ECON Macroeconomics 1st Edition by William A. McEachern - Test Bank

ECON Macroeconomics 1st Edition by William A. McEachern – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 5—Introduction to Macroeconomics

 

MULTIPLE CHOICE

 

1. Gross Domestic Product measures the value of all final goods and services produced within a nation’s borders.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   The National Economy

 

2. The ultimate objective of macroeconomics is to

a.	reduce the unemployment rate
b.	stabilize the economy’s growth rate
c.	develop and test theories about how the overall economy works
d.	improve the international competitiveness of the U.S. financial markets
e.	maximize the efficiency of government intervention in the marketplace

 

 

ANS:  C                    PTS:   1                    DIF:    Hard               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   The National Economy

 

3. Which of the following statements regarding Gross Domestic Product is not true?

a.	It is a stock variable.
b.	It is measured for a particular time period, usually one year.
c.	It is perhaps the most effective means of viewing the same economy over time.
d.	It is a measure of the economy’s performance.
e.	It is a flow variable, not a stock variable.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   The National Economy

 

4. Which of the following is not the proper subject matter for macroeconomics?

a.	unemployment levels
b.	inflation rates
c.	levels of national output
d.	the price of corn
e.	the role of government

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   What’s Special about the National Economy

 

5. Capital is a stock variable.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

6. Which of the following is a stock variable?

a.	business spending on capital equipment
b.	consumer income
c.	the federal government’s debt
d.	the federal government’s budget deficit
e.	total expenditure

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

7. Which of the following is a stock variable?

a.	Gross Domestic Product
b.	consumption spending
c.	the federal government’s spending on Social Security
d.	the money supply
e.	Federal income tax revenue

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

8. Which of the following is a stock variable?

a.	U.S. exports
b.	sales by corporations
c.	borrowing by the federal government
d.	household wealth
e.	net exports

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

9. Which of the following is a flow variable?

a.	U.S. plant and equipment
b.	the U.S. population
c.	money supply
d.	investment spending
e.	household debt

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

10. Which of the following is not a flow variable?

a.	the amount of spending by consumers this holiday season
b.	the number of times a dollar bill is spent in a day
c.	the amount of sales taxes collected in a state per year
d.	the number of shares of stock traded on Wall Street per week
e.	the $100 Susan keeps in her purse, in case an emergency arises

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

11. An economic variable that is measured per unit of time, such as spending per year, is known as a(n)

a.	stock variable
b.	periodic variable
c.	expectations variable
d.	flow variable
e.	constant variable

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

12. If firms expect greater demand for their products, invest in more capital and hire more labor,

a.	there will likely be an increase in inflation and a rise in taxation
b.	the business cycle is likely to be moving from peak to trough
c.	their behavior may encourage the very prosperity that they expect
d.	government will probably have to spend more and tax less to offset the economic impacts of these business decisions
e.	consumers will probably spend less in anticipation of a decline in economic activity

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

13. If business leaders become optimistic about future sales and profits, they will __________ spending on plant and equipment, which __________ employment and income and, therefore, their expectations are __________.

a.	increase; increases; fulfilled
b.	increase; increases; not met
c.	increase; decreases; fulfilled
d.	decrease; decreases; fulfilled
e.	decrease; increases; not met

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

14. If business leaders become pessimistic about future sales and profits, they will __________ spending on plant and equipment, which __________ employment and income and, therefore, their expectations are __________.

a.	reduce; reduces; fulfilled
b.	reduce; increases; fulfilled
c.	reduce; increases; not met
d.	increase; increases; not met
e.	increase; reduces; fulfilled

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

15. If all firms expect greater demand for their products or services, they will hire __________ resources (e.g., labor and capital) and the economy will experience __________.

a.	fewer; recession
b.	fewer; growth
c.	more; federal budget deficits
d.	more; recession
e.	more; growth

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

16. Which of the following best describes a stock (rather than a flow)?

a.	each week you save $100
b.	each week you buy $10 worth of gasoline
c.	each week you buy $50 worth of groceries
d.	you earn $500 per week at your job
e.	you own $5,000 worth of government bonds

 

 

ANS:  E                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

17. Which of the following best describes a flow (rather than a stock)?

a.	you own $5,000 worth of government bonds
b.	you own a $100,000 house
c.	you own a coin collection valued at $10,000
d.	you earn $500 per week
e.	you own a $45,000 automobile

 

 

ANS:  D                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Human Body and the U.S. Economy

 

18. During the Great Depression, President Hoover

a.	correctly called for an increase in taxes
b.	incorrectly called for an increase in taxes
c.	incorrectly called for a decrease in taxes
d.	correctly called for a decrease in government spending
e.	incorrectly called for an increase in government spending

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Knowledge and Performance

 

19. Since the Great Depression, business fluctuations have become more severe and longer in duration.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Hard               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Economic Fluctuations and Growth

 

