Question 1

According to the classical economists, which of the following statements is false?

Accepted Answer

A) There is a direct relationship between the amount individuals save and the interest rate. 
B) There is a direct relationship between the amount business firms invest and the interest rate. 
C) As the interest rate rises, the quantity supplied of loanable funds rises. 
D) Interest rate flexibility will ensure that saving is equal to investment. 
A) There is a direct relationship between the amount individuals save and the interest rate. 
B) There is a direct relationship between the amount business firms invest and the interest rate. 
C) As the interest rate rises, the quantity supplied of loanable funds rises. 
D) Interest rate flexibility will ensure that saving is equal to investment.

Question 2

Suppose the economy is self-regulating, the price level is 120, the quantity demanded of Real GDP and the quantity supplied of Real GDP in the short run both equal $5.7 trillion, and the quantity supplied of Real GDP in the long run is $5.2 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 120.

Accepted Answer

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

Question 3

Exhibit 9-3
  
-Refer to Exhibit 9-3. If the economy is in short-run equilibrium at point C,

Accepted Answer

A) the (actual) unemployment rate is less than the natural unemployment rate. 
B) the (actual) unemployment rate is equal to the natural unemployment rate. 
C) the (actual) unemployment rate is greater than the natural unemployment rate. 
D) the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be determined from the available information. 
A) the (actual) unemployment rate is less than the natural unemployment rate. 
B) the (actual) unemployment rate is equal to the natural unemployment rate. 
C) the (actual) unemployment rate is greater than the natural unemployment rate. 
D) the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be determined from the available information.

Question 4

Which of the following statements is true?

Accepted Answer

A) The economy can operate outside (or beyond) its institutional PPF and its physical PPF, but only for a short while. 
B) The economy can operate outside its physical PPF, if only for a short while, but can never operate outside its institutional PPF. 
C) The economy can operate outside its institutional PPF, if only for a short while, but can never operate outside its physical PPF. 
D) The economy can never operate outside its institutional PPF or its physical PPF, even for a short while. 
E) none of the above 
A) The economy can operate outside (or beyond) its institutional PPF and its physical PPF, but only for a short while. 
B) The economy can operate outside its physical PPF, if only for a short while, but can never operate outside its institutional PPF. 
C) The economy can operate outside its institutional PPF, if only for a short while, but can never operate outside its physical PPF. 
D) The economy can never operate outside its institutional PPF or its physical PPF, even for a short while. 
E) none of the above

Question 5

If the economy is self-regulating and current Real GDP is less than Natural Real GDP, the economy is operating __________ the natural unemployment rate and wages will __________.

Accepted Answer

A) below; soon rise 
B) above; soon rise 
C) below; soon fall 
D) above; remain unchanged 
E) none of the above 
A) below; soon rise 
B) above; soon rise 
C) below; soon fall 
D) above; remain unchanged 
E) none of the above

Question 6

Exhibit 9-1
  
-Refer to Exhibit 9-1. 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 7

Exhibit 9-5
  
-Refer to Exhibit 9-5. Imagine an AD curve intersecting an SRAS curve at Point L 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 8

Exhibit 9-7
  
-Refer to Exhibit 9-7. Which point is representative of the economy in a recessionary gap?

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

According to classical economists, if the amount of funds households save is greater than the amount of funds firms invest, then

Accepted Answer

A) the interest rate will fall, ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest. 
B) the interest rate will rise, ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest. 
C) the interest rate will remain constant and people will simply buy more goods. 
D) more money will he used for leisure purposes, since households save in order to consume leisure at some later time. 
E) none of the above 
A) the interest rate will fall, ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest. 
B) the interest rate will rise, ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest. 
C) the interest rate will remain constant and people will simply buy more goods. 
D) more money will he used for leisure purposes, since households save in order to consume leisure at some later time. 
E) none of the above

Question 11

The classical economists felt that there would be no general overproduction of goods because of

Accepted Answer

A) wage-price flexibility. 
B) the law of diminishing utility. 
C) the law of comparative advantage. 
D) contestable markets. 
A) wage-price flexibility. 
B) the law of diminishing utility. 
C) the law of comparative advantage. 
D) contestable markets.

