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1) A boom is a period during which output:
A) Hits bottom during a recession

B) Is Falling

C) Is recovering from a recession

D) Is rising

E) Exceeds full-employment output

2) The classical model cannot explain booms and recessions because it assumes that:

A) Spending shocks can push the economy away from equilibrium.

B) Markets always clear

C) The labor supply curve slopes upward and the labor upply curve slopes downward

D) There is only one type of labor in the economy

E) Neither the labor supply curve nor the labor demand curve can shift.

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Related questions

1. According to the Solow model, an increase in the capital-labor ratio will a. always increase steady state consumption per worker b. reduce steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock c. always reduce steady state consumption per worker d. increase steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock

2. In a steady state a. capital and labor, by definition, are inversely related to one another b. both consumption per worker and the capital-labor ratio are constant c. consumption per worker can change, but the capital-labor ratio is constant d. consumption per worker is constant, but the capital-labor ratio can change

3. Which of the following changes would lead, according to the Solow model, to a higher level of long-run output per worker? a. An increase in the saving rate b. A lower level of capital per worker c. A decrease in productivity d. A rise in the rate of population growth

4. In the long run, a reduction in productivity will cause a. an increase in the capital-labor ratio and a decrease in consumption per worker b. a decrease in the capital-labor ratio and a decrease in consumption per worker c. a decrease in the capital-labor ratio and an increase in consumption per worker d. an increase in the capital-labor ratio and an increase in consumption per worker

5. An increase in the growth rate of population in a steady-state economy would cause a. a pivot down and to the right in the investment line b. a parallel shift downward in the investment line c. a pivot up and to the left in the investment line d. a parallel shift upward in the investment line 1 2

6. In the efficiency wage model, an increase in productivity would a. have no effect on either output or the real wage b. increase output but have no effect on the real wage c. decrease the real wage but have no effect on output d. increase output but decrease the real wage

7. Keynesian economists believe that in the short run, a. money neutrality does not exist and prices adjust rapidly b. money neutrality does not exist and prices do not adjust rapidly c. money neutrality exists and prices adjust rapidly d. money neutrality exists and prices do not adjust rapidly

8. If the expected inflation rate is unchanged, a fall in the natural rate of unemployment would a. not shift the Phillips curve b. shift the Phillips curve to the left c. shift the Phillips curve to the right d. shift the Phillips curve to the left and shift the long-run Phillips curve to the right

9. Classical economists believe that in the short run, a. money neutrality does not exist and prices adjust rapidly b. money neutrality does not exist and prices do not adjust rapidly c. money neutrality exists and prices do not adjust rapidly d. money neutrality exists and prices adjust rapidly

10. The fact that the long-run Phillips curve is vertical implies that a. money can’t affect inflation in the long run b. money is neutral in the long run c. monetary policy can’t affect unemployment d. there is a natural rate of inflation

1. Briefly explain the shape of the per-worker production curve in the Solow model. If investment per worker initially exceeds saving per worker, how is the steady state capital-labor ratio achieved?

2. Describe the effects of a rise in the domestic real interest rate on the exchange rate and on both domestic and foreign net exports.

3. For each of the following changes, what happens to the real interest rate and output in the short run, before the price level has adjusted to restore general equilibrium? a. Wealth declines b. Money supply declines c. The future marginal productivity of capital declines d. Expected inflation rises e. Future income rises

1. The primary tool used by supply-side economists to eliminate macroeconomic problems is

A. the discount rate.

B. corporate tax rates.

C. government spending.

D. open market operations.

E. the reserve requirement.

2. When the Federal Reserve System buys government securities on the open market,

A. the money supply will decrease.

B. excess reserves at commercial banks will decrease.

C. excess reserves at commercial banks will increase.

D. interest rates will increase

3. One of the advantages of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers

A. has a greater multiplier effect than discretionary policy.

B. is not subject to the time lag problems of discretionary policy.

C. does not produce a deficit during recessions as a discretionary policy does.

D. makes the actual budget a better reflection of the condition of the economy than the full-employment budget.

4. "I have promised to do everything in my power to reduce the federal deficit. That means reducing federal expenditures and, if necessary, increasing taxes. Under present conditions of full employment and steady prices, we can afford to bear the burden of this debt (i.e., pay off the debt) now instead of passing it on to our children and grandchildren."

