econ 1301 review

: Essay 9. Briefly describe the pattern for the U.S, economy with respect to its current account balance from the 1950s up to and including 2009. The U.S. economy ran modest current account trade surpluses for most years from the 1950s to the 1970s. It rapidly developed large trade deficits in the early 1980s, swung back to a tiny trade surplus in 1991, then had even larger trade deficits in the late 1990s and early 2000s, and in 2009, after the recession had taken hold, the trade deficit declined. Reference: Explanation:

: Essay 10. Briefly contrast a nation's level of trade with its balance of trade and identify three factors that strongly influence a nation's level of trade. A country can have a very high level of trade, measured by its exports of goods and services as a share of its GDP, while it also has a near-balance between exports and imports. A country's trade can be a relatively low share of GDP, relative to global averages, while the imbalance between its exports and its imports may be quite large. Three factors that strongly influence a nation's level of trade are: the size of its economy, its geographic location, and its history of trade. Reference: Explanation:

: Multiple Choice 13. From a macroeconomic perspective, if GDP economic indicators show a decline of 10% or more in a single year, then which of the following outcomes is most likely to result? A. deep economic recession B. influx of foreign capital C. lessening of foreign aid D. merchandise trade surplus Answer: A Reference: Explanation:

: Multiple Choice 14. Which of the following countries suffered deep recessions as a result of pessimistic foreign investors moving their money to other countries? A. Russia, and Indonesia B. Thailand, Argentina and Malaysia C. North Korea and Malaysia D. South Korea and a and b Answer: D Reference: Explanation:

: Essay 9. Identify the most important factor shifting the AS curve in the long term. Briefly explain both how and why this factor shifts the aggregate supply curve. In the long term, the most important factor shifting the AS curve is productivity growth. A higher level of productivity shifts the AS curve to the right, because with improved productivity, firms can now produce a greater quantity at every given price level for output. Reference: Explanation:

: Essay 10. Briefly discuss what consumer and business confidence in the economy typically reflects and provide examples. Contrast the effects of high consumer and business confidence with low levels of the same. Briefly explain how a rise in confidence will be reflected in the aggregate supply-aggregate demand model. Consumer and business confidence often reflect macroeconomic realities; for example, confidence is usually high when the economy is growing briskly and low during a recession. However, economic confidence can sometimes rise or fall for reasons that do not have a close connection to the immediate economy, like a risk of war, election results, foreign policy events, or a pessimistic prediction about the future by a prominent public figure. When consumers feel more confident about the future of the economy, they tend to consume more. If business confidence is high, then firms tend to invest more, believing that the future payoff to those investments will be substantial. Conversely, if consumer or business confidence drops, then consumption and investment decline. Because a rise in confidence is associated with higher consumption and investment demand, it will lead to an outward shift in the AD curve, and a move of the equilibrium from E0 to E1 to a higher quantity of output and a higher price level Reference: Explanation:

: Essay 9. Briefly describe what the theory of rational expectations holds and how long it typically takes rational expectations to affect economic adjustments. The theory of rational expectations holds that people form the most accurate possible expectations about the future that they can using all information available to them. In an economy where most people have rational expectations, economic adjustments may happen very quickly. Reference: Explanation:

: Essay 10. Describe how a neoclassical long-run aggregate supply curve will affect the Phillips curve. A neoclassical long-run aggregate supply curve will imply a vertical shape for the Phillips curve trade-off between inflation and unemployment. Reference: Explanation:

: Multiple Choice Essay Questions 1. Briefly describe the situation in an economy during a recession. A recession is a situation in which the economy as a whole is shrinking in size and business failures outnumber the remaining success stories over the course of a few months or a few years. As a result of this lack of demand, many firms end up suffering losses and laying off workers. Reference: Explanation:

: Essay 2. Briefly describe the two conclusions that can be drawn from an overview of Say's Law with its emphasis on macroeconomic supply and Keynes' Law with its emphasis on macroeconomic demand. The first conclusion is that an economic approach that focuses only on the supply side or only on the demand side can only be a partial success. Both supply and demand need to be taken into account. The second conclusion is that since Keynes' law applies more accurately in the short run and Say's law applies more accurately in the long run, the trade-offs and connections between the four goals of macroeconomics may be different in the short run and the long run. Reference: Explanation:

: Multiple Choice Category: Evaluate Essay Questions Essay Questions 1. Briefly explain what the term "balance of trade" refers to from a macroeconomic perspective and include a brief description of how exports and imports influence the balance of trade. The balance of trade refers to the gap, if any, between a nation's exports, or what its producers sell abroad, and a nation's imports, or the foreign-made products and services purchased by households and businesses. If exports exceed imports, the economy is said to have a trade surplus. If imports exceed exports, the economy is said to have a trade deficit. If exports and imports are equal, then trade is balanced. Reference: Explanation:

: Essay 2. Briefly discuss the terms "merchandise trade balance" and "current account balance." The merchandise trade balance measures only imports and exports of goods. The current account balance includes trade in goods, services, payments on foreign investments, and unilateral transfers. Reference: Explanation:

: Multiple Choice Essay Questions 1. Soon after the steep recession of 1920-1921, the great economist John Maynard Keynes made a compelling criticism of a macroeconomic argument relating to recessions. Describe the outline Keynes criticized. John Maynard Keynes criticized the macroeconomic argument that an occasional recession should not cause too much concern, because it will soon be over, and in the meantime, tough economic times create a powerful incentive for firms to become more productive lest they be driven into bankruptcy. Reference: Explanation:

: Essay 2. Identify and briefly describe the main ideas Keynesian economics is based on. Keynesian economics is based on two main ideas: a) aggregate demand is more likely than aggregate supply to be the primary cause of a short-run economic event like a recession, because aggregate supply usually moves slowly; b) wages and prices can be sticky, and so in an economic downturn unemployment can result. Reference: Explanation:

: Multiple Choice Essay Questions 1. Explain what the neoclassical perspective on macroecomics emphasizes and briefly discuss its overall theme. The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its potential GDP and its natural rate of unemployment. The overall theme is not that Keynesian economics is "wrong" while neoclassical economics is "right," nor vice versa, but rather that the two approaches complement each other, with Keynesian economics more useful for analyzing the macroeconomic short run and neoclassical economics more useful for the long run. Reference: Explanation:

: Essay 2. Identify and briefly explain the neoclassical argument and the key building blocks of neoclassical approach. Neoclassical economics argues that over time, the economy adjusts back to its potential GDP level of output. The neoclassical approach is based on two key building blocks. First, over the long term the expansion of potential GDP due to economic growth will determine the size of the economy. Second, even if the Keynesian assumption of price and wage stickiness is reasonable in the short run, over the longer run, levels of prices and wages will adjust in a flexible manner. Reference: Explanation:

: Essay 3. Briefly discuss potential GDP in the neoclassical model, including how the curve is shown, what it determines, and how it operates over time. In the neoclassical version of the model of aggregate supply and aggregate demand, potential GDP is shown as a vertical line. A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of aggregate demand. Over time, economic growth shifts potential GDP and the vertical AS curve gradually to the right. Reference: Explanation:

: Essay 4. Briefly discuss the aggregate supply curve in the neoclassical model, including how the curve is drawn, what it determines, and how it operates over time. In the neoclassical model, the aggregate supply curve is drawn as a vertical line at the level of potential GDP. If AS is vertical, then it determines the level of real output, no matter where the aggregate demand curve is drawn. Over time, the AS curve shifts to the right as productivity increases and potential GDP expands. Reference: Explanation:

: Essay 3. Briefly explain the purpose of an AS curve and describe the characteristics of a typical AS curve. The AS curve is used in an aggregate supply-aggregate demand model to describe how suppliers will react to a higher price level for final outputs of goods and services, while holding the prices of inputs like labor and energy constant. The slope of an AS curve changes from nearly flat at its far left to nearly vertical at its far right. Reference: Explanation:

: Essay 4. Briefly explain what is meant by the term "potential GDP," and identify the alternative term that is considered to be synonymous from a macroeconomic perspective with "potential GDP." Potential GDP is defined as the maximum quantity that an economy can produce given its existing levels of labor, physical capital, and technology, in the context of its existing market and legal institutions. Potential GDP is also called full-employment GDP. Reference: Explanation:

: Essay 3. Briefly explain what is meant by the term "menu costs" from a macroeconomic perspective. Menu costs are the costs of changing prices. They include internal costs a business faces in changing prices in terms of labeling, record keeping, and accounting, and also the costs of communicating the price change to customers. Reference: Explanation:

: Essay 4. Identify the discovery made by a British economist in the 1950s and provide a brief explanation of same, including a comparison of the British economic model and the U.S. economic model. In the 1950s, a British economist named A.W. Phillips discovered the Phillips curve. A Phillips curve shows the trade-off between unemployment and inflation in an economy. From a Keynesian viewpoint, the Phillips curve should slope down so that higher unemployment means lower inflation, and lower unemployment means higher inflation. Phillips found that the British data over a 60 year period produced a single downward-sloping Phillips curve. Using U.S. data, over the long-term of several decades, it was difficult to see one single Phillips curve in the macroeconomic data. When the data is separated into short-run periods, several different Phillips curves could be traced out, leading to the conclusion that, in the U.S. economy, the Phillips curve is a short-term relationship that may shift after a few years. Reference: Explanation:

