Question 1

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. A

Question 2

According to classical economists,Say's law applies to a barter economy,but it does not apply to a money economy.

Accepted Answer

A) True 
 B)False  False

Question 3

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. C

Question 4

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

Accepted Answer

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

Question 5

In a barter economy,Say's law implies there

Accepted Answer

A)  can be a general overproduction of goods. 
B)  can be a general underproduction of goods. 
C)  cannot be a general overproduction or underproduction of goods. 
D)  can be a general overproduction of goods but never a general underproduction of goods. 
A)  can be a general overproduction of goods. 
B)  can be a general underproduction of goods. 
C)  cannot be a general overproduction or underproduction of goods. 
D)  can be a general overproduction of goods but never a general underproduction of goods.

Question 6

According to Say's law,

Accepted Answer

A)  the demand curve is negatively sloped. 
B)  the supply curve is positively sloped. 
C)  supply creates its own demand. 
D)  economic units should produce those goods for which they are low-opportunity-cost producers. 
A)  the demand curve is negatively sloped. 
B)  the supply curve is positively sloped. 
C)  supply creates its own demand. 
D)  economic units should produce those goods for which they are low-opportunity-cost producers.

Question 7

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 8

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.The level of total expenditures (TE)in this economy is currently ______________ billion.

Accepted Answer

A)  $10,600 
B)  $10,900 
C)  $11,200 
D)  $8,900 
A)  $10,600 
B)  $10,900 
C)  $11,200 
D)  $8,900

Question 9

If Real GDP is greater than Natural Real GDP,the economy is in a(n)

Accepted Answer

A)  frictional gap. 
B)  structural gap. 
C)  recessionary gap. 
D)  inflationary gap. 
A)  frictional gap. 
B)  structural gap. 
C)  recessionary gap. 
D)  inflationary gap.

Question 10

In the long run,changes in aggregate demand will affect the level of Real GDP (but not the price level)in a self-regulating economy.

Accepted Answer

A) True 
 B)False

Question 11

According to classical economists,the relationship between the amount of funds households plan to save and the interest rate is

Accepted Answer

A)  indirect. 
B)  inverse. 
C)  direct. 
D)  independent. 
A)  indirect. 
B)  inverse. 
C)  direct. 
D)  independent.

Question 12

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 13

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 14

A necessary condition for a money economy to be self-regulating is that

Accepted Answer

A)  wages must be flexible in an upward direction,but not in a downward direction. 
B)  the economy must always be operating on its institutional production possibilities frontier. 
C)  wages must be flexible in a downward direction,but not in an upward direction. 
D)  interest rates must be flexible in the credit market. 
E)  none of the above 
A)  wages must be flexible in an upward direction,but not in a downward direction. 
B)  the economy must always be operating on its institutional production possibilities frontier. 
C)  wages must be flexible in a downward direction,but not in an upward direction. 
D)  interest rates must be flexible in the credit market. 
E)  none of the above

Question 15

According to the classical theorists,it is impossible to have a

Accepted Answer

A)  surplus of a particular product. 
B)  shortage of a particular product. 
C)  decrease in the demand for a product. 
D)  decrease in the supply of a product. 
E)  general overproduction of products. 
A)  surplus of a particular product. 
B)  shortage of a particular product. 
C)  decrease in the demand for a product. 
D)  decrease in the supply of a product. 
E)  general overproduction of products.

Question 16

Exhibit 9-1  
-Refer to Exhibit 9-1.The economy is currently producing Q1.An economist who believes wages are flexible in the downward direction would argue that

Accepted Answer

A)  it is likely the economy will soon move to point B. 
B)  it is likely the economy will soon move to point A. 
C)  it is not likely the economy will move to point A on its own accord now or anytime soon. 
D)  Real GDP will soon take a downturn. 
A)  it is likely the economy will soon move to point B. 
B)  it is likely the economy will soon move to point A. 
C)  it is not likely the economy will move to point A on its own accord now or anytime soon. 
D)  Real GDP will soon take a downturn.

Question 17

Exhibit 9-7  
-Refer to Exhibit 9-7.Which point is representative of the economy experiencing labor market shortages?

Accepted Answer

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

Question 18

Exhibit 9-6  
-Refer to Exhibit 9-6.If the economy is self-regulating and currently at point 1,the real balance effect is operational and relevant between points

Accepted Answer

A)  3 and 4. 
B)  1 and 2. 
C)  1 and 4. 
D)  1 and 3. 
E)  2 and 3. 
A)  3 and 4. 
B)  1 and 2. 
C)  1 and 4. 
D)  1 and 3. 
E)  2 and 3.

Question 19

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 20

If the natural unemployment rate is 5 percent and the current unemployment rate is 6 percent,then the economy is

Accepted Answer

A)  producing more Real GDP than it does at full employment. 
B)  in an inflationary gap. 
C)  producing less Real GDP than it does at full employment. 
D)  a and b 
E)  b and c 
A)  producing more Real GDP than it does at full employment. 
B)  in an inflationary gap. 
C)  producing less Real GDP than it does at full employment. 
D)  a and b 
E)  b and c

Exam 9: Classical Macroeconomics and the Self-Regulating Economy

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

According to classical economists,Say's law applies to a barter economy,but it does not apply to a money economy.

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

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

In a barter economy,Say's law implies there

According to Say's law,

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

If Real GDP is greater than Natural Real GDP,the economy is in a(n)

In the long run,changes in aggregate demand will affect the level of Real GDP (but not the price level)in a self-regulating economy.

According to classical economists,the relationship between the amount of funds households plan to save and the interest rate is

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

An inflationary gap exists when AD and SRAS

A necessary condition for a money economy to be self-regulating is that

According to the classical theorists,it is impossible to have a

Exhibit 9-1 -Refer to Exhibit 9-1.The economy is currently producing Q1.An economist who believes wages are flexible in the downward direction would argue that

Exhibit 9-7 -Refer to Exhibit 9-7.Which point is representative of the economy experiencing labor market shortages?

Exhibit 9-6 -Refer to Exhibit 9-6.If the economy is self-regulating and currently at point 1,the real balance effect is operational and relevant between points

If the natural unemployment rate is 5 percent and the current unemployment rate is 6 percent,then the economy is

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, controlled, and Relative

Supply,demand,and Price: Applications

Macroeconomic Measurements, Prices and Unemployment

Macroeconomic Measurements, 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

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

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

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

Agriculture: Problems, policies, and Unintended Effects

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Exhibit 9-1 -Refer to Exhibit 9-1.The economy is currently producing Q₁.An economist who believes wages are flexible in the downward direction would argue that