answerstopracticequestions7fall2004

answerstopracticequestions7fall2004 - Econ 102 Fall 2004...

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Fall 2004 Practice Questions 7 Readings: Chapter 10 and Appendixes: The Short-Run Macro Model I: Binary 1. The presence of structural unemployment in the economy means the economy is not in equilibrium. a. True b. False False. The presence of structural unemployment doesn’t tell us anything about the equilibrium of the economy. Both long and short-run equilibrium are compatible with structural unemployment. While in the short-run cyclical unemployment can occur at an equilibrium level of output, in the long-run equilibrium there cannot be cyclical unemployment. 2. The consumption function is the relationship between real consumption spending and real disposable income. a. True b. False True. 3. In the Keynesian model, consumption spending increases when the interest rate increases. a. True b. False False, it decreases, because the increase in the interest rate makes saving more attractive, and so at each level of disposable income you want to save more and consume less. 4. If the increase in exports equals the increase in imports, the aggregate expenditure function is unaffected. a. True b. False True, net exports did not change in this case. 5. The expenditure multiplier is always equal to 1/(1-MPC), no matter the value of the MPC. a. True b. False False. In order to apply the formula the MPC must be between zero and one. 6. The Keynesian model is a more recent and better tool to analyze the behavior of the economy at the aggregate level. a. True b. False False. The Keynesian model is more suited to analyze the behavior of the economy in the short-run, while the classical model is better suited to analyze the behavior of the economy in the long run. This is because the market-clearing hypothesis is reasonable over a long span of time but unrealistic in the short run (at least for most of the markets). 7. The aggregate expenditure function and the consumption function have the same slope. a.
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answerstopracticequestions7fall2004 - Econ 102 Fall 2004...

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