ECO 2013 Firoozi Ch 5

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

A

Keynesian solution for moving an economy out of recession is active fiscal policy measures that shift a. AS to left b. AS to right c. AD to right d. AD to left e. None of the above

A

Long-term growth in production can be partially explained by a. technological improvements and rise labor force 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

A

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

A

Over any given period, the economy's observed real GDP and price level are those shown by the intersection of the economy's upward rising (short run) AS schedule and the economy's AD schedule. a. True b. False

A

Suppliers have an incentive to increase aggregate output whenever the price level rises faster than the cost of production. a. True b. False

A

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

A

The aggregate supply curve reflects the direct relationship between the price level and the quantity of aggregate output supplied. a. True b. False

A

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

A

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

A

When output __________, employment is expected to __________. a. rises; rise b. rises; fall c. falls; rise d. falls; remain constant e. remains constant; fall

A

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

B

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

B

In U.S. history, recessions have usually lasted longer than expansion periods. a. True b. False

B

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

B

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

B

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

B

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

B

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

B

The global financial panic in September 2008 which led to a sharp fall in business investment spending and consumer spending can be viewed as a. a sharp decrease in aggregate supply b. a sharp decrease in aggregate demand c. a sharp decrease in both aggregate supply and aggregate demand d. a modest increase in aggregate supply e. no change in either aggregate supply or aggregate demand

B

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.

B

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

C

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

C

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.

D

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

D

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

E

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

E

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

E

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

E

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

E

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

A

A right-ward shift of both AD and AS can increase the economy's GDP without changing the price index. a. True b. False

A

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

A

An expansionary fiscal policy amounts to a shift of AD to right. This shift increases the economy's GDP and reduces unemployment but also increases the price index a. True b. False

A

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

A

Capital is a stock variable. a. True b. False

A

Economic fluctuations a. can be experienced by the world economy as well as by a single nation b. tend to be equal in length and intensity c. refer to a declining economy d. have become more severe since the government has attempted to stabilize the economy e. have been completely offset by appropriate government policy during the last 40 years

A

Expansionary Keynesian fiscal policy with expand spending but also expands government's budget deficit a. True b. False

A

Given the aggregate demand curve, an increase in aggregate supply would raise real GDP and reduce the price level. a. True b. False

A

Gross Domestic Product (GDP) measures the value of all final goods and services produced within a nation's borders. a. True b. False

A

A recession is best defined as a period during which a. the percentage of the population employed is rising 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

B

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

B

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

B

During the Great Depression, a. unemployment and prices increased while output decreased b. unemployment increased while output and 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

B

Given an aggregate supply curve that slopes upward, an increase in aggregate demand would decrease real GDP. a. True b. False

B

Government debt is a flow variable; the budget deficit is a stock variable. a. True b. False

B

Which of the following explains why the aggregate demand curve slopes downward? a. If the price level increases, real income of households falls and therefore buy less. b. If the price level increases, households 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.

A

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.

A

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.

A

Economic fluctuations a. in one nation are usually independent of economic fluctuations in its major trading partner nations b. in one nation are usually independent of economic fluctuations in bordering nations c. in one developed nation are often linked to economic fluctuations in other developed economies d. are linked internationally so that a recession in one nation means an expansion in the economy of its major trading partner e. are linked internationally so that an economic expansion in one nation means a recession in the economy of its major trading partner

C

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

C

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

C

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

C

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

C

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

C

The term economy's price level refers to a. the rate of inflation b. the price of goods and services relative to consumers' incomes c. a general measure or average of prices of all goods and services d. a period of level, or steady, prices e. the prices of a specific consumer good

C

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

C

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 as measured by real GDP, relative to a long-term growth trend e. are changes in government spending that occur over a period of years

D

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

D

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

D

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.

D

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

D

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.

D

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

D

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

D