Question 1

In the long run, the economy operates at full employment.

Accepted Answer

A) True 
 B)False

Question 2

Recall Application 3, "Increasing Health-Care Expenditures and Crowding Out," to answer the following questions:
-According to the application, the increase in the share of health- care spending to GDP from the 1950s to 2000 is due to:

Accepted Answer

A)  a larger elderly population. 
B)  a higher relative price of health- care relative to other goods and services. 
C)  higher life expectancy. 
D)  All of the above are correct. 
A)  a larger elderly population. 
B)  a higher relative price of health- care relative to other goods and services. 
C)  higher life expectancy. 
D)  All of the above are correct.

Question 3

According to Keynesian economics, aggregate supply determines the level of economic activity in the economy.

Accepted Answer

A) True 
 B)False

Question 4

What is meant by a liquidity trap?

Accepted Answer

A liquidity trap occurs when nominal int

Question 5

If wages are sticky downward, then a decrease in the demand for labor

Accepted Answer

A)  will bring the economy back to full employment. 
B)  will cause more unemployment in the short run. 
C)  will cause an increase in production in the short run. 
D)  will cause wages to drop in the short run. 
A)  will bring the economy back to full employment. 
B)  will cause more unemployment in the short run. 
C)  will cause an increase in production in the short run. 
D)  will cause wages to drop in the short run.

Question 6

One implication of Say's Law is that:

Accepted Answer

A)  inflation will always exist, as all goods in the economy will be purchased. 
B)  there is no recession, as all goods produced in the economy will be purchased. 
C)  unemployment will always persist. 
D)  there will always be a recession, as not all goods in the economy will be purchased. 
A)  inflation will always exist, as all goods in the economy will be purchased. 
B)  there is no recession, as all goods produced in the economy will be purchased. 
C)  unemployment will always persist. 
D)  there will always be a recession, as not all goods in the economy will be purchased.

Question 7

Active economic policies are more likely to destabilize the economy if:

Accepted Answer

A)  the wage- price spiral is downward sloping. 
B)  policy lags are short. 
C)  Say's law prevails. 
D)  the wage- price adjustment is quick enough. 
A)  the wage- price spiral is downward sloping. 
B)  policy lags are short. 
C)  Say's law prevails. 
D)  the wage- price adjustment is quick enough.

Question 8

Using the money supply and money demand model, explain why money can be neutral in the long run.

Accepted Answer

In the short run, an increase in the mon

Question 9

In order to prevent a wage- price spiral from emerging when the economy is producing above full employment, the monetary authority could:

Accepted Answer

A)  contract the money supply. 
B)  lower taxes. 
C)  expand the money supply. 
D)  increase government spending. 
A)  contract the money supply. 
B)  lower taxes. 
C)  expand the money supply. 
D)  increase government spending.

Question 10

Suppose the economy is experiencing rapid growth and the unemployment rate is below the natural rate. Using aggregate supply and aggregate demand, explain how the economy adjusts back to potential GDP (full employment).

Accepted Answer

If the economy is experiencing rapid gro

Question 11

Assuming that the economy is in the long run equilibrium at full employment, an expansionary monetary policy _______ the price level and _______ output.

Accepted Answer

A)  increases; doesn't change 
B)  increases; increases 
C)  doesn't change; doesn't change 
D)  decreases; increases 
A)  increases; doesn't change 
B)  increases; increases 
C)  doesn't change; doesn't change 
D)  decreases; increases

Question 12

_______ are the largest cost of production for most firms.

Accepted Answer

A)  Depreciation 
B)  Rent 
C)  Interest payments 
D)  Wages 
A)  Depreciation 
B)  Rent 
C)  Interest payments 
D)  Wages

Question 13

Comment on the following statement: "Economists who believe that the economy adjusts rapidly to full employment generally oppose using monetary or fiscal policy to stabilize the economy."

