Question 1

Which of the following is not true about macroeconomic models?

Accepted Answer

A) They are based on theories of macroeconomic behavior. 
B) They are mathematical summaries of the economy's performance. 
C) They attempt to identify key determinants of macro performance. 
D) They tend to agree with each other about how the economy works. 
A) They are based on theories of macroeconomic behavior. 
B) They are mathematical summaries of the economy's performance. 
C) They attempt to identify key determinants of macro performance. 
D) They tend to agree with each other about how the economy works. D

Question 2

Automatic stabilizers include

Accepted Answer

A) Open market operations. 
B) Unemployment benefits. 
C) Deregulation. 
D) Discretionary tax cuts. 
A) Open market operations. 
B) Unemployment benefits. 
C) Deregulation. 
D) Discretionary tax cuts. B

Question 3

Fiscal policy includes all of the following except

Accepted Answer

A) Tax cuts. 
B) Tax increases. 
C) Interest rate increases. 
D) Discretionary spending by the government. 
A) Tax cuts. 
B) Tax increases. 
C) Interest rate increases. 
D) Discretionary spending by the government. C

Question 4

Refer to Figure 18.2.Which of the following is not consistent with a shift from AS2 to AS1?

Accepted Answer

A) Stagflation. 
B) A major natural disaster such as an earthquake. 
C) An inward shift of the production possibilities curve. 
D) A decrease in business taxes. 
A) Stagflation. 
B) A major natural disaster such as an earthquake. 
C) An inward shift of the production possibilities curve. 
D) A decrease in business taxes.

Question 5

The recessionary GDP gap is

Accepted Answer

A) Equal to the spending multiplier. 
B) The amount by which equilibrium GDP falls short of full-employment GDP. 
C) Small unless the unemployment rate is very low. 
D) Reduced by shifting aggregate demand to the left. 
A) Equal to the spending multiplier. 
B) The amount by which equilibrium GDP falls short of full-employment GDP. 
C) Small unless the unemployment rate is very low. 
D) Reduced by shifting aggregate demand to the left.

Question 6

Which of the following groups believes that the velocity of money is constant in the long run?

Accepted Answer

A) Keynesians. 
B) Monetarists. 
C) Supply-side economists. 
D) New classical economists. 
A) Keynesians. 
B) Monetarists. 
C) Supply-side economists. 
D) New classical economists.

Question 7

It is not possible to have a "growth recession" because if the economy grows at all then it is not in a recession.

Accepted Answer

A) True 
 B)False

Question 8

A supply-side policy to cure a recession might include

Accepted Answer

A) A decrease in government spending. 
B) Tax incentives for students and entrepreneurs. 
C) A tax increase. 
D) A decrease in the reserve requirement. 
A) A decrease in government spending. 
B) Tax incentives for students and entrepreneurs. 
C) A tax increase. 
D) A decrease in the reserve requirement.

Question 9

Refer to Figure 18.2.A shift from AS2 to AS1 may result from

Accepted Answer

A) A decrease in the money supply. 
B) An increase in the minimum wage. 
C) An increase in the reserve requirement. 
D) A decrease in government spending. 
A) A decrease in the money supply. 
B) An increase in the minimum wage. 
C) An increase in the reserve requirement. 
D) A decrease in government spending.

Question 10

A supply-side policy to cure stagflation would include

Accepted Answer

A) Reduced government spending. 
B) Reduced government regulation. 
C) The purchase of securities in the open market by the Fed. 
D) A higher reserve requirement. 
A) Reduced government spending. 
B) Reduced government regulation. 
C) The purchase of securities in the open market by the Fed. 
D) A higher reserve requirement.

Question 11

Information about the leading economic indicators is collected to address which of the following issues?

Accepted Answer

A) Goal conflicts. 
B) Measurement problems. 
C) Multiplier problems. 
D) Implementation problems. 
A) Goal conflicts. 
B) Measurement problems. 
C) Multiplier problems. 
D) Implementation problems.

Question 12

Modern Keynesians differ from traditional Keynesians because modern Keynesians

Accepted Answer

A) Believe that monetary policy can be useful in managing the economy. 
B) Favor fixed rules and steady,predictable policies. 
C) Believe that failures of the economy are inherent in a capitalist economy. 
D) Believe that tax cuts and government spending should be used to increase aggregate demand and output. 
A) Believe that monetary policy can be useful in managing the economy. 
B) Favor fixed rules and steady,predictable policies. 
C) Believe that failures of the economy are inherent in a capitalist economy. 
D) Believe that tax cuts and government spending should be used to increase aggregate demand and output.

Question 13

What actions would a modern Keynesian economist advocate to cure a recessionary gap?

