Question 1

Exhibit 9-2
  
-Refer to Exhibit 9-2. The economy is currently producing Q1. At this level of Real GDP, the economy is in

Accepted Answer

A) an inflationary gap. 
B) a recessionary gap. 
C) long-run equilibrium. 
D) none of the above 
A) an inflationary gap. 
B) a recessionary gap. 
C) long-run equilibrium. 
D) none of the above

Question 2

If the economy is self-regulating, then it follows that

Accepted Answer

A) recessionary and inflationary gaps are temporary economic states. 
B) wages will fall when the economy is in a recessionary gap. 
C) wages will rise when the economy is in an inflationary gap. 
D) the economy is always in long-run equilibrium. 
E) a, b and c 
A) recessionary and inflationary gaps are temporary economic states. 
B) wages will fall when the economy is in a recessionary gap. 
C) wages will rise when the economy is in an inflationary gap. 
D) the economy is always in long-run equilibrium. 
E) a, b and c

Question 3

When the economy is in a recessionary gap, the labor market is experiencing a _____________. In a self-regulating economy, wage rates will then ___________ and the ______________ curve will shift __________________.

Accepted Answer

A) shortage; rise; AD; rightward 
B) shortage; fall; SRAS; leftward 
C) surplus; rise; AD; rightward 
D) shortage; fall; SRAS; rightward 
E) surplus; fall; SRAS; rightward 
A) shortage; rise; AD; rightward 
B) shortage; fall; SRAS; leftward 
C) surplus; rise; AD; rightward 
D) shortage; fall; SRAS; rightward 
E) surplus; fall; SRAS; rightward

Question 4

If an economy's institutional production possibilities frontier (institutional PPF) shifts rightward, the economy's

Accepted Answer

A) natural unemployment rate rises. 
B) natural unemployment rate falls. 
C) Natural Real GDP declines. 
D) physical PPF shifts leftward. 
E) physical PPF shifts rightward. 
A) natural unemployment rate rises. 
B) natural unemployment rate falls. 
C) Natural Real GDP declines. 
D) physical PPF shifts leftward. 
E) physical PPF shifts rightward.

Question 5

According to Say's law, there can be

Accepted Answer

A) neither a general overproduction nor a general underproduction of goods. 
B) a general overproduction but not a general underproduction of goods. 
C) a general underproduction but not a general overproduction of goods. 
D) both a general overproduction and a general underproduction of goods. 
A) neither a general overproduction nor a general underproduction of goods. 
B) a general overproduction but not a general underproduction of goods. 
C) a general underproduction but not a general overproduction of goods. 
D) both a general overproduction and a general underproduction of goods.

Question 6

The long-run aggregate supply (LRAS) curve is

Accepted Answer

A) horizontal. 
B) vertical. 
C) positively sloped. 
D) negatively sloped. 
A) horizontal. 
B) vertical. 
C) positively sloped. 
D) negatively sloped.

Question 7

Suppose the economy is self-regulating, the price level is 150, the quantity demanded of Real GDP and the quantity supplied of Real GDP in the short run both equal $4.3 trillion, and the quantity supplied of Real GDP in the long run is $4.1 trillion. Given all of this information, we can conclude that the economy ____________ in short run equilibrium, and that the price level in long run equilibrium will be _____________ than 150.

Accepted Answer

A) is not; less 
B) is; more 
C) is; less 
D) is not; more 
A) is not; less 
B) is; more 
C) is; less 
D) is not; more

Question 8

According to classical economists, the economy

Accepted Answer

A) always operates at a point below its institutional production possibilities frontier (PPF). 
B) always operates close to or on its institutional PPF. 
C) seldom operates close to or on its institutional PPF. 
D) never operates close to or on its institutional PPF. 
A) always operates at a point below its institutional production possibilities frontier (PPF). 
B) always operates close to or on its institutional PPF. 
C) seldom operates close to or on its institutional PPF. 
D) never operates close to or on its institutional PPF.

Question 9

A laissez-faire macroeconomic policy, based on a __________ in self-regulating properties of the economy, implies __________ by the government.

