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Macro Ch 24, 25, 26 Test Questions – Flashcards

Steven Colyer

7 July 2022

question

In an AD/AS model, the point where the economy has excess capacity is called the:

answer

Keynesian zone of the AS curve

question

The graph below refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result?

answer

he economy will experience lower economic growth

question

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:

answer

hyper-intense production will be unsustainable in the long run

question

Changes in the price level of the different components of aggregate demand are reflected in the AD/AS macroeconomic model by a ________________________.

answer

downward sloping AD curve

question

As the aggregate price level in an economy decreases,

answer

imports decrease.

question

When the economy of a country is operating close to its full capacity:

answer

cyclical unemployment is close to zero.

question

As the aggregate price level in an economy rises, ____________________.

answer

interest rates increase

question

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be:

answer

short-term

question

When an economy's output increases and the price level decreases, the _________ curve has shifted to the ____________.

answer

AS; right

question

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

answer

aggregate demand (AD)

question

Referring to the diagram below, which of the following is a true statement?

answer

There is insufficient aggregate demand to reach full employment.

question

In an AD/AS diagram, __________________________ could explain a rise in cyclical unemployment?

answer

shift to the left in either AS or AD

question

Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output.

answer

relatively flat; relatively steep

question

_________________ results when an economy experiences high unemployment and high inflation at the same time.

answer

Stagflation

question

Melanie decided to save 20% of her annual earnings for 10 years so she would have a down payment for a house. After 5 years, what change in the economy would cause an increase in the purchasing power of the funds she has managed to save?

answer

deflation

question

The __________________ in an AD/AS diagram is most relevant to Keynes's Law.

answer

flat portion of the AS curve

question

______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.

answer

Full employment GDP

question

The following table shows the aggregate supply and demand data for a country. If input prices decrease and AS shifts to the right by 3,000 units at each price level.

answer

600

question

Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line.

answer

equilibrium

question

Which of the following must be present in order for the aggregate supply curve to form an upward slope?

answer

fixed cost of inputs combined with rising prices for output

question

The term "full employment GDP" is synonymous with which of the following

answer

potential GDP

question

Refer to the graph below. A government creating economic policy in these circumstances should be most concerned about:

answer

unemployment but not inflation

question

The ____________________ in an AD/AS diagram is most relevant to Say's Law

answer

steep portion of the AS curve

question

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

answer

higher profits will induce expanded production.

question

_______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________.

answer

Neoclassical economists; long run

question

The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.

answer

interest rate effect

question

What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions?

answer

potential GDP

question

Suppose that out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what value would be recycled in the fourth round of this cycle?

answer

3.59

question

If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?

answer

excess supply

question

According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?

answer

a decrease in military spending

question

Consumption, investment, government spending, exports, and imports are

answer

all components of aggregate demand.

question

The Keynesian economic framework is based on an assumption tha

answer

prices and wages are sticky and do not adjust rapidly

question

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

answer

menu costs

question

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

answer

shift substantially

question

According to the Keynesian framework, ________________________ may cause a recession, but not inflation

answer

a major trading partner's economic slowdown

question

The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. What does consumption equal when income equals 600?

answer

374

question

Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?

answer

147.48

question

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:

answer

Keynesian Phillips curve tradeoff

question

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

answer

recessionary gap

question

If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy:

answer

is producing at a point where output is more than potential GDP.

question

When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?

answer

500

question

Refer to the graph shown below. At point B:

answer

economic growth is low or even negative

question

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

answer

coordination

question

The Keynesian economic framework is based on an assumption that:

answer

prices and wages are sticky and do not adjust rapidly

question

Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?

answer

exchange rates

question

The equilibrium quantity of labor and the equilibrium wage level decrease when:

answer

labor demand shifts to the left, if wages are flexible

question

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

answer

is producing at a point where output is less than potential GDP

question

answer

Y=300

question

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

answer

a major trading partner's economic slowdown

question

The equilibrium quantity of labor and the equilibrium wage increase when:

answer

labor demand shifts to the right, if wages are flexible.

question

When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:

answer

tangible and/or intangible capital.

question

answer

374

question

Refer to the graph shown below. At point A:

answer

the economy has full employment.

question

Refer to the graph shown below. This graph illustrates a:

answer

Phillips Curve.

question

Which of the following represents a Keynesian point of view of macroeconomics?

answer

creating increases in aggregate demand to reduce unemployment

question

From a neoclassical viewpoint, government should focus less on:

answer

cyclical unemployment.

question

The Keynesian view of economics assumes that

answer

wages are sticky

question

If aggregate supply is vertical, then aggregate demand does not affect:

answer

the quantity of output

question

Which of the following is a valid criticism of the rational expectations theory?

answer

the assumption seems too strong

question

A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies:

answer

a vertical Phillips curve.

question

Referring to the diagram below, which of the following is a true statement?

answer

Higher cost levels of increased output will force an increase in price for the product.

question

Which of the following is a building block of neoclassical economics?

answer

wages and prices will adjust in a flexible manner

question

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

answer

is vertical; is vertical

question

________________ economists place an emphasis on __________ run economic performance.

answer

Neoclassical; long

question

From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy?

answer

investments in human capital

question

Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP?

answer

zero

question

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

answer

potential GDP and aggregate supply

question

In order to shift the vertical supply curve to the left, which of the following would have to occur?

answer

breakdown of key market institutions

question

Referring to the diagram below, complete the following sentence: Any increase in aggregate demand in the short-run will lead to:

answer

an increase in output (Q1 to Q2), but it will also lead to prices increasing.

question

The shape of the ______________ involves a tradeoff between unemployment and inflation.

answer

Phillips curve

question

f aggregate supply is vertical, then aggregate demand does not affect:

answer

the quantity of output.

question

A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________.

answer

slopes upward; slopes downward

question

If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important?

answer

encouraging long-term growth

question

The Keynesian view of economics assumes that:

answer

wages are sticky.

question

The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future.

answer

rational expectations

question

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

answer

economic growth; the size of the economy

question

If aggregate supply is vertical, then which of the following statements must be true?

answer

Aggregate demand does not affect the quantity of output.

question

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:

answer

lower unemployment.

question

From a neoclassical view, which of the following is a true statement?

answer

The economy cannot sustain production above its potential GDP in the long run.

question

Referring to the diagram below, complete the following sentence: Any increase in aggregate demand in the short-run will lead to:

answer

an increase in output (Q1 to Q2), but it will also lead to prices increasing.

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question

In an AD/AS model, the point where the economy has excess capacity is called the:

answer

Keynesian zone of the AS curve

question

The graph below refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result?

answer

he economy will experience lower economic growth

question

When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:

answer

hyper-intense production will be unsustainable in the long run

question

Changes in the price level of the different components of aggregate demand are reflected in the AD/AS macroeconomic model by a ________________________.

answer

downward sloping AD curve

question

As the aggregate price level in an economy decreases,

answer

imports decrease.

question

When the economy of a country is operating close to its full capacity:

answer

cyclical unemployment is close to zero.

question

As the aggregate price level in an economy rises, ____________________.

answer

interest rates increase

question

Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be:

answer

short-term

question

When an economy's output increases and the price level decreases, the _________ curve has shifted to the ____________.

answer

AS; right

question

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

answer

aggregate demand (AD)

question

Referring to the diagram below, which of the following is a true statement?

answer

There is insufficient aggregate demand to reach full employment.

question

In an AD/AS diagram, __________________________ could explain a rise in cyclical unemployment?

answer

shift to the left in either AS or AD

question

Aggregate supply curves are ________________________ for low levels of output, and ____________________________ for high levels of output.

answer

relatively flat; relatively steep

question

_________________ results when an economy experiences high unemployment and high inflation at the same time.

answer

Stagflation

question

answer

deflation

question

The __________________ in an AD/AS diagram is most relevant to Keynes's Law.

answer

flat portion of the AS curve

question

______________________ happens when the economy is producing at its potential and unemployment is at the natural rate of unemployment.

answer

Full employment GDP

question

The following table shows the aggregate supply and demand data for a country. If input prices decrease and AS shifts to the right by 3,000 units at each price level.

answer

600

question

Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line.

answer

equilibrium

question

Which of the following must be present in order for the aggregate supply curve to form an upward slope?

answer

fixed cost of inputs combined with rising prices for output

question

The term "full employment GDP" is synonymous with which of the following

answer

potential GDP

question

Refer to the graph below. A government creating economic policy in these circumstances should be most concerned about:

answer

unemployment but not inflation

question

The ____________________ in an AD/AS diagram is most relevant to Say's Law

answer

steep portion of the AS curve

question

If the price level of what firms produce is rising across an economy, but the costs of production are constant, then:

answer

higher profits will induce expanded production.

