Question 1

For the full multiplier effect to occur, the economy must be in the vertical region of its aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 2

According to the multiplier effect, changes in aggregate demand result in ______ changes in national output.

Accepted Answer

A)  smaller 
B)  larger 
C)  identical 
D)  no 
A)  smaller 
B)  larger 
C)  identical 
D)  no

Question 3

According to the ______ economists, the market economy automatically adjusts to ensure the full employment of its resources.

Accepted Answer

A)  recession 
B)  depression 
C)  classical 
D)  Keynesian 
A)  recession 
B)  depression 
C)  classical 
D)  Keynesian

Question 4

Given an upward-sloping aggregate supply curve, an increase in aggregate demand results in a(n)

Accepted Answer

A)  decrease in the price level and an increase in output 
B)  decrease in the price level and a decrease in output 
C)  increase in the price level and an increase in output 
D)  increase in the price level and a decrease in output 
A)  decrease in the price level and an increase in output 
B)  decrease in the price level and a decrease in output 
C)  increase in the price level and an increase in output 
D)  increase in the price level and a decrease in output

Question 5

When the economy is in a depression, the economy is operating on that portion of the aggregate supply curve that is

Accepted Answer

A)  downward sloping 
B)  upward sloping 
C)  vertical 
D)  horizontal 
A)  downward sloping 
B)  upward sloping 
C)  vertical 
D)  horizontal

Question 6

As the cost of resources increases, the aggregate demand curve shifts rightward and the aggregate supply curve shifts leftward.

Accepted Answer

A) True 
 B)False

Question 7

The real wealth effect, interest rate effect, and foreign trade effect all explain why there is a(n)

Accepted Answer

A)  inverse relationship between the price level and the aggregate quantity of goods demanded 
B)  direct relationship between the price level and the aggregate quantity of goods demanded 
C)  inverse relationship between the price level and the aggregate quantity of goods supplied 
D)  direct relationship between the price level and the aggregate quantity of goods supplied 
A)  inverse relationship between the price level and the aggregate quantity of goods demanded 
B)  direct relationship between the price level and the aggregate quantity of goods demanded 
C)  inverse relationship between the price level and the aggregate quantity of goods supplied 
D)  direct relationship between the price level and the aggregate quantity of goods supplied

Question 8

The size of the multiplier depends on the

Accepted Answer

A)  interest rates charged on consumer credit and household mortgages 
B)  amount of money that is printed by the Federal Reserve System 
C)  spending and saving patterns of businesses and individuals 
D)  extent to which households expect future changes in personal taxes 
A)  interest rates charged on consumer credit and household mortgages 
B)  amount of money that is printed by the Federal Reserve System 
C)  spending and saving patterns of businesses and individuals 
D)  extent to which households expect future changes in personal taxes

Question 9

According to the ______ effect, as the price level declines, the purchasing power of financial assets increases and households purchase a greater quantity of goods and services.

Accepted Answer

A)  foreign trade 
B)  multiplier 
C)  interest rate 
D)  real wealth 
A)  foreign trade 
B)  multiplier 
C)  interest rate 
D)  real wealth

Question 10

Figure 12.1 Aggregate Supply and Aggregate Demand
  
-Refer to Figure 12.1. The shift from AS0 to AS1 could have been caused by

Accepted Answer

A)  increased stock prices that cause households to spend less and save more 
B)  increased unionization of workers that raises average wages 
C)  a recession in trading-partner countries, causing them to import less 
D)  busineeses cut their spending for new equipment during a recession 
A)  increased stock prices that cause households to spend less and save more 
B)  increased unionization of workers that raises average wages 
C)  a recession in trading-partner countries, causing them to import less 
D)  busineeses cut their spending for new equipment during a recession

Question 11

Keynesian economic theory was the prevalent theory until the Great Depression of the 1930s, after which classical economics dominated.