: Essay 3. Briefly discuss the final category of the U.S. current account balance, including its name, what it is comprised of, how the category is treated by the current account balance and why, as well as the category's typical status. The final category of the current account balance is unilateral transfers. Unilateral transfers are made by government, private charities, or individuals in which money is sent abroad without any direct good or service being received. The current account balance treats these unilateral payments like imports, because they also involve a stream of payments leaving the country. For the U.S. economy, unilateral transfers are almost always negative. Reference: Explanation:

: Essay 4. In the context of the national savings and investment identity, briefly describe the main sources for both the supply of and demand for capital in the U.S. economy. There are two main sources for the supply of capital in the U.S. economy: saving by individuals and firms, called S, and the inflow of financial capital from foreign investors, which is equal to the trade deficit M - X, or imports minus exports. There are two main sources of demand for financial capital in the U.S. economy: private sector investment, I, and government borrowing, where the government needs to borrow when government spending, G, is higher than the taxes collected, T. Reference: Explanation:

: Essay 5. Briefly explain what an aggregate demand curve shows and what it is comprised of. Describe the shape of the demand curve and briefly explain the reasons behind this shape. The aggregate demand (AD) curve shows the total quantity of goods and services that will be demanded at each price level. The AD curve includes all five parts of demand: consumption, investment, government spending, exports, and imports. The AD curve slopes down, which means that increases in the price level of outputs lead to a lower quantity of aggregate demand. The reasons behind this shape are related to how changes in the price level affect the different components of aggregate demand: C + I + G + X - M. Reference: Explanation:

: Essay 6. Briefly discuss the wealth effect. The wealth effect holds that as the price level increases, the buying power of wealth that people have stored up in bank accounts and cash will diminish, eaten away to some extent by inflation. Because a rise in the price level reduces people's wealth, consumption will fall as the price level rises. Reference: Explanation:

: Essay 5. The neoclassical supply and demand model description of a short-run shift from E0 to E1 and the long-run shift from E1 to E2 is a step-by-step way of making a simple point. Briefly discuss this point. The economy can't sustain production above its potential GDP in the long run. An economy may produce above its level of potential GDP in the short run, under pressure from a surge in aggregate demand. But over the long run, that surge in aggregate demand ends up as an increase in the price level, not as a rise in output. Reference: Explanation:

: Essay 6. Describe the affects that a decrease in aggregate demand because of a decline in consumer confidence that leads to less consumption and more saving in relation to the aggregate demand curve and the economy. A decrease in aggregate demand because of a decline in consumer confidence that leads to less consumption and more saving causes the original aggregate demand curve AD0 to shift back to AD1. The shift from the original equilibrium E0 to the new equilibrium E1 results in a decline in output. As output falls below potential GDP, unemployment rises. Reference: Explanation:

: Essay 5. Contrast the appropriate Keynesian response to an economy experiencing recession with the appropriate Keynesian response to an economy experiencing inflationary pressures. If an economy is in recession, with an equilibrium at ER, then the Keynesian response would be to enact a policy to shift aggregate demand to the right from ADR toward ADF. If an economy is experiencing inflationary pressures with an equilibrium at EI, then the Keynesian response would be to enact a policy response to shift aggregate demand to the left from ADI toward ADF. Reference: Explanation:

: Essay 6. Identify and briefly describe the model used to explain Keynesian economics up to the 1970s, including its roots, its focus and any benefits. If there are benefits, provide an example. Keynesian economics was often explained with a different model, known as the expenditure-output approach or the Keynesian cross model. This approach is strongly rooted in the fundamental assumptions of Keynesian economics: it focuses on the total amount of expenditure or demand in the economy, with no explicit mention of aggregate supply or of the price level. This laser-like focus on expenditures in the economy is beneficial because it allows a closer analysis of how shifts in demand or spending affect the rest of the economy; for example, it shows how a tax cut or spending increase of a certain amount, like $10 billion, can have more than $10 billion worth of impact on equilibrium GDP. Reference: Explanation:

: Essay 5. Express the national savings and investment identity in algebraic terms. S + (M - X) = I + (G - T) Reference: Explanation:

: Essay 6. In the case of a trade deficit, rewrite the national savings and investment identity in algebraic terms. (M - X) = I - S - (T - G) Reference: Explanation:

: Essay 7. Briefly explain the neoclassical view with respect to the nature of the impact of changes in aggregate demand. In the neoclassical view, changes in aggregate demand can have a short-run impact on output and on unemployment, but only a short-run impact. In the long run, when wages and prices are flexible, potential GDP and aggregate supply determine the size of real GDP. Reference: Explanation:

: Essay 8. Briefly describe what the Keynesian economists' criticism of neoclassical theory regarding adjustment from recession is. Keynesian economists argue that if the adjustment from recession to potential GDP takes a very long time, then neoclassical theory may be more hypothetical than practical. Reference: Explanation:

: Essay 7. Briefly discuss the interest rate effect. The interest rate effect is that as prices for outputs rise, it will be necessary for people making purchases to have more money or credit. This additional demand for money and credit will push interest rates higher. In turn, higher interest rates mean less borrowing by businesses for investment purposes and less borrowing by households for homes and cars—and thus a reduction in consumption and investment. Reference: Explanation:

: Essay 8. Briefly discuss the foreign price effect in relation to the U.S. economy. The foreign price effect points out that if prices rise in the United States while remaining fixed in other countries, then goods in the United States will be relatively more expensive compared to goods in the rest of the world. U.S. exports will be relatively more expensive, and the quantity of exports sold will fall. Imports from abroad will be relatively cheaper, so the quantity of imports will rise. Thus, a higher domestic price level, relative to price levels in other countries, will be associated with a lower GDP. Reference: Explanation:

: Essay 7. Using words, describe the national savings and investment identity from the standpoint of a trade surplus. Trade surplus = Private domestic saving + Public saving - Domestic investment Reference: Explanation:

: Essay 8. Briefly explain how short-term movements in the business cycle affect the trade balance. In the short-term, the trade balance can be affected by whether an economy is in a recession or an upswing. A recession tends to make a trade deficit smaller, or a trade surplus larger, while the upswing created by a period of strong economic growth tends to make a trade deficit larger, or a trade surplus smaller. Reference: Explanation:

: Essay 7. Economists have determined that the economic multipliers for Genovia and Talona are 2.49 and 5.16 respectively. Contrast the economic effects on each of these economies their respective multipliers will have. Genovia's economy, with a lower multiplier, is more stable because it is less affected either by economic events or by government policy. Talonia's economy, with a higher multiplier, is more unstable because economic events or government policy will have a greater affect. Reference: Explanation:

: Essay 8. Discuss the multiplier effect including a description of what it describes in macroeconomic terms, how it is determined and an illustration of how it is defined. The multiplier effect describes how the impact of an original change in aggregate demand is multiplied as it cycles repeatedly through the economy. The size of the multiplier is determined by three leakages: spending on savings, taxes, and imports. The multiplier is defined as: Multiplier = Total increase in aggregate expenditures Original increase in expenditures s Reference: Explanation:

: Essay 9. The government of Talonia has decided to stimulate its economy by increasing is spending during the upcoming fiscal year. The government's economic advisors have determined that for each 100 in stimulus spending received, 24% will be repaid to the government for taxes, 18% of after-tax income will be saved, 22% will be spent on imports, and the remaining balance will be spent on domestically produced goods and services. Determine what fraction of expenditures is recycled and calculate the value of Talonia's multiplier. F= (1-.24)-.1(1-.18)-.22 = 0.458 F = .46 1/(1-.46) = 1/.54 = 1.85 Reference: Explanation:

: Essay 1. ________________ economists place an emphasis on __________ run economic performance. A. Phillips; short B. Keynesian; long C. Neoclassical; long D. Says; short Answer: C Reference: Explanation:

: Multiple Choice 9. Potential GDP in the U.S. will be unaffected by ____________________. A. technology B. the amount of capital available C. the unemployment rate D. government institutions Answer: C Reference: Explanation:

: Multiple Choice 10. Refer to the graph above. A government creating economic policy in these circumstances should be most concerned about: A. unemployment but not inflation. B. inflation but not unemployment. C. inflation and unemployment. D. neither inflation nor unemployment. Answer: A Reference: Explanation:

: Multiple Choice 40. A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________. A. is vertical; is vertical B. slopes downward; slopes downward C. slopes upward; slopes upward D. slopes upward; slopes downward Answer: D Reference: Explanation:

: Multiple Choice 41. Referring to the diagram above, complete the following sentence: Any increase in aggregate demand in the short-run will lead to: A. an increase in output (Q1 to Q2), but it will also lead to prices increasing. B. an increase in output (Q1 to Q2), but it will also lead to a recession. C. a 45 degree supply curve, which will lead to increasing unemployment. D. a 45 degree supply curve, which will lead to recession. Answer: A Reference: Explanation:

