According to Say’s Law, in the aggregate
a. demand creates its own supply
b. the production of output will generate exactly enough income to purchase what has
been produced
c. the economy is incapable of producing output fast enough to ensure full employment
d. full employment cannot be sustained without government action
e. consumer saving prevents the economy from reaching full employment
Crowding out occurs
a. when an increase in government spending crowds out tax revenues.
b. when an increase in government spending increases investment spending.
c. when an increase in government spending crowds out bonds.
d. when an increase in government spending crowds out other types of spending.
e. when an increase in government spending crowds out the money supply.
The AD curve shifts rightward if taxes decrease.
Figure 2-3 shows the production possibilities frontier for a music processing plant that
can produce both compact disks and cassettes. At which point would the plant be
under-utilizing its resources?
Figure 2-3
a. A
b. B
c. C
d. D
e. E
Refer to Figure 15-6. If the price level is currently at 140, what would we expect to
occur in the short run?
a. The price level will remain at 140 and businesses will cut production to $5.5 trillion.
b. The price level will remain at 140 and the extra $2 trillion in real GDP will be saved
for future use.
c. The aggregate supply curve will shift upward until it intersects the aggregate demand
curve at a price level of 140 and real GDP of $5.5 trillion.
d. The aggregate demand curve will shift right until it intersects the aggregate supply
curve at a price level of 140 and real GDP of $7.5 trillion.
e. Inventories will accumulate and businesses will cut production until equilibrium is
reached at a price level of 120 and real GDP of $6.5 trillion.
The AD-AS model implies that, in the long run,
a. the economy adjusts very quickly to demand shocks
b. changes in government spending have no effect on GDP
c. the price level never changes
d. a mixture of fiscal and monetary policy is necessary to achieve full employment
e. the Fed controls output
If the government announces a new increase in spending with no change in taxes, which
of the following would most likely occur?
a. No change in the aggregate demand curve as well as no movement along it
b. A leftward shift of the aggregate demand curve
c. An upward movement along the aggregate demand curve
d. A rightward shift of the aggregate demand curve
e. A downward movement along the aggregate demand curve.
Total spending will equal total output
a. after inventory adjustments
b. only when total leakages are equal to total injections
c. by the end of every year
d. only when the sum of saving and investment equals the sum of net taxes and
government expenditures
e. saving is equal to net taxes
Traditional economies tend to be
a. unstable and unpredictable
b. stable, predictable, and growing
c. unstable, unpredictable, and stagnant
d. unstable and unpredictable, but growing
e. stable and predictable, but stagnant
The official definition of a recession is when real GDP declines for two consecutive
quarters.
One of the costs of the Federal Deposit Insurance Corporation’s protection is
a. bank managers may take great risks with depositors’ money
b. the public pays closer attention to the bank managers’ actions
c. the Fed was forced to reduce its regulation of banks
d. bank managers may act too cautiously with depositors’ money
e. banks’ profits increased
A firm’s value added is
a. the revenue it receives by selling its output
b. usually not included in GDP
c. the revenue it receives for its output, minus the cost of all the intermediate goods it
buys
d. the revenue it receives for its output, plus the cost of all the intermediate goods it
buys
e. the revenue it receives for its output, minus the taxes that it pays
The largest component of private investment expenditure is
a. inventories
b. the capital stock
c. new home construction
d. purchases of newly-produced plant and equipment
e. government investment in private industries
Suppose two economists agree about who would be helped or hurt by certain
legislation, but disagree about whether the legislation would be a good idea. These
disagreements
a. are positive in nature
b. are minor and rarely lead to different policies or conclusions
c. are normative in nature
d. occur as the result of a mistake made by an economist
e. occur because economic models are more complex, and subject to error, than the real
world
The U.S. system of resource ownership
a. is pure capitalism
b. excludes any state ownership of resources
c. includes government restrictions on the use of privately owned resources
d. is designed to eliminate the problem of scarce resources
e. excludes any communal ownership
In the classical model, the government needs to worry about employment.
Managed floats are
a. generally used in the very short run to prevent large, sudden changes in exchange
rates
b. used most often in the long run to maintain equilibrium exchange rates
c. used most often in the short run to keep a country’s currency from depreciating
d. considered unnecessary by most free market economies
e. most often used by the central banks of European countries to prevent depreciation of
their currencies
If the rate of technological change increases, the result will be that
a. the growth rate of productivity will decrease and firms’ profits will increase
b. the growth rate of productivity will increase and firms’ profits will decrease
c. most individuals will likely lose their jobs due to lack of skills
d. the growth rate of productivity will increase and living standards will increase
e. firms’ profits will increase and living standards will decrease
If the actual interest rate is below the equilibrium interest rate, the
a. Fed must intervene in financial markets to restore the interest rate to its equilibrium
value
b. price of bonds will increase
c. price of bonds will decrease
d. money supply will increase until the interest rate rises
e. money supply will decrease until the interest rate rises
What is the price of funds in the loanable funds market?
a. The real wage rate
b. The Consumer Price Index
c. The interest rate
d. The profit rate
e. The GDP price index