Accepted Answer

A) belief; active policymaking 
B) belief; noninterference 
C) disbelief; active policymaking 
D) disbelief; noninterference 
A) belief; active policymaking 
B) belief; noninterference 
C) disbelief; active policymaking 
D) disbelief; noninterference

Question 10

According to Say's law, in a money economy a reduction in consumption spending causes a __________ shift of the saving curve and therefore a __________ in the interest rate.

Accepted Answer

A) leftward; rise 
B) leftward; fall 
C) rightward; rise 
D) rightward; fall 
A) leftward; rise 
B) leftward; fall 
C) rightward; rise 
D) rightward; fall

Question 11

The classical economists felt that wages and prices were flexible in

Accepted Answer

A) neither the upward direction nor the downward direction. 
B) the upward direction but not in the downward direction. 
C) the downward direction but not in the upward direction. 
D) both the upward and downward directions. 
A) neither the upward direction nor the downward direction. 
B) the upward direction but not in the downward direction. 
C) the downward direction but not in the upward direction. 
D) both the upward and downward directions.

Question 12

Classical macroeconomists assert that "saving" is the same as "not spending at all".

Accepted Answer

A) True 
 B)False

Question 13

The economy is currently operating at a point on its physical production possibilities frontier (physical PPF). It is

Accepted Answer

A) producing Natural Real GDP and operating below the natural unemployment rate. 
B) producing more than Natural Real GDP and operating above the natural unemployment rate. 
C) producing more than Natural Real GDP and operating below the natural unemployment rate. 
D) in long-run equilibrium. 
A) producing Natural Real GDP and operating below the natural unemployment rate. 
B) producing more than Natural Real GDP and operating above the natural unemployment rate. 
C) producing more than Natural Real GDP and operating below the natural unemployment rate. 
D) in long-run equilibrium.

Question 14

Which of the following statements is false?

Accepted Answer

A) If the economy is self-regulating, wages are flexible. 
B) The frictional unemployment rate equals the natural unemployment rate minus the structural unemployment rate. 
C) If the economy is producing Natural Real GDP, it is operating at the natural unemployment rate. 
D) The economy is operating at full employment if it is producing more than Natural Real GDP. 
A) If the economy is self-regulating, wages are flexible. 
B) The frictional unemployment rate equals the natural unemployment rate minus the structural unemployment rate. 
C) If the economy is producing Natural Real GDP, it is operating at the natural unemployment rate. 
D) The economy is operating at full employment if it is producing more than Natural Real GDP.

Question 15

Some economists believe the economy is self-regulating. What does this mean?

Accepted Answer

A) It means the economy can remove itself from recessionary and inflationary gaps and produce at Natural Real GDP. 
B) It means the economy is always in long-run equilibrium producing Natural Real GDP. 
C) It means that inflationary gaps naturally change into recessionary gaps. 
D) It means that recessionary gaps naturally change into inflationary gaps. 
E) c and d 
A) It means the economy can remove itself from recessionary and inflationary gaps and produce at Natural Real GDP. 
B) It means the economy is always in long-run equilibrium producing Natural Real GDP. 
C) It means that inflationary gaps naturally change into recessionary gaps. 
D) It means that recessionary gaps naturally change into inflationary gaps. 
E) c and d

Question 16

Natural disasters (such as the 2011 earthquake and tsunami in Japan) are examples of an adverse supply shock, which result in the SRAS curve shifting leftward.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following equations is correct?

Accepted Answer

A) Saving = Disposable income + Consumption 
B) Saving = Disposable income x Consumption 
C) Disposable income = Consumption - Saving 
D) Saving = Disposable income - Consumption 
A) Saving = Disposable income + Consumption 
B) Saving = Disposable income x Consumption 
C) Disposable income = Consumption - Saving 
D) Saving = Disposable income - Consumption

Question 18

According to classical economists, the relationship between the amount of funds households plan to save and the interest rate is

Accepted Answer

A) indirect. 
B) inverse. 
C) direct. 
D) independent. 
A) indirect. 
B) inverse. 
C) direct. 
D) independent.