Accepted Answer

The statement is True. Because

Question 14

The term "classical economics" was first used by _______ to refer to economic literature developed in the _______.

Accepted Answer

A)  Paul Samuelson; 19th and early 20th centuries. 
B)  Adam Smith; 16th and 17th centuries. 
C)  Keynes; 18th and 19th centuries. 
D)  David Ricardo; 17th and 18th centuries. 
A)  Paul Samuelson; 19th and early 20th centuries. 
B)  Adam Smith; 16th and 17th centuries. 
C)  Keynes; 18th and 19th centuries. 
D)  David Ricardo; 17th and 18th centuries.

Question 15

Explain the concept of crowding out.

Accepted Answer

If the economy is at full employment and

Question 16

An increase in taxes is likely to:

Accepted Answer

A)  result in an increase in aggregate supply. 
B)  increase the real interest rate. 
C)  increase the demand for money. 
D)  crowd in investment spending by businesses. 
A)  result in an increase in aggregate supply. 
B)  increase the real interest rate. 
C)  increase the demand for money. 
D)  crowd in investment spending by businesses.

In the long run, the economy operates at full employment.

Recall Application 3, "Increasing Health-Care Expenditures and Crowding Out," to answer the following questions: -According to the application, the increase in the share of health- care spending to GDP from the 1950s to 2000 is due to:

According to Keynesian economics, aggregate supply determines the level of economic activity in the economy.

What is meant by a liquidity trap?

If wages are sticky downward, then a decrease in the demand for labor

One implication of Say's Law is that:

Active economic policies are more likely to destabilize the economy if:

Using the money supply and money demand model, explain why money can be neutral in the long run.

In order to prevent a wage- price spiral from emerging when the economy is producing above full employment, the monetary authority could:

Suppose the economy is experiencing rapid growth and the unemployment rate is below the natural rate. Using aggregate supply and aggregate demand, explain how the economy adjusts back to potential GDP (full employment).

Assuming that the economy is in the long run equilibrium at full employment, an expansionary monetary policy _ the price level and _ output.

_______ are the largest cost of production for most firms.

Comment on the following statement: "Economists who believe that the economy adjusts rapidly to full employment generally oppose using monetary or fiscal policy to stabilize the economy."

The term "classical economics" was first used by _ to refer to economic literature developed in the _.

Explain the concept of crowding out.

An increase in taxes is likely to:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 15: Modern Macroeconomics: From the Short Run to the Long Run

In the long run, the economy operates at full employment.

Recall Application 3, "Increasing Health-Care Expenditures and Crowding Out," to answer the following questions: -According to the application, the increase in the share of health- care spending to GDP from the 1950s to 2000 is due to:

According to Keynesian economics, aggregate supply determines the level of economic activity in the economy.

What is meant by a liquidity trap?

If wages are sticky downward, then a decrease in the demand for labor

One implication of Say's Law is that:

Active economic policies are more likely to destabilize the economy if:

Using the money supply and money demand model, explain why money can be neutral in the long run.

In order to prevent a wage- price spiral from emerging when the economy is producing above full employment, the monetary authority could:

Suppose the economy is experiencing rapid growth and the unemployment rate is below the natural rate. Using aggregate supply and aggregate demand, explain how the economy adjusts back to potential GDP (full employment).

Assuming that the economy is in the long run equilibrium at full employment, an expansionary monetary policy _______ the price level and _______ output.

_______ are the largest cost of production for most firms.

Comment on the following statement: "Economists who believe that the economy adjusts rapidly to full employment generally oppose using monetary or fiscal policy to stabilize the economy."

The term "classical economics" was first used by _______ to refer to economic literature developed in the _______.

Explain the concept of crowding out.

An increase in taxes is likely to:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Assuming that the economy is in the long run equilibrium at full employment, an expansionary monetary policy _ the price level and _ output.

The term "classical economics" was first used by _ to refer to economic literature developed in the _.