aggregate supply identifies an equilibrium interest
rate and an equilibrium level of exports.
C) The intersection of aggregate demand and aggregate supply identifies an equilibrium level of
employment and an equilibrium level of investment.
D) The intersection of aggregate demand and aggregate supply identifies an equilibrium price
level and an equilibrium level of real GDP.
Answer: D
Diff: 2
120) In the classical model, how do shifts in aggregate demand affect real GDP?
A) Real GDP will remain unchanged.
B) Increases in aggregate demand increase real GDP.
C) Increases in aggregate demand decrease real GDP.
D) Decreases in aggregate demand increase real GDP.
Answer: A
Diff: 2

A) Government intervention is necessary for economic stability.
B) No one buyer or seller of a good or service can affect the price of the good or service.
D) People are not fooled by the money illusion.
Answer: A
Diff: 2
31
122) According to the classical model, desired saving is
A) a function of real GDP.
B) equal to desired investment.
C) identical to the demand for saving at each level of real GDP.
D) affected by the money illusion at low income levels.
Answer: B
Diff: 2
123) According to the classical model, investment

A) is a function of real GDP.
B) is a function of the nominal GDP.
C) is inversely related to the interest rate.
D) is influenced by the money illusion at low income levels.
Answer: C
Diff: 2
124) The classical model indicates that at the equilibrium interest rate, saving is
A) equal to investment.
B) greater than investment.
C) unnecessary for investment.
D) less than investment.
Answer: A
Diff: 2
125) If your income and the price level both rise by 5 percent, and you think you now have more
real income, you are suffering from
A) diminishing marginal expectations.
B) leakages.
C) injections.
D) money illusion.
Answer: D
Diff: 1
32
126) Long-run unemployment in the classical model is considered to be impossible because
A) the government will intervene to aid the unemployed.
B) job placement and training programs are rampant in the United States.
C) flexible prices and wages keep workers fully employed.
D) the labor supply is horizontal.
Answer: C
Diff: 3
127) The idea that "supply creates its own demand" is attributed to which of the following
economists?
A) Adam Smith
B) David Ricardo
C) J. B. Say
D) A. C. Pigou
Answer: C
Diff: 1

A) Pure competition exists.
C) Government spending is necessary to achieve economic stability.
D) People are motivated by self-interest.
Answer: C
Diff: 1
129) According to Say's law

A) supply creates its own demand.
B) demand creates supply.
C) changes in supply create supply-side inflation.
D) changes in demand create demand-side inflation.
Answer: A
Diff: 1
33
130) According to the classical model
A) long-term unemployment is unavoidable.
B) unemployment is a temporary phenomenon.
C) unemployment only exists during periods of war.
D) the natural rate of unemployment is zero.
Answer: B
Diff: 1
131) According to the classical model, prices and wages

A) are flexible.
B) must be set by government.
C) move downward easily, but are "sticky" upward.
D) move upward easily, but are "sticky" downward.
Answer: A
Diff: 1
132) According to classical economists, the credit market reaches an equilibrium when
A) planned investment equals government expenditures.
B) desired investment equals planned investment.
C) desired investment equals planned changes in aggregate supply.
D) desired investment equals desired saving.
Answer: D
Diff: 1
133) According to classical economists, when aggregate demand decreases

A) unemployment is reduced, the price level increases, and equilibrium real GDP is reached.
B) unemployment is reduced, the price level decreases, and equilibrium real GDP is reached.
C) unemployment temporarily increases, the price level increases, and equilibrium real GDP is
reached.
D) unemployment temporarily increases, the price level decreases, and equilibrium real GDP is
reached.
Answer: D
Diff: 2
34
134) A congressman states, "If a government attempts to increase employment through increased
government spending, all we will end up with is a higher price level." This congressman assumes
that the
A) aggregate demand curve is a horizontal line.
B) aggregate demand curve is a vertical line.
C) aggregate supply curve is a horizontal line.
D) aggregate supply curve is a vertical line.
Answer: D
Diff: 2
135) Q: How many economists does it take to screw in a light bulb?

A: None. If the light bulb really needed changing, market forces would have already caused it to
happen.
This joke represents the view of
A) classical economists.
B) Keynesian economists.
C) economists who conclude that money illusion is widespread.
D) economists who conclude that wages and prices are inflexible.
Answer: A
Diff: 3
136) Classical economists suggest that unemployment is a short-lived phenomenon because

A) wages adjust quickly to equilibrate quantity of labor demanded with quantity of labor
supplied.
B) wages remain unchanged when the quantity of labor demanded exceeds the quantity of labor
supplied.
C) wages remain unchanged when the quantity of labor supplied exceeds the quantity of labor
demanded.
D) wages tend to rise slowly when the quantity of labor demanded equals the quantity of labor
supplied.
Answer: A
Diff: 1
35
137) Which statement best characterizes the classical economists' view of saving and
investment?
A) Saving equals investment.
B) Saving exceeds investment.
C) Saving is less than investment.
D) Saving and investment are not related to one another.
Answer: A
Diff: 2
138) In the classical view, if desired saving exceeds desired investment

A) government spending must fall.
B) government spending must rise.
C) the interest rate would decline.
D) the interest rate would increase.
Answer: C
Diff: 2
139) In the classical view, flexible wage rates would assure

A) low inflation.
B) high rates of unemployment.
C) high secular inflation rates.
D) full employment.
Answer: D
Diff: 1
140) In the classical model, what happens to the level of real GDP if aggregate demand
increases?
A) Real GDP increases.
B) Real GDP decreases.
C) Real GDP would increase at first, then decrease.
D) Real GDP would remain the same, at equilibrium.
Answer: D
Diff: 2
36
141) "Supply creates its own demand" implies that
A) the very act of supplying a particular level of goods and services necessarily equals the level
of goods and services demanded.
B) the very act of demanding a particular level of goods and services necessarily equals the level
of goods and services supplied.
C) the government will buy up any surplus of goods and services in a country to avoid economic
problems.
D) the very act of supplying a particular level of goods and services will not necessarily equal
the level of goods and services demanded.
Answer: A
Diff: 2
142) What is Say's law and what does it mean?

