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Economics 50 Mulitple Choice questions
Macroeconomics
Instructor: Jen Dinsmore Hanson
Homework Assignment
Chapter 9
Multiple Choice Questions
1. Net domestic product is usually preferred to GDP by economists because net national
product
A. includes depreciation.
B. excludes depreciation.
C. includes indirect business taxes.
D. excludes indirect business taxes.
2. If GDP rose from $4 trillion to $6 trillion, and prices rose by 50 percent, over this period
A. real GDP fell by 100 percent.
B. real GDP fell by 50 percent.
C. real GDP stayed the same.
D. real GDP rose by 50 percent.
E. real GDP rose by 100 percent.
3. Which is not counted in GDP?
A. A Social Security check sent to a retiree
B. Government spending on highway building
C. Money spent on an airline ticket
D. Money spent by a company to build a new office park
4. The smallest component of national income is
A. rent.
B. interest.
C. profits.
D. salaries and wages.
5. Which one of the following is counted in GDP?
A. Government spending
B. Transfer payments
C. Intermediate goods
D. Leisure time
6. Which statement is true?
A. GDP can never be greater than NDP.
B. NDP can never be greater than GDP.
C. GDP and NDP are always equal.
D. None of the statements are true.
7. Which statement is true?
A. In recent years net exports have been negative.
B. Government spending is the largest sector of GDP.
C. Business investment is the largest sector of GDP.
D. None of the statements are true.
8. If GDP declined by 6 percent in real terms during one year, and population declined by 3
percent, then
A. real GDP per capita decreased.
B. real GDP per capita increased.
C. real GDP increased while nominal GDP decreased.
D. nominal GDP did not change at all.
E. prices went down by 3 percent.
9. If our population doubles, our GDP doubles, and the GDP deflator doubles, our per capita
real GDP will
A. quadruple.
B. double.
C. stay exactly the same.
D. decline by 25 percent.
E. decline by 50 percent.
10. Gross Domestic Product is the total market value of all
A. commodities sold in a year.
B. goods and services produced in a year within a country.
C. foods and services produced by domestic companies in a year.
D. consumer goods sold in a year.
11. National income measures
A. nominal GDP after it has been inflated or deflated for changes in the value of the dollar.
B. the inflation adjusted income of resource supplies.
C. the market value or cost of the resources used in the production of the national output.
D. tax receipts of the federal government.
12. For purposes of calculating GDP using the expenditure approach, which of the following
is NOT included in the government expenditures account?
A. The government’s purchase of pencils
B. The payroll of the federal government
C. The welfare payments made to the poor
D. The government’s purchase of a computer
E. None of the choices are correct
13. Intermediate products are
A. goods that are purchased by the government.
B. goods that are transferred to the states.
C. products produced by the federal government but consumed by the states.
D. products produced by business firms for resale to other firms for further processing before
sold to the final consumer of the product.
14. GDP is
A. the market value of an economy’s production of final goods and services.
B. the sum of coins, bills, and demand deposits in an economy.
C. the total expenditures of the federal government over the period of 1 year.
D. the market value of an economy’s production of intermediate goods and services.
E. the total amount the government owes to bondholders.
15. The change in the United States from a rural, self-sufficient economy to an urban, market-
oriented economy had the effect of
A. causing the growth in GDP to understate the growth in economic well-being.
B. inhibiting the growth of GDP.
C. causing the growth in GDP to overstate the growth in economic well-being.
D. increasing GDP primarily through the resulting increase in the general price level.
16. Wages are used to calculate
A. GDP by the income approach.
B. GDP by the expenditures approach.
C. Net exports.
D. Net subsidies to government enterprises.
E. None of the choices are correct.
17. National income accountants can avoid multiple accounting by
A. including transfers in their calculations.
B. counting both intermediate and final
goods.
C. only counting final goods.
D. only counting intermediate goods.
18. The value added for a nation equals
A. all goods and services less the intermediate goods used in
production.
B. the market value of all products and services less the market value of all intermediate
goods.
C. input costs plus the value of intermediate goods.
D. the market value of intermediate goods less the value of all goods and services.
19. Suppose that our GDP rose from $20 trillion in the year 2012 to $37 trillion in the year
2013.
A. Real GDP definitely increased.
B. Real GDP definitely decreased.
C. The GDP deflator definitely doubled.
D. The GDP deflator definitely increased.
E. The GDP deflator definitely decreased.
20. The concept of “net domestic investment” refers to
A. the amount of machinery and equipment used up in producing the GDP in a given year.
B. the difference between the market value and book value of outstanding capital stock.
C. gross domestic investment less net exports.
D. total investment less the amount of investment goods used up in accomplishing the year’s
production.
E. The total output of capital equipment, construction, and additions to inventories which
occur in a given year.