20. Economic fluctuations (or business cycles)

a.	are changes in the number of businesses started
b.	are fluctuations in the Dow Jones industrial average relative to a long-term growth trend
c.	look at the role of business in the hiring resources
d.	are fluctuations in the level of economic activity, relative to a long-term growth trend
e.	are changes in government spending that occur over a period of years

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Economic Fluctuations and Growth

 

21. While economic expansions average about three and one half years in duration, economic contractions average about

a.	one year in duration
b.	two years in duration
c.	three years in duration
d.	four years in duration
e.	five years in duration

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Economic Fluctuations and Growth

 

22. In U.S. history, recessions have usually lasted longer than expansion periods.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

23. The U.S. economy has experienced alternating periods of expansion and contraction in economic activity relative to its long-term growth trend in the economy. These are called economic fluctuations or business cycles.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

24. A recession is best defined as a period during which

a.	the percentage of the population employed is declining
b.	employment, output, and income decline
c.	the price level is declining
d.	more resources are used
e.	the budget deficit and trade deficit are both growing

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

25. A recession is a period during which

a.	employment, production, and income decrease
b.	the price level is increasing
c.	inventories are falling dramatically
d.	the unemployment rate is falling while the price level is rising
e.	the government attempts to reduce a budget deficit by reducing taxes and increasing government spending

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

26. Long-term growth in production can be partially explained by

a.	improvements in the “rules of the game” that facilitate production and exchange
b.	the peaks and troughs of the business cycle (or economic fluctuations)
c.	trade surpluses that lead to accumulations of precious metals
d.	federal government budget deficits
e.	a gradual but consistent increase in the price level

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

27. Long-term growth in production can be partially explained by

a.	trade surpluses that lead to accumulations of precious metals
b.	a gradual but consistent increase in the price level
c.	general optimism about the future and the pioneering spirit of America
d.	improvements in technology
e.	federal government budget deficits

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

28. Long-term growth in production can be partially explained by

a.	increases in government spending
b.	increases in availability of resources
c.	reductions in federal taxes
d.	a gradual but consistent increase in the price level
e.	general optimism about the future and the pioneering spirit of America

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

29. The distinction between recessions and depressions is that recessions are

a.	longer than depressions
b.	more severe than depressions
c.	accompanied by price increases, depressions by price decreases
d.	shorter and less severe than depressions
e.	accompanied by price decreases, depressions by price increases

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

30. Which of the following is true about U.S. business cycle activity since 1933?

a.	There has been only one business cycle in the last 30 years.
b.	There have been only two or three complete cycles.
c.	There have been no recessions since 1979.
d.	Expansions have generally lasted longer than contractions.
e.	Each cycle has lasted longer than the previous one.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

31. A depression can be defined as

a.	a mild reduction in total production coupled with a rising unemployment rate that lasts for several years
b.	a decline in total production that lasts less than six months
c.	a severe fall in stock prices that causes financial panic and lasts several years
d.	a severe reduction in total production coupled with high unemployment that lasts several years
e.	a decline in government spending and taxes that lasts for several months

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

32. Which of the following is not true about recessions?

a.	They are milder than depressions.
b.	They last less than six months on average.
c.	They typically are shorter than periods of expansion.
d.	They begin after an expansion has peaked.
e.	They continue until the economy reaches a trough.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

33. A period of sustained growth of output in the economy is referred to as a(n)

a.	expansion
b.	contraction
c.	peak
d.	trough
e.	recession

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

34. A period of sustained decline of output in the economy is known as a(n)

a.	expansion
b.	growth phase
c.	peak
d.	trough
e.	contraction

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

35. Which of the following would indicate the beginnings of an expansion of the economy?

a.	fewer new firms are started
b.	stock market prices decline
c.	consumer confidence improves
d.	housing construction slows
e.	orders for new equipment decrease

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Leading Economic Indicators

 

36. Which of the following statements about leading economic indicators is true?

a.	Most people refer to them before making any important spending decision.
b.	They are the only economic indicators available to economists.
c.	They indicate when the economy is in a recession or an expansion.
d.	They foreshadow turning points in the business cycle.
e.	They can predict precisely when turning points in the economy will occur.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   Leading Economic Indicators

 

37. By a leading economic indicator, economists mean

a.	an indicator of future economic activity
b.	an indicator that measures current economic activity
c.	a highly accurate indicator that is easily measured
d.	an indicator that is accurate most of the time
e.	any variable that can measure either past or present economic activity

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Leading Economic Indicators

 

38. Certain economic activities signal forthcoming changes in the economy. These are known as the

a.	coincidental economic indicators
b.	GDP implicit price deflator
c.	lagging economic indicators
d.	composite of economic activities
e.	leading economic indicators

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Leading Economic Indicators

 

39. When economists refer to the economy’s price level, they mean

a.	the rate of inflation
b.	the price of goods and services relative to consumers’ incomes
c.	a general measure of prices of all goods and services
d.	a period of level, or steady, prices
e.	the prices of a specific consumer good

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Aggregate Output and the Price Level

 

40. The aggregate demand curve slopes downward because households feel poorer after a decrease in the price level.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

41. As the price level rises, individuals feel richer. Therefore, they will spend more.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