Answer: Say's law is: Supply creates its own demand. It means that a general glut or
overproduction is not possible. The very process of producing specific goods is proof that other
goods are desired. The income received from selling one's goods is used to purchase other goods.
While some goods may have a surplus, others will have a shortage, and these would be corrected
by price changes. There will not be an excess quantity supplied of all goods.
Diff: 2
143) Saving is a leakage from the circular flow. Why didn't the classical economists think saving
might cause consumption expenditures to fall short of total output?
Answer: The classical economists believed that each dollar saved would be invested by firms so
that the leakage of saving would be exactly matched by an injection of investment spending. The
interest rate would adjust to ensure that saving equaled investment.
Diff: 2
144) "In the classical model, the equilibrium level of real Gross Domestic Product (GDP) is
completely supply-determined." Do you agree or disagree? Why?
Answer: Agree. The long-run aggregate supply curve is vertical, so the equilibrium level of real
Gross Domestic Product (GDP) is determined by the location of the aggregate supply curve.
Shifts in aggregate demand affect only the price level.
Diff: 3
37
145) Why did the classical economists think that large-scale unemployment was not possible in a
market economy?
Answer: The classical economists accepted Say's law, which indicated that desired expenditures
will equal actual expenditures. The act of producing indicates one wants to buy other goods. A
surplus or shortage in one market would soon be corrected because prices and wages were
assumed to be flexible, and they assumed people could not be fooled by money illusion. They
also assumed pure competition and that people were motivated by self-interest. Combining all
these ideas, they concluded that full employment would be the norm.
Diff: 3
146) "The level of employment in an economy determines its real GDP, other things held
constant." Do you agree or disagree? Why? What assumptions are necessary for your conclusion
based on the classical model?
Answer: Agree. Production requires workers so the more workers that are employed the greater
total production. This assumes that workers who are employed actually work and are productive.
Diff: 2
11.2 Keynesian Economics and the Keynesian Short-Run Aggregate Supply Curve
1) According to the Keynesian model, the short-run aggregate supply (SRAS) curve is horizontal
when
A) real Gross Domestic Product (GDP) is at full capacity but prices are not flexible.
B) there are no unemployed resources and wages do not change when prices change.
C) prices react to an aggregate demand shock but real Gross Domestic Product (GDP) does not.
D) there are unemployed resources and prices do not fall when aggregate demand falls.
Answer: D
Diff: 1
Topic: 11.2 Keynesian Economics and the Keynesian Short-Run Aggregate Supply Curve
2) The Keynesian model is basically

A) a long-run theory.
B) a short-run theory.
C) a combination of long- and short-run theories.
D) a theory about the economy in both the long run and the short run.
Answer: B
Diff: 2
38
3) According to Keynes, involuntary unemployment is possible because of
A) the existence of capital markets.
B) long-term labor contracts and the existence of labor unions.
C) government interference in the market economy.
D) inflation.
Answer: B
Diff: 1
4) A decrease in aggregate demand will cause

A) prices to fall according to classical economists, and unemployment to increase according to
Keynes.
B) prices to fall and unemployment to increase according to both classical economists and
Keynes.
C) aggregate supply to fall according to classical economists, and prices to fall according to
Keynes.
D) aggregate supply to fall according to Keynes, and unemployment to increase according to
classical economists.
Answer: A
Diff: 1
5) Involuntary unemployment
A) occurs when the wage rate is below the equilibrium wage rate.
B) exists when there is an excess quantity of labor supplied.
C) will increase as the wage rate falls.
D) exists when there is a shortage of labor.
Answer: B
Diff: 1
39
6) If a shift in aggregate demand only affects real Gross Domestic Product (GDP), then the short-
run aggregate supply (SRAS) curve must be
A) vertical.
B) upward sloping.
C) horizontal.
Answer: C
Diff: 1
7) The Keynesian short-run aggregate supply (SRAS) curve is

A) upward sloping.
B) vertical.
C) horizontal.
Answer: C
Diff: 1
8) The above figure presents the view of the economy according to

A) Keynesian economics.
B) classical economics.
C) microanalysis.
D) Ricardian economics.
Answer: A
Diff: 1
40
9) Refer to the above figure. Suppose the current aggregate demand is represented by AD2. If
aggregate demand falls to line AD3, then
A) the new equilibrium will be at j.
B) the new equilibrium will be at k.
C) the new equilibrium real Gross Domestic Product (GDP) will be x.
D) a new price level will be established at a.
Answer: C
Diff: 1
10) Keynes argued that

I. Capitalism did not always lead to full employment.
II. Nominal prices were more important than relative prices.
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Answer: A
Diff: 1
11) The original Keynesian economic theory states that