: Multiple Choice 13. The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result? A. cyclical unemployment will decrease B. inflationary pressures will be greater C. the economy will experience lower economic growth D. input prices will rise in the short run Answer: C Reference: Explanation:

: Multiple Choice 14. The graph above refers to a significant increase in oil prices. Which of the following is likely to result? A. long run economic gains B. short run economic gains C. natural rate of unemployment remains constant D. a rise in inflation from 2.0% to 3.0% Answer: D Reference: Explanation:

: Multiple Choice 42. Referring to the diagram above, which of the following is a true statement? A. The increase in supply (Q1 to Q2) may come about because of increased money supply. B. The increase in output (Q1 to Q2) may come about because of lower levels of taxation. C. The increase in supply (Q1 to Q2) may result from decreased government spending. D. The increase in output (Q1 to Q2) may result from increased levels of taxation. Answer: B Reference: Explanation:

: Multiple Choice 43. Referring to the diagram above, which of the following is a true statement? A. Short-run increased output will lower output costs, but demand for higher profits will increase prices. B. Higher cost levels will result because government will increase taxes as output rises. C. Higher cost levels of increased output will force an increase in price for the product. D. Short-run lower output costs will result because government will decrease taxes as output rises. Answer: C Reference: Explanation:

: Multiple Choice Category: Analyze 9. ____________________ will not cause a shift of the AS curve in a Keynesian framework. A. Prices of inputs B. Changes in input prices C. Changes in output prices D. Changes in inputs Answer: C Reference: Explanation:

: Multiple Choice 10. According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession. A. decrease; interest rates B. an increase; domestic investment C. a decrease; a major trading partner's economy D. a decrease; a major trading partner's export prices Answer: B Reference: Explanation:

: Multiple Choice 9. If exports ______________, then the economy is said to have a trade surplus. A. equal imports B. exceed imports C. precede imports D. follow imports Answer: B Reference: Explanation:

: Multiple Choice 10. If imports ______________, then the economy is said to have a trade deficit. A. precede exports B. follow exports C. equal exports D. exceed exports Answer: D Reference: Explanation:

: Multiple Choice 10. Which of the following is a distinguishing characteristic of the neoclassical view? A. increasing price levels will increase the unemployment rate B. wages and real GDP are sticky over time C. wages are maintained at original equilibrium D. flexibility of wages and prices over time Answer: D Reference: Explanation:

: Multiple Choice 11. A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of: A. cyclical unemployment. B. real unemployment. C. aggregate demand. D. inflationary pressures. Answer: C Reference: Explanation:

: Multiple Choice 11. If exports and imports: A. are imbalanced, then a trade surplus exists. B. are imbalanced, then a trade deficit exits. C. are equal, then trade is balanced. D. are equal, then the economy is unhealthy. Answer: C Reference: Explanation:

: Multiple Choice 12. A series of macroeconomic events has led an economy into a deep recession. Which of the following factors is most likely to have initiated this series of events? A. level of trade B. unbalanced trade C. deficit level of trade D. merchandize trade imbalance Answer: B Reference: Explanation:

: Multiple Choice 11. According to the Keynesian framework, ________________________ may cause a recession, but not inflation. A. a major trading partner's economic slowdown B. a decrease in interest rates C. an increase in domestic investment D. a decrease in a major trading partners export prices Answer: A Reference: Explanation:

: Multiple Choice 12. According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession? A. increased spending by the government on health care B. an increase in taxes on business investments C. an increase in military spending D. a decrease in the tax rate on consumer income Answer: D Reference: Explanation:

: Multiple Choice 12. In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right. A. vertical AS curve B. vertical AD curve C. vertical Phillips curve D. 45 degree AD curve Answer: A Reference: Explanation:

: Multiple Choice 13. In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands. A. the macroeconomy adjusts back to real GDP B. productivity increases C. the level of real output drops D. aggregate demand increases Answer: B Reference: Explanation:

: Multiple Choice 13. According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation? A. an increase in military spending B. a decrease in military spending C. increase in spending by the government on health care D. decrease in spending by government on health care Answer: B Reference: Explanation:

: Multiple Choice 14. According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession. A. increased spending by the government on health care B. increased taxes on business investments C. decreased military spending D. increased consumer tax rate Answer: A Reference: Explanation:

: Multiple Choice 14. Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in: A. a rise in level of output. B. an increase in price level. C. downward pressure on the price level. D. pressure for a lower level of inflation. Answer: B Reference: Explanation:

: Multiple Choice 15. If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur? A. change in government policy to decrease in aggregate demand B. substantial short-term off-setting decrease in output C. inflationary increase in price level D. short-run decrease in cyclical unemployment Answer: C Reference: Explanation:

: Multiple Choice 15. Trade surpluses and trade deficits can be __________________ for an economy in certain circumstances. A. beneficial B. harmful C. either a or b D. neither a or b Answer: C Reference: Explanation:

: Multiple Choice 16. An economy with a larger involvement in foreign trade: A. is more likely to suffer a larger trade imbalance. B. may measure its exports as a share of GDP. C. has a substantial trade imbalance. D. has an underlying trade imbalance. Answer: B Reference: Explanation:

: Multiple Choice 15. The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result? A. unemployment is likely to rise B. natural rate of unemployment is likely to fall C. lower inflationary pressures D. short run increase in economic growth Answer: A Reference: Explanation:

: Multiple Choice 16. The following table shows the aggregate supply and demand data for a country. Price Level Aggregate Demand Aggregate Supply 100 10,000 4,000 200 9,000 5,000 300 8,000 5,000 400 7,000 7,000 500 6,000 8,500 600 5,000 9,000 700 4,000 9,500 What is the equilibrium output? A. 8,000 B. 4,000 C. 7,000 D. 9,000 Answer: C Reference: Explanation:

: Multiple Choice 16. If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur? A. more consumption and less saving B. adjustment back to potential GDP C. increase in price inflation D. a rise in unemployment Answer: D Reference: Explanation:

: Multiple Choice 17. Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will: A. lower unemployment. B. cause government to lower taxes. C. cause government to increase spending. D. exports will drop. Answer: A Reference: Explanation:

: Multiple Choice 17. The following table shows the aggregate supply and demand data for a country. Price Level Aggregate Demand Aggregate Supply 200 10,000 4,000 300 9,000 6,000 400 8,000 8,000 500 7,000 9,000 600 6,000 9,500 700 5,000 9,800 800 4,000 9,900 What is the equilibrium price level? A. 200 B. 400 C. 500 D. 800 Answer: B Reference: Explanation:

: Multiple Choice 18. The following table shows the initial aggregate supply and demand data for a country. Price Level Aggregate Demand Aggregate Supply 200 10,000 4,000 300 9,000 6,000 400 8,000 8,000 500 7,000 9,000 600 6,000 9,500 700 5,000 9,800 800 4,000 9,900 If input prices rise and AS shifts to the left by 2,000 units at each price level, what output level will equal the new equilibrium price? A. 6000 B. 2000 C. 8000 D. 7000 Answer: D Reference: Explanation:

: Multiple Choice 17. The extent to which a national economy is involved in global trade: A. is not very strongly related to the issue of whether the economy has a substantial trade imbalance. B. is not very strongly related to the underlying economic meaning of trade imbalances. C. is not very strongly related to either a or b above. D. is very strongly related to both a and b above. Answer: C Reference: Explanation:

: Multiple Choice 18. What is the most common method of measuring flows of trade? A. amount of physical items transported between countries B. amount of manufactured items transported by truck C. comparing annual amounts of goods and services exchanged between countries D. comparing exports of goods, services, and financial capital between countries Answer: D Reference: Explanation:

: Multiple Choice 18. From a neoclassical view, which of the following is a true statement? A. Lower wages will cause an economy-wide increase in the price of a key input. B. Because wages are flexible, they are unaffected by high rates of unemployment. C. A surge in aggregate demand ends up as a rise in output, but does not increase price levels. D. The economy cannot sustain production above its potential GDP in the long run. Answer: D Reference: Explanation:

: Multiple Choice 19. Which of the following is a valid criticism of the rational expectations theory? A. prices do not wait on events B. the assumption seems too strong C. people form the most accurate possible expectations D. adjustment of wages and prices might be quite rapid Answer: B Reference: Explanation:

: Essay 1. _______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________. A. Keynesian economists; long run B. Keynesian economists; short run C. Neoclassical economists; long run D. Neoclassical economists; short run Answer: C Reference: Explanation:

: Multiple Choice 2. Aggregate supply (AS) denotes the relationship between the __________________ that firms choose to produce and sell and the _________________, holding the price of inputs fixed. A. total quantity; price level for output B. type of goods; input price of raw materials C. price of goods; number of employees D. total inputs; types of goods Answer: A Reference: Explanation:

Multiple Choice Questions 1. Goods and services produced in one country that are then sold in other countries are called ____________. A. exports B. tradeable items C. surplus items D. economic stimulants Answer: A Reference: Explanation:

: Multiple Choice 2. The term __________ is used to describe what those in one country buy from those in other countries. A. exports B. imports C. trade D. surplus Answer: B Reference: Explanation:

: Multiple Choice 19. The following table shows the aggregate supply and demand data for a country. If input prices decrease and AS shifts to the right by 3,000 units at each price level. Price Level Aggregate Demand Aggregate Supply 200 10,000 4,000 300 9,000 6,000 400 8,000 8,000 500 7,000 8,500 600 6,000 9,000 700 5,000 9,500 800 4,000 10,000 What will the new price equal? A. 600 B. 800 C. 300 D. 400 Answer: A Reference: Explanation:

: Multiple Choice 20. Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be: A. indefinite B. unknown C. long-term D. short-term Answer: D Reference: Explanation:

: Multiple Choice 19. In most high-income economies, including the United States, goods currently make up ___________, while services currently compose ____________. A. more than half of total production; less than half of total production B. less than half of total production; more than half of total production C. the merchandise trade balance; the capital trade balance D. the merchandise trade balance; the retail trade balance Answer: B Reference: Explanation:

: Multiple Choice 20. The surge in international trade related to services to be performed in one country and sold in another that began in the 1990s has been powered by which of the following? A. technological advances B. telecommunications C. computers D. customer service, finance, law Answer: A Reference: Explanation:

: Multiple Choice Category: Evaluate 20. In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment. A. wage levels B. aggregate supply C. aggregate demand D. tax levels Answer: C Reference: Explanation:

: Multiple Choice 21. In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP. A. potential GDP and aggregate supply B. potential GDP and aggregate demand C. levels of output and aggregate supply D. levels of wages and aggregate demand Answer: A Reference: Explanation:

: Multiple Choice 21. At the outset of the 21st century, most global trade took the form of: A. services, rather than goods. B. goods, rather than services. C. equal trade in goods and services. D. trade surpluses in the service sector. Answer: B Reference: Explanation:

: Multiple Choice 22. Economists typically rely on a broader measure of international trade known as the ___________________, which includes _____________________________. A. current trade balance; foreign aid announced by the government. B. current trade balance; finance, law, and software product design. C. current account balance; telecommunications, computers, finance, law, and advertising. D. current account balance; goods, services, international income flows, and foreign aid. Answer: D Reference: Explanation:

: Multiple Choice 21. If Keynes' law applies during economic contractions and Say's law applies during economic expansion, how will the three goals of macroeconomics be affected? A. determinates of total supply for the economy will be traded-off B. trade-offs and connections may differ in the short run and the long run C. the economy will face genuine limits to how much can be produced D. institutional and market structures will connect factors of production Answer: B Reference: Explanation:

: Multiple Choice 22. If the price level of what firms produce is rising across an economy, but the costs of production are constant, then: A. the maximum potential GDP will be exceeded. B. increase in quantity produced won't be large. C. a majority of industries will start running into limits. D. higher profits will induce expanded production. Answer: D Reference: Explanation:

: Multiple Choice 21. According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the: A. neoclassical expenditure-output model. B. Keynesian cross diagram. C. Keynesian Phillips curve tradeoff. D. Keynesian Inflation trade-off model. Answer: C Reference: Explanation:

: Multiple Choice 22. When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect? A. flatter consumption function due to low marginal propensity to tax B. steeper consumption function due to low marginal propensity to save C. flatter consumption function due to high marginal propensity to invest D. steeper consumption function due to high marginal propensity to consume Answer: D Reference: Explanation:

: Multiple Choice 22. The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future. A. adaptive expectations B. rational expectations C. Keynesian economics D. Neoclassical economics Answer: B Reference: Explanation:

: Multiple Choice 23. At a macroeconomic level, the theory of rational expectations points out that if the ______________________ is vertical over time, then people should rationally expect this pattern. A. GDP B. Phillips curve C. aggregate demand curve D. aggregate supply curve Answer: D Reference: Explanation:

: Multiple Choice 23. In macroeconomics, a _________________ is used to show the relationship between output and the input price level. A. Phillips curve B. microeconomic model C. expenditure-output model D. Keynesian framework Answer: A Reference: Explanation:

: Multiple Choice 24. If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy: A. is producing at its potential GDP. B. is producing at a point where output is more than potential GDP. C. is producing at a point where output is less than potential GDP. D. is producing at its equilibrium point. Answer: C Reference: Explanation:

: Multiple Choice 23. In the United States, which of the following government institutions would most likely provide economists with the basic data for merchandise trade? A. Census Bureau B. Department of Commerce C. Bureau of Economic Analysis D. Department of the Treasury Answer: A Reference: Explanation:

: Multiple Choice 24. In the U.S., all companies involved in international flows of capital must file reports, which are ultimately compiled by the: A. Census Bureau. B. Department of the Treasury. C. Bureau of Economic Analysis. D. Department of Commerce. Answer: B Reference: Explanation:

: Multiple Choice 23. _______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment. A. The foreign price effect B. Stagflation C. Full employment GDP D. The interest rate effect Answer: C Reference: Explanation:

: Multiple Choice 24. What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions? A. GDP deflator B. AS curve C. potential GDP D. aggregate supply Answer: C Reference: Explanation:

: Multiple Choice 24. When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary. A. aggregate demand B. aggregate supply C. wage levels D. price levels Answer: A Reference: Explanation:

: Multiple Choice 25. In the neoclassical view, the economy has a ___________________________ to move back to potential GDP. A. rational tendency B. tendency to be unable C. self-correcting tendency D. immediate tendency Answer: C Reference: Explanation:

: Multiple Choice 25. One of the following must be used as a starting point in order to perform an analysis that will determine what the connections between imbalances of trade in goods and services and the flows of international financial capital are. Which one is it? A. sketch patterns of trade deficits B. sketch patterns of trade surpluses C. define the level of trade D. define the balance of trade Answer: D Reference: Explanation:

: Multiple Choice 26. An economics professor is discussing a measure of trade that involves a comparison of exports and imports of goods for the year just ended. What name is given to this measurement? A. export trade balance B. merchandise trade balance C. import trade balance D. current account balance Answer: B Reference: Explanation:

: Multiple Choice 25. In an AD/AS model, the point where the economy has excess capacity is called the: A. Keynesian zone of the AS curve B. intermediate zone of the AS curve C. neoclassical zone of the AS curve D. crossing point of the potential GDP line Answer: A Reference: Explanation:

: Multiple Choice 26. In an AD/AS model: A. the GDP deflator always slopes upwards. B. the potential GDP always slopes downwards. C. the CPI is shown on the vertical axis. D. real GDP is shown on the horizontal axis. Answer: D Reference: Explanation:

: Multiple Choice Category: Analyze 25. If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy: A. is producing at its potential GDP. B. is producing at a point where output is more than potential GDP. C. is producing at a point where output is less than potential GDP. D. is producing at its equilibrium point. Answer: B Reference: Explanation:

: Multiple Choice 26. The sum of all the income received for contributing resources to GDP is called ___________________. A. national income (Y) B. national revenue (Y) C. marginal income (X) D. marginal revenue (X) Answer: A Reference: Explanation:

: Multiple Choice 26. After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall? A. neoclassical theory B. cyclical expectations C. rational expectations D. Keynesian theory Answer: C Reference: Explanation:

: Multiple Choice 27. If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important? A. encouraging higher wages B. fighting unemployment C. fighting recession D. encouraging long-term growth Answer: D Reference: Explanation:

: Multiple Choice 27. Why would an analyst include, among other things, airplane parts, legal services and software, in an analysis of international economic trade? A. to determine the merchandise trade balance B. to determine the balance of trade in services C. to determine the current account balance D. to determine the international flow of income Answer: C Reference: Explanation:

: Multiple Choice 28. From a macroeconomic perspective, an economic transaction in the form of a financial investment is synonymous with which of the following? A. a productive economic asset B. trade resulting from unilateral transfers C. trade in the financial capital market D. a stream of payments leaving the country Answer: C Reference: Explanation:

: Multiple Choice 27. Which of the following must be present in order for the aggregate supply curve to form an upward slope? A. the lure of higher profits to induce continued production B. fixed cost of inputs combined with rising prices for outputs C. rise in aggregate quantity of supplied goods and services D. constant price level for intermediate goods and services Answer: B Reference: Explanation:

: Multiple Choice 28. When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting: A. hyper-intense production will be unsustainable in the long run. B. higher wages will encourage workers to produce more at high prices. C. lower prices will lead to a lower quantity of demand. D. downward slope in aggregate supply curve will be short run. Answer: A Reference: Explanation:

: Multiple Choice 28. From a neoclassical view, which of the following is less important? A. fighting unemployment B. encouraging long-term growth C. fighting inflation D. level of potential GDP Answer: A Reference: Explanation:

: Multiple Choice 29. The shape of the ______________ involves a tradeoff between unemployment and inflation. A. aggregate demand curve B. aggregate supply curve C. Phillips curve D. Keynesian demand curve Answer: C Reference: Explanation:

