question

1) Rational expectations are A) possible to make and are always accurate. B) used in the labor market but not in the financial markets. C) impossible to make because they are assumed to be always accurate. D) based on all relevant information.

answer

D

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2) For monetarists the main cause of economic fluctuations is changes in A) consumption expenditure. B) inappropriate monetary policy. C) the levels of household debt. D) investment.

answer

B

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3) Keynes used the term ʺanimal spiritsʺ to represent A) changes in imports and exports. B) investment based on hard facts about the future. C) the ease of forecasting. D) volatile investment spending arising from fluctuations in business confidence.

answer

D

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4) The Keynesian explanation of the business cycle rests on several concepts, including A) rigid money wage rates (i.e. sticky prices and wages). B) shocks to the rate of technological change. C) unstable monetary policy by the Fed. D) the desire of politicians to be re-elected.

answer

A

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5) The rational expectations/new classical theory argues that the primary factor leading to business cycles are A) expected changes in aggregate demand. B) expected changes in aggregate supply. C) unexpected changes in aggregate supply. D) unexpected changes in aggregate demand.

answer

D

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6) Which theory distinguishes between expected and unexpected fluctuations in aggregate demand and asserts that only unexpected changes can affect real GDP? A) monetarist cycle theory B) real business cycle theory C) new classical cycle theory D) Keynesian cycle theory

answer

C

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7) One assumption of the new classical model is that A) prices are ʺstickyʺ upward. B) money wage rates are rigid. C) people make rational expectations about aggregate demand. D) markets are not purely competitive.

answer

C

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8) According to the new Keynesian theory, A) unexpected changes in aggregate demand change real GDP. B) expected changes in aggregate demand change real GDP. C) current and past expectations of the price level determine the money wage rate. D) All of the answers are correct.

answer

D

question

9) Real business cycle theory says that the factor leading to the business cycle is changes in A) only aggregate demand. B) the growth rate of the quantity of money. C) animal spirits. D) productivity.

answer

D

question

10) According to the real business cycle theory, technological change A) is increasing in recent years at an increasing rate. B) happens at an uneven pace. C) happens only occasionally. D) occurs at a constant rate.

answer

B

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11) Suppose that following an expected decline in the price level, workers immediately renegotiate their money wage rates to match the fall in prices. This behavior is most consistent with A) new Keynesian cycle theory. B) monetarist business cycle theory. C) the new classical cycle theory. D) All of the above answers are correct.

answer

C

question

12) Economists who believe tax policy has a big effect on employment and potential GDP are called A) libertarians. B) supply-siders. C) fiscalists. D) demand-siders.

answer

B

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13) If a tax cut increases peopleʹs labor supply, then A) tax cuts decrease aggregate demand. B) tax cuts cannot affect aggregate demand. C) tax cuts increase potential GDP. D) Both answers A and B are correct.

answer

C

question

14) Income taxes in the United States are automatic stabilizers because A) tax revenues decrease when income increases, intensifying the increase in aggregate demand. B) tax rates can be adjusted by the Congress to counteract economic fluctuations. C) the President can increase tax rates whenever the President deems such a policy appropriate. D) tax revenues increase when income increases, thus offsetting some of the increase in aggregate demand.

answer

D

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15) Which theory fundamentally denies demand-side economic shocks? A) both the new classical cycle theory and the new Keynesian cycle theory B) Keynesian cycle theory C) monetarist cycle theory D) real business cycle theory

answer

D

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16) The Employment Act of 1946 states that it is the responsibility of the federal government to A) maintain the inflation rate at below 10 percent per year. B) promote full employment. C) promote economic equality. D) All of the above answers are correct.

answer

B

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17) The monetarist school of thought: A) believes that velocity is unpredictable making monetary policy effective. B) believes that velocity is predictable making monetary policy ineffective. C) believes that velocity is unpredictable making monetary policy effective. D) believes that velocity is predictable making monetary policy effective.

answer

D

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18) The real business cycle theory proposes that: A) aggregate demand shocks do not effect the business cycle. B) aggregate demand shocks are the only factors affecting the business cycle. C) government activism in the macro economy is essential. D) aggregate demand shocks do effect the business cycle.

answer

A

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19) If decision makers become so pessimistic that all new money injected into the economy by the FED 19) becomes hoarded and not loaned out or spent, we are in a: A) new classical trap. B) 1970ʹs. C) liquidity trap. D) velocity trap.

answer

C

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20) As real GDP increases and the economy improves (ceteris paribus) government outlays and expenditures tend to: A) decline. B) increase. C) drop to zero. D) stay the same.

answer

A

question

21) As real GDP increases and the economy improves (ceteris paribus) government tax revenues tend to: A) increase. B) decline. C) drop to zero. D) stay the same.

answer

A

question

22) Taken to its logical conclusion, the real business cycle theory (and New Classical Theory) proposes that: A) actual GDP never equals potential GDP, making all unemployment involuntary. B) actual GDP always equals potential GDP, making all unemployment voluntary. C) actual GDP is always greater than potential GDP. D) actual GDP always equals potential GDP, making all unemployment involuntary.

answer

B

question

23) Sticky prices and wages are a property of the__________ school of thought. A) rational expectations/new classical B) monetarist C) classical D) Keynesian E) real business cycle

answer

D

question

24) Adaptive expectations are a property of the__________ school of thought. A) Keynesian B) rational expectations/new classical C) real business cycle D) monetarist E) classical

answer

D

question

25) ʺIf policy is anticipated, there is no short-runʺ is a property of the__________ school of thought. A) rational expectations/new classical B) real business cycle C) classical D) monetarist E) Keynesian

answer

A

question

26) ʺCurrent economic parameters are determined by past rational expectationsʺ is a property of the__________ school of thought. A) classical B) real business cycle C) New Keynesian D) rational expectations/new classical E) monetarist

answer

C

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27) The cyclical deficit is the portion of the deficit A) the result of discretionary federal spending. B) that would exist if the economy were at potential real GDP. C) created by fluctuations in real GDP. D) that is the result of nondiscretionary federal spending.