Accepted Answer

A) True 
 B)False

Question 12

Cost-push inflation forces policy makers to make a choice between

Accepted Answer

A)  higher consumption and higher investment 
B)  lower interest rates and lower net exports 
C)  stable prices and high levels of aggregate output 
D)  personal taxes and business taxes 
A)  higher consumption and higher investment 
B)  lower interest rates and lower net exports 
C)  stable prices and high levels of aggregate output 
D)  personal taxes and business taxes

Question 13

Classical economists believed that wages and prices were flexible, so the government should not interfere with a country's economic affairs.

Accepted Answer

A) True 
 B)False

Question 14

All of the following were beliefs of the classical economists except

Accepted Answer

A)  the market automatically adjusts to ensure the full employment of its resources 
B)  government should not interfere in affairs of the economy 
C)  prices and wages are relatively inflexible to changing economic events 
D)  spending levels are adequate to purchase the full-employment level of output 
A)  the market automatically adjusts to ensure the full employment of its resources 
B)  government should not interfere in affairs of the economy 
C)  prices and wages are relatively inflexible to changing economic events 
D)  spending levels are adequate to purchase the full-employment level of output

Question 15

Aggregate demand policies are especially suited for combating stagflation.

Accepted Answer

A) True 
 B)False

Question 16

According to John Maynard Keynes,

Accepted Answer

A)  government policy makers should not intervene in the economy because a laissez-faire approach is best 
B)  the market economy is inherently unstable and the Great Depression was no accident 
C)  flexible wages and prices ensure that the economy will operate at full employment 
D)  the economy would never suffer from inadequate spending by consumers, businesses, and government 
A)  government policy makers should not intervene in the economy because a laissez-faire approach is best 
B)  the market economy is inherently unstable and the Great Depression was no accident 
C)  flexible wages and prices ensure that the economy will operate at full employment 
D)  the economy would never suffer from inadequate spending by consumers, businesses, and government

Question 17

If the MPS = 0.1, then the multiplier is

Accepted Answer

A)  0.9 
B)  1 
C)  10 
D)  100 
A)  0.9 
B)  1 
C)  10 
D)  100

Question 18

If the economy is in the horizontal region of its aggregate supply curve, an increase in aggregate demand will

Accepted Answer

A)  decrease real output and decrease the price level 
B)  decrease real output and increase the price level 
C)  increase real output and increase the price level 
D)  increase real output but have no effect on the price level 
A)  decrease real output and decrease the price level 
B)  decrease real output and increase the price level 
C)  increase real output and increase the price level 
D)  increase real output but have no effect on the price level

Question 19

To avoid a depression, John Maynard Keynes recommended that the government decrease spending and make less money available for loans.

Accepted Answer

A) True 
 B)False

Question 20

What initiated the early 1990's recession in the United States?

Accepted Answer

A)  The U.S. started trading more with Canada and Mexico. 
B)  Farm production declined dramatically as a result of a drought. 
C)  A spike in oil prices due to the Iraqi invasion of Kuwait. 
D)  Consumers spent too much on durable goods and cut back on nondurables spending. 
A)  The U.S. started trading more with Canada and Mexico. 
B)  Farm production declined dramatically as a result of a drought. 
C)  A spike in oil prices due to the Iraqi invasion of Kuwait. 
D)  Consumers spent too much on durable goods and cut back on nondurables spending.

For the full multiplier effect to occur, the economy must be in the vertical region of its aggregate supply curve.

According to the multiplier effect, changes in aggregate demand result in ______ changes in national output.

According to the ______ economists, the market economy automatically adjusts to ensure the full employment of its resources.

Given an upward-sloping aggregate supply curve, an increase in aggregate demand results in a(n)

When the economy is in a depression, the economy is operating on that portion of the aggregate supply curve that is

As the cost of resources increases, the aggregate demand curve shifts rightward and the aggregate supply curve shifts leftward.

