Chap12 Test Bank

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Macroeconomics, 3e (Williamson)Chapter12

Keynesian Business Cycle Theory: The Sticky Price Model

1)

A labor contract in which future wage increases are adjusted in the light of future inflation iscalled

A)

a union contract.B)

an adjustable contract.C)

an indexed contract.D)

an inflation-adjusted contract.Answer:

CQuestion

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Previous Edition

2)

In the Keynesian sticky wage model, Keynesian unemployment refers to theA)

number of workers receiving unemployment compensation.B)

number of workers who stop looking for work because they believe that they will not findwork.

C)

difference between labor supply and labor demand at the sticky wage.D)

difference between labor supply and labor demand at the market clearing wage.Answer:

C


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Question

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3)

In the Keynesian sticky wage model, the aggregate supply curve is upward sloping because,at the fixed nominal wage, an increase in the price level

A)

increases the real wage and increases labor supply.B)

increases the real wage and increases labor demand.C)

decreases the real wage and increases labor supply.D)

decreases the real wage and increases labor demand.Answer:

DQuestion

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Previous Edition

4)

In the Keynesian sticky wage model, an increase in the nominal wage shifts the aggregateA)

supply curve to the right.B)

supply curve to the left.C)

demand curve to the right.D)

demand curve to the left.Answer:

BQuestion

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5)

In the Keynesian sticky wage model, an increase in the price levelA)

shifts the aggregate supply curve to the right.B)

shifts the aggregate supply curve to the left.C)

does not shift the aggregate supply curve.D)

shifts the aggregate supply curve in unpredictable ways.Answer:

CQuestion

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New


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6)

In the Keynesian sticky wage model, an increase in government expensesA)





CQuestion

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New

7)

In the Keynesian sticky wage model, a drop in current capitalA)





BQuestion

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New

8)

In the Keynesian sticky wage model, an increase in current total factor productivity shifts theaggregate

A)


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AQuestion

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9)

The IS in IS curve meansA)

interest substitution.B)

interest sticky.C)

investment-savings.D)

intertemporal substitution.Answer:

CQuestion

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New

10)

The IS curve in the Keynesian sticky wage model is identical to which of the following in theintertemporal monetary model?

A)

the output supply curveB)


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the output demand curveC)

the labor demand curveD)

none of the aboveAnswer:

BQuestion

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11)

The IS curve in the Keynesian sticky wage model represents output demand at differentlevels of

A)

the price level.B)

the real interest rate.C)

the nominal wage rate.D)

total factor productivity.Answer:

BQuestion

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Previous Edition


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12)

What shifts the IS curve to the right?A)

a decrease in government expensesB)

a decrease in future total factor productivityC)

an increase in current total factor productivityD)

an increase in the money supplyAnswer:

CQuestion

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New

13)

The LM curve representsA)

output-price level combinations at which money supply and money demand are equal.B)

output-real interest rate combinations at which money supply and money demand are equal.C)

real interest rate-price level combinations at which money supply and money demand areequal.

D)

none of the above.Answer:

BQuestion

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14)

The LM in LM curve meansA)


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long-run money.B)

liquidity market.C)

loan market.D)

lifetime money.Answer:

BQuestion

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New

15)

The LM curve is upward sloping becauseA)

money demand is positively related to output and negatively related to the interest rate.B)

money demand is positively related to output and the real money supply is negativelyrelated to the price level.

C)

money demand is negatively related to the interest rate and the real money supply isnegatively related to the price level.

D)

none of the aboveAnswer:

AQuestion

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Previous Edition

16)

An increase in current government purchases shifts theA)

IS curve to the right.B)


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IS curve to the left.C)

LM curve to the right.D)

LM curve to the left.Answer:

AQuestion

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17)

An increase in the present value of taxes shifts theA)





BQuestion

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18)

An anticipated future increase in future income shifts theA)




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AQuestion

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19)

An increase in future total factor productivity shifts theA)





AQuestion

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20)

A decrease in the capital stock shifts theA)




LM curve to the left.