: Multiple Choice 2. The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________. A. long term growth; cyclical unemployment B. potential GDP; natural rate of unemployment C. natural level of output; cyclical unemployment rate D. real GDP; natural rate of unemployment Answer: B Reference: Explanation:

: Multiple Choice 3. Which of the following is a building block of neoclassical economics? A. the size of the economy is determined by real GDP B. sticky wages and prices C. aggregate demand model D. wages and prices will adjust in a flexible manner Answer: D Reference: Explanation:

: Multiple Choice Category: Remember 29. Suppose that out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what value would be recycled in the fourth round of this cycle? A. 3.59 B. 9.89 C. 3.37 D. 5.23 Answer: A Reference: Explanation:

: Multiple Choice 30. Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed? A. 141.70 B. 147.48 C. 147.62 D. 144.41 Answer: B Reference: Explanation:

: Multiple Choice 29. Due to inflationary pressures, the national income of households has been spread across a higher overall price base for goods and services. How will this affect be shown in an AD/ASAD/AS model? A. nearly vertical AS slope at the far right B. nearly horizontal AD curve at the far left C. a downward sloping AD curve D. a downward sloping AS curve Answer: C Reference: Explanation:

: Multiple Choice 30. The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment. A. inflation rate effect B. interest rate effect C. wealth effect D. price effect Answer: B Reference: Explanation:

: Multiple Choice 29. From an economic perspective, returns on foreign investment are included in the overall measure of trade because financial investments: A. are a form of trade that takes place in the financial capital market. B. can also be thought of as payments made by the government. C. are made by parties in the U.S. economy and foreign investors. D. have expanded substantially in the U.S. over the last few decades. Answer: A Reference: Explanation:

: Multiple Choice 30. Which of the following would most likely be included in the positive side of the U.S. current account balance? A. U.S. foreign aid sent to as disaster relief to Haiti B. interest payments to foreign investors invested in the U.S. C. money spent by U.S. tourists in Europe D. money earned by U.S. firms in Europe Answer: D Reference: Explanation:

: Multiple Choice 30. Suppose that productivity growth in an economy over a two-year period has fallen to less than 2% per year, causing a severe recession. From the neoclassical view, which of the following will be more important in these circumstances? A. an increase in the annual unemployment rate B. supply and demand in the labor market C. the problem of cyclical unemployment D. the growth rate of long-term productivity Answer: D Reference: Explanation:

: Multiple Choice 31. Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP? A. zero B. never 0% C. 1% - 3% D. 3% - 5% Answer: A Reference: Explanation:

: Multiple Choice 31. Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model? A. it shifts the AD curve in the long-term B. it shifts the AD curve in the short-term C. it shifts the AS curve in the short-term D. it shifts the AS curve in the long-term Answer: D Reference: Explanation:

: Multiple Choice 32. Changes in the price level of the different components of aggregate demand are reflected in the AD/ASAD/AS macroeconomic model by a ________________________. A. flatter top portion of AD curve B. longer distance to equilibrium point C. downward sloping AD curve D. shorter distance to equilibrium point Answer: C Reference: Explanation:

: Multiple Choice 31. Which of the following would most likely be included in the negative side of the current account balance? A. money earned by Canadian firms in the U.S. B. money spent by Canadian tourists in the U.S. C. returns paid to U.S. investors in Southeast Asia D. European aid sent to the U.S. to fund the Iraq war Answer: A Reference: Explanation:

: Multiple Choice 32. In 2010, a small country imported goods worth $500 billion and exported goods worth $443 billion. It exported services worth $248 billion and imported services worth $330 billion. Payments on investments abroad totaled $199 billion, while returns paid on foreign investments were $125 billion. Unilateral transfers from the country to other nations amounted to $94 billion. What was the country's merchandise trade deficit for 2010? A. $70 billion B. $154 billion C. $57 billion D. $65 billion Answer: A Reference: Explanation:

: Multiple Choice 31. Suppose that out of the original 100 increase in government spending, 60 will be recycled back into purchases of domestically produced goods and services. Following this multiplier effect, what value will be recycled in the next round in the cycle? A. 42 B. 3.6 C. 16.66 D. 36 Answer: D Reference: Explanation:

: Multiple Choice 32. When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by? A. 100 B. 300 C. 500 D. 900 Answer: C Reference: Explanation:

: Multiple Choice 32. From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy? A. flexible price levels B. flexible market forces C. investments in human capital D. higher unemployment Answer: C Reference: Explanation:

: Multiple Choice 33. The ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment? A. market forces B. Keynesian C. neoclassical D. flexible wage and price Answer: C Reference: Explanation:

: Multiple Choice 33. Which of the following will have the greatest influence on the slope of the demand curve in a single market model? A. wealth effects B. substitute goods C. full employment D. higher wages Answer: B Reference: Explanation:

: Multiple Choice 34. As the aggregate price level in an economy rises, ____________________. A. interest rates increase B. consumer demand increases C. exports decrease D. investment increases Answer: A Reference: Explanation:

: Multiple Choice 33. In 2010, a country imported goods worth $500 billion and exported goods worth $443 billion. It exported services worth $248 billion and imported services worth $330 billion. Payments on investments abroad totaled $199 billion, while returns paid on foreign investments were $125 billion. Unilateral transfers from the country to other nations amounted to $94 billion. What was the country's current account balance for 2010? A. $70 billion B. $159 billion C. $142 billion D. $65 billion Answer: B Reference: Explanation:

: Multiple Choice 34. In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in famine relief to Africa, and received $3 billion to support its first democratic election efforts. What was the merchandise trade deficit in Vesey in 2010? A. $213 billion B. $270 billion C. $57 billion D. $1.8 billion Answer: A Reference: Explanation:

: Multiple Choice 33. The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by? A. 50 B. 100 C. 200 D. 750 Answer: D Reference: Explanation:

: Multiple Choice 34. Which of the following is a distinguishing characteristic of a Keynesian cross diagram? A. real GDP on the horizontal axis B. a flat line C. 45-degree line D. several different Phillips curves Answer: C Reference: Explanation:

: Multiple Choice 39. To a macroeconomist, a trade deficit is synonymous with which of the following? A. outflow of financial capital B. outflow of goods and services C. inflow of financial capital D. inflow of goods and services Answer: C Reference: Explanation:

: Multiple Choice 40. Which of the following terms is sometimes used to describe the balance of trade? A. balance of payments B. balance of capital flows C. balance of financial investment D. balance of investment capital Answer: A Reference: Explanation:

: Multiple Choice 35. As the aggregate price level in an economy decreases, A. investment decreases. B. consumer demand decreases. C. interest rates decrease. D. imports decrease. Answer: D Reference: Explanation:

: Multiple Choice 36. Aggregate demand curves slope downwards for each of the following reasons EXCEPT A. The wealth effect: As the price level falls, the buying power of people's savings increases and induces them to spend more. B. The substitution effect: As the price level falls, people buy more of the cheaper goods and less of other goods. C. The interest rate effect: As prices for outputs rise, it costs more to make the same purchases, driving up the demand for money, raising interest rates and reducing investment spending. D. The foreign price effect: As the price level falls, U.S. become more attractive to foreigners and domestic residents, increasing net export spending. Answer: B Reference: Explanation:

: Multiple Choice 35. In 2010, the country of Vesey exported goods worth $312 billion and services worth $198 billion. It imported goods worth $525 billion and services worth $255 billion. It sent $1.2 billion in famine relief to Africa, and received $3 billion to support its first democratic election efforts. What was the current account balance in Vesey for 2010? A. $251.2 billion B. $270.6 billion C. $213.3 billion D. $271.8 billion Answer: D Reference: Explanation:

: Multiple Choice 36. The final category of the current account balance is ____________________, which can be thought of as payments made by individuals in which money is sent abroad _________________________. A. income payments; and the returns are received from abroad B. trade in services; by domestic financial firms are treated like imports C. unilateral transfers; without any direct good or service being received D. exports of goods; can cause a merchandise trade deficit Answer: C Reference: Explanation:

: Multiple Choice 35. Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period? A. interest rates B. exchange rates C. foreign income D. MPS Answer: B Reference: Explanation:

: Multiple Choice 36. Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy? A. bigger leakages B. smaller leakages C. increased trade D. decreased trade Answer: A Reference: Explanation:

: Multiple Choice 36. In order to shift the vertical supply curve to the left, which of the following would have to occur? A. increase in productivity B. breakdown of key market institutions C. expansion of potential GDP D. flexible wage and price adjustments Answer: B Reference: Explanation:

: Multiple Choice 37. Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause: A. at least a slight increase in aggregate demand. B. a vertical Phillips curve because aggregate supply remains fixed. C. unemployment to remain constant in the long run. D. at least a slight increase in unemployment. Answer: D Reference: Explanation:

: Multiple Choice 37. Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output. A. relatively flat; remain flat B. relatively steep; remain steep C. relatively flat; relatively steep D. relatively steep; relatively flat Answer: C Reference: Explanation:

: Multiple Choice 38. In an AD/ASAD/AS diagram, __________________________ could explain a rise in cyclical unemployment? A. a shift to the left in either AS or AD B. a shift in AS to the left C. a shift in AS to the right D. a shift in AD to the left Answer: A Reference: Explanation:

: Multiple Choice 37. Refer to the graph shown below. At point B: A. economic growth it low or even negative. B. output is expanding. C. unemployment is very low. D. businesses may raise prices. Answer: A Reference: Explanation:

: Multiple Choice 38. Refer to the graph shown below. This graph illustrates a: A. Keneyesian Curve. B. Neoclassical Curve. C. Phillips Curve. D. Labor Demand Curve. Answer: C Reference:

: Multiple Choice 38. Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession? A. price and wage stickiness is reasonable in the short run B. government focuses more on recession and cyclical unemployment C. standard of living is ultimately determined by long-term growth D. upward trend of potential GDP determines the rate of inflation Answer: C Reference: Explanation:

: Multiple Choice 39. A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________. A. slopes upward; slopes downward B. is vertical; is vertical C. is vertical; slopes downward D. slopes upward; is vertical Answer: B Reference: Explanation:

: Multiple Choice 3. The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called: A. real GDP. B. potential GDP. C. aggregate supply. D. aggregate demand. Answer: B Reference: Explanation:

: Multiple Choice 4. The term "full employment GDP" is synonymous with which of the following? A. aggregate GDP B. Keynesian zone C. macroeconomic equilibrium D. potential GDP Answer: D Reference: Explanation:

: Multiple Choice 3. The term _____________ describes circumstances where a country's exports exceed its imports. A. trade deficit B. trade imbalance C. trade surplus D. trade balance Answer: C Reference: Explanation:

: Multiple Choice 4. The term _____________ describes circumstances where a country's imports exceed its exports. A. trade imbalance B. trade balance C. trade surplus D. trade deficit Answer: D Reference: Explanation:

: Multiple Choice 39. Refer to the graph shown below. At point A: A. economic growth is declining. B. the economy has full employment. C. inflation tends to be declining. D. wages can be lowered due to worker surplus. Answer: B Reference: Explanation:

: Multiple Choice 40. Refer to the graph shown below. Point C in the graph represents: A. the level Keynesian macroeconomic policy strives for. B. a moderate growth level in the economy. C. a moderate level of unemployment in the economy. D. moderate inflation and all of the above. Answer: D Reference Explanation:

: Multiple Choice 39. In an AD/AS diagram, an increase in structural unemployment will: A. shift AS to the right. B. have no effect on AS or AD. C. shift AS to the left. D. shift AD to the left. Answer: B Reference: Explanation:

: Multiple Choice 40. When an economy's output increases and the price level decreases, the _________ curve has shifted to the ____________. A. AS; left B. AD; left C. AD; right D. AS; right Answer: D Reference: Explanation:

: Multiple Choice 41. If a country's current account balance is zero and the financial payments flowing in and out of the country's economy are equal, then which of the following must be a true statement? A. it has an overall or net inflow of financial investment B. it is not an overall or a net investor in other countries C. it has an overall or net outflow of financial investment D. its government is not indebted to other governments Answer: B Reference: Explanation:

: Multiple Choice 42. In what way are the factors used to calculate the current account balance similar to each other? A. each is like a stream, though some flow in different directions B. all refer to ways governments invest their tax resources C. all reflect workers' unilateral payments to home countries D. each involves a flow of financial payments between countries Answer: D Reference: Explanation:

: Multiple Choice 41. Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line. A. AS curve B. AD curve C. equilibrium D. AS and AD curve Answer: C Reference: Explanation:

: Multiple Choice 42. The __________________ in an AD/AS diagram is most relevant to Keynes's Law. A. AS curve B. flat portion of the AS curve C. AD curve D. steep portion of the AS curve Answer: B Reference: Explanation:

: Multiple Choice 43. Which of the following represents the national savings and investment identity - Supply of financial capital = Demand for financial capital - expressed in algebraic terms? A. (M - X) = I - S - (T - G) B. S + (M - X) = I + (G - T) C. X - M = S + (G - T) - I D. I - S - (T - G) = (M - X) Answer: B Reference: Explanation:

: Multiple Choice 44. Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In these circumstances: A. the rise in domestic investment will mean a higher trade deficit. B. the rise in domestic investment will mean a higher trade surplus. C. government borrowing will increase sharply. D. the trade deficit will decline sharply. Answer: A Reference: Explanation:

: Multiple Choice 43. The ____________________ in an AD/AS diagram is most relevant to Say's Law. A. steep portion of the AS curve B. AS curve C. AD curve D. flat portion of the AS curve Answer: A Reference: Explanation:

: Multiple Choice 44. The _________________ means that a higher price level leads to lower real wealth. A. employment effect B. interest rate effect C. wealth effect D. foreign price effect Answer: C Reference: Explanation:

: Multiple Choice 44. A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies: A. an upward sloping Phillips curve. B. a downward sloping aggregate demand curve. C. a vertical aggregate demand curve. D. a vertical Phillips curve. Answer: D Reference: Explanation:

: Multiple Choice 45. If aggregate supply is vertical, then aggregate demand does not affect: A. either wages or prices. B. the causes of inflationary changes in price level. C. the quantity of output. D. inflationary pressures that accompanies any rise in output. Answer: C Reference: Explanation:

: Multiple Choice 45. The _____________ holds that a rise in price level will make domestic goods relatively more expensive, ____________ exports and _______________ imports. A. interest rate effect; encouraging; discouraging B. employment effect; discouraging; encouraging C. wealth effect; encouraging; discouraging D. foreign price effect; discouraging; encouraging Answer: D Reference: Explanation:

: Multiple Choice 46. Melanie decided to save 20% of her annual earnings for 10 years so she would have a down payment for a house. After 5 years, what change in the economy would cause an increase in the purchasing power of the funds she has managed to save? A. recession B. depression C. deflation D. stagflation Answer: C Reference: Explanation:

: Multiple Choice 45. The statement that GDP = C + I + G + X - M is an identity, because ________________________________. A. trade surpluses can be either good or bad B. trade deficits can be either good or bad C. it is true according to the definition of GDP D. each trade is conducted on a voluntary basis Answer: C Reference: Explanation:

: Multiple Choice 46. Only one of the following statements about trade surplus and capital flow is correct. Which one is it? A. a trade surplus means that there is a net inflow of capital B. a trade surplus means that there is a net outflow of capital C. a trade surplus exists if there is a net inflow of capital excluding foreign borrowing and lending D. a trade surplus exists if there is a net outflow of capital excluding foreign borrowing and lending Answer: B Reference: Explanation:

: Multiple Choice 47. Only one of the following statements about the trade surplus is correct. Which one is it? A. the government should always strive for a trade surplus and a healthy inflow of foreign capital B. the government generating a trade surplus is better than increasing foreign capital inflows C. increasing foreign capital investment is better than generating a trade surplus D. generating a trade surplus and an overall net inflow of capital is impossible Answer: D Reference: Explanation:

: Multiple Choice 48. When did the U.S. current account balance experience the largest surplus? A. before the 1980s B. 1980s and 1990s C. 1990s and 2000s D. after the 2000s Answer: A Reference: Explanation:

: Multiple Choice 4. Which of the following government policies would be supported by neoclassical macroeconomic assumptions? A. focus on long-term growth and on controlling inflation B. focus on short-term recession and controlling inflation C. focus on combating depression and cyclical unemployment D. focus on real GDP and cyclical unemployment Answer: A Reference: Explanation:

: Multiple Choice 5. Which of the following represents a Keynesian point of view of macroeconomics? A. focus on long-term growth in the economy B. aggregate supply is the primary determinate of economic output C. creating increases in aggregate demand to reduce unemployment D. vertical aggregate supply Answer: C Reference: Explanation:

: Multiple Choice 49. Which of the following represents a financial inflow into the U.S. economy? A. South Korean car imports B. Canadian investors buying real estate in Arizona C. foreign aid from the U.S. to Haiti D. oil imports from Iraq Answer: B Reference: Explanation:

: Multiple Choice 50. Which of the following represents a financial inflow to the U.S. economy? A. returns paid on U.S. financial investments in Switzerland B. computer chip imports from Israel C. oil imports from Canada D. foreign aid from the U.S. to Ethiopia Answer: A Reference: Explanation:

: Multiple Choice 51. Which of the following represents a financial outflow from the U.S. economy? A. U.S. computer exports to Poland B. returns paid on U.S. financial investment in Hong Kong C. U.S. investors buying foreign assets in Germany D. British investors buying real estate in Kentucky Answer: C Reference: Explanation:

: Multiple Choice 52. Which of the following involves a financial outflow from the U.S. economy? A. South Korean investors buy firms in the U.S B. Chinese investors buy real estate across the U.S. C. returns paid on U.S. investments in France D. U.S. firms buying logging rights to China's forests Answer: D Reference: Explanation:

