Macro Economics Chapter 5

A key tenet of the supply-side economic theory of the 1980s was that a(n):

decrease in tax rates would increase aggregate supply.

Keynesian economics is also known as:

demand-side economics as it focused on the factors that affect the aggregate demand in an economy.

The recession of 2008 was triggered by:

fears about the effect of home foreclosures on the banking system.

When borrowers failed to make their mortgage payments in the United States in 2008, _____.

foreclosures increased Foreclosures increased when borrowers failed to make their mortgage payments in 2008 in the U.S.

Over the long run, the U.S. economy:

has grown dramatically.

_____ is a theory that believes that a nation's economic objective should be to accumulate precious metals in the public treasury.

Mercantilism Mercantilism is a theory that believes that a nation's economic objective should be to accumulate precious metals in the public treasury.

Which of the following events refers to the largest U.S. economic downturn that occurred in the 1930s?

The Great Depression.

Which of the following is an example of a flow variable?

The amount by which a firm's output increases with every additional worker.

One of the causes of stagflation in the United States during the 1970s was a(n):

increase in oil prices. One of the causes of stagflation in the United States during the 1970s was an increase in oil prices.

A decrease in tax rates in an economy will:

increase the supply of labor and the aggregate supply in the economy. A decrease in tax rates in an economy will increase the supply of labor and the aggregate supply.

An increase in an economy's average price level is known as:

inflation. An increase in the economy's average price level is known as inflation.

Which of the following best describes the gross domestic product (GDP)?

The product of the quantity of all goods and services produced in a nation during a year and the price.

The gross domestic product (GDP) measures the market value of:

all final goods and services produced in a country during a year

Federal debt measures the:

net accumulation of prior federal deficits. Federal debt measures the net accumulation of prior federal deficits.

The key difference between a stock and a flow is that a flow is measured _____, while a stock is measured _____.

over an interval of time; at a particular point in time

The price level in an economy is a composite measure reflecting the:

prices of a wide range of goods and services produced and consumed in the economy relative to the price level in a base year.

The real gross domestic product (GDP) per capita of the United States increased sixfold between 1929 and 2012 because:

real GDP grew at a faster rate than population. The real gross domestic product (GDP) per capita of the United States increased sixfold between 1929 and 2012 because real GDP grew at a faster rate than population.

The best measure of the average standard of living is:

real GDP per capita. Real GDP per capita is the best measure of the standard of living in an economy.

Since World War II, the U.S. economy has experienced:

recessions but not depressions Since World War II, the U.S. economy has experienced recessions but not depressions.

According to mercantilism, _____.

restricting imports through trade barriers such as tariffs and quotas will help a nation accumulate precious metals in the public treasury According to mercantilism, restricting imports through trade barriers such as tariffs and quotas will help a nation accumulate precious metals in the public treasury. See 5-1: The National Economy

An improvement in the technology used by the firms in an economy will lead to a(n):

rightward shift in the aggregate supply curve. An improvement in the technology used by firms in an industry will lead to a rightward shift in the aggregate supply curve.

The federal government passed the Troubled Asset Relief Program and the American Recovery and Reinvestment Act to:

stimulate aggregate demand in the U.S. economy.

The revolutionary concept put forward by John Maynard Keynes following the Great Depression involved:

stimulating aggregate demand through expansionary fiscal policy.

Federal debt is a _____.

stock variable Federal debt is a stock variable.

A federal budget deficit is a flow variable that measures, for a particular period, _____.

the amount by which federal outlays exceed federal revenues A federal budget deficit is a flow variable that measures, for a particular period, the amount by which federal outlays exceed federal revenues.

The real gross domestic product (GDP) of an economy is _____.

the best measure of the aggregate output of the economy

It has been observed that _____ falls more in comparison to other goods and services during an economic contraction in the United States.

the demand for houses The demand for houses falls comparatively more than the demand for other goods and services during a recession in the U.S.

The aggregate demand curve and the aggregate supply curve interact to determine:

the equilibrium levels of price and real gross domestic product (GDP). The aggregate demand curve and the aggregate supply curve interact to determine the equilibrium levels of price and real GDP.

Economic fluctuations refer to the rise and fall of economic activity relative to:

the long-term growth trend of an economy.

Macroeconomics typically focuses on:

the performance of the national economy.

An aggregate supply curve shows:

the positive relationship between the price level and the quantity of real gross domestic product supplied in an economy, other things constant.

Firms continue to expand production as long as:

the prices they receive for their products increase faster than their respective costs of production.

