A) The AD curve is horizontal but the AS is vertical.

B) The AD curve is vertical but the AS is horizontal.

C) The AS is vertical.
D) The AS is horizontal.

68) According to neoclassical economists, what is true of the aggregate supply curve?

A) It is vertical because prices tend to be inflexible.

B) It is horizontal because prices tend to be fixed.
C) It is vertical at the capacity level of output in the economy.
D) It is upward sloping since higher outputs will only be produced at higher price levels.
E) It is horizontal because supply creates its own demand.

69) Which of the following is true?

A) A recessionary gap can be cured in the long run if prices and wages remain stable.
B) A recessionary gap can be cured in the short run if prices and wages remain stable.
C) Recessionary gaps can be avoided if the economy grows fast enough.
D) Keynes believed that recessionary gaps will correct themselves because prices and
wages are flexible.
E) Keynes believed that recessionary gaps will not correct themselves because prices and
wages are not flexible.

70) Which of the following is true regarding Neoclassicists?

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 A) They believed that wages and prices were inflexible downwards.
B) They believed that recessionary and inflationary gaps were inevitable.
C) They concentrated their analysis on the AS curve.
D) They made no distinction between the short run and the long run in reference to
aggregate supply.

71) Which of the following is true regarding changes in aggregate demand?

A) It would never change the price level according to Keynesians.

B) It may or may not change the price level according to Keynesians.
C) It would never change Real GDP according to Keynesians.
D) It would never change the price level according to neoclassicists.
E) It may or may not change the price level according to neoclassicists.

72) What is the focus of the Keynesian-neoclassical controversy?

A) The shape of the AD curve.

B) The shape of the LAS curve.
C) The position of the AD curve.
D) The shape of the AS curve.

73) Why is the AD curve downward-sloping?

A) Because production costs decline as Real GDP increases.

B) Because higher prices cause an increase in real balances which increases spending.
C) Because lower prices cause an increase in real balances which increase spending.
D) Because lower prices cause interest rates to increase which increases spending.

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74) Why is the AS curve upward-sloping?

A) Because firms will produce more if prices are higher, despite no increase in profits.
B) Because firms will experience higher profits at higher prices and will therefore
produce more.
C) Because aggregate demand rises with higher prices.
D) Because the LAS curve is also upward sloping.

75) Which of the following will cause the aggregate demand curve to shift to the right?

A) A decrease in the money supply.

B) A decrease in the interest rate.
C) An increase in the exchange rate.
D) A decrease in government spending.

76) When does macroeconomic equilibrium occur?

A) When aggregate supply equals long-run aggregate supply.

B) When the aggregate demand curve intersects the aggregate supply curve.
C) When the aggregate demand curve intersects the LAS curve.
D) When full employment occurs.

77) What can cause an increase in the LAS?

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 A) An increase in nominal wage rates.
B) A decrease in taxes.
C) Technological improvement.
D) A leftward shift in the AS curve.

78) What does the real-balances effect mean?

A) A higher price level will lead to an increase in the rate of interest, thereby causing a
decrease in consumption.
B) A lower price level will lead to an increase in the rate of interest, thereby causing a
decrease in consumption.
C) A higher price will increase the real value of financial assets, thereby causing an
increase in consumption.
D) A higher price will decrease the real value of financial assets, thereby causing an
increase in consumption.
E) A higher price will decrease the real value of financial assets, thereby causing a
decrease in consumption.

79)

Refer to the figure above to answer this question. What could cause the change from point a to
point b?

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 A) An increase in government spending.
B) A decrease in labour productivity.
C) The discovery of new oil fields.
D) A decrease in taxes.
E) A decrease in the prevailing nominal wage.

80) On average, Canada's Real GDP has grown by ________% per year since 2000.

A) 2.3
B) 3.25
C) 4.5
D) 5.75

81) What is the business cycle?

A) The periodic cycles of profits and losses that all firms experience.
B) The natural evolution of new firms growing quickly at first, then slowing and fading
into obsolescence.
C) The fact that Real GDP falls as often as it rises.
D) The expansionary and contractionary phases in the growth rate of Real GDP.

82) What is meant by the term human capital?

A) The sum of all assets owned by people.

B) The accumulated skills and knowledge of human beings.
C) The average age of those engaged in formal education.
D) The amount of physical capital that each worker has to work with.

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