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Answer:

AQuestion

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Previous Edition

21)

An increase in the money supply shifts theA)





CQuestion

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22)

An increase in the current price level shifts theA)





DQuestion

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Previous Edition

23)

A positive shift in the money demand curve shifts theA)





DQuestion

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24)

In the Keynesian sticky wage model, the aggregate demand curve represents combinationsof

A)

the price level and the level of output at which the goods market and the labor market are inequilibrium.

B)

the price level and the level of output at which the goods market and the money market arein equilibrium.

C)

the real interest rate and the level of output at which the goods market and the labormarket are in equilibrium.

D)

the real interest rate and the level of output at which the goods market and the moneymarket are in equilibrium.

Answer:

DQuestion

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Previous Edition

25)

In the Keynesian sticky wage model, an increase in current government spending shifts

A)

the aggregate supply curve to the right.B)

the aggregate supply curve to the left.C)

the aggregate demand curve to the right.D)

the aggregate demand curve to the left.Answer:

CQuestion

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Previous Edition


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26)

In the Keynesian sticky wage model, an increase in future total factor productivity shifts theaggregate

A)





CQuestion

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27)

In the Keynesian sticky wage model, an increase in the money supply shifts the aggregateA)

supply curve to the right.

B)




CQuestion

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28)

In the Keynesian sticky wage model, an increase in the money supplyA)


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has no effect on the price level.B)

causes a less than proportional increase in the price level.C)

causes an equiproportional increase in the price level.D)

causes a more than proportional increase in the price level.Answer:

BQuestion

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Previous Edition

29)

In the Keynesian sticky wage model, an increase in the money supplyA)

increases output and increases the real interest rate.B)

increases output and decreases the real interest rate.C)

decreases output and increases the real interest rate.D)

decreases output and decreases the real interest rate.Answer:

BQuestion

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Previous Edition

30)

In the Keynesian sticky wage model, an increase in current government spendingA)



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AQuestion

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Previous Edition

31)

In the Keynesian sticky wage model, an increase in current total factor productivityA)





BQuestion

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32)

In the Keynesian sticky wage model, an increase in future total factor productivityA)



decreases output and increases the real interest rate.


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D)


AQuestion

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New

33)

In the Keynesian sticky wage model, a rightward shift in the money demand scheduleA)





C

QuestionStatus:

Previous Edition

34)

In the Keynesian sticky wage model, an increase in the money supply has which impact onoutput in the long run?

A)

an increaseB)

a decreaseC)

noneD)

It depends.


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Answer:

CQuestion

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New

35)

When wages are sticky and there are only shocks to the money supply, money isA)

procyclical.B)

acyclical.C)

countercyclical.D)

It depends.Answer:

AQuestion

Status:

New


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36)

When wages are sticky and there are only shocks to the money supply, prices areA)

procyclical.B)

acyclical.C)

countercyclical.D)

It depends.Answer:

AQuestion

Status:

New

37)

When wages are sticky and there are only shocks to current total factor productivity, moneyis

A)

procyclical.

B)

acyclical.C)

countercyclical.D)

It depends.Answer:

BQuestion

Status:

New

38)

When wages are sticky and there are only shocks to current total factor productivity, pricesare


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A)

procyclical.B)

acyclical.C)

countercyclical.D)

It depends.Answer:

CQuestion

Status:

New

39)

Changes in the money supply in the Keynesian sticky wage model is not a likely explanationof the typical business cycle because the model counterfactually predicts that

A)

consumption is procyclical and the price level is procyclical.B)

the price level is procyclical and the real wage is countercyclical.C)

the real wage is countercyclical and the real money supply is procyclical.D)

the real money supply is procyclical and consumption is procyclical.Answer:

B

QuestionStatus:

Previous Edition

40)

Changes in the money supply in the Keynesian sticky wage model are not a likelyexplanation of the typical business cycle because the model counterfactually predicts

A)


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that consumption is countercyclical.B)

that the price level is procyclical.C)

that the real wage is countercyclical.D)

all of the above.Answer:

DQuestion

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Previous Edition


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41)

Investment demand shocks in the Keynesian sticky wage model are not a likely explanationof the typical business cycle because the model counterfactually predicts that

A)

consumption is procyclical, investment is procyclical, and average labor productivity iscountercyclical.