A) the short-run aggregate supply (SRAS) curve is always vertical.
B) many prices would not decline even when aggregate demand decreases.
C) wages tend to fall more quickly than the overall price level.
D) the economy naturally self-regulates so as to reach full employment quickly.
Answer: B
Diff: 1
12) Keynes argued that an economy could be in equilibrium when the economy was
A) operating at maximum potential capacity.
B) operating with some unutilized productive capacity.
C) trying to operate at some output level beyond its potential capacity.
D) operating either at full productive capacity or at less than full capacity.
Answer: D
Diff: 1
41
13) Keynes and his followers believed that
A) capitalism was one economic system that guaranteed full employment.
B) wages and prices in the short run were flexible.
C) the economy could not operate at any level of real Gross Domestic Product (GDP) less than
full capacity.
D) there was no guarantee that a capitalist economy would reach a full employment equilibrium.
Answer: D
Diff: 1
14) A key component of the Keynesian model is that

A) prices are sticky.
B) prices are flexible.
C) wages are flexible.
D) people are not fooled by money illusion.
Answer: A
Diff: 1
15) According to Keynes, once a system attains an economy-wide equilibrium

A) there may or may not be excess productive capacity.
B) planned consumption will be zero.
C) planned investment will be zero.
D) the economy will be at full productive capacity.
Answer: A
Diff: 1
16) The Keynesian portion of the short-run aggregate supply (SRAS) curve
A) is horizontal.
B) is vertical.
C) slopes upward.
D) slopes downward.
Answer: A
Diff: 1
42
17) The simple Keynesian model assumes that
A) gross private domestic investment exceeds net investment by the capital consumption
allowance.
B) prices, especially the price of wages, are "sticky downward."
C) there will never be any excess capacity in the short run.
D) aggregate demand will always equal aggregate supply.
Answer: B
Diff: 1
18) The Keynesian portion of the short-run aggregate supply (SRAS) curve implies
A) an upward slope.
B) no price level changes.
C) a downward slope.
D) flexible prices and wages.
Answer: B
Diff: 2
19) The Keynesian short-run aggregate supply (SRAS) curve

A) shows that real Gross Domestic Product (GDP) will increase only if the price level increases.
B) assumes a full-employment level of real Gross Domestic Product (GDP).
C) is horizontal.
D) does not reflect any changes in nominal Gross Domestic Product (GDP).
Answer: C
Diff: 1
20) In an economic downturn, sticky wages and prices reduce the economy's speed of adjustment
because
A) businesses are unable to adjust quickly to changes in aggregate demand.
B) they cause deflation.
C) hyperinflation will likely occur.
D) union workers would likely quit and look for work elsewhere.
Answer: A
Diff: 2
43
21) Keynes suggested that the short-run aggregate supply (SRAS) curve
A) is vertical.
B) is horizontal.
C) slopes downward.
D) is not a relevant concept.
Answer: B
Diff: 3
22) Keynesian economics predicts that if government policy makers deem current equilibrium
real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action would be
to
A) do nothing, because the economy is self-adjusting.
B) raise government spending, thereby increasing aggregate demand and pushing up real Gross
Domestic Product (GDP) with little or no inflationary consequences.
C) increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross
Domestic Product (GDP) with little or no inflationary consequences.
D) reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in
fall in the price level that generates an increase in total planned expenditures.
Answer: B
Diff: 2
23) The short-run aggregate supply (SRAS) curve represents the relationship between
A) the price level and the real Gross Domestic Product (GDP) without full adjustment or full
information.
B) the price level and the real Gross Domestic Product (GDP) without full adjustment but with
full information.
C) the price level and the nominal Gross Domestic Product (GDP).
D) the decisions of producers and the decisions of consumers.
Answer: A
Diff: 1
44
24) In the short run, an increase in the price level induces firms to expand production because
A) prices of inputs are held constant, so the higher prices for firms' products imply that it is
profitable to expand production.
B) each firm must keep its production level up to the level of its rivals, and some firms will
expand production as the price level increases.
C) higher prices allow firms to hire more inputs by offering higher prices for inputs, which
increases productivity and profits.
D) they can increase profits by increasing maintenance costs.
Answer: A
Diff: 3
25) The relationship between the price level and the real Gross Domestic Product (GDP) without
full adjustment or full information is represented by
A) the long-run aggregate supply curve.
B) the short-run aggregate supply curve.
C) the aggregate demand curve.
D) the distance between the long-run aggregate supply curve and the short-run aggregate supply
curve.
Answer: B
Diff: 1
26) According to Keynes, the classical model could not explain

A) a recession or depression.
B) periods of rising unemployment.
C) a long-term economic decline.
D) periods of rising interest rates.
Answer: C
Diff: 1
45
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"It's quite safe now," I said. "Let's go and——"
"What can I have the pleasure of showing you?" said a soothing voice at
our backs.
We turned round in alarm.
"Er—we only just—let me see, what was it you wanted?" said Miss
Middleton to me.
"I don't really want anything. I was going to help you buy one of those
—you know."
"Yes, but I've got that. I know there was something you said you wanted
very much."
"Probably tea."
"Tiaras," explained Miss Middleton hastily. "Of course."
"Certainly, madam," said the shopwalker. "If you will just sit down," he
continued, leading us to a little room out of the main stream of shoppers, "I
will send somebody to attend you."
We sat down mechanically. I leant my stick against a showcase and

balanced my hat on the top of it.
"Now you've done it," I said. "How many tiaras shall we have? I've got
nearly four pounds."
"We needn't have any. We can say we don't much care about their
selection."
"Or that we wanted one specially built for us."
"One goes into dozens of shops without buying anything," said Miss
Middleton cheerily.
"I never do," I replied gloomily. "Look out, here he is."

