MACRO 4

1.

1 point

According to classical economists, government intervention is

necessary to maintain full employment in the short run

necessary to maintain full employment in the long run

necessary to maintain a stable price level in the short run

not necessary to maintain full employment

necessary to maintain a stable price level in the long run

2.

1 point

Advocates of the active approach believe that discretionary government policy can restore economic stability and improve economic performance.

True

False

3.

1 point

According to the life-cycle model, people

borrow when they are young and save when they are older

save when they are young in order to finance education and home purchases in middle age

save when they are young in order to finance home purchases during their retirement years

save when they are young and pay off debts when they are old

save when they are young and borrow when they are older

4.

1 point

A tangent line is a straight line

that intersects a curved line twice

that runs along the vertical axis

with a slope equal to infinity

that touches a curved line at only one point

that intersects a curved line at several points

5.

1 point

According to the functional finance budget philosophy,

the government budget should be whatever is necessary to have the economy operate at potential GDP

each government spending program should be financed on the basis of its function

automatic stabilizers should be eliminated

deficits should never be used to stimulate the economy

the federal budget should be balanced in the long run

6.

1 point

According to the theory of political business cycles

incumbent presidents may use expansionary monetary policies to stimulate the economy during election years

incumbent presidents may use expansionary fiscal policies to stimulate the economy during election years

incumbent presidents try to engineer cycles in political behavior

challengers are more likely to be elected when the economy is experiencing a business cycle

Republicans are more likely to use expansionary economic policies than are Democrats

7.

1 point

According to the rational expectations school, a correctly anticipated expansionary monetary policy will

have no effect on prices or real output

increase prices and real output

decrease prices and real output

increase real output in the short run only

lead only to a higher price level

8.

1 point

According to Keynesian theory, the natural forces in the economy may not quickly move the economy toward potential real GDP.

True

False

9.

1 point

According to the convergence theory,

the impact of basic and applied research should converge over time

human capital differences can never be made up

GDP and productivity growth rates should converge over time

less-developed countries should grow faster than advanced ones because of the ability to copy new technology

the growth rates of all countries converge because in the long run, all resources are alike

10.

1 point

According to the rational expectations school,

people do not consider likely government policies when forming expectations, choosing to remain rationally ignorant

on average people have very little idea of what to expect from government policy makers

changes in the expected price level shift the aggregate demand curve

people form expectations by focusing only on the private sector

people form expectations, in part, by considering the probable future actions of government policy makers

11.

1 point

According to the __________ approach, __________ policy may __________ the instability of the economy.

passive, automatic, increase

passive, discretionary, decrease

passive, discretionary, increase

active, discretionary, increase

passive, automatic, decrease

12.

1 point

Actual output falls below potential output

when aggregate demand exceeds aggregate supply

during a recession

when short run aggregate supply exceeds longs run aggregate demand

when the natural rate of unemployment exceeds the actual rate of unemployment

when the natural rate of unemployment is zero

13.

1 point

According to Keynes, "animal spirits"

make investment spending unstable

make government spending inherently stable

make consumption spending unstable

guide the economy back to equilibrium after a disruption

create the federal government budget deficits that have become so common today

14.

1 point

Aggregate income is defined as

the sum of income earned by all workers in the private sector

the sum of income earned by all laborers in the world economy

the total income of all individuals who contribute resources to the market production of output

total income after all income taxes but before paying other payroll taxes

total income after purchases of necessities

15.

1 point

A worker would be hurt least by inflation when the

worker is protected by fixed annual increases in wages and benefits it an employment contract

worker anticipates inflation and increases savings at the bank

government increases the level of social security retirement benefits to correct for the effects of unanticipated inflation

the price level increases but at a decreasing rate

worker is protected by a cost-of-living adjustment clause in an employment contract

16.

1 point

According to the equation of exchange, M ´ V = P ´ C.

True

False

17.

