Question 1

The classical economists argued that saving is matched by an equal amount of investment because of

Accepted Answer

A) wage flexibility. 
B) price flexibility. 
C) money flexibility. 
D) interest rate flexibility. 
E) b and c 
A) wage flexibility. 
B) price flexibility. 
C) money flexibility. 
D) interest rate flexibility. 
E) b and c

Question 2

Exhibit 9-5
  
-Refer to Exhibit 9-5. Imagine an AD curve and an SRAS curve intersecting at Point I on graph (1). Which point(s) would this correspond to on graph (2)?

Accepted Answer

A) A or B 
B) C 
C) D or E 
D) F 
E) G 
A) A or B 
B) C 
C) D or E 
D) F 
E) G

Question 3

The classical economists felt that saving would be equal to investment because

Accepted Answer

A) wages are flexible. 
B) prices of domestic goods are flexible. 
C) interest rates are flexible. 
D) prices of imports are flexible. 
A) wages are flexible. 
B) prices of domestic goods are flexible. 
C) interest rates are flexible. 
D) prices of imports are flexible.

Question 4

When the economy is in an inflationary 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; SRAS; leftward 
B) shortage; fall; SRAS; leftward 
C) surplus; rise; AD; rightward 
D) shortage; fall; AD; rightward 
E) surplus; fall; SRAS; rightward 
A) shortage; rise; SRAS; leftward 
B) shortage; fall; SRAS; leftward 
C) surplus; rise; AD; rightward 
D) shortage; fall; AD; rightward 
E) surplus; fall; SRAS; rightward

Question 5

If the economy is currently in a recessionary gap,

Accepted Answer

A) all economists will agree that the economy can remove itself from the recessionary gap without government intervention. 
B) some economists will argue that the economy can remove itself from the recessionary gap without government intervention. 
C) no economist will state that the economy can remove itself from the recessionary gap without government intervention. 
D) all economists will agree that over time the recessionary gap will worsen. 
A) all economists will agree that the economy can remove itself from the recessionary gap without government intervention. 
B) some economists will argue that the economy can remove itself from the recessionary gap without government intervention. 
C) no economist will state that the economy can remove itself from the recessionary gap without government intervention. 
D) all economists will agree that over time the recessionary gap will worsen.

Question 6

A recessionary gap exists if (actual) Real GDP is __________ Natural Real GDP.

Accepted Answer

A) less than 
B) greater than 
C) equal to 
D) b and c 
E) none of the above 
A) less than 
B) greater than 
C) equal to 
D) b and c 
E) none of the above

Question 7

When there is an inflationary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual) unemployment rate is __________ the natural unemployment rate.

Accepted Answer

A) greater than; less than 
B) greater than; greater than 
C) less than; greater than 
D) less than; less than 
E) less than; equal to 
A) greater than; less than 
B) greater than; greater than 
C) less than; greater than 
D) less than; less than 
E) less than; equal to

Question 8

If the natural unemployment rate is 5.5 percent, then the economy is in a recessionary gap when the actual unemployment rate is

Accepted Answer

A) greater than 5.5 percent. 
B) between 0 and 5.5 percent. 
C) 0 percent. 
D) 5.5 percent. 
A) greater than 5.5 percent. 
B) between 0 and 5.5 percent. 
C) 0 percent. 
D) 5.5 percent.

Question 9

Suppose the economy's short-run equilibrium level is at a point to the left of Natural Real GDP. Which of the following statements is true?

Accepted Answer

A) The economy is in an inflationary gap. 
B) The economy is in a recessionary gap. 
C) The economy is in long-run equilibrium. 
D) This situation is actually impossible. 
A) The economy is in an inflationary gap. 
B) The economy is in a recessionary gap. 
C) The economy is in long-run equilibrium. 
D) This situation is actually impossible.

Question 10

Exhibit 9-4
  
-Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P3. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from

Accepted Answer

A) AD3 to AD1. 
B) SRAS1 to SRAS2. 
C) SRAS2 to SRAS1. 
D) AD3 to AD2. 
E) none of the above 
A) AD3 to AD1. 
B) SRAS1 to SRAS2. 
C) SRAS2 to SRAS1. 
D) AD3 to AD2. 
E) none of the above

Question 11

If the economy is self-regulating and in an inflationary gap,

Accepted Answer

A) wages and prices will fall. 
B) wages will rise, but prices will fall. 
C) wages and prices will rise. 
D) wages will fall, but prices will rise. 
E) neither wages nor prices will change. 
A) wages and prices will fall. 
B) wages will rise, but prices will fall. 
C) wages and prices will rise. 
D) wages will fall, but prices will rise. 
E) neither wages nor prices will change.

Question 12

It is possible for the economy to be producing at a point that lies beyond its institutional production possibilities frontier (PPF), but not its physical PPF.