An attendant advanced briskly towards us. I put my hands in my
pockets and tried to count my money.
"Tiaras, madam? Certainly. About what price?"
"Tell him about three pounds eight and six," I whispered to Miss
Middleton. "Three pounds nine," I corrected, as I ran another sixpence to
ground.
"Here is a beautiful one at two hundred and fifty pounds."
"Too much," I prompted softly.
"Oh," broke in Miss Middleton brightly, "I'm so sorry—such a silly

mistake! We wanted neck-chains, not tiaras! Barbara has a tiara already,
hasn't she?" she appealed to me.
"Two," I said quickly. "If not three."
"I'm so sorry," said Miss Middleton, with a dazzling smile. "The first
gentleman must have misunderstood. Of course we gave her a tiara last
year."
The man was disappointed; I saw that. But the smile melted him, and he
went off in all friendliness.
"Tiara doesn't sound very much like neck-chain," I remarked after a

pause.
"Oh, don't you think so? It depends how you say it. Like Beauchamp
and Cholmondeley."
"And what is it when pronounced properly?"
"It's a chain that hangs round your neck, and when you don't quite know
what to say to anybody you play with it carelessly. Same as men smoking
cigarettes, only better for you."
"I see. Well, here we have a hundred of the best."

The attendant got to business at once.
"This one," he said, holding up rather a jolly one, "comes out at ten
guineas."
"Tell him," I whispered to Miss Middleton, "that we've only come out
with three."
"That's very pretty," she said. "Are those moon-stones?"
"Yes, madam. The fashionable stone this year."
"It's more for next year that we want it."
"I should say this season. I don't think you will find a prettier one than
this, madam."
"It's very sweet. But aren't they unlucky, unless you happen to have
been born in the right month?" She turned to me. "When is Barbara's
birthday?"
"May," I said unhesitatingly. "I mean March."
"Anyhow," said Miss Middleton. "I know it's wrong for moonstones,
because I was thinking of giving her some two years ago, and it had to "be
opals instead."
"We both thought of it," I said.
Miss Middleton looked at me so admiringly that I began to get reckless.
"Besides, we don't know the size of her neck," I went on. "And she
never smokes—I mean she never doesn't know what to say to anybody. So I
think we should be making a mistake if we gave her this. I do indeed. Now
if it had been anybody else but Barbara——"
The man looked from one to the other of us in bewilderment.

"If you could show us some hatpins instead?" said Miss Middleton
hurriedly, before he could open his mouth.
"This is excellent," I said, as he retired in confusion; "we're working

down well. All we've got to do now is to wait till he comes back and then
say that we're sorry but we meant hairpins. With hair-pins you're practically
there."
"Supposing they only had gold ones?"
"Then we should point out that they wouldn't go with Barbara's

curiously-coloured hair. You leave this to me. I can finish it off now on my
head. At the same time I'm sorry I'm not going to spend anything."
"Oh, but you are," said Miss Middleton. "You're going to give me and
mother tea."
"Of course I am," I agreed.
* * * * * * *
After tea I went back to the shop by myself.
"I want," I said "a trifle for about three pounds. A moonstone pendant or
something. Yes, that's very sweet. No, I'll take it with me."
They packed it in a pretty little box for me, and I'm going to send it to
Miss Middleton on the twenty-fourth. I am putting in a card with the words
"From Barbara" on it. As I said, I am not giving any presents myself this
year, but I do think that Barbara should repay at least some of the
kindnesses which have been showered upon her so wantonly.
CHESS
(The author cannot lay claim to any great technical knowledge of chess,
but he fancies that he understands the spirit of the game. He feels that, after
the many poems on the Boat Race, a few bracing lines on the Inter-
University Chess Match would be a welcome change.)
This is the ballad of Edward Bray,

Captain of Catherine's, Cambridge Blue—
Oh, no one ever had just his way
Of huffing a bishop with KB2!
The day breaks fine, and the evenings brings

A worthy foe in the Oxford man—
A great finesser with pawns and things,
But quick in the loose when the game began.
The board was set, and the rivals tossed

But Fortune (alas!) was Oxford's friend.
"Tail," cried Edward, and Edward lost;
So Oxford played from the fireplace end.
We hold our breath, for the game's begun—

Oh, who so gallant as Edward Bray!
He's taken a bishop from KQ1,
And ruffed it—just in the Cambridge way!
Then Oxford castles his QB knight

(He follows the old, old Oxford groove;
Though never a gambit saw the light
That's able to cope with Edward's move).
The game went on, and the game was fast,

Oh, Oxford huffed and his King was crowned;
The exchange was lost, and a pawn was passed,
And under the table a knight was found!
Then Oxford chuckled; but Edward swore,

A horrible, horrible oath swore he;
And landed him one on the QB4,
And followed it up with an RQ3.
Time was called; with an air of pride

Up to his feet rose Edward Bray.
"Marker, what of the score?" he cried.
"What of the battle I've won this day?"
The score was counted; and Bray had won

By two in honours, and four by tricks,
And half of a bishop that came undone,
And all of a bishop on KQ6.
* * * * * *
Then here's to Chess: and a cheer again