21. National income includes all of the following except
A. wages and salaries.
B. corporate profits before taxes.
C. rental income.
D. depreciation.
22. In evaluating an economy’s performance over a period of years, real GDP provides a
better measuring rod than GDP because
A. GDP is distorted by its failure to show qualitative improvements in the products we
manufacture.
B. Real GDP is adjusted for the social and environmental costs of production, which are
normally not compensated.
C. Real GDP includes such productive endeavors as housewife services and home repairs that
are performed by households without payment.
D. Real GDP does not include the value of intermediate goods and services.
E. GDP reflects changes in prices as well as changes in output, while real GDP only reflects
changes in output.
23. We use the value added approach in calculating GDP to
A. avoid double counting.
B. account for market price differences.
C. account for changes in population.
D. account for consumer income differences.
24. In 2009, the largest share of the United States economy’s allocation of national product to
land, labor, capital, and management was primarily received by the suppliers of
A. Management.
B. Land.
C. Labor.
D. Capital.
25. GDP can increase at a faster rate than real GDP
A. only if there is a decline in the price level.
B. only if the unemployment rate is increasing.
C. only if the value of the dollar is stable.
D. only if the population is growing.
E. only if there is inflation.
26. The effect of Hurricane Katrina from a national income accounting standpoint probably
caused real GDP to
A. decrease.
B. increase.
C. stay the same.
27. The total market value of a nation’s aggregate production of final output based on current
prices for the goods and services produced during a given year is called
A. net national product.
B. national income.
C. GDP.
D. real GDP.
28. The nation of Upper Volta has a population of 100 million and a GDP of $4 trillion; the
nation of Lower Volta has a population of 20 million and a GDP of $600 billion.
A. Upper Volta has a higher per capita GDP than Lower Volta.
B. Lower Volta has a higher per capita GDP than Upper Volta.
C. The per capita GDPs of the two nations are equal.
D. There is not enough information to determine the relative per capita GDPs of the two
nations.
29. In comparing GDP data over a period of years a difference between GDP and real GDP
may arise because
A. Of changes in our trade deficits and surpluses.
B. The length of the workweek has declined historically.
C. The price level may change over time.
D. Depreciation may be greater or smaller than gross investment.
30. Which of the following is part of gross domestic product?
A. Value of homemakers’ services in the home.
B. Purchase of a second-hand car from a neighbor.
C. Purchase of new stock from a recognized broker.
D. Purchase of a new textbook in the local bookstore.
E. Purchase of a corporate bond.
31. GDP can be estimated by summing
A. personal consumption expenditures, net private domestic investment, and federal
government spending.
B. personal consumption expenditures, gross private domestic investment, government
spending on goods and services, and net exports.
C. all services and goods purchased by households, businesses, and government.
D. household spending, investment, financial transactions, and government transfers.
32. The underground economy
A. consists mainly of such involuntary transfer payments as savings and loan fraud and bank
robberies.
B. consists only of illegal activities such as prostitution, loan-sharking, and narcotics.
C. is a very stable percentage of GDP.
D. causes GDP to be underestimated by 10 to 15 percent.
E. is a much larger percentage in the United States than in most other countries.
33. If there is a recession, which of the following will decline?
A. GDP
B. Government purchases
C. Real GDP
D. Nominal income
34. Suppose a farmer sells a bushel of wheat to a miller for $1; the miller makes it into flour
and sells it to a baker for $2; the baker turns it into bread and sells it to a customer for $3.
Calculating GDP the contribution of transactions would be
A. $1.00.
B. $2.00.
C. $3.00.
D. $6.00.
35. If families began doing each other’s laundry for pay, GDP would
A. rise.
B. fall.
C. remain unchanged because services are not included in GDP.
D. remain unchanged because laundry is not a final good.
36. The value actually earned by members of households who supply the inputs necessary to
produce GDP is called
A. net investment.
B. national income.
C. personal income.
D. disposable income.
E. net national product.
37. Suppose that GDP is equal to $8 trillion. If net exports are -$1 trillion, consumption is $5
trillion, and investment is $2 trillion it follows that
A. government purchases are zero.
B. government purchases are $1 trillion.
C. government purchases are $2 trillion.
D. government purchases are $3 trillion.
38. If a large number of families moved from cities to rural areas and produced the major
portion of the food what would be the effect on the GDP?
A. GDP would decline
B. GDP would increase
C. GDP would be unaffected
D. GDP would equal NDP
39. Gross investment refers to
A. net investment plus net exports.
B. net investment after it has been “inflated” for changes in the price level.
C. net investment plus depreciation.
D. private investment plus public investment.
40. Which one of the following is a final good or service?
A. Microcomputer chips for a new computer
B. A radio bought by General Motors for use in its new line of cars
C. Chemical pesticides used by a farmer to control the incidence of crop disease
D. A will drawn up by your personal attorney
E. The lead added to gasoline to increase the octane rating
41. Statement I: The higher the GDP deflator, the greater the degree of deflation.
Statement II: Real GDP was higher in 1992 than in 1991.
