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| 1 | |
The classical model of macroeconomics assumes |
| | A) | wages and prices are sticky |
| | B) | wages and prices are flexible |
| | C) | the economy may operate below full capacity |
| | D) | the economy is always at full capacity |
| | E) | a and c |
| | F) | b and d |
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| 2 | |
Under inflation targeting, at ____ inflation rates the central bank will wish to have _____ real interest rates. |
| | A) | higher, lower |
| | B) | higher, higher |
| | C) | lower, higher |
| | D) | lower, lower |
| | E) | b and d |
| | F) | a and c |
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| 3 | |
The central bank sets the real interest not the nominal interest rate. |
| | A) | True |
| | B) | False |
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| 4 | |
The _________ supply schedule shows the output that firms wish to supply at each inflation rate. |
| | A) | market |
| | B) | individual firms |
| | C) | aggregate |
| | D) | industrial |
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| 5 | |
A tighter money policy implies either accepting a _____ real interest rate at the given inflation target , or a ______ inflation target at the same real interest rate. |
| | A) | higher, lower |
| | B) | lower, higher |
| | C) | higher, higher |
| | D) | lower, lower |
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| 6 | |
In the ________ model, the aggregate supply schedule is vertical at potential output. Equilibrium output is independent of inflation. |
| | A) | Keynesian |
| | B) | Classical |
| | C) | Ricardian |
| | D) | Supply-side |
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| 7 | |
Monetary policy accommodates a __________ supply change by altering the _________ interest rate to induce a similar change in aggregate demand. |
| | A) | permanent, real |
| | B) | permanent, nominal |
| | C) | temporary, real |
| | D) | temporary, nominal |
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| 8 | |
If high oil prices permanently ______ aggregate supply, the central bank must then _____ monetary policy, so that higher real interest rates _____ aggregate demand in line with the lower aggregate supply |
| | A) | increase, tighten, reduce |
| | B) | reduce, tighten, reduce |
| | C) | reduce, relax, reduce |
| | D) | reduce, relax, increase |
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| 9 | |
In the classical model with a vertical AS schedule, a rise in government spending crowds out an equal amount of private spending. Aggregate demand increases above output. |
| | A) | True |
| | B) | False |
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| 10 | |
The MDS indicates that __________ inflation is associated with ___________ output. |
| | A) | higher, lower |
| | B) | higher, higher |
| | C) | lower, lower |
| | D) | zero, zero |
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| 11 | |
In the classical model the AS schedule is vertical. |
| | A) | True |
| | B) | False |
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| 12 | |
If a person thinks they are better off after a 10% wage increase, and all prices have risen 10%, then they are experiencing ___________. |
| | A) | inflation |
| | B) | a supply shock |
| | C) | crowding out |
| | D) | money illusion |
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| 13 | |
In the classical model, potential output can not be increased by _______. |
| | A) | monetary growth |
| | B) | better technology |
| | C) | more capital |
| | D) | higher labour supply |
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| 14 | |
The equilibrium inflation rate is determined by the intersection of __________ and _________. |
| | A) | demand, supply |
| | B) | IS, LM |
| | C) | MDS, AS |
| | D) | Labour demand, labour supply |
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| 15 | |
At the intersection of MDS and AS equilibrium is achieved in _______. |
| | A) | the goods market |
| | B) | the money market |
| | C) | the labour market |
| | D) | inflation and the economy as a whole |
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| 16 | |
Fiscal expansion in the classical model can increase real output. |
| | A) | True |
| | B) | False |
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| 17 | |
The Keynesian model is a good guide to _________ behaviour and the classical model describes behaviour in _____________. |
| | A) | long run, short run |
| | B) | flexible, imperfect markets |
| | C) | short-term, long run |
| | D) | long run, imperfect markets |
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| 18 | |
Temporary supply shocks alter potential output |
| | A) | True |
| | B) | False |
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| 19 | |
Expansionary fiscal policy in the classical model will cause aggregate demand to ________ potential output. |
| | A) | exceed |
| | B) | fall below |
| | C) | fluctuate around |
| | D) | remain equal to |
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| 20 | |
In the event of an increase in the international price of oil that encouraged the central bank to raise interest rates to combat inflation, output would most likely __________. |
| | A) | fall |
| | B) | increase |
| | C) | remain the same |
| | D) | fluctuate |
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