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1. ECO 302 Week 10 Quiz - Strayer
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Quiz Chapter 16
TRUE/FALSE
1. A model with sticky prices and nominal wages is a disequilibrium
model.
2. Menu costs are the posted prices of a firm.
3. In the short run in a model with sticky prices, a monetary surprise
affects labor demand and real output.
4. In the long run in a model with sticky prices, a monetary surprise
affects labor demand and real output.
5. A new Keynesian model produces a countercyclical pattern of the
average product of labor while in the data the average product of labor is weakly
procyclical.
6. In the new Keynesian model, an increase in household consumption
will increase output by more than the original increase in consumption.
7. In the new Keynesian model, a monetary expansion will decrease
output in the short run.
8. In a model with imperfect competition, a firm will set its price equal to
its nominal marginal cost.

2. 9. In the Keynesian model with sticky nominal wages, the nominal wage
rate is fixed above its market-clearing value.
10. In the Keynesian model with sticky nominal wages, a monetary
expansion does not affect the real wage rate.
11. The Federal Funds rate is determined in the market for bonds issued by
the U.S. Treasury.
MULTIPLE CHOICE
1. Menu costs are:
a. the posted prices of a firm. c. are set by the government.
b. the costs of changing prices. d. are the long run costs of the firm.
2. Sticky prices are:
a. real prices that do not rapidly respond to changed circumstances. c.
nominal prices that do not rapidly respond to changed circumstances.
b. prices set by government. d. prices that can never be changed.
3. In the model of price setting, the demand for the firms product is:
a. positively related to real income in the economy. c. negatively related
to the real wage the firm pays.
b. positively related to the firms price relative to the price level. d. all
of the above.
4. In the model of price setting, the demand for the firms product is:
a. negatively related to real income in the economy. c. negatively related
to the real wage the firm pays.
b. negatively to the firms price relative to the price level. d. all of the
above.

3. 5. A firm’s markup ratio is:
a. its price relative to the price level. c. it price relative to its marginal
costs.
b. the price level relative to its marginal costs. d. its marginal cost relative
to the price level.
6. In the model of price setting, the demand for the firm’s price is:
a. positively related to the markup ratio. c. negatively related to the
firm’s marginal product of labor.
b. positively related to the nominal wage the firm pays. d. all of the
above.
7. In the model of price setting, the demand for the firm’s price is:
a. positively related to the markup ratio. c. positively related to the
firm’s marginal product of labor.
b. negatively related to the nominal wage the firm pays. d. all of the
above.
8. In the model of price setting, the demand for the firm’s price is:
a. negatively related to the markup ratio. c. positively related to the
firm’s marginal product of labor.
b. positively related to the nominal wage the firm pays. d. all of the
above.
9. In the model of price setting, the demand for the firm’s price is:
a. negatively related to the markup ratio. c. negatively related to the
firm’s marginal product of labor.
b. negatively related to the nominal wage the firm pays. d. all of the
above.
10. In the model with sticky prices, in the short run a positive monetary
shock leads to:
a. an increase in household real money balances. c. no change in
household’s desired real money balances.
b. an increase in household’s demand for goods. d. all of the above.

4. 11. In the model with sticky prices, in the short run a positive monetary
shock leads to:
a. an increase in household real money balances. c. an increase in
house hold’s desired real money balances.
b. a decrease in household’s demand for goods.d. all of the above.
12. In the model with sticky prices, in the short run a positive monetary
shock leads to:
a. a decrease in household real money balances. c. a decrease in
household’s desired real money balances.
b. an increase in household’s demand for goods. d. all of the above.
13. In the model with sticky prices, in the short run a positive monetary
shock leads to:
a. a decrease in household real money balances. c. no change in
household’s desired real money balances.
b. a decrease in household’s demand for goods. d. all of the above.
14. In a model with sticky prices, a positive monetary shock would cause
households:
a. to spend more to try to get rid of the excess money. c. to change optimal
real money balances.
b. to want to hold more money. d. all of the above.
15. In the model with sticky prices, in the short run a positive monetary
shock leads to:
a. an increased supply of labor. c. a higher marginal product of labor.
b. an increased demand for labor. d. all of the above.
16. In the short run with a model with sticky prices a positive monetary
surprise:

5. a. increases labor demand. c. increases the real wage.
b. increases real output. d. all of the above.
17. In the short run with a model with sticky prices a positive monetary
surprise:
a. increases labor demand. c. leaves the real wage unchanged.
b. decreases real output. d. all of the above.
18. In the short run with a model with sticky prices a positive monetary
surprise:
a. decreases labor demand. c. leaves the real wage unchanged.
b. increases real output. d. all of the above.
19. In the short run with a model with sticky prices a positive monetary
surprise:
a. decreases labor demand. c. increases the real wage.
b. decreases real output. d. all of the above.
20. In the short run with a model with sticky prices a negative monetary
surprise:
a. decreases labor demand. c. decreases the real wage.
b. decreases real output. d. all of the above.
21. In the short run with a model with sticky prices a negative monetary
surprise:
a. decreases labor demand. c. increases the real wage.
b. increases real output. d. all of the above.
22. In the short run with a model with sticky prices a negative monetary
surprise:
a. increases labor demand. c. increases the real wage.
b. decreases real output. d. all of the above.

