Ch. 8 – Flashcards

Alternating periods of economic growth and contraction are a.) The result of government intervention according to Keynes. b.) The result of recurrent shifts of aggregate demand and aggregate supply. c.) Indicative of an unstable economy and require government intervention according to classical economists. d.) Not typical of the U.S. economy.

If wages and prices are flexible, then a recession is best eliminated when prices a.) And wages both rise. b.) And wages both fall. c.) Rise and wages drop. d.) Drop and wages rise.

The inflation-adjusted value of all goods and services produced is

The laissez faire view of government involvement in the economy is most consistent with the ____ Theory

A recession can be represented by a point _____ the production possibilities curve

Fiscal policy is the use of a.) Government spending and taxes to alter macroeconomic outcomes. b.) Money and credit controls to alter macroeconomic outcomes. c.) Tax incentives, deregulation, and other mechanisms to increase the ability and willingness to produce goods and services. d.) Trade policy to alter macroeconomic outcomes.

The growth path of the US economy is considered to be a.) Smooth and predictable. b.) Consistent and reliable. c.) Old and steady. d.) Stumbles and setbacks.

A vertical aggregate supply curve a.) Implies that supply-side policies will have no effect on the macro equilibrium. b.) Implies that aggregate demand shifts have no impact on output. c.) Is likely in the short run. d.) Reflects the inflexibility of prices and wages.

Which of the following is a basic macro policy strategy? a.) A laissez faire approach. b.) Shifting the aggregate supply curve. c.) Shifting the aggregate demand curve. d.) All of the choices are correct.

Which group of economists believes that there is a natural rate of output that is relatively immune to short-run fluctuations in aggregate demand? a.) Supply-siders. b.) Keynesians. c.) Monetarists. d.) Fiscal economists.

The Great Depression did not lead to a ____ rate of ______

As output rises, the profit effect results from a.) Lower opportunity costs. b.) Tight supplies of factors of production. c.) The law of demand. d.) Constant costs that do not rise when prices rise.

When the AS curve is vertical, increases in AD will a.) Increase the average price level but have no impact on unemployment. b.) Increase the average price level and decrease unemployment. c.) Increase both the average price level and unemployment. d.) Have no impact on either the average price level or unemployment.

Cost pressures are most intense a.) At low rates of output. b.) When unemployment falls. c.) As the economy approaches capacity. d.) None of the choices are correct.

Controversies between Keynesian, monetarist, and supply-side theories focus on the a.) Shape and sensitivity of aggregate demand and aggregate supply curves. b.) Existence or nonexistence of the aggregate supply curve. c.) Importance of international balances to the economy. d.) Usefulness of aggregate demand and supply to analyze adjustment of the macro equilibrium.

According to classical theory, a.) Keynes had "neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand." b.) Macro equilibrium might start out badly and get worse in the absence of government intervention. c.) Flexible wages and prices allow a laissez faire economy to adjust wages and prices to shifts in aggregate demand. d.) Business cycles are not relevant and do not occur.