A. Statement I is true and statement II is false.
B. Both statements are true.
C. Statement II is true and statement I is false.
D. Both statements are false.
42. The term “final goods and services” refers to
A. goods and services which are unsold and therefore added to inventories.
B. goods and services whose value has been adjusted for changes in the price level.
C. good and services purchased by ultimate users, as opposed to resale or further processing.
D. the excess of American exports over American imports.
E. consumer goods, as opposed to investment goods.
43. GDP is $7 trillion. If consumption is $4.2 trillion, investment is $1.4 trillion, and
government purchases are $2.1 trillion, then
A. exports are equal to imports.
B. exports exceed imports by $0.7 trillion.
C. imports exceed exports by $0.7 trillion.
D. exports are equal to $0.7 trillion.
44. The increase in the proportion of women in the labor force causes GDP to _____ the
growth in economic well-being because ___.
A. overstate; some of the services that women formerly provided in the home are now
purchased in the market
B. overstate; the services that women provide in the home do not contribute to economic well-
being
C. understate; some of the services that women formerly provided in the home are now
purchased in the market
D. understate; the services that women provide in the home do not contribute to economic
well-being
45. The sale of a used 1999 automobile in 2009 would not be included in 2009 GDP because
it
A. is a nonmarket transaction.
B. would involve double counting.
C. has already been accounted for.
D. is a noninvestment transaction.
46. Transfer payments are
A. flows of income received by foreigners.
B. flows of income received by exporters.
C. included in GDP.
D. excluded from GDP.
E. stocks of unplanned inventory produced in prior years.
47. Military goods purchased by the government are
A. not included in GDP.
B. measured in GDP by their cost of production.
C. measured in GDP by how much their goods add to the economic well-being.
D. measured in GDP only if the government sells these goods to another country.
48. Payments for goods and services that will be used up by households during the year are
A. investment expenditures for the production of output.
B. made by firms to households and called national income.
C. called consumption expenditures.
D. for intermediate goods and are not counted in GDP.
49. Statement I: When there is inflation, real GDP will be greater than GDP.
Statement II: The greater depreciation is, the greater the difference between GDP and NDP.
A. Statement I is true and statement II is false.
B. Statement II is true and statement I is false.
C. Both statements are true.
D. Both statements are false.
50. Which of the following is an example of an intermediate product?
A. A pair of skis sold by a sporting goods retailer
B. A share of IBM stock
C. The lumber produced by Boise Cascade and sold to a builder of new houses
D. An antique car sold to the highest bidder
E. None of the choices are true
Short Answer Questions
1. Find national income.
2. Find net domestic product.
3. Find gross domestic product.
4. Find national income.
5. Find net domestic product.
6. Find gross domestic product.
7. If the GDP deflator rises from 150 to 175, by what percentage did prices rise?
Macroeconomics
Instructor: Jen Dinsmore Hanson
Homework Assignment
Chapter 10
Multiple Choice Questions
1. Junior Ozark dresses for job interviews in bib overalls, a red lumberjack shirt, and torn
basketball sneakers. He has been looking for a job as an investment banker ever since he dropped
out of high school. He is now 46 years old and has never held a job. Mr. Ozark is _____
unemployed.
A. frictionally
B. structurally
C. cyclically
D. psychologically
2. Troughs occur
A. two or three times a
year.
B. two or three times in every business cycle.
C. at the bottom of business cycles.
D. about once every 25 years.
3. Which statement is true?
A. People collecting unemployment benefits are not counted as un
employed.
B. The Bureau of Labor Statistics compiles the unemployment rate from the data they collect
from the unemployment insurance officers.
C. The unemployment rate is calculated by dividing the number of unemployed by the number of
employed.
D. None of the statements are true.
4. During the early 1980s the changes that occurred in inflation and unemployment rates
A. suggest that disinflation can occur only if unemployment increases significantly.
B. support the notion of a stable Phillips curve.
C. suggest that both inflation and unemployment can be consistently reduced by dramatically
increasing interest rates.
5. Among the following cases, which one would be considered to be unemployed? Someone
who
A. worked three days in the last month but is now out of work.
B. is ready, willing, and able to work, but gave up looking for work three months ago.
C. reported to the state employment office last week but is not very enthusiastic about finding a
job.
6. Kimberly quit her job as a computer programmer, spent two weeks in Hawaii, and is now
looking for (and expects to soon find) another job. She is _____ unemployed.
A. psychologically
B. structurally
C. frictionally
D. cyclically
7. In 1973 the OPEC countries
A. lowered the price of oil by 50%.
B. raised the price of oil by 50%.
C. doubled the price of oil.
D. quadrupled the price of oil.
8. Which of the following is NOT one of a group of variables that make up the Index of Leading
Indicators?