If the policies of the Senator quoted above were adopted, what effects would be expected while these policies were being implemented?

A. higher inflation

B. increases imports

C. higher rates of economic growth

D. increased unemployment and idle capacity

5. An inflationary gap can be reduced or completely closed by

A. decreasing taxes while leaving government spending on goods and services unchanged.

B. decreasing government spending on goods and services while leaving taxes unchanged.

C. increasing government spending on goods and services while leaving taxes unchanged.

D. increasing both government spending on goods and services and taxes by the same amount.

6. Compared to fiscal policy, an advantage of monetary policy is its

A. greater flexibility.

B. highly selective impact on segments of the economy.

C. ability to eliminate cost-push inflation.

D. need for approval by Congress.

E. need for approval by the President.

7. An increase in government spending on goods and services which causes a budget deficit to exist

A. is always inflationary.

B. is more inflationary than equal increases in private spending.

C. is usually not inflationary when the economy is operating at its full-employment level of output.

D. will not necessarily cause serious inflation as long as there are unemployed resources in the economy.

8. Some analysts believe the tax cuts enacted during the President H.W. Bush administration represented a supply-side economic policy rather than a Keynesian fiscal policy because

A. the tax cuts were accompanied by decreases in interest rates.

B. the tax cuts were accompanied by increases in government spending.

C. the tax cuts were primarily aimed at upper-income groups and businesses.

D. the tax cuts were primarily aimed at middle income and lower-income groups.

9. When the federal government is stabilizing the economy by increasing taxes, monetary authorities should

A. take actions to decrease interest rates.

B. increase the supply of money.

C. buy government securities in the open market.

D. follow an expansionary money policy.

E. follow a contractionary money policy.

10. Suppose a commercial bank has demand deposits (checking accounts) of $400,000, actual reserves of $170,000, and a reserve requirement of 20%. This single commercial bank can lend a maximum of ______ and the banking system can increase loans by a maximum of ______

A. $90,000 and $450,000.
B. $90,000 and $360,000.
C. $90,000 and $170,000.
D. $170,000 and $450,000.

E. both can lend an unlimited amount.

11. Which of the following would most likely result if the federal government increased its spending without changing tax revenues during a period of full employment?

A. inflation

B. a recession

C. lower interest rates

D. a larger net exports deficit

12. Fiscal policy that emphasizes cutting taxes as a means of improving incentives to work, and invest would be characterized in aggregate demand - aggregate supply framework primarily a shift

A. left in the aggregate demand curve.

B. left in the aggregate supply curve.

C. right in the aggregate supply curve.

D. no shift in either the aggregate demand curve or the aggregate supply curve.

13. Which of the following will result in the greatest increase in aggregate expenditures/demand?

A. A $100 decrease in personal income taxes

B. A $100 increase in personal income taxes

C. A $100 increase in government expenditures

D. A $100 increase in government expenditures which is accompanied by a $100 increase in personal income taxes

E. Both A and C will have the same effect on aggregate expenditures

14. You are given the following information about aggregate demand for an economy: (1)consumption = $600 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $720 billion, then what combination of actions would be most consistent to achieve full employment and stable prices?

A. an increase in government spending and taxes

B. decrease government spending and taxes

C. decrease government spending and increase taxes

D. increase government spending and decrease taxes

15. Advocates of fiscal policy agree that discretionary fiscal policy will stabilize the business cycle most when the federal government

A. continuously incurs budget deficits.

B. continuously runs budget surpluses.

C. balances its budget every year.

D. incurs budget deficits during recessions and budget surpluses during demand-pull inflations.

E. incurs budget surpluses during recessions and budget deficits during demand-pull inflations.

16. Discretionary fiscal policy that increases the government budget deficit has the same effect on equilibrium as

A. an increase in personal saving.

B. an increase in business investment.

C. a decrease in government spending.

D. a decrease in personal consumption expenditures

Which of the following statements has been proposed as a benefit of passive policy making?