: Multiple Choice 53. A country finds itself in the following situation: a government budget deficit of $800; total domestic savings of $1800, and total domestic physical capital investment of $1300. According to the national saving and investment identity, what is the current account balance? A. deficit of $1300 B. surplus of $300 C. deficit of $300 D. surplus of $1300 Answer: C Reference: Explanation:

: Multiple Choice 54. A country finds itself in the following situation: a government budget deficit of $900; total domestic savings of $200, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment decreases by $300 while the government budget deficit and savings remain the same, what will happen to the current account balance? A. $200 deficit changes to $100 surplus B. surplus increases from $200 to $500 C. $200 surplus changes to $100 deficit D. deficit decreases from $900 to $600 Answer: A Reference: Explanation:

: Multiple Choice 55. A government finds itself in the following situation: a government budget deficit of $900; total domestic savings of $2000, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment increases by $200 while the government budget deficit decreases by $100 and savings remain the same, what will happen to the current account balance? A. current account becomes 0 B. deficit increases from $200 to $400 C. deficit decreases from $200 to $100 D. deficit increases from $200 to $300 Answer: D Reference: Explanation:

: Multiple Choice 56. A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, what is this country's current account balance? A. deficit of 2% of GDP B. surplus of 1% of GDP C. deficit of 1% of GDP D. deficit of 3% of GDP Answer: C Reference: Explanation:

: Multiple Choice 57. A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, if private savings fall to zero, what will happen to this country's current account balance? A. deficit increases from 2% to 32% of GDP B. deficit increases from 1% to 31% of GDP C. surplus of 1% drops to deficit of 29% of GDP D. surplus of 2% drops to deficit of 28% of GDP Answer: B Reference: Explanation:

: Multiple Choice 58. A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, if the government budget surplus falls to zero, what will happen to this country's current account balance? A. surplus of 1% drops to 1% deficit of GDP B. surplus of 2% increases to 4% surplus of GDP C. deficit of 1% increases to 2% surplus of GDP D. deficit increases from 1% to 3% of GDP Answer: D Reference: Explanation:

: Multiple Choice 5. The term "merchandise trade balance" is used to describe: A. the balance of trade in services. B. the balance of trade in goods. C. the level of trade in goods. D. the level of trade in services. Answer: B Reference: Explanation:

: Multiple Choice 6. A country's current account balance refers to a broad measure of the balance of trade that includes: A. merchandise, services, and foreign capital investments. B. goods, foreign capital investments, exported domestic services. C. goods and services, international flows of income, and foreign aid. D. merchandise, foreign aid and imported domestic services. Answer: C Reference: Explanation:

: Multiple Choice 5. In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output. A. macroeconomic equilibrium B. aggregate supply (AS) C. aggregate demand (AD) D. potential GDP Answer: C Reference: Explanation:

: Multiple Choice 6. _________________ results when an economy experiences high unemployment and high inflation at the same time. A. Stagflation B. Deflation C. Reflation D. Recession Answer: A Reference: Explanation:

: Multiple Choice 59. When some countries increase their imports as a result of worldwide economic growth, other countries must be increasing their: A. exports as demand in all countries substantially rises. B. trade deficits since all of their imports significantly rise. C. trade surplus since all of their exports gradually rise. D. imports, but their trade deficits gradually decrease. Answer: A Reference: Explanation:

: Multiple Choice 60. From a macroeconomic perspective, a payment made by a foreign firm to a U.S. investor looks just like an: A. import of a service. B. import of a good. C. export of a service. D. export of a good. Answer: C Reference: Explanation:

: Multiple Choice 61. The two main sources for the supply of capital in the U.S. economy are: A. private sector investment and government borrowing when spending is higher than tax revenues. B. domestic savings from individuals and firms and inflows of financial capital from foreign investors. C. domestic savings from individuals and firms and government borrowing to make up a tax shortfall. D. domestic private sector borrowing and inflows of financial capital from foreign investors. Answer: B Reference: Explanation:

: Multiple Choice 62. A country's current national savings and investment identity is expressed in algebraic terms as (M - X) = I - S - (T - G). In this instance: A. domestic investment is higher than domestic savings. B. domestic savings exceed domestic investment. C. the country is experiencing a trade surplus. D. government savings are excluded. Answer: A Reference: Explanation:

: Multiple Choice 63. A country's current national savings and investment identity is expressed in algebraic terms as X - M = S + (G - T) - I. In this instance: A. there is an inflow of capital investment from the rest of the world economy. B. there is no connection from domestic savings and investment to the trade balance. C. the trade balance is determined by performance of certain sectors of the economy. D. private and public domestic savings are higher than domestic investment. Answer: D Reference: Explanation:

: Multiple Choice 64. A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic investment in a country rises, while the level of private and public saving remains unchanged. In this instance, the rise in domestic: investment will mean A. a higher trade surplus. B. a lower trade surplus. C. a higher trade deficit. D. trade will be perfectly balanced. Answer: C Reference: Explanation:

: Multiple Choice 65. A country's current national savings and investment identity is expressed in algebraic terms as I - S - (T - G) = (M - X). Assume that the level of domestic savings rises, while the level of domestic investment and private saving remains unchanged. In this instance: A. less foreign financial capital is required to meet investment needs. B. government policy will involve increasing private savings. C. the country's trade deficit will decline. D. all of the above Answer: D Reference: Explanation:

: Multiple Choice 66. The national saving and investment identity teaches that the rest of the economy can absorb an inflow of foreign financial capital by: A. reduced private savings, leaving domestic investment and public saving unchanged. B. higher domestic investment, leaving private and public savings unchanged. C. greater government borrowing, leaving domestic saving and investment unchanged. D. leaving domestic saving and investment unchanged using any of the above. Answer: D Reference: Explanation:

: Multiple Choice 67. One insight that can be obtained from the national saving and investment identity is that a nation's balance of trade is determined by: A. foreign investment as a part of supply of financial capital. B. each nation's own levels of domestic saving and domestic investment. C. foreign investment as part of the demand for financial capital. D. all of the world government budgets and the overall global trade balance. Answer: B Reference: Explanation:

: Multiple Choice 68. A recession tends to make a _____________________. A. trade surplus smaller B. trade deficit smaller C. trade deficit larger D. both a and b above Answer: B Reference: Explanation:

: Multiple Choice 6. From a neoclassical viewpoint, government should focus less on: A. long-term growth. B. controlling inflation. C. aggregate supply. D. cyclical unemployment. Answer: D Reference: Explanation:

: Multiple Choice 7. The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________. A. economic growth; the size of the economy B. government spending; aggregate demand C. government spending; aggregate supply D. economic adjustments; cyclical unemployment Answer: A Reference: Explanation:

: Multiple Choice 69. A period of strong economic growth tends to make a __________________. A. trade surplus larger B. a trade surplus C. trade deficit larger D. both a and b above Answer: C Reference: Explanation:

: Multiple Choice 70. Which of the following will strongly influence a nation's level of trade? A. size of its economy, its geographic location, and its history of trade B. size of its government, its history of trade, and its geographic location C. government trade policy, its history of trade, and the size of its economy D. ratio of exports to GDP, balance of trade, and government trade policy Answer: A Reference: Explanation:

: Multiple Choice 71. Under what conditions would a nation be viewed as being neither a net borrower nor a net lender in the international economy? A. it has a low level of trade and a large trade surplus B. it has a medium to high level of trade and a moderate trade surplus C. it has a high level of trade and a moderate trade deficit D. its trade balance is zero Answer: D Reference: Explanation:

: Multiple Choice 72. Under what circumstances would it most likely be considered beneficial for a government to be a large borrower of foreign investment capital? A. never as there is no economic merit in a policy of running trade deficits B. if the inflow of capital is absorbed by greater government borrowing C. when borrowing larger amounts is based on unconventional macroeconomic wisdom D. when those funds are invested in a way that sustains economic growth over time Answer: D Reference: Explanation:

: Multiple Choice 75. During the past year a country's government ran a budget surplus. How will this be represented as a component of in the country's national savings and investment identity? A. (T - G); demand side B. (G - T); right side C. (G - T); left side D. (T - G); saving side Answer: D Reference: Explanation:

: Multiple Choice 76. One of the questions on Anders' economics exam provided him with the algebraic term: I + (G - T) = S + (M - X) and asked him to choose its matching written identity. Of the following possible answers presented on the exam, which one is the correct choice? A. Demand for financial capital = Supply of financial capital B. Investment + government savings = Supply + trade surplus C. Trade surplus + government savings = Supply + trade deficit D. Domestic investment + public savings = Domestic savings + trade deficit Answer: A Reference: Explanation:

: Multiple Choice 7. With respect to the national saving and investment identity for any country, the quantity of _______________ at any given time by savings must ________________ for purposes of making investments. A. foreign aid supplied; be lower than the quantity of domestic aid demanded B. foreign financial capital imports; equal to supply of domestic capital available C. foreign capital imports; less than the supply of domestic capital available D. financial capital supplied; equal the quantity of capital financial demanded Answer: D Reference: Explanation:

: Multiple Choice 8. The ________________ refers to the gap that can exist between what a nation's _____________, and a nation's ____________________. A. balance of trade; producers sell abroad; imports B. merchandise trade balance; exports; imports C. trade surplus; exported services; imported goods D. trade deficit; producers purchase abroad; exports Answer: A Reference: Explanation:

: Multiple Choice 7. Say's Law argues that a given ____________________ must create an equivalent ________________________ somewhere else in the economy. A. potential GDP; value of supply B. total quantity of goods; price level for output C. natural rate of unemployment; full employment GDP D. value of supply; value of demand Answer: D Reference: Explanation:

: Multiple Choice 8. When the economy of a country is operating close to its full capacity: A. the unemployment rate is greater than the natural rate of unemployment. B. cyclical unemployment is close to zero. C. unemployment is close to zero. D. the unemployment rate is less than the natural rate of unemployment. Answer: B Reference: Explanation:

: Multiple Choice 8. The Keynesian view of economics assumes that: A. the Keynesian Phillips curve is vertical. B. wages are sticky. C. the economy must focus is on long-term growth. D. economic output is primarily determined by aggregate supply. Answer: B Reference: Explanation:

: Multiple Choice 9. In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve? A. the AS curve shifting as productivity increases B. an upward sloping curve with a vertical top C. a vertical line drawn at the level of potential GDP D. the AS curve shifting as potential GDP expands Answer: C Reference: Explanation:

: Multiple Choice 41. The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. National Income After-tax income Consumption I+G+X Minus Imports Aggregate Expenditures 100 104 200 300 400 500 600 What does consumption equal when income equals 600? a. 104 b. 324 c. 374 d. 540 Answer: C Reference:

: Multiple Choice 42. The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. National Income After-tax income Consumption I+G+X Minus Imports Aggregate Expenditures 100 104 200 300 400 500 600 What is the equilibrium level of national income for this economy? a. Y=200 b. Y=300 c. Y=400 d. Y=500 Answer: B Reference:

: Multiple Choice 19. When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in: A. mechanical devices. B. specialized services. C. computer or other technologies. D. tangible and/or intangible capital. Answer: D Reference: Explanation:

: Multiple Choice Category: Analyze 20. The onset of a trade deficit is most likely supported by a country's: A. existing trade surplus. B. strong economic growth. C. reduction in the balance of trade. D. increased consumption function. Answer: B Reference: Explanation:

: Multiple Choice Category: Remember 5. The equilibrium quantity of labor and the equilibrium wage level decrease when: A. labor supply shifts to the right, if wages are flexible. B. labor demand shifts to the right, if wages are flexible. C. labor demand shifts to the left, if wages are flexible. D. labor supply shifts to the left, if wages are flexible. Answer: C Reference: Explanation:

: Multiple Choice Category: Analyze 6. The equilibrium quantity of labor and the equilibrium wage increase when: A. labor supply shifts to the right, if wages are flexible. B. labor demand shifts to the right, if wages are flexible. C. labor demand shifts to the left, if wages are flexible. D. labor supply shifts to the left, if wages are flexible. Answer: B Reference: Explanation:

: Multiple Choice Category: Analyze 7. The equilibrium quantity of labor increases and the equilibrium wage decreases when: A. labor demand shifts to the left, if wages are flexible. B. labor supply shifts to the left, if wages are flexible. C. labor demand shifts to the right, if wages are flexible. D. labor supply shifts to the right, if wages are flexible, Answer: D Reference: Explanation:

: Multiple Choice Category: Analyze 8. The equilibrium quantity of labor decreases and the equilibrium wage increases when: A. labor supply shifts to the left, if wages are flexible. B. labor demand shifts to the left, if wages are flexible. C. labor demand shifts to the right, if wages are flexible. D. labor supply shifts to the right, if wages are flexible, Answer: A Reference: Explanation:

: Multiple Choice 11. Referring to the above diagram, which of the following is a true statement? A. Macroeconomic policy will be needed to address rising inflation. B. There is sufficient aggregate demand to cause inflationary pressures. C. The equilibrium in the economy is at a level of output above full employment. D. There is insufficient aggregate demand to reach full employment. Answer: D Reference: Explanation:

: Multiple Choice Category: Evaluate 12. The graph above reflects a significant increase in world oil prices. What will the impact on aggregate supply most likely lead to? A. an increase in economic growth B. an increase in input prices C. a decrease in the natural unemployment rate D. less inflationary pressures Answer: B Reference: Explanation:

: Multiple Choice 34. Which of the following is most strongly supported by the Keynesian perspective of macroeconomics? A. inflation is a price that might have to be paid to achieve lower unemployment B. inflation offers no offsetting gains in terms of higher unemployment C. more emphasis on economic growth and how labor markets work D. shifts in unemployment primary determine changes in the price level Answer: A Reference: Explanation:

: Multiple Choice Category: Evaluate 35. If aggregate supply is vertical, then which of the following statements must be true? A. Aggregate demand does not affect the quantity of output. B. Aggregate demand does not cause inflationary changes in price level. C. Inflation will accompany any rise in output. D. Inflation creates greater social benefits. Answer: A Reference: Explanation:

: Multiple Choice 37. Which of the following accurately reflects the pattern of the U.S. current account balance during the periods: 1991; the late 1990s through to the mid-2000s; and 2009 following the onset of recession? A. larger deficit; tiny surplus; surplus declined B. tiny surplus; larger deficit; deficit declined C. surplus declined; larger deficit; tiny surplus D. larger deficit; surplus declined; tiny deficit Answer: B Reference: Explanation:

: Multiple Choice Category: Evaluate 38. In 2009, because U.S. imports were $2,535 billion while exports were $2,116 billion: A. imports exceeded exports by a sizeable $419 billion. B. there was a huge influx of foreign capital into the U.S. economy. C. government policy caused a lessening of foreign aid. D. exports exceeded imports by a sizeable $419 billion. Answer: A Reference: Explanation:

: Multiple Choice 73. A country's trade in manufactured goods diminished substantially, causing it to lose tax revenue and become a net borrower of foreign funds. For the next two decades, its government used the borrowed funds to upgrade the nation's waste-water treatment plants and to develop efficient rapid transit systems, creating substantial gainful employment for its workforce. Thereafter, the country began to quickly repay its past borrowing debt. Which of the following most strongly supported this country's successful economic recovery? A. ensuring borrowed funds were invested in long-term productive economic assets B. ensuring that larger borrowing reduced the need for more private savings C. the creation of a trade deficit through more aggressive buying of imports D. global policies of low interest rates charged on funds borrowed by governments Answer: A Reference: Explanation:

: Multiple Choice Category: Evaluate 74. If a country's economy records a surplus, how will the X and M components be represented in its national savings and investment identity? A. (X - M); right side B. (X - M); left side C. (M - X); demand side D. (M - X); supply side Answer: B Reference: Explanation:

: Multiple Choice 15. The Keynesian economic framework is based on an assumption that: A. an increase in government spending will cause the aggregate demand curve to shift to the left. B. prices and wages are sticky and do not adjust rapidly. C. an increase in government spending will cause the aggregate demand curve to shift to the left. D. people can afford a high level of government services. Answer: B Reference: Explanation:

: Multiple Choice Category: Remember 16. According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions. A. sticky wage and price B. sticky wage C. Keynesian D. coordination Answer: D Reference: Explanation:

: Multiple Choice Category: Remember 17. In macroeconomics, what name is given to the costs of changing prices that businesses must consider? A. opportunity costs B. internal costs C. menu costs D. customer costs Answer: C Reference: Explanation:

: Multiple Choice Category: Remember 18. If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result? A. excess supply B. natural rate of unemployment C. coordinated wage reductions D. depression Answer: A Reference: Explanation:

: Essay 1. Consumption, investment, government spending, exports, and imports are: A. all complementary elements of a market-orientated economy. B. some of the opposing elements found in a market-orientated economy. C. all components of aggregate demand. D. some of the building blocks of Keynesian analysis. Answer: C Reference: Explanation:

: Multiple Choice Category: Remember 2. If markets throughout the global economy all have flexible and continually adjusting prices, then: A. all market-oriented economies will implement coordinated wage reductions. B. each economy will always head for its natural rate of unemployment. C. each economy must shift in aggregate demand and create additional employment. D. all changes in prices and wages will create additional employment. Answer: B Reference: Explanation:

: Multiple Choice Category: Remember 27. In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP? A. expenditure-output B. inflationary gap C. recessionary gap D. national income (Y) Answer: C Reference: Explanation:

: Multiple Choice Category: Remember 28. In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP? A. expenditure-output B. inflationary gap C. recessionary gap D. national income (Y) Answer: C Reference: Explanation:

: Multiple Choice Category: Analyze 3. Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects. A. pricing strategy B. macro-economic model C. set of menu costs D. policy prescription Answer: D Reference: Explanation:

: Multiple Choice Category: Remember 4. Aggregate demand is more likely to _________________ than aggregate supply in the short run. A. shift substantially B. remain unchanged C. decrease substantially D. increase slightly Answer: A Reference: Explanation: