Question 1

The Reagan administration's 1981 investment tax changes were designed to

Accepted Answer

A) stimulate aggregate demand and thereby reduce unemployment 
B) stimulate aggregate demand and thereby increase economic growth 
C) stimulate aggregate supply and thereby increase economic growth 
D) decrease aggregate demand in order to reduce inflation 
E) increase tax revenues to reduce the federal budget deficit 
A) stimulate aggregate demand and thereby reduce unemployment 
B) stimulate aggregate demand and thereby increase economic growth 
C) stimulate aggregate supply and thereby increase economic growth 
D) decrease aggregate demand in order to reduce inflation 
E) increase tax revenues to reduce the federal budget deficit

Question 2

During the Great Depression, President Hoover

Accepted Answer

A) correctly called for an increase in taxes 
B) incorrectly called for an increase in taxes 
C) incorrectly called for a decrease in taxes 
D) correctly called for a decrease in government spending 
E) incorrectly called for an increase in government spending 
A) correctly called for an increase in taxes 
B) incorrectly called for an increase in taxes 
C) incorrectly called for a decrease in taxes 
D) correctly called for a decrease in government spending 
E) incorrectly called for an increase in government spending

Question 3

Adam Smith's "invisible hand" explains

Accepted Answer

A) why people act in their own best interests 
B) why the government intervenes to overcome failures in private markets. 
C) how people, acting out of self-interest, unintentionally promote the general good 
D) how comparative advantage and specialization promote international trade 
E) how the creation of goods and services (supply) generates its own demand by creating employment and income 
A) why people act in their own best interests 
B) why the government intervenes to overcome failures in private markets. 
C) how people, acting out of self-interest, unintentionally promote the general good 
D) how comparative advantage and specialization promote international trade 
E) how the creation of goods and services (supply) generates its own demand by creating employment and income

Question 4

Which of the following is a stock variable?

Accepted Answer

A) U.S. exports 
B) sales by corporations 
C) borrowing by the federal government 
D) household wealth 
E) net exports 
A) U.S. exports 
B) sales by corporations 
C) borrowing by the federal government 
D) household wealth 
E) net exports

Question 5

Which of the following best describes a stock (rather than a flow)?

Accepted Answer

A) each week you save $100 
B) each week you buy $10 worth of gasoline 
C) each week you buy $50 worth of groceries 
D) you earn $500 per week at your job 
E) you own $5,000 worth of government bonds 
A) each week you save $100 
B) each week you buy $10 worth of gasoline 
C) each week you buy $50 worth of groceries 
D) you earn $500 per week at your job 
E) you own $5,000 worth of government bonds

Question 6

Economic fluctuations (or business cycles)

Accepted Answer

A) are changes in the number of businesses started 
B) are fluctuations in the Dow Jones industrial average relative to a long-term growth trend 
C) look at the role of business in the hiring resources 
D) are fluctuations in the level of economic activity, relative to a long-term growth trend 
E) are changes in government spending that occur over a period of years 
A) are changes in the number of businesses started 
B) are fluctuations in the Dow Jones industrial average relative to a long-term growth trend 
C) look at the role of business in the hiring resources 
D) are fluctuations in the level of economic activity, relative to a long-term growth trend 
E) are changes in government spending that occur over a period of years

Question 7

Which of the following was a central argument of Keynes's General Theory?

Accepted Answer

A) Competition does not allocate resources efficiently in a modern industrial economy. 
B) Full employment can be maintained even during a major recession if wage rates are lowered far enough. 
C) Modern industrial economies do not tend automatically toward full employment rates of output. 
D) Money does not play an important role in either causing or curing recession. 
E) Government can best stabilize the economy by letting the market system automatically adjust toward full employment. 
A) Competition does not allocate resources efficiently in a modern industrial economy. 
B) Full employment can be maintained even during a major recession if wage rates are lowered far enough. 
C) Modern industrial economies do not tend automatically toward full employment rates of output. 
D) Money does not play an important role in either causing or curing recession. 
E) Government can best stabilize the economy by letting the market system automatically adjust toward full employment.

Question 8

Keynes proposed that government should shock the economy out of the Great Depression by

Accepted Answer

A) increasing aggregate supply 
B) increasing aggregate demand 
C) raising prices so that firms could earn higher profits and employ more people 
D) reducing prices so that people could afford to buy more goods and services 
E) subsidizing firms that wanted to buy stocks after the crash 
A) increasing aggregate supply 
B) increasing aggregate demand 
C) raising prices so that firms could earn higher profits and employ more people 
D) reducing prices so that people could afford to buy more goods and services 
E) subsidizing firms that wanted to buy stocks after the crash

Question 9

A depression can be defined as

Accepted Answer

A) a mild reduction in total production coupled with a rising unemployment rate that lasts for several years 
B) a decline in total production that lasts less than six months 
C) a severe fall in stock prices that causes financial panic and lasts several years 
D) a severe reduction in total production coupled with high unemployment that lasts several years 
E) a decline in government spending and taxes that lasts for several months 
A) a mild reduction in total production coupled with a rising unemployment rate that lasts for several years 
B) a decline in total production that lasts less than six months 
C) a severe fall in stock prices that causes financial panic and lasts several years 
D) a severe reduction in total production coupled with high unemployment that lasts several years 
E) a decline in government spending and taxes that lasts for several months

Question 10

President Nixon fought the inflation of the early 1970s with

Accepted Answer

A) increased taxes 
B) increased government spending 
C) decreased taxes 
D) decreased government spending 
E) wage and price controls 
A) increased taxes 
B) increased government spending 
C) decreased taxes 
D) decreased government spending 
E) wage and price controls

Question 11

A decrease in the price level will cause

Accepted Answer

A) an increase in the quantity of aggregate output supplied 
B) a decrease in the quantity of aggregate output supplied 
C) a leftward shift of the aggregate supply curve 
D) a rightward shift of the aggregate supply curve 
E) a leftward or rightward shift of the aggregate supply curve, depending on the reason for the price change 
A) an increase in the quantity of aggregate output supplied 
B) a decrease in the quantity of aggregate output supplied 
C) a leftward shift of the aggregate supply curve 
D) a rightward shift of the aggregate supply curve 
E) a leftward or rightward shift of the aggregate supply curve, depending on the reason for the price change

Question 12

Government debt is a flow variable; the budget deficit is a stock variable.

