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15 terms

Quiz 11

STUDY
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Which theories of the economy lead to the assertion that markets "self-adjust" to deviations from their long-term growth trend?
Keynesian theories

Monetarist theories

*Classical theories

Supply-side theories
Which of the following events destroyed the credibility of classical economic theory?
World War II

*The Great Depression

The Vietnam War

The Terrorist Attacks of 2001
Which of the following is an example of fiscal policy?
*A change in government spending on goods and services

A change in the money supply

A change in interest rates

A change in immigration policies
The aggregate supply curve is upward sloping because a higher price level results in:
The need for fewer resources

Increased purchasing power

*Wider profit margins and more incentive to produce

An incentive for producers to buy imports
According to the real balances effect, when the price level:
Falls, cash is worth less and therefore people buy less

*Falls, cash is worth more and therefore people buy more

Rises, cash is worth less and therefore people buy more

Rises, cash is worth more and therefore people buy less
Keynes viewed the economy as inherently unstable and suggested that during a recession policy makers should:
*Cut taxes and/or increase government spending

Cut taxes and/or reduce government spending

Raise taxes and/or increase government spending

Raise taxes and/or reduce government spending
Which of the following is necessary for an economy to self-adjust fairly quickly, according to classical economists?
The use of monetary policy

*Flexible wages and prices

The use of fiscal policy

A high unemployment rate
Which of the following is an example of the interest-rate effect, assuming the U.S. price level decreases?
The purchasing power of money decreases and people buy more goods

U.S. goods are more expensive for foreigners to buy and exports decrease

U.S. production costs increase and producers charge higher prices

*The demand for loans decreases so interest rates decline and loan-financed purchases increase
According to Keynes:
Small disturbances in prices and output are always short term

The economy is inherently stable

*Government intervention in the economy is necessary at times

High unemployment is always a temporary situation
The difference between market demand and aggregate demand is that:
Market demand applies to all individuals and aggregate demand does not

Aggregate demand applies to a specific good and market demand does not

Policy levers work through market demand but not aggregate demand

*Aggregate demand applies to all goods and market demand applies to a specific good
If an economy is experiencing a recession, the Keynesian approach to achieving full employment is to:
Use various supply-side options, such as deregulation

Decrease the growth of the money supply

Do nothing

*Employ expansionary fiscal policy
When the U.S. price level increases relative to the price level in foreign economies, U.S. consumers tend to buy:
Fewer imported goods and fewer domestically produced goods, ceteris paribus

Fewer imported goods and more domestically produced goods, ceteris paribus

*More imported goods and fewer domestically produced goods, ceteris paribus

More imported goods and more domestically produced goods, ceteris paribus
If an economy is experiencing a recession, the Keynesian approach to achieving full employment is to:
Follow a policy of laissez faire

Relax immigration standards

Reduce government regulations

*Use tax cuts or more government spending or both
If the stock market plunged over the next week, consumers would:
Rush to buy more goods and services

Buy more stocks to make up for their losses

*Demand fewer goods and services

Cause the aggregate demand curve to shift to the right
Which of the following is definitely true if the economy is in macro equilibrium?
The price level is optimal, but the output level may not be

The output level is optimal, but the price level may not be

The price level and the output level are both optimal

*The price level and the output level may or may not be optimal