A. New building permits issued
B. The unemployment rate
C. Index of stock prices
D. The money supply
E. The average workweek of production workers in manufacturing
9. Which statement is true about the rate of inflation?
A. It was higher in the 1960s than in the 1970s.
B. It was higher in the 1970s than in the 1960s.
C. It was about the same in the 1960s as in the 1970s.
10. Point X is in the _____ phase of the business cycle.
A. prosperity
B. recovery
C. recession
D. depression
E. acceleration
11. Point Y is in the _____ phase of the business cycle.
A. prosperity
B. recovery
C. depression
D. recession
E. acceleration
12. The recovery phase of the business cycle is _____ followed by the prosperity phase.
A. never
B. sometimes
C. usually
D. always
13. Mikhail was president of a large country almost 20 years ago. He is still looking for a similar
position. Mikhail is _____ unemployed.
A. seasonally
B. frictionally
C. cyclically
D. structurally
14. Deflation is
A. hyper
inflation.
B. a constant rate of inflation.
C. a slow-down in the rate of inflation.
D. zero inflation.
E. a decline in the average price level
15. Which one of these periods had the highest rate of inflation?
A. 1945-1948.
B. 1957-1960.
C. 1961-1964.
D. 1969-1972.
E. 1984-1986.
16. A computerized job bank would be most effective in reducing _____ unemployment.
A. seasonal
B. frictional
C. cyclical
D. structural
17. The _____ the unemployment rate and the _____ the rate of inflation, the higher the misery
index.
A. higher; higher
B. lower; lower
C. higher; lower
D. lower; higher
18. Which one of these groups is counted among the unemployed?
A. Discouraged workers
B. People collecting unemployment benefits
C. People working part time
D. People out of the labor force
19. A person who is not in the labor force and not actively looking for a job is
A. employed.
B. unemployed.
C. underemployed.
D. discouraged.
20. In the song “My Hometown” by Bruce Springsteen, the foreman at the textile mill by the
railroad tracks says, “These jobs are leavingand they ain’t comin’ back.” This is an example of
A. frictional un
employment.
B. cyclical unemployment.
C. structural unemployment.
D. seasonal unemployment.
21. The supply-side shocks that affected the United States in 1973 and 1979 were the result of
A. government tax policies.
B. union wage demands.
C. OPEC policies regarding the availability and price of crude oil.
D. periods of stagflation in which the United States had achieved low or negative rates of growth
in real GDP.
E. increases in aggregate supply.
22. The Phillips curve tradeoff implies
A. that if the curve is stable, society must accept increases in inflation in exchange for decreases
in unemployment.
B. that if the curve is unstable, society must accept increases in inflation in exchange for
decreases in unemployment.
C. that if the curve is stable, society must accept increases in inflation in exchange for increases
in unemployment.
D. that if the curve is unstable, society must accept falling unemployment when inflation falls.
23. Statement I: Unemployment was higher in the 1970s than in the 1960s.
Statement II: Unemployment was higher in the 1980s than in the 1970s.
A. Statement I is true and statement II is false.
B. Statement II is true and statement I is false.
C. Both statements are true.
D. Both statements are false.
24. Each of these was a recession year except
A. 1974.
B. 1980.
C. 1982.
D. 1986.
E. 1990.
25. Recently there has been high unemployment in the steel industry due to a recession. What
type of unemployment is the steel industry experiencing?
A. Frictional unemployment
B. Cyclical unemployment
C. Natural unemployment
D. Structural unemployment
26. The Phillips curve shows the relationship between various rates of unemployment and
A. interest rates.
B. real wage rates.
C. inflation.
D. the money supply.
E. investment demand.
27. A current value for the CPI of 125 means that the
A. consumer must now pay $1.25 to purchase goods that cost $1.00, on the average, in the base
year.
B. average price level currently is 125 times higher than the average price level during the base
year.
C. purchasing power of a given money income is 25 percent larger during the base year than
when the index was formulated.
D. purchasing power of money has increased 125 percent over time.
28. People are classified as unemployed if
A. they choose to exit the labor force because they cannot find a job.
B. they are not working for voluntary reasons.
C. they are willing and able to work but cannot find a job.
D. they do not have a job because they choose to work at home for no pay.
29. Stagflation involves simultaneous high levels of
A. unemployment and interest rates.
B. interest rates and inflation.
C. unemployment and inflation.
D. economic growth and inflation.
E. stagnation and degeneracy.
30. Frictional unemployment is
A. the lowest rate of unemployment that can be maintained without accelerating the rate of
inflation.
B. caused by a mismatch between the skills of unemployed workers and the skills required in
jobs that have openings.
C. associated with downturns in the pace of economic activity.
D. caused because time is needed to enter the labor force to find a job or to move from one job to
another.
