Part 1 of 1 47.0/ 50.0 Points
Question 1 of 50
0.0/ 1.0 Points
According to Keynesian theory,
A.sticky prices and wages do not have an effect on aggregate expenditures.
B.because of sticky prices and wages, changes in total spending have the biggest impact
on output and employment.
C.wage and price stickiness cause output and employment to remain close to
their full employment levels, even when total spending changes.
D.wages and prices fall in the early stages of a recession even when total spending is
declining.
Answer Key: B
Question 2 of 50
1.0/ 1.0 Points
The classical school focused on the longrun forces that determined an economy's
potential level of output.
A. True
B. False
Answer Key: True
Question 3 of 50
1.0/ 1.0 Points
An important distinction between the classical and Keynes's view of the economy is that
A.Keynes stressed the supply side of an economy while classical economists stressed the
demand side of the economy.
B.classical economists argued that output gaps were caused by shifts in the longrun
aggregate supply while Keynes' maintained that output gaps were created by shifts in
aggregate demand.
C.Keynes stressed the demand side of an economy while classical economists
stressed the supply side of the economy.
D.classical economists argued that output gaps were caused by shifts in the longrun
aggregate supply while Keynes' maintained that output gaps were created by wage and
price rigidities.
Answer Key: C
Question 4 of 50
1.0/ 1.0 Points
Transfer payments typically
A.rise during expansionary periods.
B.fall during recessions.
C.do not change as the economy expands and contracts during the business cycle.
D.fall during expansionary periods and rise during recessionary periods. Answer Key: D
Question 5 of 50
1.0/ 1.0 Points
The General Theory of Employment, Interest, and Money was written by
A.Robert Lucas.
B.David Ricardo.
C.John Maynard Keynes.
D.Thomas Malthus.
Answer Key: C
Question 6 of 50
1.0/ 1.0 Points
John Maynard Keynes argued that _______
A.flexibility in wages and prices could block adjustments to full employment.
B.stickiness in wages and prices could block adjustments to full employment.
C.wage and price rigidities were caused by producer and consumer expectations about
future prices.
D.wage and price rigidities could be eliminated by government wage and price setting.
Answer Key: B
Question 7 of 50
1.0/ 1.0 Points
Milton Friedman is a leader and major proponent of
A.monetarism.
B.classical economics.
C.Keynesian economics.
D.rational expectations theory.
Answer Key: A
Question 8 of 50
1.0/ 1.0 Points
The bulk of federal receipts come from
A.property taxes and personal income tax.
B.personal income tax and from payroll taxes.
C.corporate income taxes and personal income tax.
D.personal income tax and property taxes.
Answer Key: B
Question 9 of 50
1.0/ 1.0 Points
If the economy's shortrun aggregate supply curve is upward sloping, a decrease in
aggregate demand will cause
A.an increase in the price level and employment.
B.a decrease in the price level and employment.
C.an increase in the price level and a decrease in employment. D.a decrease in the price level and an increase in employment.
Answer Key: B
Question 10 of 50
1.0/ 1.0 Points
Taxes assessed on firms and employees on wages and salaries earned are called
A.dividend taxes.
B.payroll taxes.
C.corporate profits taxes.
D.earned income taxes.
Answer Key: B
Question 11 of 50
1.0/ 1.0 Points
Which of the following is true about the Great Depression?
A.Following the Great Depression of 1929, the economy did not regain its
potential output until the early 1940s when the pressures of WWII sharply increased
aggregate demand.
B.Expansionary monetary and fiscal policies successfully moved the economy from the
Great Depression of 1929 within three to five years.
C.The Great Depression of 1929 was considered to be a normal stage of business cycles.
D.The Great Depression could be explained by classical economic theory.
Answer Key: A
Question 12 of 50
1.0/ 1.0 Points
Payments to households that do not require anything in exchange are called
A.transfer payments.
B.government purchases.
C.consumption expenditures.
D.investment expenditures.
Answer Key: A
Question 13 of 50
1.0/ 1.0 Points
According to Milton Friedman, any divergence in unemployment from its natural rate is
temporary because
A.anticipated price changes affect nominal wages in the short run but workers will
rectify this over time.
B.unanticipated price changes affect real wages in the short run but workers will
rectify this over time.
C.anticipated price changes affect real wages in the short run but workers will rectify this
over time.
D.unanticipated price changes create inflation which is addressed by policymakers over
time. Answer Key: B
Question 14 of 50
1.0/ 1.0 Points
A liquidity trap is said to exist when a change in monetary policy has no effect on
A.the money supply.
