Quiz 2 (Wed., November 9, 2011) Interm Macro, Fall 2011 (220:321 Section 11) Instructor: J.

Park Rutgers University Name: __________________________ Date: _____________ 1. Most economists believe that prices are: A) flexible in the short run but many are sticky in the long run. B) flexible in the long run but many are sticky in the short run. C) sticky in both the short and long runs. D) flexible in both the short and long runs. 2. Okun's law is the ______ relationship between real GDP and the ______. A) negative; unemployment rate B) negative; inflation rate C) positive; unemployment rate D) positive; inflation rate 3. According to the quantity theory of money, if output is higher, ______ real balances are required, and for fixed M this means ______ P. A) higher; lower B) lower; higher C) higher; higher D) lower; lower 4. A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______. A) output; output B) prices; prices C) prices; output D) output; prices 5. When the Federal Reserve reduces the money supply, at a given price level the amount of output demanded is ______ and the aggregate demand curve shifts ______. A) greater; inward B) greater; outward C) lower; inward D) lower; outward

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Then the Fed reduces the money supply. decrease D) decrease.6. whereas supply is the ruling force in the long run. A supply shock does not occur when: A) a drought destroys crops. rise D) output and prices both decrease. The natural level of output is: A) affected by aggregate demand. C) the level of output at which the unemployment rate is at its natural level. A) output decreases and prices are unchanged. 7. increases 11. A) fall. fall 9. 10. rise B) output decreases and prices are unchanged. falls B) fall. fall C) output and prices both decrease. A difference between the economic long run and the short run is that: A) the classical dichotomy holds in the short run but not in the long run. then in the transition to the long run. increases C) rise. Assume that the economy begins in long-run equilibrium. B) monetary and fiscal policy affect output only in the long run. A) increase. prices ______ and output returns to its original level. B) unions push wages up. increase 8. C) demand can affect output and employment in the short run. C) the Fed increases the money supply. D) prices and wages are sticky in the long run only. Stagflation occurs when prices ______ and output ______. falls D) rise. Page 2 . If a short-run equilibrium occurs at a level of output above the natural rate. In the short run ______. D) permanent and unchangeable. increase B) decrease. B) the level of output at which the unemployment rate is zero. D) an oil cartel increases world oil prices. prices will ______ and output will ______. whereas in the long run. decrease C) increase.

D) in the long run but lead to unemployment in the short run. For the purposes of the Keynesian cross. D) increase by 1 percent. B) decrease by 2 percent. C) decrease by 3 percent. A 5 percent reduction in the money supply will. reduce prices 5 percent: A) in both the short and long runs. planned expenditure consists of: A) planned investment. The version of Okun's law studied in Chapter 9 assumes that. C) in the short run but lead to unemployment in the long run.12. If the unemployment rate rose by 2 percentage points over a year. investment spending ______ consumption spending. 14. In the Keynesian-cross model. D) real money balances. Page 3 . 16. Over the business cycle. C) unplanned inventory investment. actual expenditures differ from planned expenditures by the amount of: A) liquidity preference. real GDP normally grows by 3 percent over a year. D) planned investment. B) the government-purchases multiplier. with no change in unemployment. 13. B) in neither the short nor long run. according to most economists. Okun's law predicts that real GDP would: A) decrease by 1 percent. and consumption expenditures. B) planned government spending. government spending. C) planned investment and government spending. A) is inversely correlated with B) is more volatile than C) has about the same volatility as D) is less volatile than 15.

fiscal policy has a multiplied effect on income because fiscal policy: A) increases the amount of money in the economy. C) actual expenditure equals planned expenditure. The equilibrium condition in the Keynesian-cross analysis in a closed economy is: A) income equals consumption plus investment plus government spending. 20. if taxes are reduced by 250. decreases D) decreases. more powerful than private spending. B) increases by more than 250. D) increases. B) changes income. which further changes income. 19. increases B) increases. decreases C) decreases. 18. D) actual saving equals actual investment. therefore. D) changes the interest rate. In the Keynesian-cross model. B) planned expenditure equals consumption plus planned investment plus government spending. which changes consumption. increases Page 4 . A) increases. C) is government spending and. but by less than 250.17. then the equilibrium level of income: A) increases by 250. C) decreases by 250. In the Keynesian-cross model. In the Keynesian-cross model. a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income.

15. 5. 7. 19. 20. 6. 2. 8. 17. 11. 16. 13. B A A C C C C B C C C A D B D C C B B A Page 5 . 14. 4. 12. 18.Answer Key 1. 3. 9. 10.