The real wealth effect, interest rate effect, and foreign trade effect all explain why there is a(n)

The size of the multiplier depends on the

According to the ______ effect, as the price level declines, the purchasing power of financial assets increases and households purchase a greater quantity of goods and services.

Figure 12.1 Aggregate Supply and Aggregate Demand -Refer to Figure 12.1. The shift from AS₀ to AS₁ could have been caused by

Keynesian economic theory was the prevalent theory until the Great Depression of the 1930s, after which classical economics dominated.

Cost-push inflation forces policy makers to make a choice between

Classical economists believed that wages and prices were flexible, so the government should not interfere with a country's economic affairs.

All of the following were beliefs of the classical economists except

Aggregate demand policies are especially suited for combating stagflation.

According to John Maynard Keynes,

If the MPS = 0.1, then the multiplier is

If the economy is in the horizontal region of its aggregate supply curve, an increase in aggregate demand will

To avoid a depression, John Maynard Keynes recommended that the government decrease spending and make less money available for loans.

What initiated the early 1990's recession in the United States?

Scarcity and Choice

Market Transactions: Demand and Supply Analysis

Demand and Supply Applications

Production and the Costs of Production

Competition and Monopoly: Virtues and Vices

Imperfect Competition

Labor Markets

Government and Markets

The Mixed Economy of the United States

Gross Domestic Product and Economic Growth

The Business Cycle, Unemployment, and Inflation

Fiscal Policy and the Federal Budget

Money and the Banking System

The Federal Reserve and Monetary Policy

The United States and the Global Economy

International Finance

Economic Systems and Developing Countries

Filters

Exam 12: Macroeconomic Instability: Aggregate Demand and Aggregate Supply

For the full multiplier effect to occur, the economy must be in the vertical region of its aggregate supply curve.

According to the multiplier effect, changes in aggregate demand result in ______ changes in national output.

According to the ______ economists, the market economy automatically adjusts to ensure the full employment of its resources.

Given an upward-sloping aggregate supply curve, an increase in aggregate demand results in a(n)

When the economy is in a depression, the economy is operating on that portion of the aggregate supply curve that is

As the cost of resources increases, the aggregate demand curve shifts rightward and the aggregate supply curve shifts leftward.

The real wealth effect, interest rate effect, and foreign trade effect all explain why there is a(n)

The size of the multiplier depends on the

According to the ______ effect, as the price level declines, the purchasing power of financial assets increases and households purchase a greater quantity of goods and services.

Figure 12.1 Aggregate Supply and Aggregate Demand -Refer to Figure 12.1. The shift from AS0 to AS1 could have been caused by

Keynesian economic theory was the prevalent theory until the Great Depression of the 1930s, after which classical economics dominated.

Cost-push inflation forces policy makers to make a choice between

Classical economists believed that wages and prices were flexible, so the government should not interfere with a country's economic affairs.

All of the following were beliefs of the classical economists except

Aggregate demand policies are especially suited for combating stagflation.

According to John Maynard Keynes,

If the MPS = 0.1, then the multiplier is

If the economy is in the horizontal region of its aggregate supply curve, an increase in aggregate demand will

To avoid a depression, John Maynard Keynes recommended that the government decrease spending and make less money available for loans.

What initiated the early 1990's recession in the United States?

Scarcity and Choice

Market Transactions: Demand and Supply Analysis

Demand and Supply Applications

Production and the Costs of Production

Competition and Monopoly: Virtues and Vices

Imperfect Competition

Labor Markets

Government and Markets

The Mixed Economy of the United States

Gross Domestic Product and Economic Growth

The Business Cycle, Unemployment, and Inflation

Fiscal Policy and the Federal Budget

Money and the Banking System

The Federal Reserve and Monetary Policy

The United States and the Global Economy

International Finance

Economic Systems and Developing Countries

Filters

Figure 12.1 Aggregate Supply and Aggregate Demand -Refer to Figure 12.1. The shift from AS₀ to AS₁ could have been caused by