File: Chapter 24 Economic Growth, Business Cycles, and Structural Stagnation
True/False
[QUESTION]
1. Laissez-faire economists favor government intervention in the market process.
2. Active demand management policies are based on the work of John Maynard Keynes.
3. Policy issues of business cycles are considered in a long-run framework
4. The difference between the long-run and short-run frameworks is that the long-run framework focuses on
demand while the short-run framework focuses on supply.
5. The terms business cycle and structural stagnation can be used interchangeably.
6. In the post-war era, the average business expansion has lasted about 59 months.
7. The four phases of the business cycle are, in order, upturn, peak, recession, and trough.
8. If the economy is in a structural stagnation, it can be expected to return to its historical trend soon.
9. Cyclical unemployment is caused by fluctuations in economic activity.
10. The unemployment rate is the percentage of people in the labor force who are both able to and looking for work
but who cannot find jobs.
11. The sum of the number of employed persons and the number of unemployed persons equals the civilian non–
institutional population.
12. If the economy were producing at its potential output, then the unemployment rate would be less than the target
rate of unemployment.
13. Keynesian economists believe:
A. government policies do not affect economic activity.
B. government can implement policy proposals that can positively impact the economy.
C. most government policies would probably make things worse.
D. the economy ought to be left to market forces.
14. Laissez-faire economists believe:
A. government policies mostly do not affect economic activity.
B. government can implement policy proposals that have mostly positively impacts on the economy.
C. most government policies would probably make things worse.
D. government intervention in the market is necessary for a smoothly operating economy.
15. “Classical economist” is often used interchangeably with which term?
A. Laissez-faire economist
B. Keynesian economist
C. Activist economist
D. Marxian economist
16. Keynesian economists tend to focus their analysis on:
A. the long run.
B. the short run.
C. aggregate supply.
D. economic growth.
17. Which of the following explains why Keynesian economics lost influence in the 1970s?
A. A change in the how the Federal Reserve was constructed
B. A crash in the stock market
C. The damaging effects of inflation
D. An increase in the marginal tax rate
18. Between 2007 and 2009, the U.S. unemployment rate rose from under 5 percent to over 8 percent. A Keynesian
economist would most likely blame this increase in unemployment on:
