economics chapter 8

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The study of aggregate economic activity for the economy as a whole is:

macroeconomics

According to classical theory:
a. Keynes had "neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand."
b. Macro equilibrium might start out badly and get worse in the absence of government intervention.
c. Flexible wages and prices allow a laissez-faire economy to adjust to shifts in aggregate demand.
d. Business cycles are not relevant and do not occur.

C.

According to the classical view, if consumer demand slowed down:
a. Prices would decrease and the economy would return to its long-term growth trend.
b. Prices would increase and the economy would return to its long-term growth trend.
c. Wages would increase and the economy would return to its long-term growth trend.
d. Investment and government demand would increase and the economy would return to its long-term growth trend.

A.

Unlike the Classical economists, Keynes asserted that:
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 government can "prime the pump" by doing all of the following except:
a. Buying more output.
b. Employing more people.
c. Making more money available.
d. Raising taxes.

D.

According to Keynes, which of the following can be used to slowdown an overheated economy?
a. Decrease government purchases
b.Decrease taxes
c.Make more money available
d.Employ more people

A.

Which of the following is true about business cycles in the United States?
a. They are remarkably similar in length but vary greatly in intensity
b.They vary greatly in length, frequency, and intensity
c.They are similar in frequency and intensity, but not in length
d.They are similar in length, frequency, and intensity

B.

A decline in total output for two or more consecutive quarters is referred to as:
a. Laissez faire.
b.A recession.
c.A growth recession.
d.Say's Law.

B.

A recession can be represented by a point:
A.Inside the production possibilities curve.
B.Outside the production possibilities curve.
C.On the production possibilities curve.
D.At either end of the production possibilities curve.

A.

In which of the following situations is the percentage change in real GDP always positive?
A.Depression
B.Inflation
C.Recession
D.Growth recession

D.

Which of the following is generally considered a desirable outcome of government intervention?
A. More jobs
B.A higher price level
C.Higher unemployment rates
D.Greater deficits

A.

Determinants of macro performance work on macro outcomes through:
A.Aggregate supply and demand.
B. International balances.
C.External shocks.
D.Internal market forces.

A.

The aggregate demand curve is downward-sloping because, other things being equal:
A.People buy fewer goods and services at lower average incomes.
B.People buy more goods and services at lower average prices.
C.A higher average price level will induce producers to offer more output than otherwise.
D.People buy more goods and services at higher average prices.

B.

A positively sloped aggregate supply curve reflects:
A.The idea that greater production lowers profit margins, which raises quantity demanded.
B.That costs rise simultaneously with rising prices.
C.The rising costs associated with increased capacity utilization.
D.The decrease in the real value of money as the price level rises.

C.

The unique situation in which the behavior of buyers and sellers is compatible is referred to as:
A.Full-employment GDP.
B.Macro equilibrium.
C.Micro equilibrium.
D.Labor market balance.

B.

If aggregate demand decreases and aggregate supply decreases, the level of real output will:
A.Decrease and the price level will definitely decrease.
B.Decrease and the price level will definitely increase.
C. Either increase or decrease, but the price level will stay the same.
D. Decrease, but the price level may increase, decrease, or stay the same.

D.

Which of the following would result if the price level were below the equilibrium level?
A.Aggregate demand would increase
B.Aggregate supply would decrease
C.Consumers would bid prices up by competing for goods currently in shortage
D.Shortages would force sellers to lower prices in order to increase aggregate quantity demanded

C.

Alternating periods of economic growth and contraction are:
A. The result of government intervention according to Keynes.
B.The result of recurrent shifts of aggregate demand and aggregate supply.
C.Indicative of an unstable economy and require government intervention according to classical economists.
D.Not typical of the U.S. economy.

B.

Which combination of shifts of aggregate demand and supply would definitely cause an increase in real GDP?
A. Demand shifts to the left and supply shifts to the right
B.Demand shifts to the left and supply shifts to the left
C.Demand shifts to the right and supply shifts to the right
D.Demand shifts to the right and supply shifts to the left

C.

Keynesian levers would include:
A.Deregulation.
B.Fiscal policy.
C.Monetary policy.
D.Aggregate supply.

B.

When the AS curve is vertical, increases in AD will:
A. Increase the average price level but have no impact on unemployment.
B.Increase the average price level and decrease unemployment.
C.Increase both the average price level and unemployment.
D.Have no impact on either the average price level or unemploymen

A.

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 left
B.Aggregate supply would have shifted to the right
C.Aggregate demand would have shifted to the left
D.Aggregate demand would have shifted to the right

D.If AD increases while AS remains constant, then the new macro equilibrium will be at a higher price level and a higher level of output.

Assume the economy is initially in equilibrium on AD2 and AS2. 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 left
B. Aggregate supply would have shifted to the right
C. Aggregate demand would have shifted to the left
D. Aggregate demand would have shifted to the right

A. The AS curve must shift to the left, leading to a higher price level and lower level of output.

Macro equilibrium is established at which level of real output, given AD1 and AS2 in Figure 8.3?
A. $100 billion
B. $200 billion
C. $300 billion
D. $400 billion

C. The macro equilibrium occurs at the intersection of the AD and AS curves

At what price level does equilibrium occur in Figure 8.4?
A. P1
B. P2
C. P3
D. P4

B. The equilibrium price level corresponds to the point along the vertical axis where the AS and AD curves intersect.

At which of the following price levels would a shortage occur in Figure 8.4?
A. P1
B. P2
C. P3
D. P4

A. At any price level below the equilibrium price level, P2, there will be a shortage of production in the economy.

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