Question 1

Classical economics refers to an era in the history of economic thought that stretched from about

Accepted Answer

A)  1750 to the early 1900s. 
B)  1935 to the 1970s. 
C)  1800 to the mid 1900s. 
D)  1600 to the mid 1800s. 
A)  1750 to the early 1900s. 
B)  1935 to the 1970s. 
C)  1800 to the mid 1900s. 
D)  1600 to the mid 1800s.

Question 2

If the economy is self-regulating and in a recessionary gap,what happens?

Accepted Answer

A)  Wages rise,the SRAS curve shifts leftward,and both Real GDP and the price level rise. 
B)  Wages fall,the SRAS curve shifts leftward,the price level rises,and Real GDP falls. 
C)  Wages fall,the SRAS curve shifts rightward,and both the price level and Real GDP fall. 
D)  Wages fall,the SRAS curve shifts rightward,the price level falls,and Real GDP rises. 
E)  none of the above 
A)  Wages rise,the SRAS curve shifts leftward,and both Real GDP and the price level rise. 
B)  Wages fall,the SRAS curve shifts leftward,the price level rises,and Real GDP falls. 
C)  Wages fall,the SRAS curve shifts rightward,and both the price level and Real GDP fall. 
D)  Wages fall,the SRAS curve shifts rightward,the price level falls,and Real GDP rises. 
E)  none of the above

Question 3

When there is a recessionary gap, (actual)Real GDP is __________ Natural Real GDP,and the (actual)unemployment rate is __________ the natural rate of unemployment.

Accepted Answer

A)  greater than;less than 
B)  greater than;greater than 
C)  greater than;equal to 
D)  less than;greater than 
E)  less than;less than 
A)  greater than;less than 
B)  greater than;greater than 
C)  greater than;equal to 
D)  less than;greater than 
E)  less than;less than

Question 4

Which of the following statements is false?

Accepted Answer

A)  The classical economists believed that government should manage the economy. 
B)  The classical economists believed in a policy of laissez-faire. 
C)  The classical economists believed that the economy was self-regulating. 
D)  The classical economists believed equilibrium output would be full-employment output. 
A)  The classical economists believed that government should manage the economy. 
B)  The classical economists believed in a policy of laissez-faire. 
C)  The classical economists believed that the economy was self-regulating. 
D)  The classical economists believed equilibrium output would be full-employment output.

Question 5

Which of the following equations is correct?

Accepted Answer

A)  Saving = Disposable income + Consumption 
B)  Saving = Disposable income x Consumption 
C)  Disposable income = Consumption - Saving 
D)  Saving = Disposable income - Consumption 
A)  Saving = Disposable income + Consumption 
B)  Saving = Disposable income x Consumption 
C)  Disposable income = Consumption - Saving 
D)  Saving = Disposable income - Consumption

Question 6

If the economy is in a recessionary gap,

Accepted Answer

A)  Real GDP is greater than Natural Real GDP. 
B)  Real GDP is equal to Natural Real GDP. 
C)  Real GDP is less than Natural Real GDP. 
D)  the (actual)unemployment rate is less than the natural unemployment rate. 
E)  a and d 
A)  Real GDP is greater than Natural Real GDP. 
B)  Real GDP is equal to Natural Real GDP. 
C)  Real GDP is less than Natural Real GDP. 
D)  the (actual)unemployment rate is less than the natural unemployment rate. 
E)  a and d

Question 7

Exhibit 9-4  
-Refer to Exhibit 9-4.Assuming the economy is in an inflationary gap at a short-run equilibrium point with the price level at P2,the movement toward long-run equilibrium will be

Accepted Answer

A)  down and along AD1. 
B)  up and along AD2. 
C)  down and along SRAS1. 
D)  up and along SRAS2. 
E)  down and along SRAS2. 
A)  down and along AD1. 
B)  up and along AD2. 
C)  down and along SRAS1. 
D)  up and along SRAS2. 
E)  down and along SRAS2.

Question 8

The long-run aggregate supply (LRAS)curve is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  positively sloped. 
D)  negatively sloped. 
A)  horizontal. 
B)  vertical. 
C)  positively sloped. 
D)  negatively sloped.

Question 9

Exhibit 9-3  
-Refer to Exhibit 9-3.The economy is in short-run equilibrium and has a recessionary gap at point

Accepted Answer

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

Question 10

Which of the following is most nearly consistent with Say's law?

Accepted Answer

A)  When a person produces one good,he or she plans to demand other goods. 
B)  When a person produces a good,he or she plans to sell it. 
C)  When a person buys a good,he or she plans to pay for it with money. 
D)  When a person goes to work,he or she plans to produce. 
A)  When a person produces one good,he or she plans to demand other goods. 
B)  When a person produces a good,he or she plans to sell it. 
C)  When a person buys a good,he or she plans to pay for it with money. 
D)  When a person goes to work,he or she plans to produce.

Question 11

If the economy is self-regulating and in a recessionary gap,

Accepted Answer

A)  wages and prices will fall. 
B)  wages will fall,but prices will rise. 
C)  neither wages nor prices will change. 
D)  wages will rise,but prices will fall. 
E)  wages and prices will rise. 
A)  wages and prices will fall. 
B)  wages will fall,but prices will rise. 
C)  neither wages nor prices will change. 
D)  wages will rise,but prices will fall. 
E)  wages and prices will rise.

Question 12

According to classical economists,

Accepted Answer

A)  spending equals saving. 
B)  saving equals income. 
C)  income equals wealth. 
D)  none of the above 
A)  spending equals saving. 
B)  saving equals income. 
C)  income equals wealth. 
D)  none of the above

Question 13

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

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 14

If the economy is in long-run equilibrium,

Accepted Answer

A)  prices will rise but wages will remain constant. 
B)  neither prices nor wages will change. 
C)  it is producing Natural Real GDP. 
D)  prices will remain constant but wages may rise. 
E)  b and c 
A)  prices will rise but wages will remain constant. 
B)  neither prices nor wages will change. 
C)  it is producing Natural Real GDP. 
D)  prices will remain constant but wages may rise. 
E)  b and c

Question 15

If an economy is operating __________ its institutional production possibilities frontier,it is producing __________ output than it would be at full employment.

Accepted Answer

A)  below;less 
B)  below;more 
C)  above;less 
D)  above;more 
E)  a and d 
A)  below;less 
B)  below;more 
C)  above;less 
D)  above;more 
E)  a and d

Question 16

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 17

Which of the following statements is true?

Accepted Answer

A)  The long-run aggregate supply (LRAS)curve shows the Real GDP the economy is prepared to supply at different price levels,assuming wage rates and all other resource prices have fully adjusted to eliminate a recessionary or inflationary gap. 
B)  Laissez-faire is a government policy of raising aggregate demand in order to eliminate a recessionary gap. 
C)  An economy can operate beyond its physical PPF,but not beyond its institutional PPF. 
D)  If the economy is self-regulating,it is always in long-run equilibrium. 
E)  a and c 
A)  The long-run aggregate supply (LRAS)curve shows the Real GDP the economy is prepared to supply at different price levels,assuming wage rates and all other resource prices have fully adjusted to eliminate a recessionary or inflationary gap. 
B)  Laissez-faire is a government policy of raising aggregate demand in order to eliminate a recessionary gap. 
C)  An economy can operate beyond its physical PPF,but not beyond its institutional PPF. 
D)  If the economy is self-regulating,it is always in long-run equilibrium. 
E)  a and c

Question 18

Exhibit 9-4  
-Refer to Exhibit 9-4.Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P5.If something happens that shifts the AD curve to the AD1 position,the economy will eventually settle down at a long-run equilibrium point of __________.

Accepted Answer

A)  P5,Q3. 
B)  P4,Q4. 
C)  P3,Q3. 
D)  P3,Q5. 
E)  P4,Q2. 
A)  P5,Q3. 
B)  P4,Q4. 
C)  P3,Q3. 
D)  P3,Q5. 
E)  P4,Q2.

Question 19

Exhibit 9-3  
-Refer to Exhibit 9-3.The economy is in long-run equilibrium at point

Accepted Answer

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

Question 20

In a self-regulating economy,wages will fall and prices will rise when there is an inflationary gap.

Accepted Answer

A) True 
 B)False

Exam 9: Classical Macroeconomics and the Self-Regulating Economy

Classical economics refers to an era in the history of economic thought that stretched from about

If the economy is self-regulating and in a recessionary gap,what happens?

When there is a recessionary gap, (actual)Real GDP is __________ Natural Real GDP,and the (actual)unemployment rate is __________ the natural rate of unemployment.

Which of the following statements is false?

Which of the following equations is correct?

If the economy is in a recessionary gap,

Exhibit 9-4 -Refer to Exhibit 9-4.Assuming the economy is in an inflationary gap at a short-run equilibrium point with the price level at P2,the movement toward long-run equilibrium will be

The long-run aggregate supply (LRAS)curve is

Exhibit 9-3 -Refer to Exhibit 9-3.The economy is in short-run equilibrium and has a recessionary gap at point

Which of the following is most nearly consistent with Say's law?

If the economy is self-regulating and in a recessionary gap,

According to classical economists,

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

If the economy is in long-run equilibrium,

If an economy is operating __________ its institutional production possibilities frontier,it is producing __________ output than it would be at full employment.

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

Which of the following statements is true?

Exhibit 9-4 -Refer to Exhibit 9-4.Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P5.If something happens that shifts the AD curve to the AD1 position,the economy will eventually settle down at a long-run equilibrium point of __________.

Exhibit 9-3 -Refer to Exhibit 9-3.The economy is in long-run equilibrium at point

In a self-regulating economy,wages will fall and prices will rise when there is an inflationary gap.

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

Filters

When there is a recessionary gap, (actual)Real GDP is Natural Real GDP,and the (actual)unemployment rate is the natural rate of unemployment.

Exhibit 9-4 -Refer to Exhibit 9-4.Assuming the economy is in an inflationary gap at a short-run equilibrium point with the price level at P₂,the movement toward long-run equilibrium will be

If an economy is operating its institutional production possibilities frontier,it is producing output than it would be at full employment.