For the man who fought on an April day
With never a thought of sordid gain!
England's proud of you, Edward Bray!
PROGRESSIVE BRIDGE
There were twelve tables numbered A, B, C, up to—well, twelve of

them, and I started at E, because my name is Ernest. Our host arranged us
and, of course, he may have had quite another scheme in his mind. If so, it
was an extraordinary coincidence that my partner's name was Ethel. She
herself swore it was Millicent, but I doubt if one can trust a woman in these
matters. She looked just like an Ethel. I had never seen her before, I shall
never see her again, but she will always be Ethel to me.
There is only one rule at progressive bridge, and that is, if you lose you
go to the next table, and if you win you stay where you are. In any case you
get a fresh partner each time. That being so, it seemed hardly worth while to
ask Ethel what she discarded from. As it happened, though, she began it.
"I discard from strength," she said.
"So do I," I agreed gladly. We already had a lot in common. "Great

strength returns the penny," I added.
"What's that?"
"Moderate strength rings the bell. It's a sort of formula I say to myself,
and brings luck. May I play to hearts?"
Ethel discarded a small heart on the first round of clubs, and a small
club on the first round of hearts. After which, systematically and together,
we discarded from great weakness. What with the revoke and other things
they scored hundreds and thousands that game.
"You know, where providence goes wrong," I said, "is in over-

estimating our skill. Providence thinks too highly of us. It thinks that if it
gives us a knave and two tens between us we can get a grand slam."
"Yes; and I think—I think, perhaps, that just the least little bit it
underrates Dorothy's abilities."
"Indeed?" I said. Dorothy was the person who had just taken two
hundred and ninety-eight off us.
"Yes. You see Dorothy has played before, and I don't think providence
knew."
"It rather looks like that."
"Mind," said Ethel graciously, "I don't blame providence for not
knowing."
Dorothy laughed, and cut for me. I dealt myself three aces, and went no
trumps. To my surprise Dorothy's partner doubled, and led the ace of hearts.
"One moment," I said, and I took it up, and looked at the back of it.
Then I looked at the back of my own ace of hearts. Then I looked at the
front of it again, and swore very softly, and played it.
"I'm very sorry," I apologised at the end of the game. "I had a wolf in
sheep's clothing, an ass in a lion's skin. You saw me play the three of hearts.
Well, do you know—it's very sad—he actually pretended to be the ace. Hid
his head behind one card, and his feet behind another, and only—well, I
thought it was the ace."
At the end of the round Ethel and I moved on.
"Good-bye," I said to Dorothy, "I like watching you play. If you wait
here I shall be round again soon."
My next partner was called Aggie. Ethel addressed her as Mary, but she
was much too lively for Mary. I had never seen her before, I shall never see
her again, but she will always be Aggie to me.
She began at once:
"I discard from weakness, partner. I like hearts led, I never go spades on
my own, I live on tapioca and toadstools, and the consequence was——"
"It's the same with me," I said, "except about tapioca. I don't like
tapioca. In fact I always—er—discard from tapioca. Otherwise we agree.
It's your deal. Now," I said to Ethel, "we shall see what providence thinks of
our comparative merits."
Providence made no mistake. In the whole round my partner and I

scored once only. Chicane in spades. I moved on to G. I should never see
Ethel again.
"I always play the Canadian discard," said Violet, "and I like spades
led."
I need hardly say that Aggie, whom Ethel called Mary, spoke of Violet
as Diana. But she looked much more like Violet, and she will always be
Violet to me. I had never seen her before though, and I shall never see her
again.
"So do I," I said. "Do you know Canada at all? I always wish I had been
there."
"I go a good deal to Switzerland," said Violet. "Are you fond of

bridge?"
"No, never; that is, I mean, 'Very.' Shall we cut?"
The "Canadian discard" hardly does itself justice under that name. It is
no mere discard, but embraces all the finer points of bridge. It leads through
weakness, and blocks your partner's long suits, and trumps his tricks; and,
though I couldn't discover any recognised system about it, revokes now and
then. I, too, from tact or sympathy, or some such motive, played the
Canadian discard for all I was worth. We got to H without any difficulty....
J, K and L may be passed by, for nothing happened there. For some
reason "I" was left out, or, rather, run into J. I cannot understand the point of
this. To every man his table, and I feel convinced that I should have done
remarkably well at "I." I had been looking forward to it all the evening. I
don't much care about betting, but I am prepared to wager a hundred pounds
that I should have got a grand slam at "I."
It was somewhere down in the X's that I met Maud. I had been round I
don't know how many times, and was feeling quite giddy. Alice, Elizabeth,
Iris, Mabel—they were all forgotten when I came to play with Maud.
Hepzibah (on my right) called her Millicent or something like that, but I
knew really that her name must be Maud. I had never seen her before, I
shall never see her again, but she will always be Maud to me.
"I discard from hearts," I said. "I like my weakest suit led, I have
revoked three times this evening, at table G on the right-hand side of the
fireplace I played the 'Canadian discard,' and I shall never play it again, at K
as you go round the lamp I had four aces and my partner went spades, I've
had rotten luck all through, and I'm enjoying myself very much. Shall we be
very cautious, or would you like to play a dashing game?"
"Oh, let's dash," said Maud.
I dealt, and went no trumps on two aces. To my great surprise

Hepzibah's partner doubled and led the ace of clubs.
"One moment," I said, and I took it up and looked at the back of it. Then
I looked at the back of my own ace of clubs. Then I looked at the front of it,
and swore very softly, and played it.
"I'm very sorry," I began at the end of the game, "but——"
"Haven't we met before?" said Maud, with a smile.
I looked at her hard. "By Jove! Ethel!" I cried.
"My name's Millicent," said Maud, "and seeing that we met for the first
time a few hours ago——"
"Yes, you were my first partner, 'Ethel.'"
"I'm sorry. Who is Ethel?"
"I beg your pardon," I apologised. "But I always call my first partner at
progressive bridge Ethel. It's a sort of hobby with me."
"I see," said Maud—I mean Ethel. Well, I suppose I must call her
Millicent now. Though I had never seen her before, and shall never see her
again, she will always be Millicent to me.
DRESSING UP
I. AT A PAGEANT
Our episode is the tenth and last and (I may add unofficially) the most
important. The period of it is 1750. In order to lead up to it properly it has
been found necessary to start the first episode at 53 B.C. This gives the
audience time to get hungry for us. "At last!" they say, when we come on,
"this is the end, Maria."
The Duchess of Kirkcudbright (N.B.) says that they don't say that at all.
They say, "Why, Henry, it's 1750! I had no idea. How the time flies when
you are enjoying yourself. We must stay to the end; a few minutes won't
make any difference now, and it's only cold mutton."
I must explain that it is the Duchess of Kirkcudbright (N.B.)—and do