42. The aggregate demand curve reflects the direct relationship between the price level and the quantity of aggregate output demanded.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

43. Which of the following explains why the aggregate demand curve slopes downward?

a.	If the price level increases, we feel poorer and therefore buy less.
b.	If the price level increases, we feel richer and therefore buy more.
c.	If domestic prices increase, we substitute domestic goods for imported ones.
d.	If the price of a particular good increases, we substitute away from that good.
e.	A decrease in the price of a particular good is like an increase in income and therefore we buy more.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

44. Which of the following is a reason why the aggregate demand curve slopes downward?

a.	At a higher price level, fewer goods and services are available.
b.	Periods when the price level is rising are usually times of swift declines in economic activity.
c.	Households feel poorer with an increase in average prices.
d.	If the U.S. price level rises, foreigners will buy more U.S. goods, leaving fewer U.S. goods for domestic consumers.
e.	As the price level rises, business leaders become pessimistic about the future and reduce production.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

45. One explanation for the negative slope of the aggregate demand curve is that

a.	as prices rise, nominal income falls and so does the demand for real goods and services
b.	falling prices make people feel poorer and reduce spending
c.	as prices rise, government spends less to drive the price level back down
d.	businesses increase spending when inflation is high and rising
e.	as prices rise, domestic goods become more expensive relative to foreign goods, which reduces exports

 

 

ANS:  E                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

46. One explanation of why the aggregate demand curve is downward sloping is that

a.	as prices fall, nominal income rises and so does the demand for real goods and services
b.	rising prices reduce people’s wealth and thereby reduce spending
c.	with falling prices, government decides to spend less to increase the price level
d.	businesses increase investment spending in response to higher interest rates caused by inflation
e.	as prices fall, domestically produced goods become more expensive relative to foreign-produced products, which increases production

 

 

ANS:  B                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

47. As the price level increases, the amount of goods and services that consumers, businesses, and governments desire to purchase will change. How will this be illustrated?

a.	a leftward movement of the aggregate demand curve
b.	a rightward movement of the aggregate demand curve
c.	a movement upward along the aggregate demand curve
d.	a movement downward along the aggregate demand curve
e.	the price level change causes the aggregate supply curve to shift, bringing the economy back into equilibrium

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

48. A fall in the price level

a.	moves the economy rightward along the aggregate demand curve
b.	moves the economy leftward along the aggregate demand curve
c.	shifts the aggregate demand curve to the left
d.	shifts the aggregate demand curve to the right
e.	is inconsistent with the other-things-constant assumption on which the aggregate demand curve is based

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

49. A rise in the price level

a.	moves the economy rightward along the aggregate demand curve
b.	moves the economy leftward along the aggregate demand curve
c.	shifts the aggregate demand curve to the left
d.	shifts the aggregate demand curve to the right
e.	is inconsistent with the other-things-constant assumption on which the aggregate demand curve is based

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

50. If the U.S. price level decreases, the aggregate quantity of U.S. output demanded

a.	decreases because U.S. products become cheaper relative to foreign products
b.	decreases because U.S. products become more expensive relative to foreign products
c.	increases because U.S. products become cheaper relative to foreign products
d.	increases because U.S. products become more expensive relative to foreign products
e.	decreases because household wealth and spending decrease

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

51. If the U.S. price level increases, the aggregate quantity of U.S. output demanded

a.	decreases because U.S. products become cheaper relative to foreign products
b.	decreases because U.S. products become more expensive relative to foreign products
c.	increases because U.S. products become cheaper relative to foreign products
d.	increases because U.S. products become more expensive relative to foreign products

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

52. The aggregate demand curve slopes downward because

a.	a decrease in the price level decreases the real value of household wealth
b.	a decrease in the domestic price level increases imports
c.	an increase in the price level leads to a decrease in demand for money, which decreases interest rates
d.	a decrease in the domestic price level increases exports
e.	none of the above

 

 

ANS:  D                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

53. The aggregate demand curve is best defined as depicting the

a.	quantity of goods and services demanded during a given time period at different interest rates
b.	quantity of goods and services demanded at different price levels during different time periods
c.	quantity of goods and services demanded at different price levels during a given time period, other things held constant
d.	quantity of goods and services that the economy is capable of producing during a given time period
e.	final quantity of goods and services actually produced by the economy during a given time period

 

 

ANS:  C                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

54. If the wealth of consumers increases substantially, this would shift

a.	the aggregate supply curve outward
b.	the aggregate demand curve outward
c.	the aggregate demand curve inward
d.	the aggregate supply curve inward
e.	both the aggregate demand and supply curves inward

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Demand Curve

 

55. Suppliers have an incentive to increase aggregate output whenever the price level rises faster than the cost of production.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Supply Curve

 

56. An increase in wage rates, other things constant, would shift the aggregate supply curve upward.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Supply Curve

 

57. The aggregate supply curve reflects the direct relationship between the price level and the quantity of aggregate output supplied.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Supply Curve

 

