Chapter 8 Exam Macro Exam

In the long-run, the economy is expected to return to its full-employment level primarily because:

A decrease in both output and employment

A rightward shift in the AD curve is most likely caused by which of the following actions?

A decrease in interest rates

**Which of the following would most likely cause a rightward shift in the aggregate supply (AS) curve?

A reduction in business taxes

If aggregate supply decreases (AS shifts left), what is the likely outcome?

A reduction in business taxes

A policy designed to shift the aggregate supply curve to the right might include:

A tax cut for businesses to encourage investment

Keynes believed that in the long-run, the economy might not reach full employment because:

Aggregate demand could be insufficient, leading to a prolonged recession

Which policy would a Keynesian economist recommend during a recession?

An increase in government spending and tax cuts to stimulate demand

The aggregate demand (AD) curve is downward sloping because:

As the price level rises, the real value of money increases

In Keynesian economics, the business cycle is primarily driven by:

Changes in aggregate demand

According to Say's Law, supply creates its own demand. This idea is central to which economic theory?

Classical economics

Which of the following perspectives focuses on reducing government intervention and promoting market-driven solutions for long-term growth?

Classical economics

Keynes' view of the economy is different from Classical economists in that he believed:

Government intervention is necessary to stabilize the economy, especially during recessions

Which of the following would be an example of trade policy?

Implementing tariffs or trade agreements to affect imports and exports

If the economy is in a recession with high unemployment, which policy would a Keynesian economist recommend?

Increase production to capture higher profits

The real balances effect explains that when the price level falls, the real value of money:

Increases, leading to higher consumption and investment

In 2008, the U.S. experienced a severe recession and the government responded with stimulus spending. Which economic theory would most likely support this response?

Increasing government spending to boost aggregate demand

If the economy is experiencing inflation, a contractionary fiscal policy would likely involve:

Increasing taxes and reducing government spending

Which of the following is the key difference between Classical economics and Keynesian economics?

Keynesians advocate for active government intervention in the economy, while Classical economists do not

In the Keynesian model, if the economy is at macro equilibrium but with unemployment still high, policymakers would most likely recommend:

Output decreases and inflation increases (stagflation)

A supply-side policy focuses on:

Reducing taxes and regulations to stimulate production

In the event of a supply shock (e.g., oil price hike), what is likely to happen to the economy?

Reducing taxes to encourage business investment

Which of the following is NOT a characteristic of stagflation?

Rising interest rates

According to the Classical view, when there is a recession, the economy will:

Self-correct over time through adjustments in wages and prices

According to Classical economics, the economy is inherently:

Stable and self-correcting without government interference

What would happen to the aggregate supply (AS) curve if the price of raw materials increases significantly?

The AS curve would shift leftward

Which of the following effects explains why the AD curve slopes downward?

The Interest Rate Effect

The business cycle refers to

The alternating periods of economic growth and contraction

Which of the following is an example of monetary policy?

The central bank raising interest rates to control inflation

Which of the following is an example of macroeconomic policy?

The government changing its tax rates to influence economic activity

Which of the following is an example of fiscal policy?

The government cutting taxes to increase consumer spending

Which of the following best describes full-employment GDP?

The maximum output that can be produced with available resources

Which of the following best describes aggregate demand?

The total quantity of output demanded at alternative price levels

In the long run, Classical economists believe the economy is:

Always in equilibrium

The interest rate effect explains that as the price level decreases, interest rates:

Decrease, stimulating borrowing and investment