Question 19

If Real GDP is less than Natural Real GDP, then the (actual) unemployment rate is

Accepted Answer

A) less than the natural unemployment rate. 
B) equal to the natural unemployment rate. 
C) greater than the natural unemployment rate. 
D) less than or greater than the natural unemployment rate, but we cannot determine which one. 
E) b and d 
A) less than the natural unemployment rate. 
B) equal to the natural unemployment rate. 
C) greater than the natural unemployment rate. 
D) less than or greater than the natural unemployment rate, but we cannot determine which one. 
E) b and d

Question 20

If the economy is self-regulating and in a recessionary gap, what happens?

Accepted Answer

A) Wages rise, the SRAS curve shifts leftward, and both Real GDP and the price level rise. 
B) Wages fall, the SRAS curve shifts leftward, the price level rises, and Real GDP falls. 
C) Wages fall, the SRAS curve shifts rightward, and both the price level and Real GDP fall. 
D) Wages fall, the SRAS curve shifts rightward, the price level falls, and Real GDP rises. 
E) none of the above 
A) Wages rise, the SRAS curve shifts leftward, and both Real GDP and the price level rise. 
B) Wages fall, the SRAS curve shifts leftward, the price level rises, and Real GDP falls. 
C) Wages fall, the SRAS curve shifts rightward, and both the price level and Real GDP fall. 
D) Wages fall, the SRAS curve shifts rightward, the price level falls, and Real GDP rises. 
E) none of the above

Exam 9: Classical Macroeconomics and the Self Regulating Economy

Exhibit 9-2 -Refer to Exhibit 9-2. The economy is currently producing Q1. At this level of Real GDP, the economy is in

If the economy is self-regulating, then it follows that

When the economy is in a recessionary gap, the labor market is experiencing a _____________. In a self-regulating economy, wage rates will then ___________ and the ______________ curve will shift __________________.

If an economy's institutional production possibilities frontier (institutional PPF) shifts rightward, the economy's

According to Say's law, there can be

The long-run aggregate supply (LRAS) curve is

According to classical economists, the economy

A laissez-faire macroeconomic policy, based on a __________ in self-regulating properties of the economy, implies __________ by the government.

According to Say's law, in a money economy a reduction in consumption spending causes a __________ shift of the saving curve and therefore a __________ in the interest rate.

The classical economists felt that wages and prices were flexible in

Classical macroeconomists assert that "saving" is the same as "not spending at all".

The economy is currently operating at a point on its physical production possibilities frontier (physical PPF). It is

Which of the following statements is false?

Some economists believe the economy is self-regulating. What does this mean?

Natural disasters (such as the 2011 earthquake and tsunami in Japan) are examples of an adverse supply shock, which result in the SRAS curve shifting leftward.

Which of the following equations is correct?

According to classical economists, the relationship between the amount of funds households plan to save and the interest rate is

If Real GDP is less than Natural Real GDP, then the (actual) unemployment rate is

If the economy is self-regulating and in a recessionary gap, what happens?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II Gdp and Real Gdp

Aggregate Demand and Aggregate Supply

Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

Fiscal Policy and the Federal Budget

Money Banking and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth Resources Technology Ideas and Institutions

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition Oligopoly and Game Theory

Government and Product Markets Antitrust and Regulation

Factor Markets With Emphasis on the Labor Market

Wages Unions and Labor

The Distribution of Income and Poverty

Interest Rent and Profit

Market Failure Externalities Public Goods and Asymmetric Information

Public Choice and Special Interest Group Politics

Building Theories to Explain Everyday Life From Observations to Questions to Theories to Predictions

International Trade

International Finance

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

Exhibit 9-2 -Refer to Exhibit 9-2. The economy is currently producing Q₁. At this level of Real GDP, the economy is in

When the economy is in a recessionary gap, the labor market is experiencing a _______. In a self-regulating economy, wage rates will then _ and the curve will shift ________.

A laissez-faire macroeconomic policy, based on a in self-regulating properties of the economy, implies by the government.

According to Say's law, in a money economy a reduction in consumption spending causes a shift of the saving curve and therefore a in the interest rate.