31. Statement I: The most widely used forecasting device is the index of leading indicators.
Statement II: The index of leading economic indicators usually turns downward as a recession
approaches.
A. Statement I is true and statement II is false.
B. Statement II is true and statement I is false.
C. Both statements are true.
D. Both statements are false.
32. Structural unemployment results from
A. changes in business inventories.
B. changes in interest rates.
C. changes in both technology and the changing demand for products.
D. all of the choices/statements are true.
33. Statement I: It is possible for the unemployment rate to decline while the total employment
declines.
Statement II: It is possible for the unemployment rate to decline while the number of
unemployed people stays the same.
A. Statement I is true and statement II is false.
B. Statement II is true and statement I is false.
C. Both statements are true.
D. Both statements are false.
34. Statement I: People who have looked for a job six months ago but are not looking now (and
are not working) are counted as discouraged workers, and therefore are officially unemployed.
Statement II: Because of imperfect information in the labor market, there will always be some
frictional unemployment.
A. Statement I is true and statement II is false.
B. Statement II is true and statement I is false.
C. Both statements are true.
D. Both statements are false.
35. Use the following choices regarding the various types of unemployment to describe this
situation. Joe is looking for work as a machinist after his and most other machinist jobs were
eliminated, replaced by computer-operated machines.
A. Frictional unemployment
B. Structural unemployment
C. Natural unemployment
D. Cyclical unemployment
E. None of the choices are correct
36. The unemployment rate is a fraction whose numerator is
A. the total population.
B. the number of employed.
C. the number of unemployed.
D. the difference between the total population and the number of employed.
37. Tired of looking for work with nothing to show for it, Bill has given up on the job search.
Bill is
A. a contingent worker.
B. part of the frictionally unemployed.
C. voluntarily unemployed.
D. a discouraged worker.
E. a displaced worker.
38. Statement I: Cyclical unemployment is the term given to workers who have been laid off
because their skills are no longer in demand.
Statement II: At any given time about five percent of the labor force is frictionally unemployed.
A. Statement I is true and statement II is false.
B. Statement II is true and statement I is false.
C. Both statements are true.
D. Both statements are false.
39. What does NOT occur in a fully employed economy?
A. Cyclical unemployment
B. Discouraged workers
C. Frictional unemployment
D. Structural unemployment
40. The Consumer Price Index measures
A. changes in the money supply.
B. changes in all prices.
C. changes in the price of a market basket of consumer goods.
D. changes in the cost of consumer credit.
E. average prices charged in retail stores.
41. Use the following choices regarding the various types of unemployment to describe this
situation. Tired of the same job, day-in and day-out, Delores quit her job and is looking for more
challenging work.
A. frictional unemployment
B. structural unemployment
C. natural unemployment
D. cyclical unemployment
42. The unemployment rate is the
A. ratio of unemployed to employed workers.
B. number of employed workers minus the number of workers who are not in the labor force.
C. percentage of the civilian labor force which is out of work.
D. percentage of the total population which is out of work.
43. The U.S. Department of Labor calculates the unemployment rate by
A. totaling the number of households receiving unemployment compensation.
B. analyzing federal income tax returns.
C. surveying households.
D. surveying businesses to determine patterns of hiring and layoffs.
44. The U.S. Department of Labor may underestimate the severity of unemployment for all of
the following reasons except
A. discouraged workers are not considered part of the labor force.
B. many workers are “underemployed,” occupying jobs well below their levels of skills and
education.
C. surveys of household members are likely to produce a rosier picture of employment
circumstances than actually exists.
D. many households earn far less income than they desire.
E. part-time workers are grouped among the employed, even though they desire full-time
employment.
45. Suppose there are 8 million unemployed workers seeking jobs. After a period of time, 2
million of them become discouraged over their job prospects and cease to look for work. As a
result of this, the official unemployment rate would
A. increase in the short run but eventually decline.
B. increase.
C. decline.
D. be unchanged.
46. Official unemployment statistics
A. understate unemployment because individuals receiving unemployment compensation are
counted as employed.
B. understate unemployment because “discouraged workers” are not counted as unemployed.
C. include cyclical and structural unemployment, but not frictional unemployment.
D. overstate unemployment because workers who are involuntarily working part time are
counted as being employed.
47. During the period 1983-1989, the U.S. economy was
A. contracting.
B. in a recession.
C. in the trough of the business cycle.
D. expanding.
E. None of the choices are correct.
48. In order for a recession to occur real GDP would have to fall for at least _____ business
quarter(s).
A. one
B. two
C. three
D. four
E. five
49. Statement I: The CPI and the GDP deflator are similar concepts, but the GDP deflator is a
broader measure.
Statement II: The CPI and the GDP deflator are inversely related, so when the CPI rises, the
GDP deflator declines.