B.the natural level of employment.
C.aggregate supply.
D.interest rates.
Answer Key: D
Question 15 of 50
1.0/ 1.0 Points
What is an automatic stabilizer?
A.It refers to a discretionary policy that is triggered when actual output is not equal to
potential output to improve the economy's performance.
B.It refers to a stabilization program that keeps inflation in check automatically.
C.It refers to any government program that tends to reduce fluctuations in GDP
automatically.
D.It refers to a government program that is automatically triggered when the economy
enters a recession.
Answer Key: C
Question 16 of 50
1.0/ 1.0 Points
A fundamental feature of early classical macroeconomics is that
A.aggregate demand and aggregate income are usually unequal.
B.prices of inputs and outputs are relatively rigid.
C.the economy's level of employment can remain substantially below its natural level
over a prolonged period of time.
D.the economy can achieve full employment on its own, though there could be
temporary periods in which employment falls below the natural level.
Answer Key: D
Question 17 of 50
1.0/ 1.0 Points
The national debt
A.is the sum of all past federal deficits plus any surpluses.
B.grows when the government runs a deficit.
C.grows when government spending increases.
D.is a major problem facing the U.S. government.
Answer Key: B
Question 18 of 50
0.0/ 1.0 Points
Supplyside economics is the school of thought that advocates the use of
A.monetary policy to stimulate shortrun aggregate supply. B.fiscal policy to stimulate shortrun aggregate demand.
C.monetary policy to stimulate shortrun aggregate demand.
D.tax cuts to stimulate shortrun aggregate supply.
Answer Key: D
Question 19 of 50
1.0/ 1.0 Points
Keynes shifted the emphasis in economics from the concept of aggregate supply to the
concept of aggregate demand.
A. True
B. False
Answer Key: True
Question 20 of 50
1.0/ 1.0 Points
If the Fed purchases federal government bonds on the open market, bank reserves will
____, leading to a(n) _______ in the money supply.
A.decrease; decrease
B.increase; decrease
C.increase; increase
D.decrease; increase
Answer Key: C
Question 21 of 50
1.0/ 1.0 Points
When did policy makers in the U.S. first use fiscal policy with the intent of manipulating
aggregate demand to move the economy to its potential level of real GDP?
A.during the Roosevelt administration
B.during the Truman administration
C.during the Eisenhower administration
D.during the Kennedy administration
Answer Key: D
Question 22 of 50
1.0/ 1.0 Points
Monetarists argue that
A.the Federal Reserve System should institute a prescribed rate of growth in the
money supply.
B.since velocity is unstable, a fixed annual increase in the money supply will exacerbate
inflation in the long run.
C.selfcorrection is less effective than activist monetary policy.
D.policymakers should use monetary policy rather than fiscal policy to stabilize the
economy. Answer Key: A
Question 23 of 50
0.0/ 1.0 Points
Which of the following is true about new Keynesian economics?
It incorporates monetarist ideas about the importance of monetary policy.
It incorporates new classical ideas about the importance of aggregate supply.
It includes a greater use of microeconomic analysis in macroeconomic analysis than
Keynesian economics.
Unlike Keynesian economics, it is opposed to active stabilization policies.
A.I and III only
B.II and III only
C.I, II, and III only
D.I, II, III, and IV
Answer Key: C
Question 24 of 50
1.0/ 1.0 Points
Medicaid, welfare payments, and Temporary Assistance to Needy Families are classified
as
A.unilateral payments.
B.transfer payments.
C.gifts.
D.income redistribution payments.
Answer Key: B
Question 25 of 50
1.0/ 1.0 Points
During a contraction, ______ income tax revenues tend to automatically increase a
______or reduce a _________.
A.higher; budget deficit; budget surplus
B.higher; budget surplus; budget deficit
C.lower; budget deficit; budget surplus
D.lower; budget surplus; budget deficit
Answer Key: C
Question 26 of 50
1.0/ 1.0 Points
Which of the following is true about Keynesians and Monetarists with regards to policy
intervention?
A.Keynesians favor the use of fiscal policy to bring the economy back to its potential
output while Monetarists favor the use of monetary policy to bring the economy back to
its potential output.
B.Keynesians favor active policy intervention to bring the economy back to its
potential output while Monetarists argue that the uncertain nature of lags render policy
intervention destabilizing. C.Ke
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