Accepted Answer

A modern Keynesian economist would advoc

Question 14

Supply-side economists focus on the expansion of capacity through lower marginal tax rates and policies to increase production incentives.

Accepted Answer

A) True 
 B)False

Question 15

When the chairman of the Federal Reserve announced a goal of "zero inflation," which of the following economic policies was most likely being changed?

Accepted Answer

A) Fiscal policy. 
B) Monetary policy. 
C) Supply-side policy. 
D) Congressional policy. 
A) Fiscal policy. 
B) Monetary policy. 
C) Supply-side policy. 
D) Congressional policy.

Question 16

The simultaneous occurrence of high inflation and high unemployment is called

Accepted Answer

A) Reflation. 
B) Stagflation. 
C) Deflation. 
D) Depression. 
A) Reflation. 
B) Stagflation. 
C) Deflation. 
D) Depression.

Question 17

Which of the following is most consistent with supply-side policy?

Accepted Answer

A) The Workforce Investment Act,which increased funds for skills training. 
B) The increase in the interest rate six times during 1999-2000 by the Fed. 
C) The decrease in the growth of the money supply in 1994. 
D) The Budget Enforcement Act of 1990. 
A) The Workforce Investment Act,which increased funds for skills training. 
B) The increase in the interest rate six times during 1999-2000 by the Fed. 
C) The decrease in the growth of the money supply in 1994. 
D) The Budget Enforcement Act of 1990.

Question 18

Which of the following policy options would tend to offset each other?

Accepted Answer

A) A decrease in the discount rate and a decrease in the reserve requirement. 
B) An increase in the discount rate and a decrease in the tax rate. 
C) An increase in the reserve requirement and an open market sale by the Fed. 
D) An increase in the tax rate and a decrease in government spending. 
A) A decrease in the discount rate and a decrease in the reserve requirement. 
B) An increase in the discount rate and a decrease in the tax rate. 
C) An increase in the reserve requirement and an open market sale by the Fed. 
D) An increase in the tax rate and a decrease in government spending.

Question 19

An inflationary GDP gap is the amount by which ________ exceeds ________.

Accepted Answer

A) potential GDP;actual GDP 
B) equilibrium output;actual output 
C) full-employment GDP;potential GDP 
D) equilibrium GDP;full-employment GDP 
A) potential GDP;actual GDP 
B) equilibrium output;actual output 
C) full-employment GDP;potential GDP 
D) equilibrium GDP;full-employment GDP

Question 20

External shocks can

Accepted Answer

A) Be predicted using standard statistical techniques. 
B) Cause economic forecasts based on leading economic indicators to become inaccurate. 
C) Improve the validity of economic forecasts based on leading economic indicators. 
D) Assist the Fed with the implementation of monetary policy. 
A) Be predicted using standard statistical techniques. 
B) Cause economic forecasts based on leading economic indicators to become inaccurate. 
C) Improve the validity of economic forecasts based on leading economic indicators. 
D) Assist the Fed with the implementation of monetary policy.

Exam 18: Theory Versus Reality

Which of the following is not true about macroeconomic models?

Automatic stabilizers include

Fiscal policy includes all of the following except

Refer to Figure 18.2.Which of the following is not consistent with a shift from AS2 to AS1?

The recessionary GDP gap is

Which of the following groups believes that the velocity of money is constant in the long run?

It is not possible to have a "growth recession" because if the economy grows at all then it is not in a recession.

A supply-side policy to cure a recession might include

Refer to Figure 18.2.A shift from AS2 to AS1 may result from

A supply-side policy to cure stagflation would include

Information about the leading economic indicators is collected to address which of the following issues?

Modern Keynesians differ from traditional Keynesians because modern Keynesians

What actions would a modern Keynesian economist advocate to cure a recessionary gap?

Supply-side economists focus on the expansion of capacity through lower marginal tax rates and policies to increase production incentives.

When the chairman of the Federal Reserve announced a goal of "zero inflation," which of the following economic policies was most likely being changed?

The simultaneous occurrence of high inflation and high unemployment is called

Which of the following is most consistent with supply-side policy?

Which of the following policy options would tend to offset each other?

An inflationary GDP gap is the amount by which ________ exceeds ________.

External shocks can

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

National Income Accounting

Unemployment

Inflation

The Business Cycle

Aggregate Demand

Self-Adjustment or Instability

Fiscal Policy

Deficits and Debt

Money and Banks

The Federal Reserve System

Monetary Policy

Supply-Side Policy: Short-Run Options

Growth and Productivity: Long-Run Possibilities

Consumer Choice

Elasticity

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

Filters

Refer to Figure 18.2.Which of the following is not consistent with a shift from AS₂ to AS₁?

Refer to Figure 18.2.A shift from AS₂ to AS₁ may result from

An inflationary GDP gap is the amount by which exceeds .