Passive policy making utilizes the rational expectations hypothesis.

Passive policy making allows for making immediate changes in response to an anticipated change in economic performance.

When using passive policy making there is no tradeoff between price stability and unemployment.

Passive policy making does not wait for the time lag between recognition of a problem and policy action before engaging in economic policies to stabilize the economy.

1.47 points

QUESTION 6

The idea of policy making taking place in response to a predetermined set of rules is referred to as

discretionary policy making.

passive policy making.

Keynesianism.

active policy making.

1.47 points

QUESTION 7

What types of unemployment will still exist when the economy is at the natural rate of unemployment?

frictional and cyclical unemployment only

frictional, structural, and cyclical unemployment

frictional and structural unemployment only

structural and cyclical unemployment only

1.47 points

QUESTION 8

The natural rate of unemployment is

the unemployment rate that exists in long-run equilibrium, after adjustments to all changes have occurred.

the unemployment rate when there is no structural unemployment.

the unemployment rate when there is no structural or cyclical unemployment.

zero.

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QUESTION 9

According to the text, minimum-wage laws cause increases in

employment possibilities.

structural unemployment.

poverty.

productivity.

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QUESTION 10

During a recession, the overall unemployment rate

exceeds the natural rate of unemployment.

falls below the natural rate of unemployment.

falls rapidly.

equals the inflation rate.

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QUESTION 11

Cyclical unemployment is

the unemployment due to the unemployment benefits and welfare programs of the government.

the unemployment due to union activities and government-imposed restrictions to entry into specific occupations.

the difference between the actual unemployment rate and the natural rate of unemployment.

the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion.

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QUESTION 12

Which of the following unemployment rates can be negative?

the natural unemployment rate

the seasonal unemployment rate

the official unemployment rate reported by the Bureau of Labor Statistics

the cyclical unemployment rate

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QUESTION 13

An unexpected increase in aggregate demand typically causes

the price level to increase but has no effect on the unemployment rate.

frictional unemployment to increase but structural unemployment to decrease.

the price level to increase and the unemployment rate to fall.

the price level to increase and the unemployment rate to increase.

1.47 points

QUESTION 14

The rate of unemployment below which the rate of inflation tends to rise and above which the rate of inflation tends to fall is known as the

non-accelerating-inflation rate of unemployment (NAIRU).

contrary rate of unemployment.

Phillips rate of unemployment.

menu cost rate of unemployment.

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QUESTION 15

Based on the work of economist A.W. Phillips, economists concluded that

high inflation rates are associated with low unemployment rates.

higher rates of inflation are associated with higher rates of unemployment.

there is no trade-off between inflation and unemployment.

unemployment can be effectively combated by raising wages.

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QUESTION 16

What happens to the Phillips curve when the expected rate of inflation rises?

The curve shifts to the right

The curve shifts to the left

The Phillips curve is unaffected

The curve becomes horizontal

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QUESTION 17

The short-run Phillips curve suggests what policy making implications?

Passive policy making is more effective than active policy making.

Active policy making does not yield any predictable results.

Maintaining both the inflation and unemployment rates at low levels is possible if policy makers will rely solely on nondiscretionary policy making.

Using discretionary policies, it may be possible to achieve just the right unemployment and inflation mix.

1.47 points

QUESTION 18

We observe the duration of unemployment falling and wage rates rising. It is likely that

aggregate supply has increased.

aggregate demand has increased.

summer has arrived.

the government has initiated expansionary fiscal policy but the policies haven't taken effect yet.

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QUESTION 19

Policymakers' attempts to use the Phillips curve to reduce the unemployment rate below the natural rate

will be successful since the Phillips curve shows the relationship between the inflation rate and the unemployment rate.

will be unsuccessful if monetary policy is used since monetary policy leads to higher prices.

will be successful if monetary policy is used.

will be unsuccessful since workers' expectations adjust to attempts to reduce unemployment below the natural rate.