Accepted Answer

A) True 
 B)False

Question 13

According to classical economists,

Accepted Answer

A) spending equals saving. 
B) saving equals income. 
C) income equals wealth. 
D) none of the above 
A) spending equals saving. 
B) saving equals income. 
C) income equals wealth. 
D) none of the above

Question 14

The economy can operate

Accepted Answer

A) beyond its institutional PPF but not beyond its physical PPF. 
B) on both its institutional PPF and its physical PPF, but not at the same time. 
C) under its physical PPF but not under its institutional PPF. 
D) a and b 
E) a, b, and c 
A) beyond its institutional PPF but not beyond its physical PPF. 
B) on both its institutional PPF and its physical PPF, but not at the same time. 
C) under its physical PPF but not under its institutional PPF. 
D) a and b 
E) a, b, and c

Question 15

Exhibit 9-8
Suppose that at a given price level the following values exist in a hypothetical economy:
Consumption = $7,000 billion
Investment = $1,900 billion
Government Purchases = $1,700 billion
Exports = $300 billion
Imports = $300 billion
Assume that the level of total expenditures is equal to the value of goods and services that suppliers want to sell.
-Refer to Exhibit 9-8. If saving increases by $500 billion, the new level of consumption will equal ______________. According to classical economists investment would _______________ and total expenditures would ________________________.

Accepted Answer

A) $6,500 billion; then decrease by $500 billion; fall by $500 billion 
B) $6,500 billion; then increase by $500 billion; fall by $500 billion 
C) $7,500 billion; remain constant; fall by $500 billion 
D) $6,500 billion; then increase by $500 billion; remain constant 
A) $6,500 billion; then decrease by $500 billion; fall by $500 billion 
B) $6,500 billion; then increase by $500 billion; fall by $500 billion 
C) $7,500 billion; remain constant; fall by $500 billion 
D) $6,500 billion; then increase by $500 billion; remain constant

Question 16

Exhibit 9-3
  
-Refer to Exhibit 9-3. The economy is in short-run equilibrium and has an inflationary gap at point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
E) E. 
A) A. 
B) B. 
C) C. 
D) D. 
E) E.

Question 17

An inflationary gap exists when AD and SRAS

Accepted Answer

A) fail to intersect. 
B) intersect to the right of Natural Real GDP. 
C) intersect to the left of Natural Real GDP. 
D) both have a positive slope. 
A) fail to intersect. 
B) intersect to the right of Natural Real GDP. 
C) intersect to the left of Natural Real GDP. 
D) both have a positive slope.

Question 18

When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in a(n) ____________________ gap. In this situation, the (actual) unemployment rate is ___________ than the natural unemployment rate, and there is a ________________ in the labor market.

Accepted Answer

A) recessionary; greater; shortage 
B) inflationary; less; shortage 
C) inflationary; greater; surplus 
D) recessionary; greater; surplus 
E) recessionary; less; shortage 
A) recessionary; greater; shortage 
B) inflationary; less; shortage 
C) inflationary; greater; surplus 
D) recessionary; greater; surplus 
E) recessionary; less; shortage

Question 19

If the economy is currently operating below its institutional production possibilities frontier (institutional PPF), it is

Accepted Answer

A) in long-run equilibrium. 
B) in a recessionary gap. 
C) in an inflationary gap. 
D) definitely not self-regulating. 
E) b and d 
A) in long-run equilibrium. 
B) in a recessionary gap. 
C) in an inflationary gap. 
D) definitely not self-regulating. 
E) b and d

Question 20

When consumers start to spend less and save more, classical macroeconomists believe that interest rates will then ______________ resulting in a(n) ________________ in investment.

Accepted Answer

A) rise; increase 
B) fall; increase 
C) fall; decrease 
D) rise; decrease 
A) rise; increase 
B) fall; increase 
C) fall; decrease 
D) rise; decrease

Exam 9: Classical Macroeconomics and the Self Regulating Economy

The classical economists argued that saving is matched by an equal amount of investment because of

Exhibit 9-5 -Refer to Exhibit 9-5. Imagine an AD curve and an SRAS curve intersecting at Point I on graph (1). Which point(s) would this correspond to on graph (2)?

The classical economists felt that saving would be equal to investment because

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

If the economy is currently in a recessionary gap,

A recessionary gap exists if (actual) Real GDP is __________ Natural Real GDP.

When there is an inflationary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual) unemployment rate is __________ the natural unemployment rate.

If the natural unemployment rate is 5.5 percent, then the economy is in a recessionary gap when the actual unemployment rate is

Suppose the economy's short-run equilibrium level is at a point to the left of Natural Real GDP. Which of the following statements is true?

Exhibit 9-4 -Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P3. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from

If the economy is self-regulating and in an inflationary gap,

It is possible for the economy to be producing at a point that lies beyond its institutional production possibilities frontier (PPF), but not its physical PPF.

According to classical economists,

The economy can operate

Exhibit 9-3 -Refer to Exhibit 9-3. The economy is in short-run equilibrium and has an inflationary gap at point

An inflationary gap exists when AD and SRAS

When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in a(n) ____________________ gap. In this situation, the (actual) unemployment rate is ___________ than the natural unemployment rate, and there is a ________________ in the labor market.

If the economy is currently operating below its institutional production possibilities frontier (institutional PPF), it is

When consumers start to spend less and save more, classical macroeconomists believe that interest rates will then ______________ resulting in a(n) ________________ in investment.

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

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

When there is an inflationary gap, (actual) Real GDP is Natural Real GDP, and the (actual) unemployment rate is the natural unemployment rate.

Exhibit 9-4 -Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P₃. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from

When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in a(n) ______________ gap. In this situation, the (actual) unemployment rate is _ than the natural unemployment rate, and there is a ____________ in the labor market.

When consumers start to spend less and save more, classical macroeconomists believe that interest rates will then resulting in a(n) __ in investment.