1 point

Actual federal budgets are not an accurate measure of discretionary fiscal policy because

even without changes in fiscal policy, budget deficits increase during recessions

it is difficult to measure government spending accurately

people cheat on their income taxes

even without changes in fiscal policy, budget deficits increase during expansions

earlier administrations may have contributed to current budget deficits

18.

1 point

A wholesale nursery purchases six dozen gladiolus bulbs for $5. The nursery sells the six dozen resulting flowers to a wholesale florist for $10. The wholesale florist delivers the flowers to a retail florist for $15. The flowers are sold by the retail florist for $75 to the bereaved Jones family to use at great-grandfather Jones's wake. What is the value added by the retail florist?

$60

$75

$15

$10

$25

19.

1 point

Aggregate expenditure means total or combined spending.

True

False

20.

1 point

According to the rational expectations model, the only time active policy has an impact on aggregate output is when

it is contractionary

the economy has an expansionary gap

it is expansionary

it is unannounced

the economy has a contractionary gap

21.

1 point

According to the equation of exchange, if the amount of money in the economy of Monetania times the velocity of money equals 800 million Monetanian dollars ($), then Monetania's

price level equals 8 Monetanian dollars

nominal GDP equals $800 million

nominal GDP equals $800 million times the price level

real GDP equals $800 million times the price level

real GDP equals $800 million

22.

1 point

All economic models must involve simplifications because

reality is too complex to understand in its entirety, so we must reduce it to a level that we can understand

human behavior is very erratic and unpredictable

we must rely on value judgments and ignore reality

economists would be unable to command high salaries if their models were so simple that anyone could understand them

they always try to duplicate all possible information and cover all possible variables that might influence decision making

23.

1 point

Aggregate supply reflects billions of production decisions made by

resource suppliers and firms

the largest firms and largest households

households, which demand resources, and firms, which supply resources

consumers when they decide which products to purchase

households and firms, because they each demand goods and services

24.

1 point

Alicia makes the statement that everytime she eats chocolate, it gives her acne. By ignoring the possibility that there may be another factor that causes Alicia to eat chocolate and which also causes her acne, Alicia is commiting the

fallacy of segmentation

fallacy of composition

mistake of looking beyond the obvious

mistake of ignoring secondary effects

fallacy that association is causation

25.

1 point

A temporary tax cut would NOT be effective in stimulating aggregate demand if

the tax cut were large

the MPC were relatively high

the economy were in a contractionary gap

the short-run aggregate supply curve were relatively flat

people based consumption decisions on their level of permanent income

26.

1 point

About three-quarters of the federal budget involves expenditure categories that are fixed by law (e.g., Social Security) and cannot readily be changed.

True

False

27.

1 point

A tax is considered to be autonomous if it is independent of

real GDP

consumption

investment

the price level

government spending

28.

1 point

After the Great Depression, the role of fiscal policy in the U.S. economy was changed as a result of

all of the above

the influence of Keynes's General Theory

both a and c

the Employment Act of 1946

the economic impact of World War II

29.

1 point

According to the active policy position, eliminating a contractionary gap

requires a public policy of wage and price controls

can only be achieved by decreasing wages

will increase unemployment

should be accomplished by stimulating aggregate demand

will cause a recession

30.

1 point

Absolute advantage is based on opportunity cost.

True

False

31.

1 point

According to the life-cycle model,

richer economies save less than do poor economies

the saving rate in all nation increases over time

people spend much of their income when young, and borrow to finance retirement when they are older

rich countries save a higher fraction of disposable income than do poor countries

richer economies save about the same fraction of disposable income as do poor countries

32.

1 point

All depository institutions are subject to the Fed's required reserve ratios.

True

False

33.

1 point

According to rational expectations theory, people's predictions about the future course of governmental economic policy influence the position of the short-run aggregate supply curve.

True

False

34.

1 point

According to John Maynard Keynes’ General Theory of Employment, Interest and Money, in order to get an economy out of a depression, the government should

allow the economy to correct itself

decrease spending

increase spending

reduce taxes

increase taxes

35.