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QUESTION 20

Which one of the following would likely reduce the level of structural unemployment?

strengthening restrictions on who can be licensed to enter certain professions

increasing the minimum wage to encourage more people to work

increasing the level of union bargaining power

limiting unemployment insurance benefits

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QUESTION 21

An unexpected decrease in aggregate demand

will decrease real GDP, but will not affect the rate and duration of unemployment.

will decrease the price level.

will decrease long-run aggregate supply.

will decrease the average duration of unemployment.

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QUESTION 22

When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects, this is known as

rational expectations.

irrational expectations.

the policy irrelevance proposition.

the new classical theory.

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QUESTION 23

According to the rational expectations hypothesis, monetary policy can have real effects on such variables as real Gross Domestic Product (GDP) in the short run

when the Federal Reserve's open market committee operates as expected in either buying or selling bonds.

regardless of whether the policy is anticipated or unanticipated.

only when the policy is unsystematic and unanticipated.

only when the policy is anticipated.

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QUESTION 24

Rational expectations theory suggests that short-run stabilization policy

should not be attempted.

is best achieved with fiscal policy.

is best achieved with monetary policy.

is equally easy to achieve with monetary or fiscal policy.

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QUESTION 25

Proponents of the policy irrelevance proposition believe that, under the assumption of rational expectations, the unemployment rate will

go down whenever the Fed announces an anticipated fiscal policy change.

equal the natural rate of unemployment in the long run, regardless of any monetary policy actions.

always be higher in the long run than the natural rate of employment.

go up whenever the Fed announces an anticipated monetary policy change.

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QUESTION 26

For the policy irrelevance theorem to hold, people must

not persistently make the same mistakes in forecasting the future.

know exactly what the Fed is planning to do.

know the future perfectly.

never make mistakes in their forecasts, even when they do not know the future perfectly.

1.47 points

QUESTION 27

According to the policy irrelevance proposition, the impact of an anticipated expansionary monetary policy will be to

increase the price level in the long run.

increase the real Gross Domestic Product (GDP) in the long run.

decrease the natural rate of unemployment.

decrease the price level and the unemployment rate.

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QUESTION 28

One key assumption lying behind the policy irrelevance proposition is that

prices are "sticky" upward.

wages are "sticky" downward.

markets are not purely competitive.

the rational expectations hypothesis is correct.

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QUESTION 29

According to the real business cycle theory, an increase in an input price, such as oil, will

increase both real Gross Domestic Product (GDP) and the price level.

increase real Gross Domestic Product (GDP) but not change the price level.

decrease both real Gross Domestic Product (GDP) and the price level.

decrease real Gross Domestic Product (GDP) but increase the price level.

1.47 points

QUESTION 30

When "stagflation" occurs,

the economy experiences higher inflation rates and higher unemployment rates at the same time.

the economy experiences lower inflation rates and higher unemployment rates at the same time.

the economy experiences higher inflation rates and lower unemployment rates at the same time.

the economy experiences lower inflation rates and lower unemployment rates at the same time.

1.47 points

QUESTION 31

When a supply shock is permanent

only the short-run aggregate supply curve shifts leftward.

only the long-run aggregate supply curve shifts leftward.

there are no shifts in either the long-run or short-run aggregate supply curve.

both the long-run and short-run aggregate supply curves shift leftward.

1.47 points

QUESTION 32

According to economists who promote sticky-price theories,

only monetary policy is an effective stabilization policy.

only fiscal policy is an effective stabilization policy.

both fiscal and monetary policy can be effective stabilization policies.

neither fiscal nor monetary policy is an effective stabilization policy.

1.47 points

QUESTION 33

Some economists suggest that because of the costs of negotiating contracts, printing price lists, etc., it is costly for firms to change prices in response to demand changes. This hypothesis is known as the

menu cost theory.

Phillips theory.

Freidman theory.

sticky wage theory.

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QUESTION 34

The menu cost theory suggests that

wages and prices move freely and quickly.

there will be no unemployment.

firms find frequent price changes to be costly.

the economy is characterized only by perfect competition.

