Question 1

The aggregate production function is the

Accepted Answer

A)  relationship between the amount of labor employed in the economy and the total amount of output produced 
B)  relationship between available labor and the total amount of output produced 
C)  the relationship between land and capital and labor employed in the economy 
D)  long-run equilibrium of the macroeconomy 
E)  amount of output any worker can produce given existing land and capital constraints 
A)  relationship between the amount of labor employed in the economy and the total amount of output produced 
B)  relationship between available labor and the total amount of output produced 
C)  the relationship between land and capital and labor employed in the economy 
D)  long-run equilibrium of the macroeconomy 
E)  amount of output any worker can produce given existing land and capital constraints

Question 2

In a typical economy,the dollar value of the total output for a period will equal the sum of consumption spending,planned investment spending,government spending,and net tax revenue.

Accepted Answer

A) True 
 B)False

Question 3

Which economic phenomenon is the short-run macro model most useful in explaining?

Accepted Answer

A)  The sources of employment in the long run 
B)  The trend of output in the long run 
C)  The sources of cyclical unemployment 
D)  The reasons why some workers become discouraged 
E)  The sources of long-run economic growth 
A)  The sources of employment in the long run 
B)  The trend of output in the long run 
C)  The sources of cyclical unemployment 
D)  The reasons why some workers become discouraged 
E)  The sources of long-run economic growth

Question 4

-Refer to Figure 8-1.What would be the effect if the real wage was $2 above the equilibrium wage?

Accepted Answer

A)  There would be a shortage of 40 million workers and the wage rate would rise. 
B)  There would be a shortage of 20 million workers and the wage rate would rise. 
C)  There would be a surplus of 40 million workers and the wage rate would fall. 
D)  There would be a surplus of 20 million workers and the wage rate would fall. 
E)  The government would set a minimum wage. 
A)  There would be a shortage of 40 million workers and the wage rate would rise. 
B)  There would be a shortage of 20 million workers and the wage rate would rise. 
C)  There would be a surplus of 40 million workers and the wage rate would fall. 
D)  There would be a surplus of 20 million workers and the wage rate would fall. 
E)  The government would set a minimum wage.

Question 5

Which of the following is an implication of the classical model?

Accepted Answer

A)  The supply of loanable funds curve is downward sloping. 
B)  The inflation rate is constantly rising. 
C)  Fiscal policy only changes the amount of consumption,investment and government spending,not the amount of output produced. 
D)  Monetary policy can change both the interest rate and real output. 
E)  The interest rate can only be changed by monetary policy,not by changes in government spending. 
A)  The supply of loanable funds curve is downward sloping. 
B)  The inflation rate is constantly rising. 
C)  Fiscal policy only changes the amount of consumption,investment and government spending,not the amount of output produced. 
D)  Monetary policy can change both the interest rate and real output. 
E)  The interest rate can only be changed by monetary policy,not by changes in government spending.

Question 6

In the classical model,beginning from an equilibrium in which the government is running a budget surplus,an increase in government spending will

Accepted Answer

A)  lower the wage rate 
B)  increase the supply of loanable funds 
C)  cause total spending to decline 
D)  cause total spending to increase 
E)  leave total spending unchanged 
A)  lower the wage rate 
B)  increase the supply of loanable funds 
C)  cause total spending to decline 
D)  cause total spending to increase 
E)  leave total spending unchanged

Question 7

-Refer to Figure 8-4.Based on these graphs,what are the equilibrium interest rate and quantity of loanable funds exchanged?

Accepted Answer

A)  5 percent and $1.4 trillion 
B)  5 percent and $2.2 trillion 
C)  8 percent and $1.8 trillion 
D)  8 percent and $2.8 trillion 
E)  It cannot be determined with the information given. 
A)  5 percent and $1.4 trillion 
B)  5 percent and $2.2 trillion 
C)  8 percent and $1.8 trillion 
D)  8 percent and $2.8 trillion 
E)  It cannot be determined with the information given.

