Chapters Eight and Nine Test PDF

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1 Chapters Eight and Nine Test 1. According to Keynes, when the economy falters, the government should do any of the following except A. Provide more dollars for unemployment benefits B. Practice laissez faire policy approach C. Buy more output D. Make more money available 2. From the supply-side perspective, the economy may fail to reach full employment because of A. Taxes that are too high B. Declining costs C. Production incentives D. Lack of government regulation 3. All of the following can be used to measure macroeconomic performance except for the A. International value of the dollar B. Average price level of goods and services C. Total real value of goods and services produced D. Growth rate of the population 4. For the aggregate supply curve, the profit effect A. Along with the cost effect causes the curve to be downward-sloping in the long run B. Provides an incentive for producers to decrease output when prices rise C. Is temporary in the short run, while in the long run it is canceled out because the cost effect dominates D. Dominates in the long run and causes the curve to be upward-sloping 5. Alternating periods of economic growth and contraction are A. The result of recurrent shifts of aggregate demand and aggregate supply B. Indicative of an unstable economy and require government intervention according to classical economists C. The result of government intervention according to Keynes D. Not typical of the U.S. economy 6. The unique situation in which the behavior of buyers and sellers is compatible is referred to as A. Micro equilibrium B. Labor market balance C. Full-employment GDP D. Macro equilibrium

2 7. Figure 8.4

At what price level does equilibrium occur in Figure 8.4? A. P1 B. P2 C. P3 D. P4 8. Which of the following is true if equilibrium exceeds full employment? A. The economy is inside the production possibilities curve B. The economy is experiencing low inflation C. The economy is working beyond normal capacity D. Growth rates are unacceptable low 9. In the long run, an increase in aggregate demand will lead to A. An increase in real GDP only B. A decrease in real GDP C. A higher price level only D. A higher price level and an increase in real GDP 10. One World View article is titled "Global Depression." The countries that experienced the Depression A. Experienced high unemployment but an increase in output B. Suffered substantial losses of output and employment C. Experienced higher employment levels than previously recorded D. Experienced GDP growth but at a rate below the long-term trend 11. A vertical aggregate supply curve A. Is likely in the short run B. Implies that aggregate demand shifts have no impact on output C. Implies that supply-side policies will have no effect on the macro equilibrium D. Reflects the inflexibility of prices and wages 12. Which of the following is the best example of supply-side policy? A. The Reagan tax cuts in 1981 B. Government policy before 1930 C. The government response to the Great Depression D. Inflation during the 1970s

3 13. As output rises, the profit effect results from A. Lower opportunity costs B. The law of demand C. Tight supplies of factors of production D. Constant costs that do not rise when prices rise 14. Figure 8.6

Choose the letter below that best represents the type of shift that would occur in each situation in the United States: In 2001 interest rates dropped to 40-year lows, which decreased the cost of borrowing for consumers. (See Figure 8.6.) A. A B. B C. C D. D 15. Figure 8.5

In Figure 8.5, according to Keynesians, if equilibrium real output is Q1 and full-employment real output is Q2, an appropriate fiscal policy lever would be to A. Increase AS by reducing government spending B. Increase AD by increasing government spending C. Reduce AS by tightening air pollution standards to improve air quality D. Increase AD by increasing income taxes

4 16. Say’s Law states that A. Shifts of either supply or demand can achieve a given market equilibrium B. Increased prices lead to increased supply C. Wages and prices are inflexible, which prevents the achievement of market equilibrium D. Supply creates its own demand 17. External shocks include all of the following except A. Natural disasters B. Population growth C. Wars D. Terrorist attacks 18. Figure 8.3

Assume the economy is initially in equilibrium on AD1 and AS1. Which curve would have shifted, and in what direction would it have shifted, if a new equilibrium were to occur at an output level of $300 billion and a price level of P3 in Figure 8.3? A. Aggregate supply would have shifted to the right B. Aggregate demand would have shifted to the right C. Aggregate supply would have shifted to the left D. Aggregate demand would have shifted to the left 19. Changes in real GDP are used to measure A. Inflation B. Business cycles C. Price level changes D. Population growth 20. When the AS curve is vertical, increases in AD will A. Increase the average price level and decrease unemployment B. Increase the average price level but have no impact on unemployment C. Increase both the average price level and unemployment D. Have no impact on either the average price level or unemployment