question

_______________________ are economists who generally emphasize the importance of aggregate supply in determining the size of the macroeconomy over the _____________.

answer

Neoclassical economists; long run

question

The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.

answer

interest rate effect

question

What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions?

answer

potential GDP

question

answer

3.59

question

answer

excess supply

question

According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?

answer

a decrease in military spending

question

Consumption, investment, government spending, exports, and imports are

answer

all components of aggregate demand.

question

The Keynesian economic framework is based on an assumption tha

answer

prices and wages are sticky and do not adjust rapidly

question

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

answer

menu costs

question

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

answer

shift substantially

question

According to the Keynesian framework, ________________________ may cause a recession, but not inflation

answer

a major trading partner's economic slowdown

question

answer

374

question

answer

147.48

question

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:

answer

Keynesian Phillips curve tradeoff

question

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

answer

recessionary gap

question

If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy:

answer

is producing at a point where output is more than potential GDP.

question

When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?

answer

500

question

Refer to the graph shown below. At point B:

answer

economic growth is low or even negative

question

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

answer

coordination

question

The Keynesian economic framework is based on an assumption that:

answer

prices and wages are sticky and do not adjust rapidly

question

Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?

answer

exchange rates

question

The equilibrium quantity of labor and the equilibrium wage level decrease when:

answer

labor demand shifts to the left, if wages are flexible

question

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

answer

is producing at a point where output is less than potential GDP

question

answer

Y=300

question

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

answer

a major trading partner's economic slowdown

question

The equilibrium quantity of labor and the equilibrium wage increase when:

answer

labor demand shifts to the right, if wages are flexible.

question

When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:

answer

tangible and/or intangible capital.

question

answer

374

question

Refer to the graph shown below. At point A:

answer

the economy has full employment.

question

Refer to the graph shown below. This graph illustrates a:

answer

Phillips Curve.

question

Which of the following represents a Keynesian point of view of macroeconomics?

answer

creating increases in aggregate demand to reduce unemployment

question

From a neoclassical viewpoint, government should focus less on:

answer

cyclical unemployment.

question

The Keynesian view of economics assumes that

answer

wages are sticky

question

If aggregate supply is vertical, then aggregate demand does not affect:

answer

the quantity of output

question

Which of the following is a valid criticism of the rational expectations theory?

answer

the assumption seems too strong

question

A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies:

answer

a vertical Phillips curve.

question

Referring to the diagram below, which of the following is a true statement?

answer

Higher cost levels of increased output will force an increase in price for the product.

question

Which of the following is a building block of neoclassical economics?

answer

wages and prices will adjust in a flexible manner

question

A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________.

answer

is vertical; is vertical

question

________________ economists place an emphasis on __________ run economic performance.

answer

Neoclassical; long

question

From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy?

answer

investments in human capital

question

Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP?

answer

zero

question

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

answer

potential GDP and aggregate supply

question

In order to shift the vertical supply curve to the left, which of the following would have to occur?

answer

breakdown of key market institutions

question

Referring to the diagram below, complete the following sentence: Any increase in aggregate demand in the short-run will lead to:

answer

an increase in output (Q1 to Q2), but it will also lead to prices increasing.

question

The shape of the ______________ involves a tradeoff between unemployment and inflation.

answer

Phillips curve

question

f aggregate supply is vertical, then aggregate demand does not affect:

answer

the quantity of output.

question

A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________.

answer

slopes upward; slopes downward

question

If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important?

answer

encouraging long-term growth

question

The Keynesian view of economics assumes that:

answer

wages are sticky.

question

The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future.

answer

rational expectations

question

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

answer

economic growth; the size of the economy

question

If aggregate supply is vertical, then which of the following statements must be true?

answer

Aggregate demand does not affect the quantity of output.

question

Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will:

answer

lower unemployment.

question

From a neoclassical view, which of the following is a true statement?

answer

The economy cannot sustain production above its potential GDP in the long run.

question

Referring to the diagram below, complete the following sentence: Any increase in aggregate demand in the short-run will lead to:

answer

an increase in output (Q1 to Q2), but it will also lead to prices increasing.

Macro Ch 24, 25, 26 Test Questions – Flashcards

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