Deck 2: The Classical View of the Macro-Economy

Question 1

Traditional economics recognizes four broad categories or factors of production. These include:

A) land, natural resources, labor, entrepreneurship.
B) land, technology, labor, capital.
C) land, labor, capital, entrepreneurship.
D) land, capital, entrepreneurship, and natural resources.

Answer 1

C

Question 2

What are the three main markets that comprise market capitalism?

A) The market for goods, the market for services, and the market for technology.
B) The market for goods, the market for services, and the market for labor.
C) The market for goods and services, the market for labor, and financial markets.
D) The market for goods and services, the market for technology, and real estate markets.

Answer 2

C

Question 3

In the neoclassical view of the macroeconomy, any income not used for consumption

A) will be used to pay taxes.
B) will be used for investment.
C) will be used for government projects.
D) will be used for exports.

Answer 3

B

Question 4

In the neoclassical view of the macroeconomy, the supply of savings is

A) unrelated to the interest rate.
B) inversely related to the interest rate.
C) positively related to the interest rate is fixed.

Question 5

In the neoclassical view of the macroeconomy, too many workers seeking work or unemployment will lead to

A) falling wages.
B) rising wages.
C) rising interest rates.
D) government programs to help the unemployed.

Question 6

According to conservative economists, involuntary unemployment

A) does not exist.
B) should be imposed on those unwilling to work.
C) occurs during an economic expansion.
D) could be eliminated by effective government programs.

Question 7

Say's law was developed

A) by John Maynard Keynes in 1926.
B) by Adam Smith in 1776.
C) by Jean Baptiste Say in 1800.
D) by Thomas Say in 1825.

Question 8

According to Say's law, a lack of demand

A) may occur briefly in one industry until capital moves to another industry.
B) will never occur in the aggregate economy for any reason.
C) occurs whenever there is insufficient income to purchase goods produced.
D) will occur frequently, because people tend to hoard money.

Question 9

Which of the following is a statement of Say's law?

A) Good money always drives out bad.
B) Must be reformed in order to preserve it.
C) Any output supplied to the market generates an equal amount of demand.
D) An economy left alone will always return to equilibrium.

Question 10

In the classical version of the circular flow of economic life, all savings by households

A) are deposited in banks.
B) are borrowed by businesses for investment purposes.
C) become part of total demand for goods and services.
D) all of the above

Question 11

In the classical version of the circular flow of economic life, all savings are done by

A) households.
B) households and businesses.
C) only businesses.
D) government, businesses, and households.

Question 12

Which of the following is true of Say's law?

A) There is often a lack of sufficient demand for goods and services.
B) There can never be excess production above demand for any length of time.
C) The economy is naturally prone to severe booms and busts.
D) There is a constant danger of runaway inflation.

Question 13

In the neoclassical view of the macroeconomy, a temporary lack of demand for all goods and services will lead to

A) inflation.
B) a fall in the price level.
C) an expansion.
D) a recession.

Question 14

In the neoclassical view of the macroeconomy, if capitalists find they are unable to sell all of their goods

A) they will continue to produce at current levels but will reduce their prices to sell more goods.
B) they will maintain prices and put unsold goods into inventories.
C) they will cut back on production and lower prices.
D) they will cut back on production but maintain current prices to cover costs.

Question 15

In the neoclassical view of the macroeconomy, if there is not enough investment spending to use all available savings

A) the Federal Reserve will raise the interest rate.
B) the interest rate will fall.
C) excess savings will be hoarded.
D) excess savings will be used to pay taxes.

Question 16

In the neoclassical view of the macroeconomy, investment spending is

A) unrelated to the interest rate.
B) inversely related to the interest rate.
C) positively related to the interest rate.
D) completely unpredictable.

Question 17

Some neoclassical economists argue that recessions are caused by

A) a deficiency of aggregate demand.
B) hoarding of savings.
C) outside shocks or disruptions.
D) free trade.

Question 18

Progressive economists argue that conservatives tend to blame the unemployed for their own unemployment. What does this mean?

A) Conservatives argue that the unemployed have caused businesses to fail.
B) Conservatives argue that the unemployed do not pay buy enough goods and services causing the economy to go into a recession.
C) Conservatives argue that the unemployed are simply unwilling to work at the prevailing wage.
D) Conservatives argue that the unemployed have lost their jobs by being so industrious that they are no longer needed by their employers.

Question 19

At the beginning of the Great Depression

A) neoclassical economists insisted that the government should increase spending.
B) neoclassical economists predicted that the economy would soon return to normal.
C) neoclassical economists agreed that the problem was lack of effective demand.
D) neoclassical economists predicted the fall of capitalism.

Question 20

Why are Neoclassical economists often called "equilibrium theorists"?

A) Because they believe that government can easily restore the economy to equilibrium.
B) Because they believe the economy will always restore itself to equilibrium.
C) Because they believe the economy is always in equilibrium.
D) Because they believe all problems in the economy are caused by its equilibrium tendencies.

Question 21

According to conservative economists, how does the economy recover from an external shock?

A) Government policy can help to stabilize the economy.
B) The economy will restore itself to equilibrium automatically.
C) Another outside shock will counteract the first shock.
D) External shocks have no impact on an economy as large as the United States.

Question 22

The assumption that all savings out of national income are channeled into investment each year is called

A) the average propensity to consume.
B) Say's Law.
C) the Mellon Effect.
D) the Greenspan Rule.

Question 23

Why does the interest rate typically fall during economic contractions?

A) There is a high demand for loans from consumers.
B) Businesses have more retained profits and do not need to borrow from banks.
C) There is a lower demand for loans from consumers and businesses.
D) Banks are more willing to make loans and offer easier credit terms.