An increase in the price of goods and services in an economy will lead to a(n):

upward movement along the aggregate supply curve.

According to John Maynard Keynes, which of the following measures will help an economy move out of depression?

. An increase in government spending. According to Keynes, an increase in government spending will help an economy move out of depression.

Which of the following reflects an economic contraction?

An increase in the rate of unemployment in an economy During an economic contraction, there is an increase in the unemployment rate in an economy.

The U.S. economy grew at an average annual rate of 3.3 percent between 1929 and 2009. Which of the following is a possible reason for the growth in real gross domestic product (GDP) during this period?

An increase in the supply of better quality human and physical capital. An increase in the supply of better quality human and physical capital during 1929 and 2009 resulted in an annual average growth rate of 3.3 percent in the U.S.

_____ are leading economic indicators.

Consumer confidence, consumer spending, and purchase of machinery by firms

Which of the following is most likely to indicate an economic expansion in the United States?

An increase in the annual average disposable income of households from $25,000 in 2014 to $35,000 in 2015. An increase in the annual average disposable income of households from $25,000 in 2014 to $35,000 in 2015 in the U.S. is an indicator of economic expansion.

Which of the following causes an increase in the demand for foreign products in the domestic market?

An increase in the domestic country's price level. An increase in the domestic country's price level increases the demand for foreign products in the domestic market.

Which of the following is a possible effect of a decrease in the prices of goods and services in an economy, other things remaining constant?

A downward movement along the aggregate demand curve.

Which of the following is true of a stock variable?

A stock variable is a measure of something at a particular point in time.

Which of the following correctly describes the condition that generates the equilibrium in an economy?

Aggregate demand being equal to aggregate supply.

Which of the following correctly describes the difference between aggregate output and aggregate demand?

Aggregate output is the total quantity of goods and services produced in an economy during a given time period, while aggregate demand is the relationship between the average price level and the quantity of aggregate output demanded, with other things constant.

Which of the following is true?

An economy with well-defined property rights is likely to experience an increase in total production. An economy with well-defined property rights is likely to experience an increase in total production.

_____ are examples of coincident indicators.

Consumer confidence and stock of inventories Personal income and industrial production

Identify the correct statement about the U.S. economy.

It experienced a budget surplus in the 1990s due to a booming stock market.

Which of the following correctly describes real gross domestic product (GDP)?

Real GDP is GDP after subtracting the effects of inflation.

_____ refers to a contraction of a nation's output accompanied by an increase in its price level.

Stagflation Stagflation refers to a contraction of a nation's output accompanied by an increase in its price level.

Identify the correct statement.

Stagflation leads to a decrease in an economy's real GDP and an increase in the rate of unemployment. Stagflation leads to a fall in an economy's real GDP and an increase in the rate of unemployment.

Identify the reason behind the negative slope of the aggregate demand curve.

The inverse relationship between price level and the real GDP demanded. The aggregate demand curve reflects an inverse relationship between the price level in an economy and the real GDP demanded.

Which of the following is a possible role of a price index in an economy?

To estimate the real gross domestic product (GDP) of an economy An important role of a price index is to estimate the real GDP of an economy.

During _____, the U.S. economy experienced an annual average real gross domestic product (GDP) growth of almost 20 percent.

World War II During World War II, the U.S. economy experienced an annual average real gross domestic product (GDP) growth of almost 20 percent.

The Great Depression was characterized by:

a decline in the price level and an increase in the unemployment rate in the United States.

A higher equilibrium real gross domestic product (GDP) in an economy means:

a higher level of employment in the economy.

The real gross domestic product (GDP) of a country is:

a measure of the total value of goods and services produced in the country in terms of constant purchasing power.

A recession in the United States hits hardest those regions that:

mostly produce capital goods and durable goods.

An economy does not move smoothly through the phases of the business cycle due to:

seasonal fluctuations and random disturbances.

A decrease in the price levels in foreign countries is likely to:

shift an economy's aggregate demand curve leftward. A decrease in the price level of goods in foreign countries is likely to shift an economy's aggregate demand curve leftward.

In terms of aggregate demand and aggregate supply, the Great Depression can be viewed as a:

shift of the aggregate demand curve to the left. n terms of aggregate demand and aggregate supply, the Great Depression can be viewed as a shift of the aggregate demand curve to the left.

According to the advocates of the supply-side approach, a lower tax rate will:

shift the aggregate supply curve rightward and cause a decrease in the price level in an economy, given the aggregate demand curve.