58. Which of the following is true of the aggregate supply curve?

a.	It portrays an inverse relationship between the price level and quantity of aggregate output.
b.	Resource utilization is constant along the curve.
c.	A decrease in the price level encourages firms to expand production because the cost of production decreases.
d.	The curve is upward-sloping.
e.	As average prices in the United States rise relative to average prices in other countries, U.S. producers find export markets more attractive than domestic markets.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Supply Curve

 

59. The aggregate supply curve indicates

a.	the quantity of aggregate output that producers are willing and able to supply at each possible price level
b.	the total quantity of a particular good that all producers are willing to supply at each possible price level
c.	the total quantity of a particular good that all producers are willing to supply at the equilibrium price level
d.	the quantity of aggregate output that producers are willing and able to supply at the equilibrium price level
e.	the quantity of aggregate output that producers are willing and able to supply at the equilibrium level of GDP

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Supply Curve

 

60. An increase in the price level will cause

a.	an increase in the quantity of aggregate output supplied
b.	a decrease in the quantity of aggregate output supplied
c.	a leftward shift of the aggregate supply curve
d.	a rightward shift of the aggregate supply curve
e.	a leftward or rightward shift of the aggregate supply curve, depending on the reason for the price change

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Supply Curve

 

61. A decrease in the price level will cause

a.	an increase in the quantity of aggregate output supplied
b.	a decrease in the quantity of aggregate output supplied
c.	a leftward shift of the aggregate supply curve
d.	a rightward shift of the aggregate supply curve
e.	a leftward or rightward shift of the aggregate supply curve, depending on the reason for the price change

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Supply Curve

 

62. The aggregate supply curve has

a.	a negative slope
b.	a positive slope
c.	a zero slope (a horizontal line)
d.	an infinite slope (a vertical line)
e.	a negative slope like the aggregate demand curve, only steeper

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Aggregate Supply Curve

 

63. When output __________, employment is expected to __________.

a.	rises; rise
b.	rises; fall
c.	falls; rise
d.	falls; remain constant
e.	remains constant; fall

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

64. Equilibrium of aggregate supply and aggregate demand is best described as a situation in which

a.	the slope of aggregate demand equals the slope of aggregate supply
b.	quantity demanded exceeds quantity supplied
c.	quantity demanded equals quantity supplied at a unique price level
d.	quantity supplied exceeds quantity demanded at a unique price level
e.	quantity supplied equals quantity demanded at all price levels

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

65. If the U.S. price level increased relative to price levels in foreign countries, what would be the impact on domestic aggregate supply and aggregate demand curves?

a.	the aggregate supply curve would shift outward and the aggregate demand curve would remain unchanged
b.	the aggregate supply curve would shift inward and the aggregate demand curve would remain unchanged
c.	the aggregate demand curve would shift outward and the aggregate supply curve would remain unchanged
d.	the aggregate demand curve would shift inward and the aggregate supply curve would remain unchanged
e.	the domestic aggregate demand and supply curves would remain unchanged

 

 

ANS:  D                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

66. Given the following aggregate demand and aggregate supply schedules, determine the equilibrium level of prices and output.

 

Aggregate Demand		Aggregate Supply
(quantity demanded		(quantity supplied
in billions of dollars)	Price Level	in billions of dollars)
$   100	150	$1,200
200	125	1,000
400	100	800
600	75	600
800	50	400
1,000	25	200

 

a.	equilibrium output $1,000 and equilibrium price level 25
b.	equilibrium output $800 and equilibrium price level 50
c.	equilibrium output $200 and equilibrium price level 125
d.	equilibrium output $400 and equilibrium price level 25
e.	equilibrium output $600 and equilibrium price level 75

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

67. Given an aggregate supply curve that slopes upward, an increase in aggregate demand would decrease real GDP.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

68. For a fixed aggregate supply curve, decreases in aggregate demand increase real GDP.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

69. For a given aggregate supply curve, the price level and output both rise when aggregate demand decreases.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

70. If the economy were initially in equilibrium and the aggregate demand curve shifted to the left,

a.	employment would fall
b.	the price level would rise
c.	the aggregate supply curve would shift rightward
d.	the aggregate supply curve would shift leftward
e.	the economy would experience an expansion period

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

71. In terms of the aggregate demand and supply framework, the Great Depression can be viewed in terms of a

a.	rightward shift of the aggregate demand curve
b.	rightward shift of the aggregate supply curve
c.	movement downward along the aggregate demand curve
d.	a leftward shift of the aggregate demand curve
e.	a leftward shift of the aggregate supply curve

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

72. The laissez-faire approach popular before the Great Depression influenced the U.S. government to see business downturns as

a.	natural phases in an otherwise healthy system, and therefore to take short-term deficit spending measures to help recovery
b.	natural phases in an otherwise healthy system, and therefore to wait for recovery to occur naturally
c.	serious maladies in an otherwise healthy system, and therefore to work to redesign the system to avoid such failure in the future
d.	failures of the type of system Adam Smith envisaged, and therefore to work to move toward a modern, more managed economy
e.	failures of the system to achieve the form that Adam Smith envisaged, and therefore to work to decrease government interference at the micro level