A. Statement I is true and statement II is false.
B. Statement II is true and statement I is false.
C. Both statements are true.
D. Both statements are false.
50. Statement I: The CPI goes up every year; it can never go down.
Statement II: In constructing the Consumer Price Index, the Bureau of Labor Statistics compiles
a market basket of hundreds of goods and services that the typical urban family buys in the base
year.
A. Statement I is true and statement II is false.
B. Statement II is true and statement I is false.
C. Both statements are true.
D. Both statements are false.
Short Answer Questions
1. Given the following information, how many people are in the labor force? U.S. population,
250 million; employed, 135 million; unemployed, 5 million; discouraged workers, 4 million;
collecting unemployment insurance, 3 million.
Short Answer Questions continued on next page…..
Short Answer Questions continued
2. Given the following information, compute the unemployment rate: 6 million unemployed, 124
million employed.
3. If the rate of inflation is 6 percent, the nominal interest rate is 9%, and the unemployment rate
is 7%, how much is the misery index?
4. Given: 80 million employed; 20 million unemployed; 10 million collecting unemployment
insurance benefits; 10 million discouraged workers. Find: (a) the number of people in the labor
force; (b) the unemployment rate.
11-1
Macroeconomics
Instructor: Jen Dinsmore Hanson
Homework Assignment
Chapter 11
Multiple Choice Questions
1. Say’s law
A. was a basic pillar of classical economics.
B. was a basic pillar of Keynesian economics.
C. was formulated during the Great Depression.
D. proves that we can never have full
employment.
2. Which question did John Maynard Keynes pose for the classical economists?
A. What if their policies led to inflation?
B. What if savings and investment were not equal?
C. What if government intervention did not cure a recession?
D. John Maynard Keynes posed none of these questions
3. At equilibrium GDP
A. Savings = investment, but aggregate demand does not equal aggregate
supply.
B. Savings = investment and aggregate demand = aggregate supply.
C. Savings does not equal investment and aggregate demand does not equal aggregate supply.
D. Savings does not equal investment, but aggregate demand = aggregate supply.
4. Laissez-faire economics was advocated by
A. both Keynes and the classicals.
B. neither Keynes nor the classicals.
C. the classicals, but not by Keynes.
D. Keynes, but not by the classicals.
5. When the average price level in the United States, relative to the average price levels in
other countries, rises, this tends to
A. raise imports and exports.
B. lower imports and exports.
C. raise imports and lower exports.
D. lower imports and raise exports.
6. According to the classicals, our economy can produce beyond the full employment output
A. only in the short run.
B. only in the long run.
C. in both the short run and the long run.
D. in neither the short run nor the long run.
11-2
7. Keynes and the classicals used _____ aggregate demand and supply apparatuses and came
to _____ conclusions.
A. the same; the same
B. different; different
C. the same; different
D. different; the same
8. John Maynard Keynes
A. agreed with classical writers that strong automatic pressures drive market economies to full
employment.
B. focused on attaining the long-run macroeconomic goal of high, but stable economic
growth.
C. argued that a market economy might become stuck in a short-run equilibrium in which
substantial capital and labor lay idle.
D. argued that short-run equilibrium occurs only at
full employment.
9. The notion that everything the economy produces is purchased
A. sums up Say’s law.
B. can be restated as “demand creates its own supply.”
C. refers to the real balance effect.
D. was a critical assumption Keynes made in explaining the worldwide depression of the
1930s.
10. If the economy is in the vertical portion of the AS curve, what will be the effect of an
increase in the price level on output produced?
A. Output will increase at a very rapid rate
B. Output will not change
C. Output will only slightly increase
D. Output change cannot be predicted from information given
11. The wealth or real balances effect indicates that
A. An increase in the price level will increase the demand for money, increase interest rates,
and reduce consumption and investment spending
B. A lower price level will decrease the real value of many financial assets and therefore
cause a decline in spending
C. A higher price level will increase the real value of many financial assets and therefore
cause a decline in spending
D. A higher price level will decrease the real value of many financial assets and therefore
cause a decline in spending
12. Classical economists and monetarists perceive
A. investors’ expectations about returns on investment as unstable.
B. large investment swings as responses to small changes in interest rates.
C. that the best way to cure unemployment is to start a war.
D. that the proper cure for unemployment is active fiscal policy.
11-3
13. Classical economists believed that
A. if saving exceeded investment, prices and interest rates would rise as business accumulated
unwanted inventories.
B. flexible prices and wages could not restore an economy to full employment if the interest
rate were rigid.
C. flexible interest rates, wages, and prices would assure full employment.
D. voluntary unemployment reflected economic inefficiency.
E. all unemployment was involuntary.
14. The curve showing the amount of real output, or real GDP, that will be made available by
sellers at various price levels is called the
A. aggregate demand curve.
B. real gross domestic investment curve.
C. aggregate supply curve.
D. Keynesian cross.
E. aggregate individual demand curve.
15. Which of the following is incorrect?
A. As the American average price level rises, American goods become relatively more
expensive so that our exports fall and our imports rise.