B)

prices are procyclical, the real wage is countercyclical, and average labor productivity iscountercyclical.

C)

prices are countercyclical, the real wage is countercyclical, and average labor productivity iscountercyclical.

D)

employment is procyclical, prices are procyclical, and average labor productivity iscountercyclical.

Answer:

BQuestion

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Previous Edition

42)

The recession that is best explained as a response to monetary policy is the recession of

A)

1973-1974.B)

1981-1982.C)

1990-1991.D)

2000-2001.Answer:

BQuestion

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43)

The Keynesian transmission mechanism for monetary policy asserts that changes in themoney supply

A)

affect real interest rates, which affect the level of aggregate demand.B)

affect real interest rates, which affect the level of aggregate supply.C)

affect the price level, which affects the level of aggregate demand.D)

affect the price level, which affects the level of aggregate supply.Answer:

AQuestion

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Previous Edition

44)

When there is Keynesian unemployment in the sticky wage model, a Pareto optimum can bereached by

A)

increasing the money supply or by increasing current government spending.B)

increasing the money supply or by decreasing current government spending.C)

decreasing the money supply or by increasing current government spending.D)

decreasing the money supply or by decreasing current government spending.

Answer:

AQuestion

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Previous Edition

45)

In comparing the outcomes of increasing government spending to reduce Keynesian


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unemployment as opposed to increasing the money supply, the increase in governmentspending results in

A)

higher consumption and higher output.B)

higher consumption and lower output.C)

lower consumption and higher output.D)

lower consumption and lower output.Answer:

CQuestion

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46)

To support the argument for an active role for government in stabilizing the economy, itmust be true that

A)

consumers are not rational and that not all wages and prices are flexible.B)

not all wages and prices are flexible and that government must be able to react quicklyenough.

C)

government must be able to react quickly enough and that shocks to the economy beprimarily due to aggregate supply shocks.

D)

shocks to the economy be primarily due to aggregate supply shocks and that consumers arenot rational.

Answer:

BQuestion

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Previous Edition

47)

Milton Friedman's assertion that the government abstain from stabilization policy can besupported by

A)

the fact that it takes time for the government to observe the true state of the economy.B)

the fact that it takes time for the government to implement policy.C)

the fact that it takes time for policy actions to affect the economy.D)

all of the above facts.Answer:

DQuestion

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48)

When the demand for money is unstable, it is best for the central bank toA)

target the price level.B)

target the real interest rate.C)

target the money supply.D)

refrain from stabilization policy.Answer:

BQuestion

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Previous Edition

49)

Keynesian sticky price models, as opposed to Keynesian sticky wage models, are typicallycalled

A)

administered cost models.

B)

faulty pricing models.C)

menu cost models.D)

classical models.Answer:

CQuestion

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Previous Edition

50)

How does the sticky wage model need to be modified to consider sticky prices?A)


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The money supply is now endogenous.B)

The LM curve is now vertical.C)

The AS curve is now horizontal.D)

Nothing changes, just the amplitude of the movements.Answer:

CQuestion

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New

51)

What do we need to assume about firms in the sticky price model?A)

They supply any demand at the given price.B)

They hire until the real wage equals the average labor productivity.C)

They maximize only current profits.D)

They adapt the price to current conditions.Answer:

AQuestion

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New

52)

A classical objection to Keynesian sticky price models is thatA)

it is easier for firms to change prices rather than change output.B)


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it is cheaper for firms to change output rather than change prices.C)

sticky price models are internally inconsistent.D)

real shocks are more important than nominal shocks.Answer:

AQuestion

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53)

The Keynesian sticky price model has become less relevant over time becauseA)

the Federal Reserve believes less in it.B)

prices have become easier to adjust..C)

growth rates have increased.D)

laissez-faire is better.Answer:

BQuestion

Status:

New

54)

In response to a positive technology shock, which prediction of the sticky price model isdifficult to reconcile with the data?

A)

Output increases.B)

Employment decreases.C)


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The price level decreases.D)

Money is procyclical.Answer:

AQuestionStatus:

New

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Chap12 Test Bank