remember the "N.B.," because she is very particular about it—who in this
episode condescends to dance a minuet with me: that stately old measure (if
you don't trip over the sand-hill opposite Block D.) which so delighted our
forefathers. It is a very sad thing, but though the whole pageant, as I have
explained, hinges upon us, yet our names and description do not appear
upon the programme. We are put down briefly, and I think libellously, as
"Revellers." However, we learnt that we were really people of some
position—right in the smart set, by all accounts; so I decided to be Lord
Tunbridge Wells, and my partner the Duchess of Kirkcudbright (N.B.). That
is just like her—to be a whole county, when I am only a watering-place.
We are supposed to do the "revelling" as soon as we come in. As I lead

my partner down the steps I say to her, "Our revel, I think?" and she replies,
"Shall we revel, or shall we sit it out?" After a little discussion we decide to
revel, partly because there is nowhere to sit down, and partly because the
prompter has his eye on us. Now I don't know what your idea of revelling
is, but mine would include at the very least a small ginger ale and a slice of
seed-cake. I mean, I don't think that would be overdoing it at all. But do you
suppose we are allowed this—or indeed anything? Not likely. And yet it is
just a little touch of that sort which gives verisimilitude to a whole pageant.
Before we have really got through our revelling the band strikes up, and
suddenly we are all in our places for the minuet. Now, although you have
paid your two guineas like a man, and are sitting in the very front row, you
mustn't think we have taken all this trouble of learning the minuet simply to
amuse you. Not at all. We are doing it for the sake of King George the
Second, no less; a command performance. And so, when we are all in a
line, just ready to start, and I whisper to my partner, "I say, I'm awfully
sorry, but I've forgotten the minuet. Let's do the Lancers instead," she
whispers back, "Quick! George is looking at me. Is my patch on straight?"
"No," I say. "Now, don't forget you have to smile all the time. Hallo, we're
off."
I am not going to describe the dance to you, because it is too difficult.

But I may say briefly that there's a whole lot of things you do with your
feet, and another whole lot with your hands; that you have to sway your
body about in an easy and graceful manner; that you must keep one eye on
the ground to see that you don't fall over the sandhills, and another eye on
your partner to see that she is doing it all right, and the two of you a joint
eye on everybody else to see that the affair is going symmetrically. And
then—then comes the final instruction: "Don't look anxious. Smile, and
seem to be enjoying yourself."
So far I have resisted the inclination to smile. The fact is that when I
cast aside my usual habiliments and take upon me the personality of another
I like to do the thing thoroughly—to enter into the spirit of the part. Now I
will put the case before you, and you shall say whether I am not right.
Here we have, as I conceive the situation, a sprig of the nobility,

Tunbridge Wells. He is a modest young man, who spends most of his time
at his lovely Kentish seat, flanked by fine old forest trees—preferring the
quiet of the country to the noise and bustle of London.
One day, however, he ventures up to town, and looking in at his

customary coffee-house is hailed by an acquaintance. Tunbridge Wells, I
may mention, is beautifully attired in a long blue coat, white satin
waistcoat, fancy breeches, with quaint designs painted on them, silk
stockings, and shoes which are too small for him.
"What are you doing to-night?" says his friend. "Come down to Chelsea
with me. There's a grand Venetian fête on, and old George will be there."
"Right," says Tunbridge Wells.

When they get to the gardens his friend takes him aside.
"I say," he begins anxiously, "I hope you won't mind, but the fact is that
I've promised you shall dance in a minuet to-night. Old George particularly
wants to see one."
"But I simply couldn't," says Tunbridge Wells, in alarm. "Can't you get
somebody else?"
"Oh, but you must. I've got you a jolly partner—the Duchess of
Kirkcudbright (N.B.). You know the minuet, of course?"
"Well, I've learnt it; but I've very nearly forgotten it again. And my
shoes are beastly uncomfortable. Before the King too! It's a bit steep, you
know."
"Well then, you will. Good man."
"No, no," cries Tunbridge Wells hastily, and leads his friend aside under
the trees. "I say," he begins mysteriously, "don't say anything, but—well, it's
rather awkward ... I may as well tell you ... these—er—these things are a bit
tight. They look all right like this, you know, but when you bend down—
well, I mean I have to be jolly careful."
"I was just thinking how pretty they were. A beautiful thing, that," he
adds, pointing to a crescent moon in blue on Tunbridge Wells' left knee.
"Don't touch," says Wells in alarm, "it comes off like anything. I lost a
dragon-fly only yesterday. Well, you see how it is, old man. But for them I
should have loved it. Only ... I say, don't be a fool.... Your servant, Duchess.
I was just saying ... yes, I am devoted to it.... Yes.... Yes. Let's see, it is the
left foot, isn't it? (Confound that idiot!)"
Now then, do you wonder that the poor fellow looks anxious, or that I
feel it my duty as a good actor to look anxious too?
I have promised not to describe the whole minuet to you, but I must
mention one figure in it of which I am particularly fond. In this you rejoin
your partner after a long absence, and you have once more her supporting
hand to hold you up. For some hours previously you have been alone in the
wild and undulating open, tripping over molehills and falling down ha-has;
and it is very pleasant (especially when your shoes fit you too soon) to get
back to her and pour all your troubles into her sympathetic ear. It's a figure
in which you stand on one foot each for a considerable time, and paw the
air with the others. You preserve your balance better if you converse easily
and naturally.
"I nearly came a frightful purler just now; did you see?"
"H'sh, not so loud. Have you found mother yet? She's here to-day."
"One of my patches fell off. I hope nobody heard it."
"You've got a different wig to-day. Why?"
"It's greyer. I had such a very anxious moment yesterday. You know that
last bow at the end where you go down and stay under water for about five
minutes? Well, I really thought—however, they didn't."
"I don't like you in this one. It doesn't suit you at all."
"So I thought at first. But if you gaze at it very earnestly for three hours,
and then look up at the ceiling, you——"
"Why, there is mother. Hold up."
"I fancy we have rather a good action in this figure. Do you think she's
noticing it? I hope she knows that we could stand on one leg without
moving the other one at all. I mean I don't want her to think—— Hallo, here
we are. Good-bye. See you again in the next figure but one." And the
Duchess of Kirkcudbright (N.B.) trips off.
I put in the "N.B." because she is very particular about it; and I say
"trips" because I know the ground.
II. AT A DANCE
"Then you really are coming?" said Queen Elizabeth, as she gave me
my third cup of tea.
"Yes, I really am," I sighed.
"What as?"
"I don't know at all—something with a cold. I leave it to you, partner,