B. As the average price level falls, the interest rate declines, and interest-rate sensitive
spending increases.
C. When the average price level increases, real balances increase, businesses and households
find themselves wealthier and therefore increase their spending.
D. An increase in aggregate supply tends to increase real domestic output and reduce the
average price level.
16. The aggregate demand curve shows a(n)
A. positive relationship between prices and quantities.
B. inverse relationship between the price level and the aggregate quantity demanded.
C. independent relationship between the price level and the aggregate quantity demanded.
D. inverse relationship between the product price and the quantity of a good demanded.
17. The Keynesian point of view suggests that
A. supply creates its own demand.
B. demand creates its own supply.
C. the market is always at equilibrium.
D. full employment is the natural result of market forces.
E. wage and price controls can halt deflationary pressures.
18. Which of the following will cause a change in aggregate demand?
A. A change in consumer demand
B. A change in the demand for investment goods
C. A change in government spending
D. All of the choices will cause a change in aggregate demand.
11-4
19. If the aggregate supply curve is upward sloping, an increase in aggregate demand will
A. increase real GDP at a constant level of prices.
B. reduce real GDP but increase the price level.
C. increase real GDP but reduce the price level.
D. reduce both real GDP and the price level.
E. increase both real GDP and the price level.
20. Real money balances
A. refer to the amounts of nominal money that individuals hold.
B. are computed by deflating nominal money assets by the average price level.
C. refer to the amounts of American money that an individual holds relative to gold or foreign
currencies.
D. are measured by currency holdings rather than holdings in checking accounts.
E. are identical to nominal money balances in the long run.
21. The classical macroeconomic model argues that the economy has built-in forces that
automatically eliminate unemployment and quickly move the economy to its full employment
level of real GDP. Which assumption is critical to this argument?
A. Rigid wages and prices
B. Flexible wages and prices
C. Natural rate of unemployment
D. Profit motive
E. None of the choices are correct.
22. The long-run aggregate supply curve, according to the classical model,
A. is vertical at full employment GDP.
B. slopes gently upward.
C. is horizontal at the equilibrium price level.
D. may be downward sloping.
E. slopes steeply upward.
11-5
23. Curve XY represents ____________.
A. short-run aggregate demand
B. long-run aggregate demand
C. short-run aggregate supply
D. long-run aggregate supply
24. Curve YZ represents ____________.
A. short-run aggregate demand
B. long-run aggregate demand
C. short-run aggregate supply
D. long-run aggregate supply
25. Aggregate demand will decrease when there are
A. decreases in government spending.
B. increases in consumer and business confidence.
C. increases in inflationary expectations.
D. decreases in the price level.
E. declines in the demand for money.
26. The foreign purchases effect suggests that a decrease in the American price level relative
to those in other countries will
A. shift the aggregate demand curve leftward.
B. shift the aggregate supply curve leftward.
C. decrease American exports and increase American imports.
D. increase American exports and decrease American imports.
11-6
27. If aggregate demand shifts from AD1 to AD2,
A. both output and the price level will rise.
B. output will rise and the price level will fall.
C. output will rise and the price level will remain the same.
D. both output and the price level will fall.
E. output will fall and the price level will rise.
28. If aggregate demand shifts from AD2 to AD4,
A. both output and the price level will rise.
B. output will rise and the price level will fall.
C. output will rise and the price level will remain the same.
D. both output and the price level will fall.
E. output will fall and the price level will rise.
29. If aggregate demand shifts from AD4 to AD5,
A. output will rise and the price level will fall.
B. output will fall and the price level will rise.
C. neither output nor the price level will change.
D. the price level will rise and output will remain unchanged.
E. output will rise and the price level will remain unchanged.
30. A self-regulating market
A. eliminates shortages or surpluses through price changes.
B. can eliminate shortages quickly, but eliminates surpluses slowly.
C. renders Say’s law invalid.
D. occurs only in labor markets.
E. occurs only in credit markets.
31. Suppose the nation is in a recession. As a result, the current macroeconomic equilibrium
occurs along the flat portion of the aggregate supply curve. A moderate increase in aggregate
demand is likely to
A. increase the equilibrium price level with little effect on equilibrium real GDP.
B. increase equilibrium real GDP with little effect on the price level.
C. cause the price level to fall.
D. decrease employment.
11-7
32. If the aggregate demand curve shifts to the right,
A. the economy is in equilibrium.
B. people are willing to buy less real output at every price level.
C. people are willing to buy more real output at every price level.
D. people are willing to buy more real output at a lower price level.
33. According to classical macroeconomic theory, the flexible interest rate
A. is the incentive that encourages businesses to obtain credit.
B. will tend to fall when the quantity of credit demanded exceeds the quantity of credit
supplied.