Question 8

Assume a closed economy.If consumption spending is $6.2 trillion,investment spending is $2.5 trillion,net taxes are $1.5 trillion and total income is $11 trillion,how much must government purchases be?

Accepted Answer

A)  $2.3 trillion 
B)  $0.8 trillion 
C)  $3.3 trillion 
D)  $7 trillion 
E)  cannot be determined without more information 
A)  $2.3 trillion 
B)  $0.8 trillion 
C)  $3.3 trillion 
D)  $7 trillion 
E)  cannot be determined without more information

Question 9

According to Keynesian economists,

Accepted Answer

A)  the economy will return quickly to full employment in most cases 
B)  if output is below its potential,the economy will soon return to full employment 
C)  production can be stuck below its full-employment level for extended periods of time 
D)  the Great Depression proved that classical economics does a good job of explaining how the economy operates 
E)  he economy will achieve full employment in the short run but,in the long run,GDP will fluctuate 
A)  the economy will return quickly to full employment in most cases 
B)  if output is below its potential,the economy will soon return to full employment 
C)  production can be stuck below its full-employment level for extended periods of time 
D)  the Great Depression proved that classical economics does a good job of explaining how the economy operates 
E)  he economy will achieve full employment in the short run but,in the long run,GDP will fluctuate

Question 10

On a graph,the private sector's demand for loanable funds curve is

Accepted Answer

A)  upward sloping 
B)  vertical 
C)  horizontal 
D)  downward sloping 
E)  horizontal then upward sloping 
A)  upward sloping 
B)  vertical 
C)  horizontal 
D)  downward sloping 
E)  horizontal then upward sloping

Question 11

Investment spending is inversely related to the interest rate.

Accepted Answer

A) True 
 B)False

Question 12

The aggregate production function shows how much output the economy can produce

Accepted Answer

A)  with different quantities of labor,land,capital and states of technology 
B)  with different quantities of labor and capital,for given amounts of land and a given state of technology 
C)  with different quantities of labor,for given amounts of land and capital,and a given state of technology 
D)  with a given amount of money 
E)  with different amounts of money and given amounts of land,labor,capital,and a given state of technology 
A)  with different quantities of labor,land,capital and states of technology 
B)  with different quantities of labor and capital,for given amounts of land and a given state of technology 
C)  with different quantities of labor,for given amounts of land and capital,and a given state of technology 
D)  with a given amount of money 
E)  with different amounts of money and given amounts of land,labor,capital,and a given state of technology

Question 13

What is the effect of diminishing returns to labor on the slope of the aggregate production function (where output is measured on the vertical axis and employment is measured on the horizontal axis)?

Accepted Answer

A)  It implies that the slope of the curve increases as the number of workers employed increases. 
B)  It implies that the slope of the curve becomes negative as the number of workers employed increases. 
C)  It implies that the slope of the curve decreases (or becomes flatter)as the number of workers employed increases. 
D)  It keeps the slope the same throughout. 
E)  It has nothing to do with the slope of the aggregate production function. 
A)  It implies that the slope of the curve increases as the number of workers employed increases. 
B)  It implies that the slope of the curve becomes negative as the number of workers employed increases. 
C)  It implies that the slope of the curve decreases (or becomes flatter)as the number of workers employed increases. 
D)  It keeps the slope the same throughout. 
E)  It has nothing to do with the slope of the aggregate production function.

Question 14

John Maynard Keynes and his followers argued that

Accepted Answer

A)  the classical model does a good job of explaining the economy's operation in both the short run and long run 
B)  the short run is unimportant so economists should focus their attention on the long run 
C)  the economy should be allowed to function with minimal government interference 
D)  the economy operates the same way in both the short run and long run 
E)  while the classical model might explain economic performance in the long run,the long run could take a long time to reach 
A)  the classical model does a good job of explaining the economy's operation in both the short run and long run 
B)  the short run is unimportant so economists should focus their attention on the long run 
C)  the economy should be allowed to function with minimal government interference 
D)  the economy operates the same way in both the short run and long run 
E)  while the classical model might explain economic performance in the long run,the long run could take a long time to reach

Question 15

In the classical model,investment spending is

Accepted Answer

A)  positively related to the level of income 
B)  positively related to the interest rate 
C)  negatively related to the interest rate 
D)  unrelated to the interest rate 
E)  negatively related to the price level 
A)  positively related to the level of income 
B)  positively related to the interest rate 
C)  negatively related to the interest rate 
D)  unrelated to the interest rate 
E)  negatively related to the price level

Question 16

Which of the following real-world phenomena does the classical model ignore?

