Question 1

What key observation did the classical model attempt to explain?

Accepted Answer

A)  the economy performs well in the short run,but not so well in the long run 
B)  business cycles are the most important economic problem 
C)  over the short run,the economy performs rather poorly 
D)  markets do not clear without government intervention 
E)  over the long run,the economy performs rather well 
A)  the economy performs well in the short run,but not so well in the long run 
B)  business cycles are the most important economic problem 
C)  over the short run,the economy performs rather poorly 
D)  markets do not clear without government intervention 
E)  over the long run,the economy performs rather well

Question 2

The supply of loanable funds curve is downward sloping.

Accepted Answer

A) True 
 B)False

Question 3

Leakages are

Accepted Answer

A)  negative tax revenues 
B)  government spending on nonessential goods and services 
C)  amounts of income earned,but not spent,by the household sector during a given year 
D)  a sign that an economy's total output is excessive 
E)  sums spent by sectors other than households 
A)  negative tax revenues 
B)  government spending on nonessential goods and services 
C)  amounts of income earned,but not spent,by the household sector during a given year 
D)  a sign that an economy's total output is excessive 
E)  sums spent by sectors other than households

Question 4

What condition must be met in order for total spending to equal total output?

Accepted Answer

A)  The sum of saving and government purchases must equal the sum of planned investment and net taxes. 
B)  The sum of saving and net taxes must equal the sum of planned investment and government purchases. 
C)  The sum of saving and planned investment must equal the sum of government purchases and net taxes. 
D)  Saving must equal net taxes. 
E)  The sum of saving and net taxes must equal planned investment minus government purchases. 
A)  The sum of saving and government purchases must equal the sum of planned investment and net taxes. 
B)  The sum of saving and net taxes must equal the sum of planned investment and government purchases. 
C)  The sum of saving and planned investment must equal the sum of government purchases and net taxes. 
D)  Saving must equal net taxes. 
E)  The sum of saving and net taxes must equal planned investment minus government purchases.

Question 5

The classical model does a good job of explaining the __________ while doing poor a job of explaining the __________.

Accepted Answer

A)  short run;long run 
B)  business cycle;long run 
C)  short run;business cycle 
D)  unemployment rate;interest rates 
E)  long run;short run 
A)  short run;long run 
B)  business cycle;long run 
C)  short run;business cycle 
D)  unemployment rate;interest rates 
E)  long run;short run

Question 6

-After examining Figure 8-3,it is possible to conclude that

Accepted Answer

A)  people do not save money nor pay taxes in this model 
B)  firms purchase resources from households and other firms in this model 
C)  households are the only ones who purchase and firms the only ones who sell in this model 
D)  completion of a sale represents a break in the flow of goods and services,and inputs in this model 
E)  all households and firms individually receive the same amount of money in this model 
A)  people do not save money nor pay taxes in this model 
B)  firms purchase resources from households and other firms in this model 
C)  households are the only ones who purchase and firms the only ones who sell in this model 
D)  completion of a sale represents a break in the flow of goods and services,and inputs in this model 
E)  all households and firms individually receive the same amount of money in this model

Question 7

In the classical model,if the amount households wish to save exceeds the sum of the amount businesses wish to invest plus the government's budget deficit,the loanable funds market

Accepted Answer

A)  will be in disequilibrium,but this does not prevent equilibrium in the total economy 
B)  will be in disequilibrium,and we would expect the supply of funds to decrease 
C)  will be in disequilibrium,and we would expect the interest rate to rise 
D)  will be in disequilibrium,and we would expect the interest rate to fall 
E)  may be in equilibrium,because unplanned inventory changes have not been included 
A)  will be in disequilibrium,but this does not prevent equilibrium in the total economy 
B)  will be in disequilibrium,and we would expect the supply of funds to decrease 
C)  will be in disequilibrium,and we would expect the interest rate to rise 
D)  will be in disequilibrium,and we would expect the interest rate to fall 
E)  may be in equilibrium,because unplanned inventory changes have not been included

Question 8

The economy's level of output depends upon (1)the

Accepted Answer

A)  amount of land and capital available for labor to use and (2)the state of technology and types of inputs available 
B)  cost of land and capital and (2)the cost of labor 
C)  availability of land and (2)the availability of capital 
D)  state of technology and (2)the cost of land 
E)  state of technology and (2)the types of inputs available 
A)  amount of land and capital available for labor to use and (2)the state of technology and types of inputs available 
B)  cost of land and capital and (2)the cost of labor 
C)  availability of land and (2)the availability of capital 
D)  state of technology and (2)the cost of land 
E)  state of technology and (2)the types of inputs available