answer

C

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28) According to the Ricardo-Barro effect, A) government deficits raise the real interest rate. B) government budget deficits increase householdsʹ expected future disposable income. C) households increase their personal saving when governments run budget deficits. D) taxpayers fail to foresee that government deficits imply higher future taxes.

answer

C

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29) The real business cycle theory asserts that changes in ________ lead to changes in ________. A) technology; productivity B) the quantity of money; real GDP C) animal spirits; real GDP D) consumption expenditure; real GDP

answer

A

question

30) The real business cycle (RBC) theory assets that the impact on real GDP of technological change is 30) A) always negative. B) always positive. C) nonexistent. D) usually positive but occasionally negative.

answer

D

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31) Which of the following is a criticism of real business cycle theory? A) Real business cycle theory assumes that money wage rates are sticky. B) Real business cycle theory believes that productivity changes are caused by technology changes when in fact they are caused by changes in aggregate demand. C) Real business cycle theory fails to explain the phenomenon of economic growth. D) None of the above are criticisms of real business cycle theory.

answer

B

question

32) Which of the following is true? A) Aggregate supply is ʺpassiveʺ in the Keynesian model. B) Aggregate demand is ʺpassiveʺ in the real business cycle theory. C) Keynesian economics is focused on aggregate demand. D) Classical economics is focused on aggregate supply. E) All of the answers are true.

answer

E

question

33) The system that measures the lifetime tax burden and benefits of each generation is called A) generational actuary. B) generational accounting. C) actuarial genealogy. D) actuarial accounting.

answer

B

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34) By itself, an increase in aggregate demand increases GDP by the least amount (or zero) in the ________. A) new Keynesian theory B) monetarist theory C) real business cycle theory D) Keynesian theory

answer

C

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35) According to aggregate demand and supply analysis, the rising oil prices coupled with the global financial crisis in 2007-2008 caused the unemployment rate to ________ and the level of real aggregate output to ________. A) increase; increase B) decrease; increase C) increase; decrease D) decrease; decrease

answer

C

question

36) The forces that generate economic growth are those that shift the A) aggregate demand curve left ward. B) long-run aggregate supply curve left ward. C) long-run aggregate supply curve rightward. D) None of the above answers are correct.

answer

C

question

37) Fiscal policy A) is enacted by the Federal Reserve. B) involves changing the money supply. C) involves changing taxes and government spending. D) involves changing interest rates.

answer

C

question

38) Factors that shift the long-run aggregate supply and potential GDP rightward include an increase in: A) quality and quantity of other inputs. B) quantity of capital (physical capital and human capital). C) quantity of labor. D) technology. E) all of the answers in this question.

answer

E

question

39) What caused the stagflation of the 1970s? A) 1973 oil shock B) 1979 oil shock C) collapse of the Bretton-Woods fixed exchange rate system D) sharp increase in agriculture prices E) all of the answers in this question

answer

E

question

40) The supply side school of thought proposed: A) cutting the (top) marginal tax rates. B) cutting government regulation. C) cutting the size of government. D) doing all of the above.

answer

D

question

41) One reason why many supply-side economists focus policy on lowering the top marginal tax rate is their belief that: A) it is system most fair to the members of congress. B) it would bring about income equality throughout all taxpayers in the long-run. C) it would have the greatest positive influence on the decision makers in the economy with the highest marginal product (i.e. most productive in the economy). D) it benefits the most deserving decision makers.

answer

C

question

42) Supply side economists focus policy change by lowering the : A) lowest tax rates paid by the poor. B) average tax rates paid by most taxpayers. C) interest rates in the economy. D) highest (i.e. marginal tax rates).

answer

D

question

43) If the economy is on the negative slope of the Laffer curve and you raise taxes: A) tax revenues will rise. B) international trade will increase. C) tax revenues will fall. D) national income will rise.

answer

C

question

44) An decrease in the input prices (such as the money wage) ceteris paribus: A) increases aggregate demand. B) increases the short-run aggregate supply. C) decreases the long-run aggregate supply. D) increases the long-run aggregate supply. E) decreases the short-run aggregate supply.

answer

B

question

45) The short-run aggregate supply curve is upward sloping because in the short run the A) money wage rate (or other input prices) changes but the price level does not. B) price level changes but the money wage rate (or other input prices) does not. C) both the money wage rate (or other input prices) and the price level change. D) neither the money wage rate (or other input prices) nor the price level can change.

answer

B

question

46) Which of the following could start a demand-pull inflation? A) a decrease in the quantity of money B) an increase in the money prices of raw materials C) an increase in imports D) an increase in government expenditures

answer

D

question

47) Demand-pull inflation persists because of A) continuing increases in real wage rates. B) continuing increases in the quantity of money. C) continuing increases in aggregate supply. D) continuing increases in government expenditures.

answer

B

question

48) In a demand-pull inflation, the AD ( steps A to B) curve shifts ________ and the SRAS curve shifts ________ (steps B to C). A) left ward; left ward B) left ward; rightward C) rightward; left ward D) rightward; rightward

answer

C

question

49) True or False Sayʹs Law: Supply creates its own demand; implies there cannot be insufficient aggregate demand or demand caused recessions.

answer

T

question

50) True or False Keynes Law: Demand creates its own supply; implies there cannot be insufficient aggregate supply and implies demand-caused recessions.

answer

T

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