Accepted Answer

A)  Frictional unemployment 
B)  Inflation 
C)  Real output growth 
D)  Cyclical unemployment 
E)  Structural unemployment 
A)  Frictional unemployment 
B)  Inflation 
C)  Real output growth 
D)  Cyclical unemployment 
E)  Structural unemployment

Question 17

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

Question 18

If at an interest rate of 7 percent,planned investment is $2 trillion,government spending is $3 trillion,net taxes are $2.8 trillion,and household saving is $2.2 trillion,what is the quantity of funds demanded at an interest rate of 7 percent?

Accepted Answer

A)  $1.8 trillion 
B)  $2.2 trillion 
C)  $2.8 trillion 
D)  $5.0 trillion 
E)  $5.8 trillion 
A)  $1.8 trillion 
B)  $2.2 trillion 
C)  $2.8 trillion 
D)  $5.0 trillion 
E)  $5.8 trillion

Question 19

The Classical model

Accepted Answer

A)  is now discredited 
B)  was developed by John Maynard Keynes 
C)  has been completely displaced by the short-run macro model 
D)  helps us to understand the performance of the economy in the long run 
E)  is most useful in helping us to predict when an economic downturn will occur 
A)  is now discredited 
B)  was developed by John Maynard Keynes 
C)  has been completely displaced by the short-run macro model 
D)  helps us to understand the performance of the economy in the long run 
E)  is most useful in helping us to predict when an economic downturn will occur

Question 20

The government budget deficit is

Accepted Answer

A)  the difference between government purchases and government revenues from bonds and taxes 
B)  caused by a lack of business sector investment 
C)  created when the government expenditures exceed net taxes 
D)  caused by leakages in the economy 
E)  is created by government injections 
A)  the difference between government purchases and government revenues from bonds and taxes 
B)  caused by a lack of business sector investment 
C)  created when the government expenditures exceed net taxes 
D)  caused by leakages in the economy 
E)  is created by government injections

Exam 20: The Classical Long-Run Model

The aggregate production function is the

In a typical economy,the dollar value of the total output for a period will equal the sum of consumption spending,planned investment spending,government spending,and net tax revenue.

Which economic phenomenon is the short-run macro model most useful in explaining?

-Refer to Figure 8-1.What would be the effect if the real wage was $2 above the equilibrium wage?

Which of the following is an implication of the classical model?

In the classical model,beginning from an equilibrium in which the government is running a budget surplus,an increase in government spending will

-Refer to Figure 8-4.Based on these graphs,what are the equilibrium interest rate and quantity of loanable funds exchanged?

Assume a closed economy.If consumption spending is $6.2 trillion,investment spending is $2.5 trillion,net taxes are $1.5 trillion and total income is $11 trillion,how much must government purchases be?

According to Keynesian economists,

On a graph,the private sector's demand for loanable funds curve is

Investment spending is inversely related to the interest rate.

The aggregate production function shows how much output the economy can produce

What is the effect of diminishing returns to labor on the slope of the aggregate production function (where output is measured on the vertical axis and employment is measured on the horizontal axis)?

John Maynard Keynes and his followers argued that

In the classical model,investment spending is

Which of the following real-world phenomena does the classical model ignore?

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

If at an interest rate of 7 percent,planned investment is $2 trillion,government spending is $3 trillion,net taxes are $2.8 trillion,and household saving is $2.2 trillion,what is the quantity of funds demanded at an interest rate of 7 percent?

The Classical model

The government budget deficit 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