Question 9

In the classical model,the demand for loanable funds comes from

Accepted Answer

A)  consumption expenditures and the government deficit,if any 
B)  net taxes and government expenditures 
C)  government purchases 
D)  investment spending and the government deficit,if any 
E)  consumption expenditures,investment spending and government purchases 
A)  consumption expenditures and the government deficit,if any 
B)  net taxes and government expenditures 
C)  government purchases 
D)  investment spending and the government deficit,if any 
E)  consumption expenditures,investment spending and government purchases

Question 10

What is the equilibrium condition in the loanable funds market?

Accepted Answer

A)  S + G = IP - T 
B)  S = IP + T - G 
C)  S + IP = G - T 
D)  S - T = IP + G 
E)  S = IP + G - T 
A)  S + G = IP - T 
B)  S = IP + T - G 
C)  S + IP = G - T 
D)  S - T = IP + G 
E)  S = IP + G - T

Question 11

-Refer to Figure 8-7.What is the equilibrium interest rate in the above figure?

Accepted Answer

A)  6% because that is where the total supply of funds equals the total demand. 
B)  5% because business and the government want to borrow as much as possible. 
C)  6% because that is where the amount of funds demanded is equal to the amount of funds demanded. 
D)  7% because households refuse to lend enough funds at a lower interest rate. 
E)  5% because households refuse to lend enough funds at a higher interest rate. 
A)  6% because that is where the total supply of funds equals the total demand. 
B)  5% because business and the government want to borrow as much as possible. 
C)  6% because that is where the amount of funds demanded is equal to the amount of funds demanded. 
D)  7% because households refuse to lend enough funds at a lower interest rate. 
E)  5% because households refuse to lend enough funds at a higher interest rate.

Question 12

Transfer payments,such as unemployment insurance and welfare,are included in the circular flow as part of

Accepted Answer

A)  government purchases 
B)  household saving 
C)  net taxes 
D)  planned investment spending 
E)  household consumption 
A)  government purchases 
B)  household saving 
C)  net taxes 
D)  planned investment spending 
E)  household consumption

Question 13

Which of the following events led to the debate over the applicability of the classical model?

Accepted Answer

A)  World War II 
B)  World War I 
C)  Korean War 
D)  The Great Depression 
E)  The Great Society 
A)  World War II 
B)  World War I 
C)  Korean War 
D)  The Great Depression 
E)  The Great Society

Question 14

The slope of the production function reflects

Accepted Answer

A)  capital expenditures. 
B)  government expenditures. 
C)  Constant returns to labor. 
D)  Increasing returns to labor. 
E)  Diminishing returns to labor. 
A)  capital expenditures. 
B)  government expenditures. 
C)  Constant returns to labor. 
D)  Increasing returns to labor. 
E)  Diminishing returns to labor.

Question 15

Changes in government spending or taxes designed to stimulate the economy are examples of

Accepted Answer

A)  fiscal policy 
B)  monetary policy 
C)  supply management policy 
D)  classical policy 
E)  regulatory policy 
A)  fiscal policy 
B)  monetary policy 
C)  supply management policy 
D)  classical policy 
E)  regulatory policy

Question 16

In the classical model,

Accepted Answer

A)  markets do not automatically clear. 
B)  business demand for loanable fund exceeds business planned investment spending. 
C)  there is no government sector,only private consumption and planned investment. 
D)  businesses engage in interest-free borrowing. 
E)  the government's demand for funds is vertical. 
A)  markets do not automatically clear. 
B)  business demand for loanable fund exceeds business planned investment spending. 
C)  there is no government sector,only private consumption and planned investment. 
D)  businesses engage in interest-free borrowing. 
E)  the government's demand for funds is vertical.

Question 17

The classical model assumes that

Accepted Answer

A)  the supply of labor is fixed 
B)  the stock of capital and technology are fixed 
C)  the stock of capital and technology grows at a constant rate 
D)  the supply of labor grows at a constant rate 
E)  the supply of labor grows at an increasing rate. 
A)  the supply of labor is fixed 
B)  the stock of capital and technology are fixed 
C)  the stock of capital and technology grows at a constant rate 
D)  the supply of labor grows at a constant rate 
E)  the supply of labor grows at an increasing rate.