6. 23. In the short run with a model with sticky prices a negative monetary
surprise:
a. increases labor demand. c. decreases the real wage.
b. increases real output. d. all of the above.
24. In the short run in a model with sticky prices:
a. the labor input is procyclical. c. the real wage rate in procyclical.
b. the average product of labor is countercyclical. d. all of the above.
25. In the short run in a model with sticky prices:
a. the labor input is procyclical. c. the real wage rate in countercyclical.
b. the average product of labor is procyclical. d. all of the above.
26. In the short run in a model with sticky prices:
a. the labor input is countercyclical. c. the real wage rate in
countercyclical.
b. the average product of labor is countercyclical. d. all of the above.
27. In the short run in a model with sticky prices:
a. the labor input is countercyclical. c. the real wage rate in procyclical.
b. the average product of labor is procyclical. d. all of the above.
28. In the long run in a model with sticky prices:
a. prices will adjust. c. increase in prices reverse the short run effects.
b. money is neutral. d. all of the above.
29. In the long run in a model with sticky prices:
a. prices will adjust. c. the short run effects persist.

7. b. money still affects output. d. all of the above.
30. In the long run in a model with sticky prices:
a. prices remain sticky. c. the short run effects persist.
b. money is neutral. d. all of the above.
31. In the long run in a model with sticky prices:
a. prices remain sticky. c. increase in prices reverse the short run effects.
b. money affects production. d. all of the above.
32. In a new Keynesian model:
a. money is procyclical and money is weakly procyclical in the data. c. the
average product of labor is countercyclical while the average product of labor is
weakly procyclical in the data.
b. the price level is countercyclical and the price level is countercyclical in the
data. d. all of the above.
33. In a new Keynesian model:
a. money is procyclical and money is weakly procyclical in the data. c. the
average product of labor is procyclical while the average product of labor is
countercyclical in the data.
b. the price level is procyclical and the price level is procyclical in the data. d.
all of the above.
34. In a new Keynesian model:
a. money is countercyclical and money is weakly countercyclical in the data. c.
the average product of labor is procyclical while the average product of labor
is countercyclical in the data.
b. the price level is countercyclical and the price level is countercyclical in the
data. d. all of the above.
35. In new Keynesian model:

8. a. money is countercyclical and money is weakly countercyclical in the data. c.
the average product of labor is countercyclical while the average product of
labor is weakly procyclical in the data.
b. the price level is procyclical and the price level is procyclical in the data. d.
all of the above.
36. In a new Keynesian model an increase in aggregate demand causes:
a. an increase in real production greater than the increase in aggregate demand.
c. an increase in real production less than the increase in aggregate
demand.
b. an increase in real production equal to increase in aggregate demand. d.
a decrease in real production.
37. In a new Keynesian model a temporary increase in output could be
cause by:
a. a positive monetary surprise. c. a positive shock to government
purchases.
b. households becoming exogenously more thrifty. d. all of the above.
38. In a new Keynesian model a temporary increase in output could be
cause by:
a. a positive monetary surprise. c. a negative shock to government
purchases.
b. households becoming exogenously less thrifty. d. all of the above.
39. In a new Keynesian model a temporary increase in output could be
cause by:
a. a negative monetary surprise. c. a negative shock to government
purchases.
b. households becoming exogenously more thrifty. d. all of the above.
40. In a new Keynesian model a temporary increase in output could be
cause by:
a. a negative monetary surprise. c. a positive shock to government
purchases.

9. b. households becoming exogenously less thrifty. d. all of the above.
41. In the short run in a new Keynesian model an increase in money
means:
a. the price level must rise. c. the interest rate must rise.
b. real GDP must rise. d. all of the above.
42. In the short run in a new Keynesian model an increase in money
means:
a. the price level must rise. c. the interest rate must fall.
b. real GDP must fall. d. all of the above.
43. Unlike the price misperception model the new Keynesian models finds
that:
a. the price level is countercyclical as the data show. c. the price level is
procyclical as the data show.
b. the price level is countercyclical while the data show it is procyclical. d.
the price level is procyclical as the data show it is countercyclical.
44. In a model with sticky nominal wages an increase in the money supply
will:
a. lower the real wage. c. increase the labor input.
b. increase real output. d. all of the above.
45. In a model with sticky nominal wages an increase in the money supply
will:
a. lower the real wage. c. decrease the labor input.
b. decrease real output. d. all of the above.
46. In a model with sticky nominal wages an increase in the money supply
will:
a. raise the real wage. c. decrease the labor input.