A. an increase in the minimum wage.
B. an increase in the bargaining power of labor unions.
C. a decline in the level of aggregate demand.
D. a decline in aggregate supply.
19. Before the Great Depression the popular view of government was:
A. laissez-faire; and after the Great Depression, the popular view of government was activist.
B. activist; and after the Great Depression, the popular view of government was laissez-faire.
C. activist; and after the Great Depression, the popular view of government was still activist.
D. laissez-faire; and after the Great Depression, the popular view of government was still laissez-faire.
20. Which of the following statements would a Classical economist of the 1930s most likely disagree with?
A. The market, left to its own devices, is self-adjusting.
B. Wages and prices will adjust to eliminate unemployment.
C. In the short-run the economy might experience some problems.
D. Unions do not impede wage and price adjustment.
21. The laissez-faire policy prescription to eliminate unemployment was to:
A. eliminate labor unions and government policies that hold real wages too high.
B. strengthen unions and government regulations protecting unions and workers.
C. increase real wages so that people are encouraged to work.
D. have government guarantee jobs for everyone.
22. The Classical economists argued that:
A. a market economy will not experience unemployment in the short run.
B. if unemployment occurs, it will cure itself because wages will fall.
C. aggregate expenditures may be too low.
D. if inflation occurs it will cure itself because prices, wages, and interest rates will rise.
23. When Classical economists of the 1930s looked at the Great Depression, they:
A. lacked a good explanation of why it was happening.
B. suggested wages were too flexible.
C. blamed it on activist fiscal and monetary policies.
D. thought it was a result of prices adjusting too quickly.
24. Which of the following statements best depicts laypeople’s explanation of the Great Depression at that time?
A. Government policies kept prices too high.
B. An oversupply of goods had glutted the market.
C. Unions were keeping the good jobs for themselves.
D. An oversupply of goods is impossible.
25. According to Classical economists in the 1930s, a recession will end when:
A. government creates enough jobs for all of the unemployed.
B. wages rise enough to eliminate unemployment.
C. wages fall enough to eliminate unemployment.
D. taxes are cut enough to stimulate private spending.
26. Which of the following was not a solution to the Great Depression favored by Classical economists?
A. Break up labor unions
B. Hire unemployed workers for public works programs
C. Let market forces operate
D. Stop government measures that held up wages and prices
27. Classical economists are generally associated with:
A. laissez-faire.
B. their support of inflation.
C. an activist policy.
D. price controls.
28. Keynesian economics focuses on:
A. the long run.
B. the short run.
C. both the long run and the short run.
D. neither the long run nor the short run.
29. Keynesians:
A. generally favor activist government policies.
B. generally favor laissez-faire policies.
C. believe that frictional unemployment does not exist.
D. believe that all unemployment is cyclical unemployment.
30. Classicals:
A. generally favor activist government policies.
B. generally favor laissez-faire policies.
C. believe that frictional unemployment does not exist.
D. believe that all unemployment is cyclical unemployment.
31. The Great Depression occurred in the early:
A. 1900s.
B. 1930s.
C. 1950s.
D. 1960s.
32. The two frameworks conventional economists generally use to analyze macroeconomic issues are:
A. the inflation and the unemployment frameworks.
B. the short-run and the long-run frameworks.
C. the business cycle and the growth cycle frameworks.
D. the stagnationist and the Post-Keynesian frameworks.
33. Potential output:
A. is purely a physical phenomenon.
B. is related to the long-term growth trend.
C. requires government expenditures.
D. requires the purchase of new equipment.
34. A period of protracted slow growth and high unemployment is called:
A. deflation.
B. cyclical stagnation.
C. structural stagnation.
D. stagflation.
35. The long-run growth framework focuses on factors affecting:
A. incentives to spend.
B. incentives to produce.
C. both supply and demand.
D. the business cycle.
36. The short-run business cycle framework focuses primarily on factors:
A. affecting demand.
B. affecting supply.
C. affecting both supply and demand.
D. other than supply and demand.
37. Classical economists believe that in the short-run, in the real world:
A. prices and wages are flexible.
B. prices and wages aren’t flexible enough to bring about equilibrium.
C. prices are flexible but wages were not flexible.
D. wages are flexible but prices were not flexible.
38. Issues of growth are generally considered in:
A. the short-run framework.
B. the long-run framework.
C. both the short-run and the long-run frameworks.
D. neither the short-run nor the long-run frameworks.
39. The highest amount of output an economy can sustainably produce and sell using existing production processes
and resources is called:
A. nominal output.
B. actual output.
C. potential output.
D. utilized output.
40. If a country of 300 million people has a total income of $12 trillion, its per capita income is:
A. $36,000.
B. $40,000.
C. $360,000.
D. $400,000.
41. The secular trend growth rate in the United States is approximately:
A. 1 to 1.5 percent per year.
B. 2.5 to 3.5 percent per year.
C. 5 to 5.5 percent per year.
D. 7 to 7.5 percent per year.
42. Over the last ten years which geographic area or country had the highest per capita growth rate?
A. China
B. Western Europe
C. North America
D. Latin America
43. Per capita output would be certain to increase if:
A. both real output and population increase.
B. both real output and population decrease.
C. real output increases and population decreases.
D. real output decreases and population increases.
44. If a country‘s output and population are, respectively, $500 billion and 200 million, then its per capita output is:
A. $250.
B. $1,000.
C. $2,500.
D. $24,000.
45. Suppose a country’s output is $440 billion and its population is 110 million. Now suppose that both its output
and its population increase by 24 percent. As a result of these changes, its new level of per capita output will be:
A. $400.
B. $440.
C. $4,000.
D. $4,400.
46. The secular trend growth rate is the:
A. rate of growth in any one year.
B. rate of growth in per capita output in any one year.
C. rate of growth of potential output.
D. difference between actual output and the average growth in the economy.
47. Which of the following countries, or groups of countries, has grown at the fastest rate in the last ten years?
A. Western Europe
B. China
C. The United States
D. Eastern Europe
48. Fluctuations around the long-term growth rate are called:
A. recessions.
B. depressions.
C. expansions.
D. business cycles.
49. The business cycle is:
A. the term used to describe fluctuations in output around its long-term trend.
B. the length of time required by a firm to buy inputs and produce and sell output.
C. the pattern of increases and decreases in the money supply.
D. regular and predictable.
50. Business cycles are generally considered in:
A. the short-run framework.
B. the long-run framework.
C. both the short-run and long-run frameworks.
D. neither the short-run nor the long-run frameworks.
51. The growth trend in the graph shown is depicted by:
A. A
B. B
C. C
D. D
Time
Output
D
A
B
C
52. What turns a business cycle into a structural stagnation?
A. A trough that is lower than the peak.
B. Multiple business cycles in a short period of time.
C. A slow upturn that keeps the economy below trend.
D. An upturn that exceeds potential.
53. Policies that affect aggregate expenditures are primarily relevant to the:
A. short-run business cycle framework.
B. long-run growth framework.
C. short-run growth framework.
D. long-run business cycle framework.
54. In September 2010, the NBER’s Business Cycle Dating Committee decided that the recession that began in
December of 2007 had ended and that the lowest point of production was July of 2009. The NBER does not use a
popular definition of recession—two quarters of falling GDP—but looks at a variety of monthly statistics to date
business cycles. What is the NBER?
A. National Bureau of Economic Research, a nonprofit, private organization
B. National Board of Economic Recovery, part of the Department of Commerce
C. National Business Education Roundtable, part of the Federal Reserve
D. National Budget Estimation Review, part of the Congressional Budget Office
55. In September 2010, the NBER’s Business Cycle Dating Committee decided that the recession that began in
December of 2007 had ended and that the lowest point of production was July of 2009. The NBER does not use a
popular definition of recession—two quarters of falling GDP—but looks at a variety of monthly statistics to date
business cycles. In business cycle terminology, what does July 2009 mark?
A. The trough of the cycle
B. The peak of the cycle.
C. The depression of the cycle.
D. The duration of the recession
56. If U.S. real GDP increases by 3.3 percent, we can infer that the United States experiences:
A. a recession.
B. an upturn.
C. a depression.
D. a trough.
57. Which of the following statements best characterizes the Classical view of business cycles?
A. Fluctuations in business activity occur in regular and predictable patterns.
B. Fluctuations in business activity are to be expected and should be accepted
C. Business cycles are symptoms of underlying problems and should be addressed by macroeconomic policy.
D. The appropriate macroeconomic policy can eliminate fluctuations in business activity.
58. Which of the following statements best characterizes the Keynesian view of business cycles?
A. Fluctuations in business activity occur in regular and predictable patterns that cannot be altered.
B. Fluctuations in business activity are to be expected and should be accepted just as changes in the seasons are
accepted.
C. Business cycles of the business cycle are symptoms of underlying problems and should be dealt with through
activist government policies.
D. The appropriate macroeconomic policy can easily eliminate all fluctuations in business activity.