Assignment on Chapter 8

 

1. The Classical view assumed:

A) The primary reaction to a downward trend in the business cycle would be that producers would lay off workers and lower production.

B) Macro equilibrium might start out badly and get worse in the absence of government intervention.

C) Flexible wages and prices allow a market economy to adjust to shifts in aggregate demand.

D) Business cycles do not occur.

2. Unlike the Classical economists, Keynes asserted that:

A) The private economy was inherently unstable.

B) Laissez faire would lead to macro equilibrium.

C) Prices and wages were flexible.

D) Markets would naturally self-adjust.

3. Which of the following "primes the pump" according to Keynes?

A) Raising interest rates through reductions in the money supply.

B) Increasing government spending.

C) Increasing government taxation.

D) Reducing inefficient employment of resources.

4. Business cycles in the United States:

A) Are remarkably similar in length but vary greatly in intensity.

B) Are similar in length, frequency, and intensity.

C) Are similar in frequency and intensity.

D) Vary greatly in length, frequency, and intensity.

5. The downswing in the business cycle is characterized by:

A) Lower unemployment rates, lower prices.

B) Higher prices, high unemployment

C) Lower real output, higher unemployment

D) Higher interest rates, low unemployment.

6. The Great Depression:

A) Followed a period of rapid growth and apparent prosperity.

B) Created unemployment rates that reached 25 percent.

C) Did not end until a massive increase in government increased spending.

D) All of the above.

7. External shocks include:

A) Wars, natural disasters, trade disruptions.

B) Tax policy, government spending, availability of money.

C) Population growth, spending behavior, invention.

D) Internal market forces, policy levers.

8. Policy levers include:

A) Tax policy, government spending, changes in money supply.

B) Wars, natural disasters, trade disruptions.

C) Population growth, spending behavior, invention.

D) External shocks, internal market forces.

9. The aggregate demand curve illustrates:

A) How real personal income varies with the inflation rate.

B) How total quantity of output demanded varies with the average price level.

C) How real output varies with the inflation rate.

D) How real personal income varies with the price level.

10. If average prices in the U.S. economy fall, then, ceteris paribus:

A) The real-balances effect will lead to a higher quantity of output demanded.

B) The foreign trade effect will lead to a lower quantity of output demanded.

C) The interest rate effect will lead to a lower quantity of output demanded.

D) The cost effect will lead to a higher quantity of output demanded.

 

Figure 8.1

 

11. In Figure 8.1, an increase in government spending, ceteris paribus, is best represented as:

A) A movement from point A to point B.

B) A movement from point C to point A.

C) A movement from point B to point C.

D) A movement from point B to point A.

12. In Figure 8.1, a move from point C to point A would likely be caused, ceteris parabis, by:

A) An increase in productivity in the country's production.

B) An increase in demand for the coutry's exports.

C) An increase in inflation.

All of the above.

13. The aggregate supply curve slopes upward to show

A) The idea that greater production lowers profit margins, which raises quantity demanded.

B) That consumers will buy less at higher prices.

C) Rising costs of production when capacity is used at higher levels.

D) If production capacity increases, prices rise.

14. Macro equilibrium always occurs:

A) When aggregate supply is greater than aggregate demand.

B) When the labor force is fully employed.

C) When aggregate demand equals aggregate supply at the average price level of the economy.

D) When the level of output is expanding.

15. An example of a situation in which an economic theory failed to explain a change in the economy occurred when:

A) Classical economics failed to explain a prolonged depression.

B) New Classical economics failed to explain the effects of "priming the pump."

C) Keynes failed to explain the impact of fiscal policy on the economy.

D) Supply-side economics failed to explain a prolonged inflation.

 

16. In Figure 8.2, an increase in the education and training of the country's wokers is best represented as:

A) A movement from point B to point A.

B) A movement from point C to point A.

C) A movement from point C to point B.

D) A movement from point A to point B.

 

17. In Figure 8.2, the loss of a country's resources due to a war or natural disaster is best represented as:

A) A movement from point A to point B.

B) A movement from point C to point A.

C) A movement from point C to point B.

D) A movement from point B to point A.

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

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.

19. The Aggregate Demand and Supply model is used to describe:

  1. The total dollar value of output or expenditure at various price levels.

  2. The total amount of real output people will want to buy or sell at various price levels.

  3. The equilibrium prices of important goods in their markets.

20. Which of the following is a reason that the Aggregate Demand slopes downwards?

  1. The value of the money people have in savings goes down if the price level rises.

  2. The amount of US goods that people want to buy increases if the price level increases.

  3. If the price level rises, the cost of production increases.

 

Answers 1. C 2. A 3. B 4. D 5. C 6. D 7. A 8. A 9. B 10. A 11. A 12. C 13. C 14. C 15. A 16. D 17. D 18. C 19 B 20. A