Macro exam 2

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The labor force includes

employed workers and persons who are officially unemployed

According classical economists Say's Law is invalid

false

According the Keynes, the government can best eliminate a recession by decreasing government spending and raising taxes

false

According to Classical economists wages and prices are inflexible downward

false

According to Keynes, during inflationary period it is appropriate for government to pursue policies which stimulate aggregate demand

false

Assume the MPC is 2/3: if investment spending increases by $2 billion, the level of GDP will increase by $4 billion

false

Fiscal policy involves the use of government spending, but its primary focus is on controlling the availability of money and credit

false

If the dollar appreciates relative to foreign currencies, we would expect a country's net exports to rise

false

If the marginal propensity to consume is 0.80 in a private closed economy, a $20 billion decline in investment spending will decrease GDP by $80 billion

false

Investment and government expenditures both represent leakages from the circular flow

false

Keyens argued that efficient aggregate demand might originate with inadequate consumer spending but never from inadequate business investment

false

Other things equal, if a change in the tastes of America consumers can cause them to purchase more foreign goods at each level of U.S. GDP, U.S. GDP will rise

false

Other things equal, increased imports and increased saving both have an expansionary effect on the current size of GDP

false

Te Classical approach to the business cycle was for government to pursue an active fiscal and monetary policy

false

The Employment Act of 1946 committed the government to a policy of Laissez Faire with respect to the macroeconomic performance of the US economy

false

The increase income that results from an increase in investment spending would be greater the larger the MPS

false

The interaction of market forces necessarily establishes full employment GDP in Keynesian economics analysis

false

The simple multiplier is smaller than the complex multiplier because it embodies more leakages

false

Assuming that Hernandez is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Hernandez will be considered as

frictionally unemployed

Kimberly voluntarily quit her job as an insurance agent to return school full time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kimberly presently is

frictionally unemployed

Structural unemployment

may involve a locational mismatch between unemployed workers and job openings

Ane Kasperson works in her home as a full time caretaker and homemaker. Officially she is

not in the labor force

If the US unemployment rate is 9 percent, we can infer that

potential GDP is an excess of actual GDP

Official unemployment statistics

understate unemployment because "discouraged workers" are not counted as unemployed

Assume that the natural rate of unemployment in the US economy is 5 percent and the actual rate of unemployment - percent. According to Okun's Law, the GDP gap is

10 percent

In the depth of the Great Depression, the unemployment rate in the United States was about

25 percent

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are unemployed, the unemployment rate is

6 percent

A college graduate using the summer following graduation to look for a job would be best classified as

a part of frictional unemployment

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the

cyclical unemployment rate is 4

Which of the following constitute the unemployment occurring at the natural rate of unemployment ?

structural and frictional unemployment

Cyclical unemployment results from

a deficiency in aggregate spending

the simple multiplier is: 1(1/-MPC), as well as 1/(MPS)

true

Say's Law and classical macroeconomics were disputed by John Maynard Keynes

True

The United States's economy is considered to be at "full employment" when

about 5 percent of the labor force is unemployed

The GDP gap measures the

amount by which potential GDP exceeds actual GDP

To be officially unemployed a person must

be in the labor force

The type of unemployment associated with recessions is called

cyclical unemployment

Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them will become discouraged over their job prospects and cease to look for work. As a result of this, the official unemployment rate will

decline

Part-time workers are counted as

fully employed, and therefore the official unemployment rate may understate the level of unemployment

The presence of discourage workers

reduces the size of the labor force, but does not affect the unemployment rate

Eckstein has lost her job in a Massachusetts textile plant because of import competition. She intends to take a short course in electronics and move to California where she anticipates that her new job will be available. We can say that Eckstein is faced with

structural unemployment

Unemployment involving a mismatch of the skills of the unemployed workers and the skills required for available jobs is called

structural unemployment

The unemployment rate is

the percentage of the labor force which is out of work

Suppose there are 10 million part-time workers and 90 million full-time workers in the economy. Five million of the part-time workers switch to full-time work. As a result

the unemployment rate will remain unchanged

A Keynesian prescription for ending a recession would increase government spending and let the multiplier work

true

A cornerstone for Classical thought is flexible wages and prices

true

According to Keynes, greater government spending and lower taxes are necessary for achieving greater fiscal stimulus even if it initially worsens the deficit

true

Classical and macroeconomics was dealt severe blows by the Great Depression and Keyne's macroeconomic theory

true

Estimates by economists of the complex multiplier are generally below 2

true

Flexible wages are inherent in the Classical view of self adjusting economy

true

If net exports are positive, aggregate expenditures are greater at each level of GDP than when net exports are zero or negative

true

In the General Theory of Employment, Interest, and Money John Maynard Keynes attacked the classical economists contention that recession and depression will automatically cure itself

true

Keyes viewed the economy as inherently unstable and suggested that during an economic downturn policy makers should cut taxes or increase government spending

true

Other thing equal, increased exports and increased investment both have an expansionary effect on the current size of GDP

true

Other things equal, an increase in an economy's exports will increase it's domestic aggregate expenditures and therefore increase its equilibrium GDP

true

Other things equal, serious recession in the economics of US trading partners will depress real output and employment in the US economy

true

Say's Law states that "supply creates it's pwn demand"

true

Say's law indicates that supply creates it's own demand

true

Suppose the level of GDP increased by $100 billion in an economy where the marginal propensity to consume is 0.50. Aggregate expenditures must have increased by $50 billion

true

Texas represents a leakage of purchasing power from the circular flow, like saving

true

That the economy will "self-adjust" if we left it alone characterizes classical economists view of the economy

true

The multiplier effect magnifies small changes in spending into larger changes in output and income

true

The multiplier effect means that a small increase in investment can cause GDP to change by a larger amount

true

The multiplier is defined as a change in GDP divided by the initial change in spending

true

The practical significance of the multiplier is that it magnifies relatively small initial changes in spending into larger changes in GDP

true


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