CH-5 Introduction to Macroeconomics – Macroeconomics: A Contemporary Introduction : Exam Guide

Chapter 5—Introduction to Macroeconomics 1. Gross Domestic Product measures the value of all final goods and services produced within a nation's borders. A. True B. False 2. The ultimate objective of macroeconomics is to A. reduce the unemployment rate B. stabilize the economy's growth rate C. develop and test theories about how the overall economy works D. improve the international competitiveness of the U.S. financial markets E. maximize the efficiency of government intervention in the marketplace 3. Which of the following statements regarding Gross Domestic Product is not true? A. It is a stock variable. B. It is measured for a particular time period, usually one year. C. It is perhaps the most effective means of viewing the same economy over time. D. It is a measure of the economy's performance. E. It is a flow variable, not a stock variable. 4. Which of the following is not the proper subject matter for macroeconomics? A. unemployment levels B. inflation rates C. levels of national output D. the price of corn E. the role of government 5. Capital is a stock variable. A. True B. False 6. Which of the following is a stock variable? A. business spending on capital equipment B. consumer income C. the federal government's debt D. the federal government's budget deficit E. total expenditure 7. Which of the following is a stock variable? A. Gross Domestic Product B. consumption spending C. the federal government's spending on Social Security D. the money supply E. Federal income tax revenue 8. Which of the following is a stock variable? A. U.S. exports B. sales by corporations C. borrowing by the federal government D. household wealth E. net exports 9. Which of the following is a flow variable? A. U.S. plant and equipment B. the U.S. population C. money supply D. investment spending E. household debt 10. Which of the following is not a flow variable? A. the amount of spending by consumers this holiday season B. the number of times a dollar bill is spent in a day C. the amount of sales taxes collected in a state per year D. the number of shares of stock traded on Wall Street per week E. the $100 Susan keeps in her purse, in case an emergency arises 11. An economic variable that is measured per unit of time, such as spending per year, is known as a(n) A. stock variable B. periodic variable C. expectations variable D. flow variable E. constant variable 12. If firms expect greater demand for their products, invest in more capital and hire more labor, A. there will likely be an increase in inflation and a rise in taxation B. the business cycle is likely to be moving from peak to trough C. their behavior may encourage the very prosperity that they expect D. government will probably have to spend more and tax less to offset the economic impacts of these business decisions E. consumers will probably spend less in anticipation of a decline in economic activity 13. If business leaders become optimistic about future sales and profits, they will __________ spending on plant and equipment, which __________ employment and income and, therefore, their expectations are __________. A. increase; increases; fulfilled B. increase; increases; not met C. increase; decreases; fulfilled D. decrease; decreases; fulfilled E. decrease; increases; not met 14. If business leaders become pessimistic about future sales and profits, they will __________ spending on plant and equipment, which __________ employment and income and, therefore, their expectations are __________. A. reduce; reduces; fulfilled B. reduce; increases; fulfilled C. reduce; increases; not met D. increase; increases; not met E. increase; reduces; fulfilled 15. If all firms expect greater demand for their products or services, they will hire __________ resources (e.g., labor and capital) and the economy will experience __________. A. fewer; recession B. fewer; growth C. more; federal budget deficits D. more; recession E. more; growth 16. Which of the following best describes a stock (rather than a flow)? A. each week you save $100 B. each week you buy $10 worth of gasoline C. each week you buy $50 worth of groceries D. you earn $500 per week at your job E. you own $5,000 worth of government bonds 17. Which of the following best describes a flow (rather than a stock)? A. you own $5,000 worth of government bonds B. you own a $100,000 house C. you own a coin collection valued at $10,000 D. you earn $500 per week E. you own a $45,000 automobile 18. During the Great Depression, President Hoover A. correctly called for an increase in taxes B. incorrectly called for an increase in taxes C. incorrectly called for a decrease in taxes D. correctly called for a decrease in government spending E. incorrectly called for an increase in government spending 19. Since the Great Depression, business fluctuations have become more severe and longer in duration. A. True B. False 20. Economic fluctuations (or business cycles) A. are changes in the number of businesses started B. are fluctuations in the Dow Jones industrial average relative to a long-term growth trend C. look at the role of business in the hiring resources D. are fluctuations in the level of economic activity, relative to a long-term growth trend E. are changes in government spending that occur over a period of years 21. While economic expansions average about three and one half years in duration, economic contractions average about A. one year in duration B. two years in duration C. three years in duration D. four years in duration E. five years in duration 22. In U.S. history, recessions have usually lasted longer than expansion periods. A. True B. False 23. The U.S. economy has experienced alternating periods of expansion and contraction in economic activity relative to its long-term growth trend in the economy. These are called economic fluctuations or business cycles. A. True B. False 24. A recession is best defined as a period during which A. the percentage of the population employed is declining B. employment, output, and income decline C. the price level is declining D. more resources are used E. the budget deficit and trade deficit are both growing 25. A recession is a period during which A. employment, production, and income decrease B. the price level is increasing C. inventories are falling dramatically D. the unemployment rate is falling while the price level is rising E. the government attempts to reduce a budget deficit by reducing taxes and increasing government spending 26. Long-term growth in production can be partially explained by A. improvements in the "rules of the game" that facilitate production and exchange B. the peaks and troughs of the business cycle (or economic fluctuations) C. trade surpluses that lead to accumulations of precious metals D. federal government budget deficits E. a gradual but consistent increase in the price level 27. Long-term growth in production can be partially explained by A. trade surpluses that lead to accumulations of precious metals B. a gradual but consistent increase in the price level C. general optimism about the future and the pioneering spirit of America D. improvements in technology E. federal government budget deficits 28. Long-term growth in production can be partially explained by A. increases in government spending B. increases in availability of resources C. reductions in federal taxes D. a gradual but consistent increase in the price level E. general optimism about the future and the pioneering spirit of America 29. The distinction between recessions and depressions is that recessions are A. longer than depressions B. more severe than depressions C. accompanied by price increases, depressions by price decreases D. shorter and less severe than depressions E. accompanied by price decreases, depressions by price increases 30. Which of the following is true about U.S. business cycle activity since 1933? A. There has been only one business cycle in the last 30 years. B. There have been only two or three complete cycles. C. There have been no recessions since 1979. D. Expansions have generally lasted longer than contractions. E. Each cycle has lasted longer than the previous one. 31. A depression can be defined as A. a mild reduction in total production coupled with a rising unemployment rate that lasts for several years B. a decline in total production that lasts less than six months C. a severe fall in stock prices that causes financial panic and lasts several years D. a severe reduction in total production coupled with high unemployment that lasts several years E. a decline in government spending and taxes that lasts for several months 32. Which of the following is not true about recessions? A. They are milder than depressions. B. They last less than six months on average. C. They typically are shorter than periods of expansion. D. They begin after an expansion has peaked. E. They continue until the economy reaches a trough. 33. A period of sustained growth of output in the economy is referred to as a(n) A. expansion B. contraction C. peak D. trough E. recession 34. A period of sustained decline of output in the economy is known as a(n) A. expansion B. growth phase C. peak D. trough E. contraction 35. Which of the following would indicate the beginnings of an expansion of the economy? A. fewer new firms are started B. stock market prices decline C. consumer confidence improves D. housing construction slows E. orders for new equipment decrease 36. Which of the following statements about leading economic indicators is true? A. Most people refer to them before making any important spending decision. B. They are the only economic indicators available to economists. C. They indicate when the economy is in a recession or an expansion. D. They foreshadow turning points in the business cycle. E. They can predict precisely when turning points in the economy will occur. 37. By a leading economic indicator, economists mean A. an indicator of future economic activity B. an indicator that measures current economic activity C. a highly accurate indicator that is easily measured D. an indicator that is accurate most of the time E. any variable that can measure either past or present economic activity 38. Certain economic activities signal forthcoming changes in the economy. These are known as the A. coincidental economic indicators B. GDP implicit price deflator C. lagging economic indicators D. composite of economic activities E. leading economic indicators 39. When economists refer to the economy’s price level, they mean A. the rate of inflation B. the price of goods and services relative to consumers' incomes C. a general measure of prices of all goods and services D. a period of level, or steady, prices E. the prices of a specific consumer good 40. The aggregate demand curve slopes downward because households feel poorer after a decrease in the price level. A. True B. False 41. As the price level rises, individuals feel richer. Therefore, they will spend more. A. True B. False 42. The aggregate demand curve reflects the direct relationship between the price level and the quantity of aggregate output demanded. A. True B. False 43. Which of the following explains why the aggregate demand curve slopes downward? A. If the price level increases, we feel poorer and therefore buy less. B. If the price level increases, we feel richer and therefore buy more. C. If domestic prices increase, we substitute domestic goods for imported ones. D. If the price of a particular good increases, we substitute away from that good. E. A decrease in the price of a particular good is like an increase in income and therefore we buy more. 44. Which of the following is a reason why the aggregate demand curve slopes downward? A. At a higher price level, fewer goods and services are available. B. Periods when the price level is rising are usually times of swift declines in economic activity. C. Households feel poorer with an increase in average prices. D. If the U.S. price level rises, foreigners will buy more U.S. goods, leaving fewer U.S. goods for domestic consumers. E. As the price level rises, business leaders become pessimistic about the future and reduce production. 45. One explanation for the negative slope of the aggregate demand curve is that A. as prices rise, nominal income falls and so does the demand for real goods and services B. falling prices make people feel poorer and reduce spending C. as prices rise, government spends less to drive the price level back down D. businesses increase spending when inflation is high and rising E. as prices rise, domestic goods become more expensive relative to foreign goods, which reduces exports 46. One explanation of why the aggregate demand curve is downward sloping is that A. as prices fall, nominal income rises and so does the demand for real goods and services B. rising prices reduce people's wealth and thereby reduce spending C. with falling prices, government decides to spend less to increase the price level D. businesses increase investment spending in response to higher interest rates caused by inflation E. as prices fall, domestically produced goods become more expensive relative to foreign-produced products, which increases production 47. As the price level increases, the amount of goods and services that consumers, businesses, and governments desire to purchase will change. How will this be illustrated? A. a leftward movement of the aggregate demand curve B. a rightward movement of the aggregate demand curve C. a movement upward along the aggregate demand curve D. a movement downward along the aggregate demand curve E. the price level change causes the aggregate supply curve to shift, bringing the economy back into equilibrium 48. A fall in the price level A. moves the economy rightward along the aggregate demand curve B. moves the economy leftward along the aggregate demand curve C. shifts the aggregate demand curve to the left D. shifts the aggregate demand curve to the right E. is inconsistent with the other-things-constant assumption on which the aggregate demand curve is based 49. A rise in the price level A. moves the economy rightward along the aggregate demand curve B. moves the economy leftward along the aggregate demand curve C. shifts the aggregate demand curve to the left D. shifts the aggregate demand curve to the right E. is inconsistent with the other-things-constant assumption on which the aggregate demand curve is based 50. If the U.S. price level decreases, the aggregate quantity of U.S. output demanded A. decreases because U.S. products become cheaper relative to foreign products B. decreases because U.S. products become more expensive relative to foreign products C. increases because U.S. products become cheaper relative to foreign products D. increases because U.S. products become more expensive relative to foreign products E. decreases because household wealth and spending decrease 51. If the U.S. price level increases, the aggregate quantity of U.S. output demanded A. decreases because U.S. products become cheaper relative to foreign products B. decreases because U.S. products become more expensive relative to foreign products C. increases because U.S. products become cheaper relative to foreign products D. increases because U.S. products become more expensive relative to foreign products 52. The aggregate demand curve slopes downward because A. a decrease in the price level decreases the real value of household wealth B. a decrease in the domestic price level increases imports C. an increase in the price level leads to a decrease in demand for money, which decreases interest rates D. a decrease in the domestic price level increases exports E. none of the above 53. The aggregate demand curve is best defined as depicting the A. quantity of goods and services demanded during a given time period at different interest rates B. quantity of goods and services demanded at different price levels during different time periods C. quantity of goods and services demanded at different price levels during a given time period, other things held constant D. quantity of goods and services that the economy is capable of producing during a given time period E. final quantity of goods and services actually produced by the economy during a given time period 54. If the wealth of consumers increases substantially, this would shift A. the aggregate supply curve outward B. the aggregate demand curve outward C. the aggregate demand curve inward D. the aggregate supply curve inward E. both the aggregate demand and supply curves inward 55. Suppliers have an incentive to increase aggregate output whenever the price level rises faster than the cost of production. A. True B. False 56. An increase in wage rates, other things constant, would shift the aggregate supply curve upward. A. True B. False 57. The aggregate supply curve reflects the direct relationship between the price level and the quantity of aggregate output supplied. A. True B. False 58. Which of the following is true of the aggregate supply curve? A. It portrays an inverse relationship between the price level and quantity of aggregate output. B. Resource utilization is constant along the curve. C. A decrease in the price level encourages firms to expand production because the cost of production decreases. D. The curve is upward-sloping. E. As average prices in the United States rise relative to average prices in other countries, U.S. producers find export markets more attractive than domestic markets. 59. The aggregate supply curve indicates A. the quantity of aggregate output that producers are willing and able to supply at each possible price level B. the total quantity of a particular good that all producers are willing to supply at each possible price level C. the total quantity of a particular good that all producers are willing to supply at the equilibrium price level D. the quantity of aggregate output that producers are willing and able to supply at the equilibrium price level E. the quantity of aggregate output that producers are willing and able to supply at the equilibrium level of GDP 60. An increase in the price level will cause A. an increase in the quantity of aggregate output supplied B. a decrease in the quantity of aggregate output supplied C. a leftward shift of the aggregate supply curve D. a rightward shift of the aggregate supply curve E. a leftward or rightward shift of the aggregate supply curve, depending on the reason for the price change 61. A decrease in the price level will cause A. an increase in the quantity of aggregate output supplied B. a decrease in the quantity of aggregate output supplied C. a leftward shift of the aggregate supply curve D. a rightward shift of the aggregate supply curve E. a leftward or rightward shift of the aggregate supply curve, depending on the reason for the price change 62. The aggregate supply curve has A. a negative slope B. a positive slope C. a zero slope (a horizontal line) D. an infinite slope (a vertical line) E. a negative slope like the aggregate demand curve, only steeper 63. When output __________, employment is expected to __________. A. rises; rise B. rises; fall C. falls; rise D. falls; remain constant E. remains constant; fall 64. Equilibrium of aggregate supply and aggregate demand is best described as a situation in which A. the slope of aggregate demand equals the slope of aggregate supply B. quantity demanded exceeds quantity supplied C. quantity demanded equals quantity supplied at a unique price level D. quantity supplied exceeds quantity demanded at a unique price level E. quantity supplied equals quantity demanded at all price levels 65. If the U.S. price level increased relative to price levels in foreign countries, what would be the impact on domestic aggregate supply and aggregate demand curves? A. the aggregate supply curve would shift outward and the aggregate demand curve would remain unchanged B. the aggregate supply curve would shift inward and the aggregate demand curve would remain unchanged C. the aggregate demand curve would shift outward and the aggregate supply curve would remain unchanged D. the aggregate demand curve would shift inward and the aggregate supply curve would remain unchanged E. the domestic aggregate demand and supply curves would remain unchanged 66. Given the following aggregate demand and aggregate supply schedules, determine the equilibrium level of prices and output. A. equilibrium output $1,000 and equilibrium price level 25 B. equilibrium output $800 and equilibrium price level 50 C. equilibrium output $200 and equilibrium price level 125 D. equilibrium output $400 and equilibrium price level 25 E. equilibrium output $600 and equilibrium price level 75 67. Given an aggregate supply curve that slopes upward, an increase in aggregate demand would decrease real GDP. A. True B. False 68. For a fixed aggregate supply curve, decreases in aggregate demand increase real GDP. A. True B. False 69. For a given aggregate supply curve, the price level and output both rise when aggregate demand decreases. A. True B. False 70. If the economy were initially in equilibrium and the aggregate demand curve shifted to the left, A. employment would fall B. the price level would rise C. the aggregate supply curve would shift rightward D. the aggregate supply curve would shift leftward E. the economy would experience an expansion period 71. In terms of the aggregate demand and supply framework, the Great Depression can be viewed in terms of a A. rightward shift of the aggregate demand curve B. rightward shift of the aggregate supply curve C. movement downward along the aggregate demand curve D. a leftward shift of the aggregate demand curve E. a leftward shift of the aggregate supply curve 72. The laissez-faire approach popular before the Great Depression influenced the U.S. government to see business downturns as A. natural phases in an otherwise healthy system, and therefore to take short-term deficit spending measures to help recovery B. natural phases in an otherwise healthy system, and therefore to wait for recovery to occur naturally C. serious maladies in an otherwise healthy system, and therefore to work to redesign the system to avoid such failure in the future D. failures of the type of system Adam Smith envisaged, and therefore to work to move toward a modern, more managed economy E. failures of the system to achieve the form that Adam Smith envisaged, and therefore to work to decrease government interference at the micro level 73. During the Great Depression, A. unemployment and prices increased while output decreased B. unemployment increased while output and prices decreased C. unemployment and prices decreased while output increased D. unemployment and output decreased while prices increased E. unemployment and output increased while prices decreased 74. According to John Maynard Keynes’ General Theory of Employment, Interest and Money, in order to get an economy out of a depression, the government should A. increase spending B. decrease spending C. reduce taxes D. increase taxes E. allow the economy to correct itself 75. On an aggregate demand and aggregate supply graph, the Great Depression can be pictured as A. a leftward shift of the aggregate supply curve B. a rightward shift of the aggregate supply curve C. a leftward shift of the aggregate demand curve D. an increase in the price level caused by a movement along the aggregate demand curve E. a decrease in the price level caused by a movement along the aggregate supply curve 76. Adam Smith's "invisible hand" explains A. why people act in their own best interests B. why the government intervenes to overcome failures in private markets. C. how people, acting out of self-interest, unintentionally promote the general good D. how comparative advantage and specialization promote international trade E. how the creation of goods and services (supply) generates its own demand by creating employment and income 77. Exhibit 5-1 Exhibit 5-1 shows that from the beginning of period 1 to the end of period 2, A. real GDP decreased and then increased B. real GDP increased and then decreased C. real GDP fell from $10,000 to $6,000 D. real GDP rose from $6,000 to $10,000 E. the inflation rate fell from 4 to 1 78. Exhibit 5-1 In Exhibit 5-1, from the beginning of period 1 to the end of period 2, nominal GDP went from A. $40,000 to $18,000 and back again B. $40,000 to $18,000 and stayed there C. $40,000 to $18,000 in period 1 and to $10,000 in period 2 D. $40,000 to $18,000 to $10,000 in period 1 and stayed there in period 2 E. $40,000 to $18,000 to $10,000 in period 1 and then back to $18,000 in period 2 79. Exhibit 5-1 In Exhibit 5-1, what happens to the equilibrium price level in period 1 as the aggregate demand curve shifts from AD to AD’ A. nothing B. falls from 4 to 3 C. falls from 4 to 1 D. rises from 1 to 4 E. falls from 4 to 2 80. Exhibit 5-1 In Exhibit 5-1, in period 1 the equilibrium GDP falls from 10,000 to 6,000 when aggregate demand falls from AD to AD’. A. True B. False 81. Exhibit 5-1 In Exhibit 5-1, which of the following might cause a shift in the aggregate demand curve from AD to AD’? A. an increase in household wealth B. a fall in domestic interest rates C. an increase in government spending D. an appreciation of the dollar relative to other currencies E. a decrease in the nation’s money supply 82. Exhibit 5-1 In Exhibit 5-1 in period 4, the price level starts at ______ and ends up at ______ when the aggregate supply curve shifts from AS’ to AS’’. A. 4; 2 B. 2; 3 C. 2; 2 D. 3; 1 E. 2; 4 83. Exhibit 5-1 In Exhibit 5-1 in period 2, which of the following would cause the aggregate supply curve to shift from AS to AS’. A. an increase in resource prices, improved technology, or an extension of patent protection B. a decrease in resource prices, improved technology, or an extension of patent protection C. a decrease in resource prices, improved technology, or a shortening of patent protection D. an appreciation of the dollar, higher inflation in Europe, a decrease in resource prices E. a depreciation of the doller, higher inflation in Asia, improved technology 84. Between 1929 and the depth of the Great Depression in 1933, the United States encountered the following: A. the aggregate supply curve shifted inward with no change in the aggregate demand curve B. the aggregate demand curve shifted inward with no change in the aggregate supply curve C. the aggregate demand curve shifted outward with no change in the aggregate supply curve D. the aggregate supply curve shifted outward with no change in the aggregate demand curve E. the aggregate supply and demand curves both shifted outward 85. Given the aggregate demand curve, an increase in aggregate supply lowers the price level and decreases output. A. True B. False 86. Given the aggregate demand curve, an increase in aggregate supply would raise real GDP and reduce the price level. A. True B. False 87. Properly applied, a federal budget deficit can simultaneously reduce inflation and unemployment. A. True B. False 88. If both aggregate demand and aggregate supply increase, then employment will increase. A. True B. False 89. Keynes believed that the best method for ending the Great Depression was to reduce government spending and raise taxes, thereby reducing the federal budget deficit. A. True B. False 90. If spending by the federal government exceeds tax revenues, aggregate demand decreases. A. True B. False 91. If tax revenues increase more than government spending does, the price level will rise. A. True B. False 92. An increase in the price level A. means that the aggregate demand curve has shifted leftward B. means that inflation occurred C. means the employment level has decreased D. will shift both the aggregate supply curve and the aggregate demand curve leftward E. will shift both the aggregate supply curve and the aggregate demand curve rightward 93. An increase in government spending, other things constant, would cause a A. leftward shift of the aggregate supply curve B. rightward shift of the aggregate supply curve C. leftward shift of the aggregate demand curve D. rightward shift of the aggregate demand curve E. movement toward equilibrium, along curves that do not shift 94. According to Keynes, "animal spirits" A. make investment spending unstable B. make consumption spending unstable C. make government spending inherently stable D. guide the economy back to equilibrium after a disruption E. create the federal government budget deficits that have become so common today 95. Which is true of John Maynard Keynes? A. He believed that serious economic contractions were natural phases in an otherwise healthy system. B. He provided a model that closely resembled that of Adam Smith. C. He advocated a decrease in the money supply to stabilize the economy. D. He argued that increased government demand should offset reduced private sector demand to prevent depression. E. He advocated tax increases to balance the federal government's budget during the Great Depression. 96. According to Keynes, in order to get the economy out of a recession, the government should A. plan for a budget deficit B. encourage firms to export to other nations, thereby jump-starting the economy C. follow an expansionary monetary policy D. follow a contractionary monetary policy E. do nothing and rely on the market system to heal itself 97. According to Keynes, the policy of incurring budget deficits will cause the equilibrium price level to __________ and equilibrium output to __________. A. rise; rise B. rise; fall C. fall; rise D. fall; fall E. remain the same; remain the same 98. According to Keynes, the policy of incurring budget surpluses will cause the equilibrium price level to __________ and equilibrium output to __________. A. rise; rise B. rise; fall C. fall; rise D. fall; fall E. remain the same; remain the same 99. Which of the following best describes the Keynesian approach to economic policy? A. supply-side B. classical C. demand-side D. mercantilist E. laissez-faire 100. Keynes proposed that government should shock the economy out of the Great Depression by A. increasing aggregate supply B. increasing aggregate demand C. raising prices so that firms could earn higher profits and employ more people D. reducing prices so that people could afford to buy more goods and services E. subsidizing firms that wanted to buy stocks after the crash 101. Keynes believed that the best method for ending the Great Depression was to A. increase the money supply so that individuals would have more to spend B. cut government spending and increase taxes to reduce or even eliminate the government's deficit C. increase government spending and cut taxes so that consumers could spend more D. cut both government spending and taxes so that government would not be such a large part of the economy E. increase both government spending and taxes to increase the role government played in the economy 102. The Keynesian approach to government economic policy A. has emphasized the role of individual self-interest as a powerful stabilizing force B. has consistently failed to reduce fluctuations in economic activity C. was ineffective during the 1960s D. highlighted the role of aggregate demand E. was rechristened supply-side economics around 1980 103. According to Keynes, if private-sector demand is insufficient to maintain full employment, the government should A. act to make the economy's natural transition to the lower level of employment as easy as possible B. shock the economy with an increase in aggregate demand C. reduce aggregate supply to reduce inflation D. print money to promote consumer spending E. act to make the economy's natural transition back to full employment as easy as possible 104. Keynes was in favor of a federal budget __________ to cure __________. A. deficit; inflation B. surplus; unemployment C. deficit; a depression D. deficit; a trade deficit E. surplus; low aggregate output 105. The Keynesian approach to fiscal policy calls for A. budget deficits during periods of inflationary pressure B. budget surpluses during periods of high unemployment C. a balanced budget despite the state of the economy D. tax cuts during recession E. spending increases during inflation 106. The Employment Act of 1946 A. guaranteed full employment B. obliged the federal government to hire as many people as it could to achieve full employment C. gave the federal government the power to levy an income tax D. imposed a responsibility on the federal government to foster full employment E. obligated the federal government to run budget surpluses to achieve full employment 107. Fine-tuning the economy means A. making government economic policy more "people oriented" B. using government policies to adjust the economy and promote economic stability C. tinkering with microeconomic problems such as externalities and losing sight of the big picture D. placing fewer regulations on the private sector, thereby eliminating the need for government intervention E. designing policies based exclusively on the leading economic indicators 108. In the 1960s, government policy makers believed that they could A. stabilize the economy by letting the market system solve all problems B. reduce unemployment by running federal budget surpluses C. eliminate government's role in stabilization policy D. use changes in the money supply to virtually eliminate business cycles E. use taxation and government spending to fine-tune the economy 109. Which decade is known as the "Golden Age of Keynesian Economics"? A. the 1930s B. the 1950s C. the 1960s D. the 1970s E. the 1980s 110. Inflation is A. a rise in the value of money B. a decline in nominal income C. a sustained increase in the price level D. a general reduction in prices E. an economic problem only for the retired population 111. Who wrote The General Theory of Employment, Interest, and Money? A. Adam Smith B. Jean Baptiste Say C. François Quesnay D. John Maynard Keynes E. Alfred Marshall 112. Which of the following was a central argument of Keynes's General Theory? A. Competition does not allocate resources efficiently in a modern industrial economy. B. Full employment can be maintained even during a major recession if wage rates are lowered far enough. C. Modern industrial economies do not tend automatically toward full employment rates of output. D. Money does not play an important role in either causing or curing recession. E. Government can best stabilize the economy by letting the market system automatically adjust toward full employment. 113. If spending by the federal government exceeds revenue, A. the price level tends to fall B. the money supply must increase C. the aggregate demand curve shifts leftward D. the aggregate supply curve shifts rightward E. there is a federal budget deficit 114. Keynesian demand management policies are not effective in fighting stagflation. A. True B. False 115. Stagflation is a situation with high unemployment rates, high inflation rates, and little or no growth in the economy. A. True B. False 116. Suppose the economy is initially in equilibrium and then an energy shock occurs, such as when OPEC raised oil prices. Which of the following is likely to result? A. Both the price level and aggregate output will rise. B. Both aggregate output and the price level will fall. C. Employment will rise. D. Stagflation. E. The price level will fall. 117. Confidence in Keynesian economics A. diminished in the 1960s as the unemployment rate fell B. flourished in the 1960s despite two major recessions C. diminished in the 1960s as unemployment increased D. diminished in the 1970s as inflation occurred simultaneously with two recessions E. flourished through the 1980s despite Reagan's supply-side policies 118. Stagflation refers to A. a simultaneous reduction in output and the price level B. a simultaneous increase in output and the price level C. a decline in the price level accompanied by increases in real output and employment D. an increase in the price level accompanied by decreases in real output and employment E. a simultaneous increase in both the trade deficit and the budget deficit 119. Which of the following events did not occur in the 1970s? A. the U.S. inflation rate soared above 5 percent annually B. crop failures in major grain-producing countries C. substantial oil price increases D. growing confidence that Keynesian policies could stabilize the economy E. stagflation 120. To control inflation, President Nixon A. ordered wage and salary reductions for all government employees B. increased government spending C. dramatically reduced transfer payments such as Social Security D. applied price floors to all goods and services E. froze wages and prices 121. Stagflation refers to A. a combination of rising unemployment and rising trade deficits B. a combination of high unemployment and rising prices C. high and rapidly increasing inflation D. extremely high unemployment E. a combination of rising trade deficits and rising federal government budget deficits 122. President Nixon fought the inflation of the early 1970s with A. increased taxes B. increased government spending C. decreased taxes D. decreased government spending E. wage and price controls 123. On an aggregate demand and aggregate supply graph, the stagflation of the 1970s can be represented as a A. leftward shift of the aggregate supply curve B. rightward shift of the aggregate supply curve C. rise in the price level that caused an excess demand for output D. rightward shift of the aggregate demand curve E. decrease in the price level that caused an excess supply of output 124. The word stagflation describes a situation in which a higher price level occurs simultaneously with A. higher employment B. economic growth C. lower aggregate output D. federal budget deficits E. federal budget surpluses 125. The word stagflation describes a situation in which a higher price level occurs simultaneously with A. lower employment B. lower unemployment C. higher aggregate output D. federal budget deficits E. federal budget surpluses 126. If the economy experiences stagflation, A. government can quickly restore full employment by doing nothing to interfere with the economy's natural self-correcting forces B. only Keynesian policies can remedy the situation C. only anti-unemployment policies can remedy the situation D. Keynesian anti-inflation policies will raise the inflation rate E. increasing a federal budget surplus will worsen inflation 127. In the United States before 1970, A. most macroeconomic instability was caused by simultaneous shifts of aggregate demand and aggregate supply B. most macroeconomic instability was caused by shifts of aggregate supply C. most macroeconomic instability was caused by shifts of aggregate demand D. the government assumed no direct responsibility for the level of employment E. the government itself was a much less important player in the macroeconomy than it is today 128. Keynesian policies are ineffective at combating stagflation because stagflation is caused by A. budget surpluses B. decreases in aggregate supply C. trade deficits D. trade surpluses E. budget deficits 129. In combating stagflation, a government-induced A. increase in aggregate demand would help reduce inflation but aggravate unemployment B. decrease in aggregate demand would help reduce unemployment but aggravate inflation C. increase in aggregate demand would help reduce unemployment but aggravate inflation D. decrease in aggregate demand would help reduce both unemployment and inflation E. increase in aggregate demand would help reduce both unemployment and inflation 130. Stagflation is best described as A. increasing output and decreasing prices B. increasing output and increasing prices C. no change in output or prices D. decreasing output and decreasing prices E. decreasing output and increasing prices 131. The Reagan administration's policies were aimed at managing aggregate demand. A. True B. False 132. The Reagan tax cut of 1981 was an attempt at supply-side economics. A. True B. False 133. Government debt is a flow variable; the budget deficit is a stock variable. A. True B. False 134. An increase in aggregate supply will result in A. lower levels of employment B. a rightward shift of the aggregate demand curve C. a higher price level D. a leftward shift of the aggregate demand curve E. an economic expansion 135. If the government owes $3,500 billion and then borrows $300 billion more this year, A. the debt is $300 billion and the deficit is $3.8 trillion B. the debt is $3,800 billion and the deficit is $300 billion C. the debt is $4,100 billion D. the deficit is $3,800 billion E. both the debt and the deficit are $3.8 trillion 136. Which of the following statements is correct? A. A budget deficit is a flow variable; debt is a stock variable. B. A budget deficit is a stock variable; debt is a flow variable. C. A budget deficit and the debt are both stock variables. D. The budget deficit decreases when debt increases. E. Debt increases when the budget deficit decreases. 137. The tax cuts passed during the Reagan administration were designed primarily A. to make it easier for consumers to spend B. to shift the aggregate demand curve rightward C. to reduce the balance-of-payments deficit D. to increase the supply of productive resources E. to make filling out tax returns easier for the average taxpayer 138. The aim of supply-side economics is to A. increase government spending to stimulate aggregate supply B. stimulate exports to increase the balance of payments C. decrease wages to make production cheaper D. lower taxes to increase the supply of resources E. reduce both the inflation and unemployment problems through an increase in taxes 139. The Reagan administration's 1981 investment tax changes were designed to A. stimulate aggregate demand and thereby reduce unemployment B. stimulate aggregate demand and thereby increase economic growth C. stimulate aggregate supply and thereby increase economic growth D. decrease aggregate demand in order to reduce inflation E. increase tax revenues to reduce the federal budget deficit 140. All of the following would be considered supply-side approaches to increasing growth except one. Which is the exception? A. improving the quality of human capital B. developing an interstate highway system C. investing in research and development D. replacing obsolete plants with new ones E. increasing transfer payments to retirees 141. Supply-side economists argue that a cut in personal income tax rates would A. decrease government revenues B. increase government revenues C. have no impact on government revenues D. increase unemployment E. decrease economic growth 142. Between 1947 and 2003, U.S. real GDP A. hardly changed at all B. decreased by about 10 percent C. doubled D. increased fivefold E. grew faster than did nominal GDP 143. Between 1947 and 1998, total U.S. employment A. remained about the same while population increased B. increased faster than the U.S. population C. grew faster than real GDP so that real GDP per worker fell D. grew more slowly than real GDP so that real GDP per worker fell E. more than quadrupled 144. Since 1947, A. the U.S. price level has fallen while real GDP rose B. U.S. real GDP has grown at about the same rate as nominal GDP C. U.S. employment increased while utilization of capital declined D. the U.S. price level has doubled, despite eight recessions E. U.S. real GDP has quintupled, despite eight recessions 145. Gross world product is A. the value of all final goods and services produced in the world during a given period B. the value of all sewage, trash, and bodily fluids produced in the world during a given period C. the value of all final goods and services produced in the United States during a given period D. the value of all final goods and services produced in all countries of the world except the United States during a given period E. the value of all intermediate goods and services produced in the world during a given period 146. The largest andmost complex economy in world history is A. China B. the United States C. Mexico D. Liechtenstein E. None of the answers is correct 147. The policy that a nation’s economic vitality would spring from the stock of precious metals accumulated in the public treasury is called monetarism. A. True B. False 148. The longest U.S. expansion on record lasted ten years, from A. April 1854 to April 1864 B. March 1991 to March 2001 C. December 1997 to December 2007 D. September 1929 to September 1939 E. February 1961 to February 1971 149. The economy is so __________ that we need to __________ matters. A. complex, further complicate B. simple, further simplify C. simple, complicate D. complex, simplify E. complex, completely ignore 150. During a given period in the economy, aggregate output is the A. total amount of goods and services produced B. total amount of goods only produced C. relationship between the price level and the quantity of output demanded D. price level E. relationship between the price level and the quantity of output supplied 151. Exhibit 5-2 Refer to Exhibit 5-2. Which line or point represents equilibrium? A. line a B. line b C. line c D. line d E. point e 152. Exhibit 5-2 Refer to Exhibit 5-2. Which line or point represents aggregate demand? A. line a B. line b C. line c D. line d E. point e 153. Exhibit 5-2 Refer to Exhibit 5-2. Which line or point represents aggregate supply? A. line a B. line b C. line c D. line d E. point e 154. Exhibit 5-2 Refer to Exhibit 5-2. Which line or point represents the price level? A. line a B. line b C. line c D. line d E. point e 155. Exhibit 5-2 Refer to Exhibit 5-2. Which line or point represents real GDP? A. line a B. line b C. line c D. line d E. point e 156. In the history of the U.S. economy, which economic era saw both high unemployment and high inflation at the same time? A. after the Great Depression to the early 1970s B. since the early 1980s C. the colonial period D. before and during the Great Depression E. from the early 1970s to the early 1980s 157. The global financial panic in September 2008 which led to a sharp fall in business investment spending and consumer spending can be viewed as A. a sharp decrease in aggregate supply B. a sharp decrease in aggregate demand C. a sharp decrease in both aggregate supply and aggregate demand D. a modest increase in aggregate supply E. no change in either aggregate supply or aggregate demand 158. Between the Troubled Asset Relief Program and the American Recovery and Reinvestment Act, the Federal budget deficit A. doubled B. tripled C. stayed the same D. was cut in half E. quadrupled 159. Exhibit 5-3 In Exhibit 5-3 AD1 and AS1 represent the initial aggregate demand and aggregate supply. The equilibrium is initially represented by which point? A. A B. B C. C D. D E. E 160. Exhibit 5-3 In Exhibit 5-3 AD1 and AS1 represent the initial aggregate demand and aggregate supply. The equilibrium price level and real GDP is? A. P3 and GDP6 B. P6 and GDP5 C. P4 and GDP3 D. P1 and GDP4 E. P5 and GDP2 161. Exhibit 5-3 In Exhibit 5-3 AD1 and AS1 represent the initial aggregate demand and aggregate supply. The initial equilibrium is at point A. Suppose that the price level in Europe falls, what will the new equilibrium be? A. A B. B C. C D. D E. E 162. Exhibit 5-3 In Exhibit 5-3 AD1 and AS1 represent the initial aggregate demand and aggregate supply. The initial equilibrium is at point A. Suppose that the price level in Europe falls, what will the new equilibrium be? A. P2 and GDP1 B. P3 and GDP6 C. P6 and GDP5 D. P4 and GDP3 E. P5 and GDP2 163. Exhibit 5-3 In Exhibit 5-3 AD1 and AS1 represent the initial aggregate demand and aggregate supply. The initial equilibrium is at point A. Suppose that the price level in Mexico rises, what will the new equilibrium be? A. A B. B C. C D. D E. E 164. Exhibit 5-3 In Exhibit 5-3 AD1 and AS1 represent the initial aggregate demand and aggregate supply. The initial equilibrium is at point A. Suppose that global oil prices rise, what will the new equilibrium be? A. A B. B C. C D. D E. E 165. Exhibit 5-3 In Exhibit 5-3 AD1 and AS1 represent the initial aggregate demand and aggregate supply. The initial equilibrium is at point A. Suppose that global oil prices fall, what will the new equilibrium be? A. A B. B C. C D. D E. E Test Bank for Macroeconomics: A Contemporary Introduction William A. McEachern 9781133188131, 9780538453776