Question 18

Assuming the economy was in equilibrium,use the following information to determine the government's budget deficit.   The government's deficit (surplus)was

Accepted Answer

A)  -$0.3 trillion deficit ($0.3 trillion surplus) 
B)  -$0.2 trillion deficit 
C)  $0.2 trillion deficit 
D)  $0.3 trillion deficit 
E)  $0.5 trillion deficit 
A)  -$0.3 trillion deficit ($0.3 trillion surplus) 
B)  -$0.2 trillion deficit 
C)  $0.2 trillion deficit 
D)  $0.3 trillion deficit 
E)  $0.5 trillion deficit

Question 19

-Refer to Figure 8-6.Suppose that a $1 trillion increase in government spending shifted the demand for funds curve from D1 to D2.What would happen to the sum of investment and consumption spending? That sum would

Accepted Answer

A)  remain unchanged 
B)  rise by $0.6 trillion 
C)  rise by $1 trillion 
D)  fall by $1 trillion 
E)  fall by $0.4 trillion 
A)  remain unchanged 
B)  rise by $0.6 trillion 
C)  rise by $1 trillion 
D)  fall by $1 trillion 
E)  fall by $0.4 trillion

Question 20

Using the following information on a hypothetical economy in equilibrium,calculate total output for 2008.   If exports are exactly equal to imports,total output for 2008 is

Accepted Answer

A)  $5.2 trillion 
B)  $5.7 trillion 
C)  $8.4 trillion 
D)  $8.7 trillion 
E)  $13.9 trillion 
A)  $5.2 trillion 
B)  $5.7 trillion 
C)  $8.4 trillion 
D)  $8.7 trillion 
E)  $13.9 trillion

Exam 20: The Classical Long-Run Model

What key observation did the classical model attempt to explain?

The supply of loanable funds curve is downward sloping.

Leakages are

What condition must be met in order for total spending to equal total output?

The classical model does a good job of explaining the __________ while doing poor a job of explaining the __________.

-After examining Figure 8-3,it is possible to conclude that

In the classical model,if the amount households wish to save exceeds the sum of the amount businesses wish to invest plus the government's budget deficit,the loanable funds market

The economy's level of output depends upon (1)the

In the classical model,the demand for loanable funds comes from

What is the equilibrium condition in the loanable funds market?

-Refer to Figure 8-7.What is the equilibrium interest rate in the above figure?

Transfer payments,such as unemployment insurance and welfare,are included in the circular flow as part of

Which of the following events led to the debate over the applicability of the classical model?

The slope of the production function reflects

Changes in government spending or taxes designed to stimulate the economy are examples of

In the classical model,

The classical model assumes that

Assuming the economy was in equilibrium,use the following information to determine the government's budget deficit. The government's deficit (surplus)was

-Refer to Figure 8-6.Suppose that a $1 trillion increase in government spending shifted the demand for funds curve from D1 to D2.What would happen to the sum of investment and consumption spending? That sum would

Using the following information on a hypothetical economy in equilibrium,calculate total output for 2008. If exports are exactly equal to imports,total output for 2008 is

What Is Economics

Scarcity,choice,and Economic Systems

Scarcity, choice, and Economic Systems: Part A

Working With Supply and Demand

Elasticity

Consumer Choice

Production and Cost

How Firms Make Decisions: Profit Maximization

Perfect Competition

Perfect Competition: Part A

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

labor Markets: Part A

Capital and Financial Markets

Economic Efficiency and the Competitive Ideal

Governments Role in Economic Efficiency

Comparative Advantage and the Gains From International Trade

What Macroeconomics Tries to Explain

Production, income, and Employment

The Price Level and Inflation

Part A: The Classical Model in an Open Economy

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-Run Macro Model

Fiscal Policy

Money,banks,and the Federal Reserve

The Money Market and Monetary Policy

Feedback Effects From GDP to the Money Market

Aggregate Demand and Aggregate Supply

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Appendix-finding Equilibrium GDP Algebraically

Appendix: Capital and Leverage

Filters

The classical model does a good job of explaining the while doing poor a job of explaining the .

-Refer to Figure 8-6.Suppose that a $1 trillion increase in government spending shifted the demand for funds curve from D₁to D₂.What would happen to the sum of investment and consumption spending? That sum would