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d.potential real GDP has increased.

8.If the general level of prices is lower than business decision makers anticipated when they entered into long-term contracts for raw materials and other resources, which of the following is most likely to occur?

a.an economic boom

b.highly attractive profit margins

c.output less than the economy’s long-run potential

d.a sharp increase in imports

9.When output is less than the economy’s long-run capacity, which of the following is most likely to occur?

a.an abnormally low rate of unemployment

b.reductions in real interest rates and real resource prices

c.a sharp increase in imports

d.a government budget surplus

10.During the year 2000, there was a sharp reduction in stock prices and a sharp increase in the world price of crude oil. Within the framework of the AD/AS model, how would these two changes influence the U.S. economy?

a.The lower stock prices would increase SRAS, and the higher crude oil prices would reduce AD; as a result, there would be downward pressure on the general level of prices.

b.The lower stock prices would reduce SRAS, and the higher crude oil prices would increase AD; as a result, there would be upward pressure on the general level of prices.

c.The lower stock prices would increase AD, and the higher crude oil prices would increase SRAS; as a result, output would tend to increase.

d.The lower stock prices would reduce AD, and the higher crude oil prices would reduce SRAS; as a result, output would tend to decline.

Answer Key 1 through 10

1. (c), 2. (a), 3. (a), 4. (c), 5. (d), 6. (a), 7. (d), 8. (c), 9. (b), 10. (d)

Chapter 11

Keynes and the Evolution of Macroeconomics

1.Which of the following views would a Keynesian economist be most likely to stress?

a.Supply creates its own demand.

b.Businesses will not produce goods and services if they do not think people will buy them.

c.You cannot spend your way out of a recession.

d.When the unemployment rate is high, wage rates will fall.

e.A dollar saved is a dollar earned; a high rate of saving is the key to prosperity.

2.When Keynesian equilibrium is present,

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