5 21. The study of aggregate economic activity for the economy as a whole is A. Microeconomics B. Macroeconomics C. Opportunity cost D. Scarcity 22. The laissez faire view of government involvement in the economy is most consistent with the A. Supply-side theory B. Classical theory C. Keynesian theory D. Monetary theory 23. Which of the following caused a recession in the years immediately following World War II? A. Pent-up demand for consumer goods B. Technological advances C. A surge in investment spending D. Cutbacks in defense production 24. Internal market forces include A. External shocks and policy levers B. Population growth, spending behavior, and invention C. Wars, natural disasters, and trade disruptions D. Tax policy, government spending, and availability of money 25. Ceteris paribus, if average prices in the U.S. economy fall, then the A. Profit effect will lead to a higher quantity of U.S. output demanded B. Interest rate effect will lead to a lower quantity of U.S. output demanded C. Real balances effect will lead to a lower quantity of U.S. output demanded D. Foreign trade effect will lead to a higher quantity of U.S. output demanded 26. Alternating periods of economic growth and contraction in real GDP define A. The business cycle B. Capitalism C. Macro equilibrium D. Say’s Law 27. A decline in total real output for two or more consecutive quarters is referred to as A. Say’s Law B. A recession C. Laissez faire D. A growth recession

6 28. Which of the following is a potential problem at macro equilibrium? A. A surplus of goods exists B. A shortage of goods exists C. It is inconsistent with the macroeconomic goals D. The economy is permanently stuck there 29. Fiscal policy is the use of A. Tax incentives, deregulation, and other mechanisms to increase the ability and willingness to produce goods and services B. Trade policy to alter macroeconomic outcomes C. Money and credit controls to alter macroeconomic outcomes D. Government spending and taxes to alter macroeconomic outcomes 30. Figure 8.5

In Figure 8.5, if this economy's inflation goal is a price level of P2 but the equilibrium price level is P3, an appropriate monetary policy lever would be to A. Decrease AS by increasing money supply B. Decrease AD by increasing interest rates C. Increase AS by increased the money supply D. Increase AD by increasing income taxes 31. A growth recession is said to occur when the economy grows at a A. Slower rate in the current year than the preceding year B. Negative rate C. Rate less than that of population D. Rate less than the long-term average 32. According to classical theory A. Flexible wages and prices allow a laissez faire economy to adjust wages and prices to shifts in aggregate demand B. Macro equilibrium might start out badly and get worse in the absence of government intervention C. Keynes had "neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand D. Business cycles are not relevant and do not occur

7 33. If the current macro equilibrium is below an output level of that associated with full employment, how would the current equilibrium be impacted by a rightward shift of the aggregate supply curve, ceteris paribus? A. A recession or depression B. A higher price level and a higher level of output C. A higher price level and a lower level of output D. A lower price level and a higher level of output 34. The only policy lever that is effective against unemployment when the AS cure is vertical is A. Supply-side policy B. Laissez faire policy C. Fiscal policy D. Monetary policy 35. Based on the classical view A. Persistent unemployment might be a problem B. All goods produced are always purchased at an unchanging price C. Unemployment never occurs D. Cyclical unemployment might occur temporarily 36. Figure 8.6

Choose the letter below that best represents the type of shift that would occur in each situation in the United States: Between 1930 and 1935, millions of U.S. farm families lost their farms, and less output was produced by the remaining farms. (See Figure 8.6.) A. A B. B C. C D. D 37. Current buyers’ and sellers’ behaviors are correctly expressed by A. Multiple sets of aggregate supply and demand curves B. Many sets of aggregate supply and demand curves C. One set of aggregate supply and demand curves D. None of the choices are correct

8 38. Controversies between Keynesian, monetarist, and supply-side theories focus on the A. Shape and sensitivity of aggregate demand and aggregate supply curves B. Importance of international balances to the economy C. Usefulness of aggregate demand and supply to analyze adjustment of the macro equilibrium D. Existence or nonexistence of the aggregate supply curve 39. Figure 8.6

Choose the letter below that best represents the type of shift that would occur in each situation in the United States: On October 24, 1929, the U.S. stock market crashed. By the end of the year, over $40 billion of wealth had vanished. (See Figure 8.6.) A. A B. B C. C D. D 40. Which of the following is true about business cycles in the United States? A. They are similar in length, frequency, and intensity B. They are similar in frequency and intensity but not in length C. They vary greatly in length, frequency, and intensity D. They are remarkably similar in length but vary greatly in intensity

9 41. Figure 8.6

Choose the letter below that best represents the type of shift that would occur in each situation in the United States: During the late 1990s, productivity in many U.S. industries increased because of technological advances. (See Figure 8.6.) A. A B. B C. C D. D...