 

 

ANS:  B                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

73. During the Great Depression,

a.	unemployment and prices increased while output decreased
b.	unemployment increased and output while prices decreased
c.	unemployment and prices decreased while output increased
d.	unemployment and output decreased while prices increased
e.	unemployment and output increased while prices decreased

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

74. According to Adam Smith’s The Wealth of Nations, in order to get an economy out of a depression, the government should

a.	increase spending
b.	decrease spending
c.	reduce taxes
d.	increase taxes
e.	allow the economy to correct itself

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

75. On an aggregate demand and aggregate supply graph, the Great Depression can be pictured as

a.	a leftward shift of the aggregate supply curve
b.	a rightward shift of the aggregate supply curve
c.	a leftward shift of the aggregate demand curve
d.	an increase in the price level caused by a movement along the aggregate demand curve
e.	a decrease in the price level caused by a movement along the aggregate supply curve

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

76. The Wealth of Nations was written by

a.	John Maynard Keynes
b.	Adam Smith
c.	François Quesnay
d.	Henry Ford
e.	John D. Rockefeller

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

77. Adam Smith’s “invisible hand” explains

a.	why people act in their own best interests
b.	why the government intervenes to overcome failures in private markets.
c.	how people, acting out of self-interest, unintentionally promote the general good
d.	how comparative advantage and specialization promote international trade
e.	how the creation of goods and services (supply) generates its own demand by creating employment and income

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

Exhibit 5-1

 

 

78. Exhibit 5-1 shows that from the beginning of period 1 to the end of period 2,

a.	real GDP decreased and then increased
b.	real GDP increased and then decreased
c.	real GDP fell from $10,000 to $6,000
d.	real GDP rose from $6,000 to $10,000
e.	the inflation rate fell from 4 to 1

 

 

ANS:  A                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

79. In Exhibit 5-1, from the beginning of period 1 to the end of period 2, nominal GDP went from

a.	$40,000 to $18,000 and back again
b.	$40,000 to $18,000 and stayed there
c.	$40,000 to $18,000 in period 1 and to $10,000 in period 2
d.	$40,000 to $18,000 to $10,000 in period 1 and stayed there in period 2
e.	$40,000 to $18,000 to $10,000 in period 1 and then back to $18,000 in period 2

 

 

ANS:  C                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

80. Between 1929 and the depth of the Great Depression in 1933, the United States encountered the following:

a.	the aggregate supply curve shifted inward with no change in the aggregate demand curve
b.	the aggregate demand curve shifted inward with no change in the aggregate supply curve
c.	the aggregate demand curve shifted outward with no change in the aggregate supply curve
d.	the aggregate supply curve shifted outward with no change in the aggregate demand curve
e.	the aggregate supply and demand curves both shifted outward

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Great Depression and Before

 

81. Given the aggregate demand curve, an increase in aggregate supply lowers the price level and decreases output.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

82. Given the aggregate demand curve, an increase in aggregate supply would raise real GDP and reduce the price level.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Hard               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

83. Properly applied, a federal budget deficit can simultaneously reduce inflation and unemployment.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

84. If both aggregate demand and aggregate supply increase, then employment will increase.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

85. Keynes believed that the best method for ending the Great Depression was to reduce government spending and raise taxes, thereby reducing the federal budget deficit.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

86. If spending by the federal government exceeds tax revenues, aggregate demand decreases.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

87. If tax revenues increase more than government spending does, the price level will rise.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

88. An increase in the price level

a.	means that the aggregate demand curve has shifted leftward
b.	means that inflation occurred
c.	means the employment level has decreased
d.	will shift both the aggregate supply curve and the aggregate demand curve leftward
e.	will shift both the aggregate supply curve and the aggregate demand curve rightward

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

89. An increase in government spending, other things constant, would cause a

a.	leftward shift of the aggregate supply curve
b.	rightward shift of the aggregate supply curve
c.	leftward shift of the aggregate demand curve
d.	rightward shift of the aggregate demand curve
e.	movement toward equilibrium, along curves that do not shift

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

90. According to Keynes, “animal spirits”

a.	make investment spending unstable
b.	make consumption spending unstable
c.	make government spending inherently stable
d.	guide the economy back to equilibrium after a disruption
e.	create the federal government budget deficits that have become so common today

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

91. Which is true of John Maynard Keynes?

a.	He believed that serious economic contractions were natural phases in an otherwise healthy system.
b.	He provided a model that closely resembled that of Adam Smith.
c.	He advocated a decrease in the money supply to stabilize the economy.
d.	He argued that increased government demand should offset reduced private sector demand to prevent depression.
e.	He advocated tax increases to balance the federal government’s budget during the Great Depression.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

92. According to Keynes, in order to get the economy out of a recession, the government should

a.	plan for a budget deficit
b.	encourage firms to export to other nations, thereby jump-starting the economy
c.	follow an expansionary monetary policy
d.	follow a contractionary monetary policy
e.	do nothing and rely on the market system to heal itself