Question 12

Business-cycle macroeconomics involves increases in Real GDP that result from a rightward-shifting LRAS curve.

Accepted Answer

A) True 
 B)False

Question 13

If the structural unemployment rate is 3 percent, the frictional unemployment rate is 2 percent, and the current unemployment rate is 6 percent, then the economy is in a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 14

If the economy is self-regulating, explain the correct sequence of events that occurs once the economy is in a recessionary gap to move the economy to long-run equilibrium.

Accepted Answer

The actual unemployment rate is greater

Question 15

According to Say's law,

Accepted Answer

A) if there is demand for a good, someone will supply it. 
B) production creates demand sufficient to purchase all goods and services produced. 
C) supply and demand work together to determine price. 
D) trading takes longer in a barter economy than in a money economy. 
E) none of the above 
A) if there is demand for a good, someone will supply it. 
B) production creates demand sufficient to purchase all goods and services produced. 
C) supply and demand work together to determine price. 
D) trading takes longer in a barter economy than in a money economy. 
E) none of the above

Question 16

Exhibit 9-7
  
-Refer to Exhibit 9-7. Which point is representative of the economy with an unemployment rate that is less than the natural unemployment rate?

Accepted Answer

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

Question 17

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

Accepted Answer

A) long-run equilibrium; equal to; equilibrium 
B) inflationary; less than; a shortage 
C) long-run equilibrium; greater than; equilibrium 
D) recessionary; greater than; a surplus 
E) recessionary; less than; equilibrium 
A) long-run equilibrium; equal to; equilibrium 
B) inflationary; less than; a shortage 
C) long-run equilibrium; greater than; equilibrium 
D) recessionary; greater than; a surplus 
E) recessionary; less than; equilibrium

Question 18

If the economy is currently in a recessionary gap, the SRAS curve intersects the AD curve to the left of Natural Real GDP.

Accepted Answer

A) True 
 B)False

Question 19

Due to their belief in interest rate flexibility, the classical economists argued that saving is matched by an equal amount of investment.

Accepted Answer

A) True 
 B)False

Question 20

All economists agree that the economy is self-regulating.

Accepted Answer

A) True 
 B)False

Exam 9: Classical Macroeconomics and the Self Regulating Economy

According to the classical economists, which of the following statements is false?

Exhibit 9-3 -Refer to Exhibit 9-3. If the economy is in short-run equilibrium at point C,

Which of the following statements is true?

If the economy is self-regulating and current Real GDP is less than Natural Real GDP, the economy is operating __________ the natural unemployment rate and wages will __________.

Exhibit 9-1 -Refer to Exhibit 9-1. The economy is currently producing Q1. At this level of Real GDP, the economy is in

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

Exhibit 9-7 -Refer to Exhibit 9-7. Which point is representative of the economy in a recessionary gap?

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

According to classical economists, if the amount of funds households save is greater than the amount of funds firms invest, then

The classical economists felt that there would be no general overproduction of goods because of

Business-cycle macroeconomics involves increases in Real GDP that result from a rightward-shifting LRAS curve.

If the structural unemployment rate is 3 percent, the frictional unemployment rate is 2 percent, and the current unemployment rate is 6 percent, then the economy is in a recessionary gap.

If the economy is self-regulating, explain the correct sequence of events that occurs once the economy is in a recessionary gap to move the economy to long-run equilibrium.

According to Say's law,

Exhibit 9-7 -Refer to Exhibit 9-7. Which point is representative of the economy with an unemployment rate that is less than the natural unemployment rate?

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

If the economy is currently in a recessionary gap, the SRAS curve intersects the AD curve to the left of Natural Real GDP.

Due to their belief in interest rate flexibility, the classical economists argued that saving is matched by an equal amount of investment.

All economists agree that the economy is self-regulating.

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

If the economy is self-regulating and current Real GDP is less than Natural Real GDP, the economy is operating the natural unemployment rate and wages will .

Exhibit 9-1 -Refer to Exhibit 9-1. The economy is currently producing Q₁. At this level of Real GDP, the economy is in

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