Question 1

Equilibrium is unique;it is the only price-output combination that is mutually compatible with aggregate supply and demand.

Accepted Answer

A) True 
 B)False

Question 2

Assume you have $1,000 in a savings account at the beginning of the year and the price level is equal to 100.If the price level is equal to 115 at the end of the year,the real value of your savings is closest to

Accepted Answer

A) $870. 
B) $885. 
C) $1,115. 
D) $1,150. 
A) $870. 
B) $885. 
C) $1,115. 
D) $1,150.

Question 3

Internal market forces include

Accepted Answer

A) Wars,natural disasters,and trade disruptions. 
B) Tax policy,government spending,and availability of money. 
C) Population growth,spending behavior,and invention. 
D) External shocks and policy levers. 
A) Wars,natural disasters,and trade disruptions. 
B) Tax policy,government spending,and availability of money. 
C) Population growth,spending behavior,and invention. 
D) External shocks and policy levers.

Question 4

Individual employment and training programs are levers most likely to be advocated by

Accepted Answer

A) Classical economists. 
B) Monetarists. 
C) Keynesians. 
D) Supply-side economists. 
A) Classical economists. 
B) Monetarists. 
C) Keynesians. 
D) Supply-side economists.

Question 5

When the AS curve is vertical,fiscal policy will be

Accepted Answer

A) Ineffective against both inflation and unemployment. 
B) Effective against inflation but not unemployment. 
C) Effective against unemployment but not inflation. 
D) Effective against both inflation and unemployment. 
A) Ineffective against both inflation and unemployment. 
B) Effective against inflation but not unemployment. 
C) Effective against unemployment but not inflation. 
D) Effective against both inflation and unemployment.

Question 6

Both Keynesian and monetarist theories emphasize the potential of aggregate demand shifts to alter macro outcomes.

Accepted Answer

A) True 
 B)False

Question 7

According to the profit effect,

Accepted Answer

A) Some costs do not rise when average prices rise. 
B) The aggregate supply curve is vertical in the short run. 
C) The aggregate supply curve has a negative slope. 
D) All costs rise when average prices rise. 
A) Some costs do not rise when average prices rise. 
B) The aggregate supply curve is vertical in the short run. 
C) The aggregate supply curve has a negative slope. 
D) All costs rise when average prices rise.

Question 8

Business cycles result from recurrent shifts of the aggregate supply and demand curves.

Accepted Answer

A) True 
 B)False

Question 9

Changes in the availability of money have little impact on the macro performance of the economy.

Accepted Answer

A) True 
 B)False

Question 10

An economic expansion refers to an increase in the volume of goods and services produced.

Accepted Answer

A) True 
 B)False

Question 11

Using Figure 8.5,if the equilibrium price level is P1,then aggregate demand is

Accepted Answer

A) AD2,and the equilibrium output level is Q2. 
B) AD2,and the equilibrium output level is Q1. 
C) AD1,and the equilibrium output level is Q3. 
D) AD1,and the equilibrium output level is Q2. 
A) AD2,and the equilibrium output level is Q2. 
B) AD2,and the equilibrium output level is Q1. 
C) AD1,and the equilibrium output level is Q3. 
D) AD1,and the equilibrium output level is Q2.

Question 12

A decline in total real output for two or more consecutive quarters is referred to as

Accepted Answer

A) Laissez faire. 
B) A recession. 
C) A growth recession. 
D) Say's Law. 
A) Laissez faire. 
B) A recession. 
C) A growth recession. 
D) Say's Law.

Question 13

Keynes argued that policy levers were both effective and necessary.

Accepted Answer

A) True 
 B)False

Question 14

Assume you have $2,000 in a savings account at the beginning of the year and the price level is equal to 100.If the price level is equal to 120 at the end of the year,the real value of your savings is closest to

Accepted Answer

A) $1,667. 
B) $1,880. 
C) $2,120. 
D) $2,400. 
A) $1,667. 
B) $1,880. 
C) $2,120. 
D) $2,400.