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

93. According to Keynes, the policy of incurring budget deficits will cause the equilibrium price level to __________ and equilibrium output to __________.

a.	rise; rise
b.	rise; fall
c.	fall; rise
d.	fall; fall
e.	remain the same; remain the same

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

94. According to Keynes, the policy of incurring budget surpluses will cause the equilibrium price level to __________ and equilibrium output to __________.

a.	rise; rise
b.	rise; fall
c.	fall; rise
d.	fall; fall
e.	remain the same; remain the same

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

95. Which of the following best describes the Keynesian approach to economic policy?

a.	supply-side
b.	classical
c.	demand-side
d.	mercantilist
e.	laissez-faire

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

96. Keynes proposed that government should shock the economy out of the Great Depression by

a.	increasing aggregate supply
b.	increasing aggregate demand
c.	raising prices so that firms could earn higher profits and employ more people
d.	reducing prices so that people could afford to buy more goods and services
e.	subsidizing firms that wanted to buy stocks after the crash

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

97. Keynes believed that the best method for ending the Great Depression was to

a.	increase the money supply so that individuals would have more to spend
b.	cut government spending and increase taxes to reduce or even eliminate the government’s deficit
c.	increase government spending and cut taxes so that consumers could spend more
d.	cut both government spending and taxes so that government would not be such a large part of the economy
e.	increase both government spending and taxes to increase the role government played in the economy

 

 

ANS:  C                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

98. The Keynesian approach to government economic policy

a.	has emphasized the role of individual self-interest as a powerful stabilizing force
b.	has consistently failed to reduce fluctuations in economic activity
c.	was ineffective during the 1960s
d.	highlighted the role of aggregate demand
e.	was rechristened supply-side economics around 1980

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

99. According to Keynes, if private-sector demand is insufficient to maintain full employment, the government should

a.	act to make the economy’s natural transition to the lower level of employment as easy as possible
b.	shock the economy with an increase in aggregate demand
c.	reduce aggregate supply to reduce inflation
d.	print money to promote consumer spending
e.	act to make the economy’s natural transition back to full employment as easy as possible

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

100. Keynes was in favor of a federal budget __________ to cure __________.

a.	deficit; inflation
b.	surplus; unemployment
c.	deficit; a depression
d.	deficit; a trade deficit
e.	surplus; low aggregate output

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

101. The Keynesian approach to fiscal policy calls for

a.	budget deficits during periods of inflationary pressure
b.	budget surpluses during periods of high unemployment
c.	a balanced budget despite the state of the economy
d.	tax cuts during recession
e.	spending increases during inflation

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

102. The Employment Act of 1946

a.	guaranteed full employment
b.	obliged the federal government to hire as many people as it could to achieve full employment
c.	gave the federal government the power to levy an income tax
d.	imposed a responsibility on the federal government to foster full employment
e.	obligated the federal government to run budget surpluses to achieve full employment

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

103. Fine-tuning the economy means

a.	making government economic policy more “people oriented”
b.	using government policies to adjust the economy and promote economic stability
c.	tinkering with microeconomic problems such as externalities and losing sight of the big picture
d.	placing fewer regulations on the private sector, thereby eliminating the need for government intervention
e.	designing policies based exclusively on the leading economic indicators

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

104. In the 1960s, government policy makers believed that they could

a.	stabilize the economy by letting the market system solve all problems
b.	reduce unemployment by running federal budget surpluses
c.	eliminate government’s role in stabilization policy
d.	use changes in the money supply to virtually eliminate business cycles
e.	use taxation and government spending to fine-tune the economy

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

105. Which decade is known as the “Golden Age of Keynesian Economics”?

a.	the 1930s
b.	the 1950s
c.	the 1960s
d.	the 1970s
e.	the 1980s

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

106. Inflation is

a.	a rise in the value of money
b.	a decline in nominal income
c.	a sustained increase in the price level
d.	a general reduction in prices
e.	an economic problem only for the retired population

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

107. Who wrote The General Theory of Employment, Interest, and Money?

a.	Adam Smith
b.	Jean Baptiste Say
c.	François Quesnay
d.	John Maynard Keynes
e.	Alfred Marshall

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

108. Which of the following was a central argument of Keynes’s General Theory?

a.	Competition does not allocate resources efficiently in a modern industrial economy.
b.	Full employment can be maintained even during a major recession if wage rates are lowered far enough.
c.	Modern industrial economies do not tend automatically toward full employment rates of output.
d.	Money does not play an important role in either causing or curing recession.
e.	Government can best stabilize the economy by letting the market system automatically adjust toward full employment.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

109. If spending by the federal government exceeds revenue,

a.	the price level tends to fall
b.	the money supply must increase
c.	the aggregate demand curve shifts leftward
d.	the aggregate supply curve shifts rightward
e.	there is a federal budget deficit

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   The Age of Keynes: After the Great Depression to the Early 1

 

110. Keynesian demand management policies are not effective in fighting stagflation.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

