2/What will happen to aggregate demand if there is an unexpected rise in the value of stocks, raising household wealth?

Households will save less and consume more at every given price level, implying that aggregate demand will shift to the right.

Households will save less and consume more at every given price level, implying that aggregate demand will shift to the left.

Households will save more and consume less at every given price level, implying that aggregate demand will shift to the left.

Nothing.

3/ What will happen to aggregate demand if the government raises the tax rate on corporate revenue?

Firms will invest less at every given price level since their after-tax profit margins are declining, implying that aggregate demand will shift to the right.

Firms will invest less at every given price level since their after-tax profit margins are declining, implying that aggregate demand will shift to the left.

Firms will invest more at every given price level since their after-tax profit margins are declining, implying that aggregate demand will shift to the right.

Firms will invest more at every given price level since their after-tax profit margins are declining, implying that aggregate demand will shift to the left.

4/ According to the Cobb-Douglas production function, which of the following is not a determinant of the long-run level of real GDP?

The price level

The supply of labor

The amount of available physical capital

The current level of technology

5/ When the price level falls, which of the following variables will change, causing the aggregate quantity of goods and services demanded to rise?

Group of answer choices

The real value of wealth increases as the purchasing power of money has increased, causing the quantity demand for consumption to rise.

The real interest rate declines as the real supply of money increases, causing the quantity demand for investment to increase.

The cost of domestic goods has fallen relative to foreign goods, causing the quantity demand for net exports to increase.

All of the above are correct.

7/ Which of the following statements are correct?

Keynesian economists believe that markets are imperfect. As a result, they believe that wages and prices are slow to adjust.

Because Keynesians believe wages and prices are slow to adjust they are less likely to favor the use of monetary and fiscal policy to smooth the business cycle than classical economists.

Classical economists believe that markets are highly competitive and efficient. As a result they believe that wages and prices are quick to adjust.

All of the above are correct.

Only A and C are correct.

11/ The Federal Reserve (or "the Fed")______, but it does not _____.

is responsible for the nation's monetary policy; conduct fiscal policy or regulate banks

is responsible for the nation's fiscal policy; conduct monetary policy or regulate banks

is responsible for the nation's monetary and fiscal policy; play a role in regulating banks

is responsible for the nation's monetary policy and it plays a role in regulating banks; conduct fiscal policy

13/ All else equal, when the Fed increases the minimum reserve requirement, the nominal money supply will_____and the real interest rate will_____.

increase; fall

increase; rise

decrease; fall

decrease; rise

14/ According to the quantity theory of money, if the velocity of money is constant, and money is neutral, then

GDP will rise in proportion with the money supply.

the price level will rise in proportion with the money supply.

there will be no impact on the price level.

the real interest rate will increase in proportion with the money supply.

16/ Classical economists are more likely to be critical of the use of monetary and fiscal policy because

they believe that markets are efficient, implying that prices adjust to return the economy to equilibrium quickly, making monetary and fiscal policy unnecessary and potentially destabilizing.

they believe that monetary and fiscal policy create unintended distortions in the economy, such as inflation, government deficits, and rising tax rates.

they believe that governments too frequently miscalculate and overshoot general equilibrium.

All of the above are correct.

17/ The long-run aggregate supply curve represents

the largest amount of output the economy can supply.

the quantity of output the economy will produce when all markets are in their long-run equilibrium.

the quantity of output the economy will produce in order to meet the current quantity of demand.

None of the above are correct.

18/ During a recession the government should always use expansionary monetary and fiscal policy to increase AD. This statement is, because

true; any increase to AD will cause the output to increase back to the natural rate of output.

true; recessions only occur when AD shifts leftward. Increasing AD returns the economy to general equilibrium.

false; expansionary monetary and fiscal policies have a negative effect on AD.

false; temporary productivity shocks shift LRAS to the left, requiring prices to rise in general equilibrium. Increasing AD only adds additional inflation and any increase to output cannot be maintained.