only don't go a black suit."
"What about Richelieu?"
"I should never be able to pronounce that," I confessed. "Besides, I

always think that these great scientists—I should say, philos—that is, of
course, that these generals—er, which room is the encyclopædia in?"
"You might go as one of the kings of England. Which is your favourite

king?"
"William and Mary. Now that would be an original costume. I should

have——"
"Don't be ridiculous. Why not Henry VIII.?"
"Do you think I should get a lot of partners as Henry VIII.? Anyhow, I
don't think it's a very becoming figure."
"But you don't wear fancy dress simply because it's becoming."
"Well, that is rather the point to settle. Are we going to enhance my

natural beauty, or would you like it—er—toned down a little? Of course, I
could go as the dog-faced man, only——"
"Very well then, if you don't like Henry, what about Edward I.?"
"But why do you want to thrust royalty on me? I'd much sooner go as
Perkin Warbeck. I should wear a brown perkin—jerkin."
"Jack is going as Sir Walter Raleigh."
"Then I shall certainly touch him for a cigarette," I said, as I got up to

go.
* * * * * * *
It was a week later that I met Elizabeth in Bond Street.
"Well?" she said, "have you got your things?"
"I haven't," I confessed.
"I forget who you said you were going as?"
"Somebody who had black hair," I said. "I have been thinking it over
and I have come to the conclusion that I should have knocked them rather if
I had had black hair—instead of curly eyes and blue hair. Can you think of
anybody for me?"
Queen Elizabeth regarded me as sternly as she might have regarded

—— Well, I'm not very good at history.
"Do you mean to say," she said at last, "that that is as far as you have
got? Somebody who had black hair?"
"Hang it," I protested, "it's something to have been measured for the
wig."
"Have you been measured for your wig?"
"Well—er—no—that is to say, not exactly what you might call

measured. But—well, the fact is I was just going along now, only—I say,
where do I get a wig?"
"You've done nothing," said Elizabeth—"absolutely nothing."
"I say, don't say that," I began nervously; "I've done an awful lot, really.
I've practically got the costume. I'm going as Harold the Boy Earl, or
Jessica's Last—— Hallo, there's my bus; I've got a cold, I mustn't keep it
waiting. Good-bye." And I fled.
* * * * * * *
"I am going," I said, "as Julius Cæsar. He was practically bald. Think
how cool that will be."
"Do you mean to say," cried Elizabeth, "that you have altered again?"
"Don't be rough with me or I shall cry. I've got an awful cold."
"Then you've no business to go as Julius Cæsar."
"I say, now you're trying to unsettle me. And I was going to-morrow to
order the clothes."
"What! You haven't——"
"I was really going this afternoon, only—only it's early closing day.
Besides, I wanted to see if my cold would get better. Because if it didn't
—— Look here, I'll be frank with you. I am going as Charlemagne."
"Oh!"
"Charlemagne in half-mourning, because Pepin the Short had just died.

Something quiet in grey, with a stripe, I thought. Only half-mourning
because he only got half the throne. By-the-way I suppose all these people
wore pumps and white kid gloves all right? Yes, I thought so. I wonder if
Charlemagne really had black hair. Anyhow, they can't prove he didn't,
seeing when he lived. He flourished about 770, you know. As a matter of
fact 770 wasn't actually his most flourishing year, because the Radicals
were in power then, and land went down so. Now 771—yes. Or else as
Raymond Blathwayt."
"Anyhow," I added indignantly a minute later, "I swear I'm going

somehow."
* * * * * * *
"Hallo," I said cheerfully, as I ran into her Majesty in Piccadilly, "I've
just been ordering—that is to say, I've been going——I mean I'm just going
to—— Let's see, it's next week, isn't it?"
For a moment Elizabeth was speechless—not at all my idea of the