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QUESTION 35

In new Keynesian theory, the pattern of inflation exhibited by an economy with growing aggregate demand known as inflation dynamics is

initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future.

initially sluggish downward adjustment of the price level and inflation in response to higher aggregate demand followed by lower inflation in the future.

initially sluggish upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.

initially speedy upward adjustment of the price level and inflation in response to higher aggregate demand followed by higher inflation in the future.

1.47 points

QUESTION 36

Menu costs are a possible reason for

swings in the labor force participation rate.

sticky product prices.

aggregate supply shocks.

low levels of consumer confidence in response to aggregate supply shocks.

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QUESTION 37

New Keynesians hypothesize that

the relationship between inflation and unemployment is exploitable in the short run.

fluctuations in output are largely caused by supply shocks.

the relationship between inflation and unemployment is exploitable in the long run.

there is no relationship between inflation and unemployment.

1.47 points

QUESTION 38

Economists Milton Friedman and E.S. Phelps suggested that the apparent trade-off suggested by the Phillips curve could not be exploited by policy makers, because

unemployment levels and the inflation rate have a negative (inverse) relationship.

unemployment levels and the inflation rate have a clear, positive relationship.

economic participants routinely incorporate changes in the inflation rate into their expectations.

economic participants are not rational, and therefore act unpredictably to any policy change.

1.47 points

QUESTION 39

When it comes to active policy making most economists agree that

it is unlikely that active policy making will have any long term effects on the economy.

it will lead to long term shocks in the system.

it is likely that active policy making will have long term effects on the economy.

active policy making should be used over passive policy making.

1.47 points

QUESTION 40

If population growth occurs while jobs are difficult to obtain or labor force participation does not increase,

economic growth will be robust because any population gain is a plus.

per capita GDP is likely to increase sharply.

there may be little or no increase in a nation's labor resources.

a nation's labor resources will still continue to increase in both quality and quantity.

1.47 points

QUESTION 41

If the level of aggregate real Gross Domestic Product (GDP) remains constant, a reduction in the population

indirectly reduces per capita real GDP.

directly reduces per capita real GDP.

directly increases per capita real GDP.

has no effect on real per capita real GDP.

1.47 points

QUESTION 42

Suppose a nation's real Gross Domestic Product (GDP) grows at a constant rate of 5 percent per year while its population grows 2 percent annually. Given this information, this nation's annual rate of per capita real GDP growth is approximately equal to

2 percent

1 percent

5 percent

3 percent

1.47 points

QUESTION 43

In the determination of economic growth, political freedom

is equally as important as economic freedom.

appears to be less important than economic freedom.

contributes little to job growth.

is more important than economic freedom.

1.47 points

QUESTION 44

Political freedom can sometimes moderately reduce economic growth because

special interest groups may gain at the expense of the overall economy.

campaign contributions rob the economy of investment.

most jobs are in unions that are politically connected.

none of the above.

1.47 points

QUESTION 45

Economic freedom is

the right to own private property and to exchange goods with minimal government interference.

present as long as private individuals own businesses.

the amount of control that the government has in a market.

the right to vote in an election for a political leader.

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QUESTION 46

The right to openly support and democratically select national leaders is

population freedom.

political freedom.

economic freedom.

capital freedom.

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QUESTION 47

Economic growth is measured by

the annual percentage change in nominal GDP.

the annual percentage change in per capita real GDP.

the annual percentage change in per capita nominal GDP.

the annual percentage change in the unemployment rate.

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QUESTION 48

Laws that make it difficult to start a new business lead to a

laissez-faire.

low rate of economic growth.

high rate of economic growth.

more political freedom.

1.47 points

QUESTION 49

Dead capital is

any capital resource that lacks clear title of ownership.

machinery that requires constant maintenance.

machinery that fails to operate properly.

a capital resource that depreciates rapidly.

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QUESTION 50

The significance of dead capital is that

it is being removed from its most efficient use.

it is difficult to allocate to its most efficient use.

its fixed cost is too high.

it replaces too many workers.

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QUESTION 51

Developing countries are damaged by dead capital because

it replaces too many workers, creating unemployment.

resulting inefficiencies greatly reduce the rate of return on investment.

it must be sold as scrap.

none of the above.