111. Stagflation is a situation with high unemployment rates, high inflation rates, and little or no growth in the economy.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

112. Suppose the economy is initially in equilibrium and then an energy shock occurs, such as when OPEC raised oil prices. Which of the following is likely to result?

a.	Both the price level and aggregate output will rise.
b.	Both aggregate output and the price level will fall.
c.	Employment will rise.
d.	Stagflation.
e.	The price level will fall.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

113. Confidence in Keynesian economics

a.	diminished in the 1960s as the unemployment rate fell
b.	flourished in the 1960s despite two major recessions
c.	diminished in the 1960s as unemployment increased
d.	diminished in the 1970s as inflation occurred simultaneously with two recessions
e.	flourished through the 1980s despite Reagan’s supply-side policies

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

114. Stagflation refers to

a.	a simultaneous reduction in output and the price level
b.	a simultaneous increase in output and the price level
c.	a decline in the price level accompanied by increases in real output and employment
d.	an increase in the price level accompanied by decreases in real output and employment
e.	a simultaneous increase in both the trade deficit and the budget deficit

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

115. Which of the following events did not occur in the 1970s?

a.	the U.S. inflation rate soared above 5 percent annually
b.	crop failures in major grain-producing countries
c.	substantial oil price increases
d.	growing confidence that Keynesian policies could stabilize the economy
e.	stagflation

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

116. To control inflation, President Nixon

a.	ordered wage and salary reductions for all government employees
b.	increased government spending
c.	dramatically reduced transfer payments such as Social Security
d.	applied price floors to all goods and services
e.	froze wages and prices

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

117. Stagflation refers to

a.	a combination of rising unemployment and rising trade deficits
b.	a combination of high unemployment and rising prices
c.	high and rapidly increasing inflation
d.	extremely high unemployment
e.	a combination of rising trade deficits and rising federal government budget deficits

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

118. President Nixon fought the inflation of the early 1970s with

a.	increased taxes
b.	increased government spending
c.	decreased taxes
d.	decreased government spending
e.	wage and price controls

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

119. On an aggregate demand and aggregate supply graph, the stagflation of the 1970s can be represented as a

a.	leftward shift of the aggregate supply curve
b.	rightward shift of the aggregate supply curve
c.	rise in the price level that caused an excess demand for output
d.	rightward shift of the aggregate demand curve
e.	decrease in the price level that caused an excess supply of output

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

120. The word stagflation describes a situation in which a higher price level occurs simultaneously with

a.	higher employment
b.	economic growth
c.	lower aggregate output
d.	federal budget deficits
e.	federal budget surpluses

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

121. The word stagflation describes a situation in which a higher price level occurs simultaneously with

a.	lower employment
b.	lower unemployment
c.	higher aggregate output
d.	federal budget deficits
e.	federal budget surpluses

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

122. If the economy experiences stagflation,

a.	government can quickly restore full employment by doing nothing to interfere with the economy’s natural self-correcting forces
b.	only Keynesian policies can remedy the situation
c.	only anti-unemployment policies can remedy the situation
d.	Keynesian anti-inflation policies will raise the inflation rate
e.	increasing a federal budget surplus will worsen inflation

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

123. In the United States before 1970,

a.	most macroeconomic instability was caused by simultaneous shifts of aggregate demand and aggregate supply
b.	most macroeconomic instability was caused by shifts of aggregate supply
c.	most macroeconomic instability was caused by shifts of aggregate demand
d.	the government assumed no direct responsibility for the level of employment
e.	the government itself was a much less important player in the macroeconomy than it is today

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

124. Keynesian policies are ineffective at combating stagflation because stagflation is caused by

a.	budget surpluses
b.	decreases in aggregate supply
c.	trade deficits
d.	trade surpluses
e.	budget deficits

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

125. In combating stagflation, a government-induced

a.	increase in aggregate demand would help reduce inflation but aggravate unemployment
b.	decrease in aggregate demand would help reduce unemployment but aggravate inflation
c.	increase in aggregate demand would help reduce unemployment but aggravate inflation
d.	decrease in aggregate demand would help reduce both unemployment and inflation
e.	increase in aggregate demand would help reduce both unemployment and inflation

 

 

ANS:  C                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

126. Stagflation is best described as

a.	increasing output and decreasing prices
b.	increasing output and increasing prices
c.	no change in output or prices
d.	decreasing output and decreasing prices
e.	decreasing output and increasing prices

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Stagflation: 1973 to 1980

 

127. The Reagan administration’s policies were aimed at managing aggregate demand.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

128. The Reagan tax cut of 1981 was an attempt at supply-side economics.

a.	True
b.	False

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

129. Government debt is a flow variable; the budget deficit is a stock variable.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

130. An increase in aggregate supply will result in

a.	lower levels of employment
b.	a rightward shift of the aggregate demand curve
c.	a higher price level
d.	a leftward shift of the aggregate demand curve
e.	an economic expansion