character.
"Now then," she said at last, "I am going to take you in hand. Will you
trust yourself entirely to me?"
"To the death, your Majesty. I'm sickening for something, as it is."
"How tall are you?"
"Oh, more than that," I said quickly. "Gent's large medium, I am."
"Then, I'll order a costume for you and have it sent round. There's no
need for you to be anything historical; you might be a butcher."
"Quite—blue is my colour. In fact, I can do you the best end of the neck
at tenpence, madam, if you'll wait a moment while I sharpen the knife. Let's
see; you like it cut on the cross, I think? Bother, they've forgotten the strop."
"Well, it may not be a butcher," said Elizabeth; "it depends what they've
got."
* * * * * * *
That was a week ago. This morning I was really ill at last; had hardly
any breakfast; simply couldn't look a poached egg in the yolk. A day on the
sofa in a darkened room and bed at seven o'clock was my programme. And
then my eye caught a great box of clothes, and I remembered that the dance
was to-night. I opened the box. Perhaps dressed soberly as a black-haired
butcher I could look in for an hour or two ... and——
Help!
A yellow waistcoat, pink breeches, and—no, it's not an eider-down, it's

a coat.
A yellow—— Pink br——
I am going as Joseph.
I am going as Swan & Edgar.
I am going as the Sick Duke, by Orchardson.
I am going—yes, that's it, I am going back to bed.
AFTER DINNER
I. THE COMPLETE KITCHEN
I wat in the drawing-room after dinner with my knees together and my

hands in my lap, and waited for the game to be explained to me.
"There's a pencil for you," said somebody.
"Thank you very much," I said, and put it carefully away. Evidently I
had won a forfeit already. It wasn't a very good pencil though.
"Now, has everybody got pencils?" asked somebody else. "The game is
called 'Furnishing a Kitchen.' It's quite easy. Will somebody think of a
letter?" She turned to me. "Perhaps you'd better."
"Certainly," I said, and I immediately thought very hard of N. These

thought-reading games are called different things, but they are all the same
really, and I don't believe in any of them.
"Well?" said everybody.

"What? ... Yes, I have. Go on.... Oh, I beg your pardon," I said in
confusion. I thought you—— N. is the letter."
"N or M?"
I smiled knowingly to myself.
"My godfather and my godmother," I went on cautiously——
"It was N," interrupted somebody. "Now then, you've got five minutes
in which to write down everything you can beginning with N. Go." And
they all started to write like anything.
I took my pencil out and began to think. I know it sounds an easy game
to you now, as you sit at your desk surrounded by dictionaries; but when
you are squeezed on to the edge of a sofa, given a very blunt pencil and a
thin piece of paper, and challenged to write in five minutes (on your knees)
all the words you can think of beginning with a certain letter—well, it is
another matter altogether. I thought of no end of things which started with
K, or even L; I thought of "rhinoceros," which is a very long word and
starts with R; but as for——
I looked at my watch and groaned. One minute gone.
"I must keep calm," I said, and in a bold hand I wrote Napoleon. Then,
after a moment's thought, I added Nitro-glycerine, and Nats.
"This is splendid," I told myself. "Notting Hill, Nobody and Noon. That
makes six."
At six I stuck for two minutes. I did worse than that in fact; for I
suddenly remembered that gnats were spelt with a G. However, I decided to
leave them, in case nobody else remembered. And on the fourth minute I
added Non-sequitur.
"Time!" said somebody.
"Just a moment," said everybody. They wrote down another word or

two (which isn't fair) and then began to add up. "I've got thirty," said one.

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Economics Today The Macro View 18th

Edition Miller Test Bank

11.1 The Classical Model

1) Whom among the following was a classical economist?

2) All of the following were classical economists EXCEPT

3) Which of the following is NOT an assumption of the classical model?

5) In the classical model, an increase in aggregate demand will cause

6) Classical economists assumed that

9) "Supply creates its own demand" is known as

10) Say's law says that

11) Say's law argues that

13) The classical model uses the assumption that

14) According to the classical model, the income generated by production is

15) The implication of Say's law is that

17) Say's law explains

21) One key assumption of the classical model is

22) Classical economists tend to

24) According to classical economists,

29) The classical model assumes that

32) Which of the following statements is correct?

35) Which of the following is NOT an assumption of the classical model?

36) A classical model of the economy predicts

37) A key assumption in the classical model is

39) At higher rates of interest

41) Classical economists argued that

43) Individuals will increase their saving as

44) In the classical model, desired saving

47) In economics, investment is defined as

48) With respect to unemployment, the classical model states that

52) In the classical model, the aggregate supply curve is

57) According to classical theory, a shift in aggregate demand will affect

59) In the classical model, the aggregate supply curve is

60) According to the classical theory, the aggregate supply curve is

61) According to classical theory, any changes in aggregate demand will

63) Say's law implies that

64) In a classical model

67) The classical economists assumed that

69) According to the classical economists, actual real GDP

72) Say's law states that

75) Which of the following is NOT true according to Say's law?

76) An assumption of the classical model is that

77) Which of the following is NOT an assumption of the classical model?

79) Given the assumptions of the classical model

83) Saving represents

84) Leakages in the circular flow model are

85) In an economy with no government and no international trade, consumption expenditures

87) Which of the following statements is TRUE?

88) At higher rates of interest

89) Regarding unemployment, the classical model implies that

91) Higher unemployment tends to be associated with

93) The aggregate supply curve in the classical model is

96) In the classical model, the aggregate supply curve

99) In the classical model, a change in aggregate demand

100) An economy in long-run equilibrium experiences an increase in aggregate demand.

101) In the classical model

104) Say's law implies that

107) Which of the following is NOT an assumption of the classical system?

109) The concept of Say's law can be summed up by the phrase,

111) In the classical model, the aggregate supply curve is

115) What is TRUE when the credit market is in equilibrium?

117) Long-run aggregate supply curve in the classical model

119) Which one of the following is TRUE?

121) Which of the following is NOT an assumption of the classical model?