Question 15

What is the real balances effect,and how does it explain the shape of the aggregate demand curve?

Accepted Answer

The real balances effect has to do with

Question 16

In the absence of external shocks or government policy,an economy would

Accepted Answer

A) Still experience business cycle fluctuations because of internal market forces. 
B) Not experience business cycle fluctuations. 
C) Not be able to expand production and output. 
D) None of the choices are correct. 
A) Still experience business cycle fluctuations because of internal market forces. 
B) Not experience business cycle fluctuations. 
C) Not be able to expand production and output. 
D) None of the choices are correct.

Question 17

According to Keynes,when the economy falters,the government should do any of the following except

Accepted Answer

A) Practice a laissez faire policy approach. 
B) Provide more dollars for unemployment benefits. 
C) Make more money available. 
D) Buy more output. 
A) Practice a laissez faire policy approach. 
B) Provide more dollars for unemployment benefits. 
C) Make more money available. 
D) Buy more output.

Question 18

Determinants of macro performance work on macro outcomes through

Accepted Answer

A) Aggregate supply and demand. 
B) International balances. 
C) External shocks. 
D) Internal market forces. 
A) Aggregate supply and demand. 
B) International balances. 
C) External shocks. 
D) Internal market forces.

Question 19

According to Keynesian theory,the correct fiscal policy to stimulate the economy would be to

Accepted Answer

A) Raise taxes to increase aggregate demand. 
B) Increase the money supply to increase aggregate supply. 
C) Increase government expenditures to increase aggregate demand. 
D) Lower taxes to increase aggregate supply. 
A) Raise taxes to increase aggregate demand. 
B) Increase the money supply to increase aggregate supply. 
C) Increase government expenditures to increase aggregate demand. 
D) Lower taxes to increase aggregate supply.

Question 20

Unlike the classical economists,Keynes asserted that

Accepted Answer

A) The economy was inherently unstable. 
B) Laissez faire policies would lead to macro equilibrium. 
C) Prices and wages were flexible. 
D) Markets would naturally self-adjust. 
A) The economy was inherently unstable. 
B) Laissez faire policies would lead to macro equilibrium. 
C) Prices and wages were flexible. 
D) Markets would naturally self-adjust.

Exam 8: The Business Cycle

Equilibrium is unique;it is the only price-output combination that is mutually compatible with aggregate supply and demand.

Assume you have $1,000 in a savings account at the beginning of the year and the price level is equal to 100.If the price level is equal to 115 at the end of the year,the real value of your savings is closest to

Internal market forces include

Individual employment and training programs are levers most likely to be advocated by

When the AS curve is vertical,fiscal policy will be

Both Keynesian and monetarist theories emphasize the potential of aggregate demand shifts to alter macro outcomes.

According to the profit effect,

Business cycles result from recurrent shifts of the aggregate supply and demand curves.

Changes in the availability of money have little impact on the macro performance of the economy.

An economic expansion refers to an increase in the volume of goods and services produced.

Using Figure 8.5,if the equilibrium price level is P1,then aggregate demand is

A decline in total real output for two or more consecutive quarters is referred to as

Keynes argued that policy levers were both effective and necessary.

Assume you have $2,000 in a savings account at the beginning of the year and the price level is equal to 100.If the price level is equal to 120 at the end of the year,the real value of your savings is closest to

What is the real balances effect,and how does it explain the shape of the aggregate demand curve?

In the absence of external shocks or government policy,an economy would

According to Keynes,when the economy falters,the government should do any of the following except

Determinants of macro performance work on macro outcomes through

According to Keynesian theory,the correct fiscal policy to stimulate the economy would be to

Unlike the classical economists,Keynes asserted that

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Theory Versus Reality

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

Filters

Using Figure 8.5,if the equilibrium price level is P₁,then aggregate demand is