C. will tend to rise when the supply of credit exceeds the demand for credit.
D. ensures that saving cannot exceed investment spending for extended periods of time.
34. Adherents of Say’s law maintained that
A. demand created its own supply.
B. people work in order to earn income to spend on consumption.
C. people work in order to earn income to save.
D. demand is unaffected by supply.
35. According to Keynes, the primary cause of large-scale unemployment is
A. high prices.
B. low prices.
C. high exports.
D. low exports.
E. inadequate aggregate demand.
36. When we draw an aggregate demand curve, what do we put on the vertical axis?
A. The total quantity of goods and services demanded
B. The full employment output
C. The quantity of money
D. The price level
37. Which of the following statements best reflects Keynes’ view of the aggregate supply
curve?
A. It tends to be vertical, because the economy naturally tends toward equilibrium positions of
full employment.
B. It tends to be upward sloping (but not vertical), because as we try to produce more output
out of our given resources, some labor has to work overtime at higher pay, driving up costs
and prices.
C. It tends to be horizontal during periods when substantial amounts of resources are
unemployed.
D. It tends to slope downward and to the right reflecting people’s natural tendency to postpone
purchases when they lose their jobs.
E. None of the choices are true of Keynes’ view of the aggregate supply curve.
11-8
38. The real wealth effect provides a partial explanation for why the aggregate demand curve
slopes downward. Which of the following statements best explains the real wealth effect?
A. At a lower price level domestically produced items are relatively less expensive than
foreign goods and therefore are in greater demand.
B. At a lower price level the real interest rate tends to be lower, and thus the quantity of
investment goods demanded is larger.
C. At a lower price level consumers will buy less because of a reduction in the real money
supply.
D. At a lower price level the purchasing power of accumulated savings is larger, and thus
consumers will purchase more goods.
39. If the rate of interest did not equate saving and investment and total output was greater
than total spending, the classical economist argued, competition would tend to force
A. product and resource prices down.
B. product prices up and resource prices down.
C. product prices up and resource prices up.
D. product prices down and resource prices up.
40. The major difference between the Keynesian model and the classical theory of
employment is that
A. the interest rate will not always equalize savings and investment.
B. not everything produced will necessarily be purchased.
C. saving and investing are done by different people for different reasons.
D. wages and prices are assumed to be flexible downwards.
41. According to Keynes, at equilibrium, aggregate demand will always equal which of the
following?
A. Aggregate supply
B. C + S
C. C + I
D. All of the choices are correct.
42. Assume the aggregate demand curve intersects the aggregate supply curve in its
intermediate range. A decrease in the aggregate supply curve will
A. increase the price level and decrease real GDP.
B. decrease the price level and increase real GDP.
C. increase both the price level and real GDP.
D. decrease both the price level and real GDP.
11-9
43. Who said our economy “seems capable of remaining in a chronic condition of subnormal
activity for a considerable period without any marked tendency either toward recovery or
toward complete collapse”?
A. David Ricardo
B. Jean Baptiste Say
C. Wassily Leontief
D. John Maynard Keynes
E. Sidney Greenstreet
44. The classical school
A. was the dominant school of economic thought after the Great Depression.
B. advocated laissez-faire.
C. was mainly concerned with aggregate demand.
D. believed that about half of the money saved would be invested.
45. Jean Baptiste Say believed in all of the following EXCEPT that
A. Supply creates its own demand.
B. People work so that they can save.
C. Everything produced in an economy is sold.
D. The normal state of economic affairs is full employment.
46. Each of the following is consistent with the classical theory EXCEPT
A. wages and prices are flexible.
B. the economy is always at full employment.
C. supply creates its own demand.
D. laissez-faire.
47. Which of the following is true?
A. Keynes asked the question: If supply creates its own demand, why are we in a worldwide
depression?
B. According to Keynes, if savings were greater than investment, interest rates would fall,
bringing the economy back to full employment.
C. Keynes believed that wages and prices were flexible.
D. Keynes believed the economy was basically stable.
48. The classical school
A. was the dominant school of economic thought until the Great Depression.
B. was the dominant school of economic thought after the Great Depression.
C. believed that the economy was basically unstable.
D. believed wages and prices were rigid downwards.
E. All of the choices are true of the classical school.
11-10
49. Keynes believed
A. increases in investment expenditures are due to lower interest rates.
B. increases in investment expenditures are due to high profit expectations.
C. increases in investment expenditures are due to excessive funds in the loanable funds
market.
D. since supply creates its own demand, increases in investment expenditures creates
additional supply and therefore more demand and earnings for the businesses.
50. What economic events enabled most countries to escape the Great Recession of 2007-
2009?
A. Interest rates fell because of excess savings.
B. Wage rates declined.
C. Fiscal policy was enacted using tax cuts and/or increases in government spending.
D. Prices declined.