1.47 points

QUESTION 52

The role that dead capital plays in a country's economic growth is that

growth neither increases nor is impaired by dead capital.

growth increases because the dead capital is replaced with more technologically efficient capital.

growth increases since the firms using the dead capital are using it for free.

growth is impaired since the capital cannot be allocated to its most efficient use.

1.47 points

QUESTION 53

When government inefficiencies exist,

a country tends to grow at a faster rate.

economic growth is not influenced.

dead capital is usually not a problem.

a country tends to grow at a slower rate.

1.47 points

QUESTION 54

The acquisition of more than 10 percent of the shares of ownership in a company in another nation is called

gross private international investment.

majority investment.

foreign direct investment.

portfolio investment.

1.47 points

QUESTION 55

Most international investment finance today comes from

portfolio and foreign direct investment.

the sale of antiques.

government financing.

tax collections.

1.47 points

QUESTION 56

Portfolio investment means buying

livestock.

less than 10 percent ownership in a foreign company.

a life insurance policy when traveling abroad.

more than 50 percent ownership in a foreign company.

1.47 points

QUESTION 57

The primary motivation for private foreign investment in developing nations is

to eradicate poverty.

to improve the standard of living for workers.

the potential for high rates of return.

to do research in countries with fewer social regulations.

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QUESTION 58

An international financial crisis is most often caused by

a nation's central bank lowering domestic interest rates.

a drop in the value of the U.S. dollar.

foreign investments and loans being withdrawn from a nation.

a government refusing to pay its dues to the United Nations.

1.47 points

QUESTION 59

Adverse selection is a barrier to financing global growth because

there is the possibility that the funds are used for riskier behavior than the lender agreed to.

firms sometimes have trouble determining whether they need funds or not.

if investors have trouble identifying high-risk firms they may be unwilling to lend funds to creditworthy firms.

of the differences between financing using loans, portfolio investment and foreign direct investment.

1.47 points

QUESTION 60

Moral hazard is a barrier to financing global growth because

there is the possibility that the funds are used for riskier behavior than the lender agreed to.

if investors have trouble identifying high-risk firms they may be unwilling to give money to creditworthy firms.

firms sometimes have trouble determining whether they need funds or not.

of the differences between financing using loans, portfolio investment and foreign direct investment.

1.47 points

QUESTION 61

Two types of asymmetric information that create problems for international investment are

adverse hazard and moral selection.

adverse hazard and moral hazard.

adverse selection and moral selection.

adverse selection and moral hazard.

1.47 points

QUESTION 62

The multinational agency that specializes in making loans to developing nations in an effort to promote long-term development and growth is the

International Monetary Fund.

United Nations Development Program.

World Trade Organization.

World Bank.

1.47 points

QUESTION 63

The multinational organization that aims to promote world economic growth by fostering financial stability is the

World Bank.

United Nations.

International Monetary Fund.

World Trade Organization.

1.47 points

QUESTION 64

A nation's account with the IMF is called its

deposit surplus.

capital account.

current account.

quota subscription.

1.47 points

QUESTION 65

The international unit of accounting used by the International Monetary Fund (IMF) is called

the Eurodollar.

the IMF dollar.

the quota subscription.

special drawing rights.

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QUESTION 66

The International Monetary Fund (IMF) was created to achieve each of the following goals EXCEPT

to supervise exchange-rate practices of member countries.

to help finance economic development in poor countries.

to encourage convertibility of member countries' currencies.

to lend funds to countries having difficulties meeting their international payment obligations.

1.47 points

QUESTION 67

The World Bank specializes in making loans to promote

short-term assistance when a nation experiences a financial crisis.

financial stability.

so-called stand-by arrangements and credits.

long-term development and growth.

1.47 points

QUESTION 68

The International Monetary Fund

is the bank that causes international financial crisis when the reserves are too high.

is a central bank like the Federal Reserve System.

is a multinational organization that aims to promote world economic growth through more financial stability.

is a multinational agency that specializes in making loans to promote long-term development and growth in developing countries.

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