Question 1

In a self-regulating economy, inflationary and recessionary gaps

Accepted Answer

A) never occur. 
B) are eliminated by forces internal to the economy, without government intervention. 
C) are eliminated by timely actions of government policymakers. 
D) are the desirable results of microeconomic price adjustments.

Question 2

According to classical economists, the relationship between the amount of funds firms invest and the interest rate is

Accepted Answer

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

Question 3

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

Accepted Answer

A) True 
 B)False

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.

Question 5

An economy is producing its Natural Real GDP when the unemployment rate is equal to the __________ unemployment rate.

Accepted Answer

A) frictional 
B) structural 
C) sum of the frictional unemployment rate and the structural 
D) seasonal 
E) cyclical

Question 6

Exhibit 9-4
 
-Refer to Exhibit 9-4. Which of the following is true at the Real GDP level of Q3?

Accepted Answer

A) The unemployment rate is equal to the natural unemployment rate. 
B) The cyclical unemployment rate is zero. 
C) The economy is in long-run equilibrium. 
D) all of the above 
E) none of the above

Question 7

The classical economists believed that wages, prices, and interest rates were flexible in both the upward and the downward direction.

Accepted Answer

A) True 
 B)False

Question 8

In a self-regulating economy, inflationary and recessionary gaps produce shifts of the

Accepted Answer

A) AD curve that maintain the short-run equilibrium point. 
B) AD curve that move the economy to a long-run equilibrium point. 
C) SRAS curve that maintain the short-run equilibrium point. 
D) SRAS curve that move the economy to a long-run equilibrium point.

Question 9

When the natural unemployment rate is less than the actual unemployment rate, the economy is in a recessionary gap.

Accepted Answer

A) True 
 B)False

Question 10

A recessionary 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.

Question 11

Exhibit 9-6
 
-Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, what is going to happen?

Accepted Answer

A) Wages rise, the SRAS curve shifts to the right until it passes through point 3; in long-run equilibrium the price level is lower and Real GDP is higher than at point 1. 
B) Wages fall, the SRAS curve shifts to the left until it passes through point 2; in long-run equilibrium the price level is higher and Real GDP is lower that at point 1. 
C) Wages fall, the SRAS curve shifts to the right until it passes through point 3; in long-run equilibrium the price level is lower and Real GDP is higher than at point 1. 
D) Wages rise, the AD curve shifts to the right until it passes through point 4; in long-run equilibrium the price level and Real GDP are higher than at point 1. 
E) Prices rise, the AD curve shifts to the right until it passes through point 4; in long-run equilibrium the price level and Real GDP are higher than at point 1.

Question 12

If the economy is operating at a point beyond its institutional production possibilities frontier (institutional PPF), then the economy is

Accepted Answer

A) producing Natural Real GDP and operating at the natural unemployment rate. 
B) producing less than Natural Real GDP and operating below the natural unemployment rate. 
C) producing more than Natural Real GDP and operating above the natural unemployment rate. 
D) producing more than Natural Real GDP and operating below the natural unemployment rate. 
E) none of the above

Question 13

Exhibit 9-5
 
-Refer to Exhibit 9-5. Point A on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at which point(s) on graph (1)?

Accepted Answer

A) I or J 
B) K 
C) L or M 
D) I or L 
E) J or M

Question 14

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.

Question 15

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.

Question 16

The more institutional constraints that exist in a particular society,

Accepted Answer

A) the closer the institutional PPF will lie to the physical PPF. 
B) the farther out from the origin the institutional PPF will lie. 
C) the closer to the origin the institutional PPF will lie. 
D) the closer to the origin the institutional PPF will lie and the farther out from the origin the physical PPF will lie.

Question 17

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.

Question 18

When the economy is in a recessionary gap, the labor market is experiencing a surplus.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is

Accepted Answer

A) in a recessionary gap. 
B) in either a recessionary gap or an inflationary gap, but we need more information to determine which one. 
C) in an inflationary gap. 
D) at full-employment Real GDP.

Exam 9: Classical Macroeconomics and the Self Regulating Economy

In a self-regulating economy, inflationary and recessionary gaps

According to classical economists, the relationship between the amount of funds firms invest and the interest rate is

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

Which of the following statements is false?

An economy is producing its Natural Real GDP when the unemployment rate is equal to the __________ unemployment rate.

Exhibit 9-4 -Refer to Exhibit 9-4. Which of the following is true at the Real GDP level of Q₃?

The classical economists believed that wages, prices, and interest rates were flexible in both the upward and the downward direction.

In a self-regulating economy, inflationary and recessionary gaps produce shifts of the

When the natural unemployment rate is less than the actual unemployment rate, the economy is in a recessionary gap.

A recessionary gap exists when AD and SRAS

Exhibit 9-6 -Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, what is going to happen?

If the economy is operating at a point beyond its institutional production possibilities frontier (institutional PPF) , then the economy is

Exhibit 9-5 -Refer to Exhibit 9-5. Point A on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at which point(s) on graph (1) ?

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

The more institutional constraints that exist in a particular society,

According to Say's law,

When the economy is in a recessionary gap, the labor market is experiencing a surplus.

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

If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is

Exam 9: Classical Macroeconomics and the Self Regulating Economy

In a self-regulating economy, inflationary and recessionary gaps

According to classical economists, the relationship between the amount of funds firms invest and the interest rate is

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

Which of the following statements is false?

An economy is producing its Natural Real GDP when the unemployment rate is equal to the __________ unemployment rate.

Exhibit 9-4 -Refer to Exhibit 9-4. Which of the following is true at the Real GDP level of Q3?

The classical economists believed that wages, prices, and interest rates were flexible in both the upward and the downward direction.

In a self-regulating economy, inflationary and recessionary gaps produce shifts of the

When the natural unemployment rate is less than the actual unemployment rate, the economy is in a recessionary gap.

A recessionary gap exists when AD and SRAS

Exhibit 9-6 -Refer to Exhibit 9-6. If the economy is self-regulating and currently at point 1, what is going to happen?

If the economy is operating at a point beyond its institutional production possibilities frontier (institutional PPF) , then the economy is

Exhibit 9-5 -Refer to Exhibit 9-5. Point A on graph (2) would correspond to the intersection of an AD curve and a SRAS curve at which point(s) on graph (1) ?

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

The more institutional constraints that exist in a particular society,

According to Say's law,

When the economy is in a recessionary gap, the labor market is experiencing a surplus.

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

If the SRAS curve intersects the AD curve to the right of Natural Real GDP, the economy is

Exhibit 9-4 -Refer to Exhibit 9-4. Which of the following is true at the Real GDP level of Q₃?

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