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

131. If the government owes $3,500 billion and then borrows $300 billion more this year,

a.	the debt is $300 billion and the deficit is $3.8 trillion
b.	the debt is $3,800 billion and the deficit is $300 billion
c.	the debt is $4,100 billion
d.	the deficit is $3,800 billion
e.	both the debt and the deficit are $3.8 trillion

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

132. Which of the following statements is correct?

a.	A budget deficit is a flow variable; debt is a stock variable.
b.	A budget deficit is a stock variable; debt is a flow variable.
c.	A budget deficit and the debt are both stock variables.
d.	The budget deficit decreases when debt increases.
e.	Debt increases when the budget deficit decreases.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

133. The tax cuts passed during the Reagan administration were designed primarily

a.	to make it easier for consumers to spend
b.	to shift the aggregate demand curve rightward
c.	to reduce the balance-of-payments deficit
d.	to increase the supply of productive resources
e.	to make filling out tax returns easier for the average taxpayer

 

 

ANS:  D                    PTS:   1                    DIF:    Hard               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

134. The aim of supply-side economics is to

a.	increase government spending to stimulate aggregate supply
b.	stimulate exports to increase the balance of payments
c.	decrease wages to make production cheaper
d.	lower taxes to increase the supply of resources
e.	reduce both the inflation and unemployment problems through an increase in taxes

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

135. The Reagan administration’s 1981 investment tax changes were designed to

a.	stimulate aggregate demand and thereby reduce unemployment
b.	stimulate aggregate demand and thereby increase economic growth
c.	stimulate aggregate supply and thereby increase economic growth
d.	decrease aggregate demand in order to reduce inflation
e.	increase tax revenues to reduce the federal budget deficit

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

136. All of the following would be considered supply-side approaches to increasing growth except one. Which is the exception?

a.	improving the quality of human capital
b.	developing an interstate highway system
c.	investing in research and development
d.	replacing obsolete plants with new ones
e.	increasing transfer payments to retirees

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

137. Supply-side economists argue that a cut in personal income tax rates would

a.	decrease government revenues
b.	increase government revenues
c.	have no impact on government revenues
d.	increase unemployment
e.	decrease economic growth

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Normal Times Since 1980

 

138. Gross world product is

a.	the value of all final goods and services produced in the world during a given period
b.	the value of all sewage, trash, and bodily fluids produced in the world during a given period
c.	the value of all final goods and services produced in the United States during a given period
d.	the value of all final goods and services produced in all countries of the world except the United States during a given period
e.	the value of all intermediate goods and services produced in the world during a given period

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   The National Economy

 

139. The largest and most complex economy in world history is

a.	China
b.	the United States
c.	Mexico
d.	Liechtenstein
e.	None of the answers is correct

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   What’s Special about the National Economy

 

140. The policy that a nation’s economic vitality would spring from the stock of precious metals accumulated in the public treasury is called monetarism.

a.	True
b.	False

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   Knowledge and Performance

 

141. The longest U.S. expansion on record lasted ten years, from

a.	April 1854 to April 1864
b.	March 1991 to March 2001
c.	December 1997 to December 2007
d.	September 1929 to September 1939
e.	February 1961 to February 1971

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics       TOP:   U.S. Economic Fluctuations

 

142. The economy is so __________ that we need to __________ matters.

a.	complex, further complicate
b.	simple, further simplify
c.	simple, complicate
d.	complex, simplify
e.	complex, completely ignore

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Aggregate Demand and Aggregate Supply

 

143. During a given period in the economy, aggregate output is the

a.	total amount of goods and services produced
b.	total amount of goods only produced
c.	relationship between the price level and the quantity of output demanded
d.	price level
e.	relationship between the price level and the quantity of output supplied

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Aggregate Output and the Price Level

 

Exhibit 5-2

 

 

144. Refer to Exhibit 5-2. Which line or point represents equilibrium?

a.	line a
b.	line b
c.	line c
d.	line d
e.	point e

 

 

ANS:  E                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

145. Refer to Exhibit 5-2. Which line or point represents aggregate demand?

a.	line a
b.	line b
c.	line c
d.	line d
e.	point e

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

146. Refer to Exhibit 5-2. Which line or point represents aggregate supply?

a.	line a
b.	line b
c.	line c
d.	line d
e.	point e

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

147. Refer to Exhibit 5-2. Which line or point represents the price level?

a.	line a
b.	line b
c.	line c
d.	line d
e.	point e

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

148. Refer to Exhibit 5-2. Which line or point represents real GDP?

a.	line a
b.	line b
c.	line c
d.	line d
e.	point e

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  Reflective Thinking

LOC:  The study of economics, and definitions of economics       TOP:   Equilibrium

 

149. In the history of the U.S. economy, which economic era saw both high unemployment and high inflation at the same time?

a.	after the Great Depression to the early 1970s
b.	since the early 1980s
c.	the colonial period
d.	before and during the Great Depression
e.	from the early 1970s to the early 1980s

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  Analytic

LOC:  The study of economics, and definitions of economics

TOP:   Short History of the U.S. Economy