10. b. increase real output. d. all of the above.
47. In a model with sticky nominal wages an increase in the money supply
will:
a. raise the real wage. c. increase the labor input.
b. decrease real output. d. all of the above.
48. A result of a model with sticky nominal wages is:
a. voluntary unemployment in the short run. c. money being
countercyclical while in the data money is weakly procyclical.
b. a countercyclical real wage while in the data the real wage is procyclical. d.
all of the above.
49. A result of a model with sticky nominal wages is:
a. involuntary unemployment in the short run. c. money being
countercyclical while in the data money is weakly procyclical.
b. a procyclical real wage as in the data.d. all of the above.
50. A reason that nominal wages might be sticky is:
a. the government sets all wages. c. people having incomplete
information about wages at other jobs.
b. contracts between workers and employers. d. all of the above.
51. The sticky-price model differs from the equilibrium business-cycle
model in assuming that
a. nominal goods prices do not react to market changes quickly. c. real
goods prices do not react to market changes quickly.
b. nominal goods prices react to market changes quickly. d. real goods
prices react to market changes quickly.
52. The sticky-price model differs from the equilibrium business-cycle
model in assuming that

11. a. the typical producer takes as given the price of his or her output. c.
most goods are standardized and easily traded in organized markets.
b. the typical producer actively sets the price of his or her output. d.
most goods are traded in perfectly-competitive markets.
53. The sticky-price model differs from the equilibrium business-cycle
model in assuming that each producer
a. takes into account restaurant costs. c. takes into account menu costs.
b. assumes costs of price changes equal zero. d. assumes restaurant costs
are greater than one.
54. A firm’s nominal marginal cost of production is
a. the ratio of the marginal product of labor to nominal wages. c. nominal
wages minus the marginal product of labor.
b. nominal wages plus the marginal product of labor. d. the ratio of
nominal wages to the marginal product of labor.
55. A firm’s nominal marginal cost of production is
a. the nominal cost of producing an additional unit of the good. c.
equal to the marginal product of labor.
b. the real cost of producing an additional unit of the good. d. the same
thing as a firm’s markup ratio.
56. Under imperfect competiton, each firm
a. has a nominal marginal cost equal to its output price. c. will set its
price below its nominal marginal cost.
b. can set its price above its nominal marginal cost. d. none of the above.
57. If we observe in the market for automobiles that the auto price is above
a firm’s nominal marginal cost, then
a. the firm is not maximizing profits. c. the market has imperfect
competiton.
b. the firm is not accounting for restaurant costs. d. the firm takes as
given its output price.

12. 58. In the short-run in a sticky-price model, an increase in money shifts the
a. supply curve for labor rightward. c. demand curve for labor leftward.
b. supply curve for labor leftward. d. demand curve for labor
rightward.
59. In the short-run in a sticky-price model, a decrease in money shifts the
a. demand curve for labor leftward. c. supply curve for labor rightward.
b. supply curve for labor leftward. d. demand curve for labor
rightward.
60. In the short-run in a sticky-price model, where the product’s price is
fixed by assumption, an increase in demand for a firm’s product will lead to
a. a decrease in production. c. no change in production.
b. an increase in production. d. a decrease in firm profits.
61. Labor hoarding means that
a. workers are motivated to remain out of the labor market during a recession.
c. employers are motivated to retain workers even during a recession.
b. workers are motivated to work additional hours during an expansion. d.
workers are motivated to work fewer hours during an expansion.
62. Labor hoarding may occur because
a. firms face costs in hiring and firing workers. c. firms want to have labor
available for the next economic upturn.
b. workers face costs in the decision to enter the labor force. d. both (a)
and (c).
63. The new Keynesian model may exhibit a multiplier effect, which
implies that
a. the rise in output may be greater than the initial expansion in aggregate
demand. c. the rise in labor supply may be greater than the initial
expansion in aggreagate demand.

13. b. the rise in output will be lower than the initial expansion in aggregate demand.
d. the rise in labor supply will be lower than the initial expansion in
aggreagate demand.
64. In the new Keynesian model, an increase in household consumption
will
a. increase saving. c. increase output by less than the increase in
consumption.
b. increase output by more than the increase in consumption. d. not affect
output.
65. The Federal Funds rate is
a. the 10-year nominal interest rate in the Federal Funds market. c. the
overnight nominal interest rate in the Federal Funds market.
b. the 10-year real interest rate in the Federal Funds market. d. the
overnight nominal interest rate in the Eurodollar market.
66. The Federal Funds rate applies
a. mostly to 30-year home mortgages. c. to the Eurodollar market.
b. mostly to the IMF (International Monetary Fund). d. to the inter-bank
market.
67. A shortcoming of a constant-growth-rate rule for money is that
a. the Fed must have advance knowledge about future quantities of real money
demanded. c. households may not understand how the Fed funds rate affects
them.
b. the Fed must have an accurate measure of currency. d. it does not allow
the nominal interest rate to respond to variations in the real quantity of money
demanded.
SHORT ANSWER
1. What are sticky prices and when might prices be sticky?

14. 2. In a model of price setting what determines firm j’s price?
3. What are the effects of a positive monetary surprise in the short run a
model with sticky prices?
4. What are the long run effects of a monetary surprise in a model with
sticky prices?
5. What are the effects of a monetary surprise in a model with sticky
nominal wages?
6. When would a constant-growth rate rule for money work well, and
when would it be difficult to use?
7. In the Keynesian model with sticky nominal wages, what is the short-
run impact from a monetary expansion?