Accepted Answer

A) True 
 B)False

Question 13

Stagflation refers to

Accepted Answer

A) a combination of rising unemployment and rising trade deficits 
B) a combination of high unemployment and rising prices 
C) high and rapidly increasing inflation 
D) extremely high unemployment 
E) a combination of rising trade deficits and rising federal government budget deficits 
A) a combination of rising unemployment and rising trade deficits 
B) a combination of high unemployment and rising prices 
C) high and rapidly increasing inflation 
D) extremely high unemployment 
E) a combination of rising trade deficits and rising federal government budget deficits

Question 14

Exhibit 5-1    
-In Exhibit 5-1, what happens to the equilibrium price level in period 1 as the aggregate demand curve shifts from AD to AD'

Accepted Answer

A) nothing 
B) falls from 4 to 3 
C) falls from 4 to 1 
D) rises from 1 to 4 
E) falls from 4 to 2 
A) nothing 
B) falls from 4 to 3 
C) falls from 4 to 1 
D) rises from 1 to 4 
E) falls from 4 to 2

Question 15

An economic variable that is measured per unit of time, such as spending per year, is known as a(n)

Accepted Answer

A) stock variable 
B) periodic variable 
C) expectations variable 
D) flow variable 
E) constant variable 
A) stock variable 
B) periodic variable 
C) expectations variable 
D) flow variable 
E) constant variable

Question 16

Given the aggregate demand curve, an increase in aggregate supply lowers the price level and decreases output.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not true about recessions?

Accepted Answer

A) They are milder than depressions. 
B) They last less than six months on average. 
C) They typically are shorter than periods of expansion. 
D) They begin after an expansion has peaked. 
E) They continue until the economy reaches a trough. 
A) They are milder than depressions. 
B) They last less than six months on average. 
C) They typically are shorter than periods of expansion. 
D) They begin after an expansion has peaked. 
E) They continue until the economy reaches a trough.

Question 18

Which of the following is a flow variable?

Accepted Answer

A) U.S. plant and equipment 
B) the U.S. population 
C) money supply 
D) investment spending 
E) household debt 
A) U.S. plant and equipment 
B) the U.S. population 
C) money supply 
D) investment spending 
E) household debt

Question 19

In terms of the aggregate demand and supply framework, the Great Depression can be viewed in terms of a

Accepted Answer

A) rightward shift of the aggregate demand curve 
B) rightward shift of the aggregate supply curve 
C) movement downward along the aggregate demand curve 
D) a leftward shift of the aggregate demand curve 
E) a leftward shift of the aggregate supply curve 
A) rightward shift of the aggregate demand curve 
B) rightward shift of the aggregate supply curve 
C) movement downward along the aggregate demand curve 
D) a leftward shift of the aggregate demand curve 
E) a leftward shift of the aggregate supply curve

Question 20

Suppose the economy is initially in equilibrium and then an energy shock occurs, such as when OPEC raised oil prices. Which of the following is likely to result?

Accepted Answer

A) Both the price level and aggregate output will rise. 
B) Both aggregate output and the price level will fall. 
C) Employment will rise. 
D) Stagflation. 
E) The price level will fall. 
A) Both the price level and aggregate output will rise. 
B) Both aggregate output and the price level will fall. 
C) Employment will rise. 
D) Stagflation. 
E) The price level will fall.

Exam 5: Introduction to Macroeconomics

The Reagan administration's 1981 investment tax changes were designed to

During the Great Depression, President Hoover

Adam Smith's "invisible hand" explains

Which of the following is a stock variable?

Which of the following best describes a stock (rather than a flow)?

Economic fluctuations (or business cycles)

Which of the following was a central argument of Keynes's General Theory?

Keynes proposed that government should shock the economy out of the Great Depression by

A depression can be defined as

President Nixon fought the inflation of the early 1970s with

A decrease in the price level will cause

Government debt is a flow variable; the budget deficit is a stock variable.

Stagflation refers to

Exhibit 5-1 -In Exhibit 5-1, what happens to the equilibrium price level in period 1 as the aggregate demand curve shifts from AD to AD'

An economic variable that is measured per unit of time, such as spending per year, is known as a(n)

Given the aggregate demand curve, an increase in aggregate supply lowers the price level and decreases output.

Which of the following is not true about recessions?

Which of the following is a flow variable?

In terms of the aggregate demand and supply framework, the Great Depression can be viewed in terms of a

Suppose the economy is initially in equilibrium and then an energy shock occurs, such as when OPEC raised oil prices. Which of the following is likely to result?

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand Supply and Markets

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

The Algebra of Income and Expenditure

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

The Algebra of Demand-Side Equilibrium

International Trade

International Finance

Economic Development

National Income Accounts

Understanding Graphs

Variable Net Exports

Variable Net Exports Revisited

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