1 point

All of the following are depository institutions except one. Which is the exception?

stock brokers

credit unions

mutual savings banks

commercial banks

savings and loan associations

36.

1 point

A test was scheduled for Monday morning, but you went to a party on Saturday night. If you hadn't attended the party, you could have studied for the test or gone to a movie. Which of the following is true?

The opportunity cost of going to the party is both the movie and the study time.

the opportunity cost of going to the party is the movie

Because you could go to the party only that night but could go to a movie any time, the opportunity cost of the party is the study time.

From the above information, it's not possible to determine the opportunity cost of attending the party.

The opportunity cost of going to the movie is studying for the test

37.

1 point

Adam Smith's term, "the invisible hand," refers to

the most capable entrepreneurs in the economy

the role of technological change and random events in the economy

the hidden role of government in setting regulations that govern trading in markets

the unseen work of the financial markets that facilitates trade

market forces

38.

1 point

According to the budget philosophy of functional finance,

the government should not worry about whether the budget is balanced but worry instead about reaching the potential output level

surpluses should be run during periods of prosperity and deficits should be run during recessions

the budget should be balanced annually

the budget should never be in balance, no matter what.

the rate of growth in the national debt should equal the rate of growth in the money supply

39.

1 point

Active macroeconomic policy would move to close an expansionary gap by decreasing aggregate demand.

True

False

40.

1 point

According to those who favor a passive approach to policy, a contractionary gap will be eliminated because

the aggregate demand curve will shift to the right

the aggregate demand curve will shift to the left

prices and wages rise rapidly

the economy automatically slows down

prices and wages are flexible

41.

1 point

A wage rate above what is necessary to attract a sufficient number of workers is known as a(n)

minimum wage

efficiency wage

market-clearing wage

inefficient wage

marginal productivity wage

42.

1 point

After the 1960s, the short-run Phillips curve based on U.S. economic data

began shifting outward

became virtually vertical

began shifting inward

shifted little or none at all

became virtually horizontal

43.

1 point

According to the natural rate hypothesis,

government policy makers can influence the tradeoff between inflation and unemployment in the long run but not in the short run

government policy makers can target both stable interest rates and a stable money supply in the long run but not in the short run

the economy tends toward the natural rate of unemployment only when the government provides the appropriate demand stimulus

government policy makers can influence the tradeoff between inflation and unemployment in the short run but not in the long run

government policy makers can target both stable interest rates and a stable money supply in the short run but not in the long run

44.

1 point

A rightward shift of a supply curve

might be caused by a decrease in demand

represents a decrease in supply

might be caused by a price ceiling

might be caused by an increase in demand

would cause an excess quantity supplied at the previous equilibrium price

45.

1 point

According to Keynes,

the economy could be stuck at equilibrium below the potential output for a prolonged period

the economy eventually tends toward the potential output

to get the economy to potential output, the SRAS curve must shift to the right

deviations from potential output are short-lived

fiscal policy should not be used to influence the economy

46.

1 point

Actual investment will be larger than planned investment if there is an unintended inventory accumulation.

True

False

47.

1 point

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

act to make the economy's natural transition to the lower level of employment as easy as possible

shock the economy with an increase in aggregate demand

print money to promote consumer spending

act to make the economy's natural transition back to full employment as easy as possible

reduce aggregate supply to reduce inflation

48.

1 point

According to the natural rate hypothesis, unemployment can

be maintained below the natural rate only at the cost of higher taxes

be maintained below the natural rate while maintaining a constant low inflation rate

be maintained below the natural rate only at the cost of ever-increasing federal budget deficits

never be maintained below the natural rate

be maintained below the natural rate only at the cost of ever-increasing inflation

49.

1 point

A sustained decrease in the price level is known as deflation.

True

False

50.

1 point

Aggregate supply expresses the relationship between

the price level in the economy and the aggregate output firms will produce, other things constant

the quantity of output that will be produced and sold in one year

the price level and the aggregate amount people will buy at that price level

the actual output and the potential output of the economy

the price level and the potential amount of output that could be produced