26

Which of the following accurately contrasts short-run and long-run equilibrium?

a.

In short-run equilibrium, the aggregate demand curve intersects the long-run aggregate supply curve; in long-run equilibrium, the aggregate demand curve intersects the short-run aggregate supply curve

b.

In short-run equilibrium, the aggregate demand curve intersects the short-run aggregate supply curve; in the long-run equilibrium, the aggregate demand curve intersects the long-run aggregate supply curve

c.

In short-run equilibrium, the aggregate demand curve intersects the short-run aggregate supply curve; in the long-run equilibrium, the aggregate demand curve intersects the long-run aggregate expenditures curve

d.

In short-run equilibrium, the aggregate demand curve intersects the short-run aggregate supply curve; in long-run equilibrium, the aggregate demand curve intersects both the short-run and the long-run aggregate supply curves

30

Which of the following statements is true with respect to the beliefs of the different schools of thought about the shape of the aggregate supply curve?

a.

Classical economists believe that the aggregate supply curve is upward sloping, therefore, an increase in aggregate demand increases both the price level and real GDP

b.

Classical economists believe that the aggregate supply curve is vertical, therefore, an increase in aggregate demand only causes an increase in inflation and no change in real GDP

c.

Keynesian economists believe that the aggregate supply curve is horizontal, therefore, an increase in aggregate demand only causes an increase in inflation and no change in real GDP

d.

Keynesian economists believe that the aggregate supply curve is upward sloping, therefore, an increase in aggregate demand increases both the price level and real GDP

31

When the economy changes, the "sticky wages" argument suggests which of the following?

a.

Wages are not related to a positively or negatively changing economy

b.

Wages decline when the economy declines but remain fixed when it improves

c.

Wages adjust slowly upwards to a changing economy, but they rarely decrease

d.

Wages tend to adjust freely in accordance with positive and negative economic changes

34

Which of the following statements is most precise in describing the money creation process?

a.

Money is created through multiple deposit expansion in direct relation to the federal funds rate

b.

Money is created through multiple deposit expansion in direct relation to the reserve requirement ratio

c.

Money is created through multiple deposit contraction in direct relation to the government's printing of new dollar bills

d.

Money is created through multiple deposit contraction in direct relation to the government's shredding of old dollar bills