Question 1

Which of the following statements is NOT consistent with classical economic theory?

Accepted Answer

A)   Supply creates its own demand.
B)   Saving always equals investment.
C)   Prices and wages can be expected to rise but not fall.
D)   None of the statements are consistent with classical economic theory.

Question 2

New Keynesian economics emphasizes that prices in the economy are flexible, so price changes will quickly eliminate high unemployment.

Accepted Answer

A) True 
 B)False

Question 3

The expressions "open economy"and "closed economy"refer to economies that, respectively:

Accepted Answer

A)   can, and cannot, absorb more workers into full-time jobs.
B)   are, and are not, affected by events beyond their national borders.
C)   are in the recovery phase, and the recession phase, of the business cycle.
D)   could function with policies based on different schools of economic thought, or could only function with policies based on one school of economic thought.

Question 4

According to Keynesian economists, government efforts to stimulate the economy always lead to inflation.

Accepted Answer

A) True 
 B)False

Question 5

The primary conclusion of the classical school is:

Accepted Answer

A)   businesses do not change prices once they are set.
B)   a free market economy will automatically operate at full employment.
C)   a free market economy can operate at less than full employment for long periods of time.
D)   there is no relationship between the amount saved and the amount invested in an economy.

Question 6

Anticipations about inflation and how the economy should perform that are formed by households and businesses from past experiences are:

Accepted Answer

A)   adaptive expectations.
B)   hindsighted expectations.
C)   policy-review expectations.
D)   experience-adjustment expectations.

Question 7

-Which figure correctly illustrates aggregate supply and aggregate demand according to classical economic theory?

Accepted Answer

A)   Figure A.
B)   Figure B.
C)   Figure C.
D)   Figure D.

Question 8

Which of the following statements is true?

Accepted Answer

A)   Only one model is needed to fully understand the workings of the macroeconomy.
B)   Generally, macroeconomic models do not require assumptions because they are based on mathematics.
C)   Different macroeconomic models focus on the relationships between different variables or on different problems.
D)   Economics has largely abandoned model building since advances in information technology have made current macroeconomic data widely available.

Question 9

According to the natural rate hypothesis:

Accepted Answer

A)   the government should intervene to keep the economy at its natural full employment rate.
B)   the natural rate of unemployment is an objective rate that cannot be reached.
C)   the economy moves toward the natural rate over the long run and government policies to go below it are ineffective.
D)   the economy moves toward the natural rate over the long run only if government intervenes.

Question 10

Supply-side economics was popular during the presidential administration of Bill Clinton.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is most accurate?

Accepted Answer

A)   Generally, the economics profession agrees that monetarism is the best approach for dealing with macroeconomic problems.
B)   There is very little difference between the Keynesian and new classical viewpoints on the effectiveness of macroeconomic policies.
C)   Generally, the economics profession agrees that Keynesian economics is the best approach for dealing with macroeconomic problems.
D)   There is disagreement within the economics profession as to which of the various approaches is best for dealing with macroeconomic problems.

Question 12

-Injections into, and leakages from, the spending stream are:

Accepted Answer

A)   both zero at an output of zero.
B)   equal at an output of $1.5 trillion.
C)   $1.5 trillion and zero, respectively, at an output of zero.
D)   none of the above.

Question 13

The classical economists assumed that savings and investment are equal because:

Accepted Answer

A)   the interest rate brings savings into equality with investment.
B)   the only reason investment occurs is to utilize funds that have been saved.
C)   saving and investing are typically carried out by the same individuals in society.
D)   savers and investors base their decisions on tax laws, which tend to coordinate their actions.

Question 14

According to new classical economics, the wealth effect, the interest rate effect, and the foreign trade effect:

Accepted Answer

A)   keep the economy from operating at full employment.
B)   cause the aggregate supply curve to be upward sloping.
C)   cause the aggregate demand curve to be downward sloping.
D)   none of the above.

Question 15

Monetarists are strong proponents of using government intervention in the macroeconomy.

Accepted Answer

A) True 
 B)False

Question 16

According to Application 9.1, "Paying Attention to Models: It's Worth the Effort:"

Accepted Answer

A)   it has been argued that economics and religion are the two main forces shaping the world's history.
B)   the influence of economics is significant, and the models used to explain economics should be thoroughly examined and understood.
C)   sometimes a person's opinion about the story an economic model tells changes after its assumptions and data are explained in detail.
D)   all of the above.

Question 17

According to the classical school of economics, the ultimate effect of a decrease in aggregate demand when the economy is operating at full employment would be:

Accepted Answer

A)   wages and prices fall.
B)   the level of output falls.
C)   the employment level falls.
D)   all of the above.

Question 18

The classical economists thought that supply creates its own demand and investment spending always equals savings.

Accepted Answer

A) True 
 B)False

Question 19

The school of thought that pays particular attention to the effects on the macroeconomy of decision making in the microeconomy is the:

Accepted Answer

A)   Keynesian school.
B)   monetarist school.
C)   new classical school.
D)   new Keynesian school.

Question 20

According to new classical economics, the aggregate demand curve for an economy is downward sloping because of the:

Accepted Answer

A)   wealth effect.
B)   interest rate effect.
C)   foreign trade effect.
D)   all of the above.

Exam 9: Macroeconomic Viewpoints and Models

-Which figure correctly illustrates aggregate supply and aggregate demand according to classical economic theory?

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The classical economists assumed that savings and investment are equal because:

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According to the natural rate hypothesis:

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Which of the following statements is true?

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Monetarists are strong proponents of using government intervention in the macroeconomy.

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Which of the following statements is most accurate?

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-Injections into, and leakages from, the spending stream are:

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Which of the following statements is NOT consistent with classical economic theory?

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The school of thought that pays particular attention to the effects on the macroeconomy of decision making in the microeconomy is the:

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The expressions "open economy"and "closed economy"refer to economies that, respectively:

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The primary conclusion of the classical school is:

Correct AnswerverifiedShow Answer

Anticipations about inflation and how the economy should perform that are formed by households and businesses from past experiences are:

Correct AnswerverifiedShow Answer

According to Application 9.1, "Paying Attention to Models: It's Worth the Effort:"

Correct AnswerverifiedShow Answer

The classical economists thought that supply creates its own demand and investment spending always equals savings.

Correct AnswerverifiedShow Answer

According to Keynesian economists, government efforts to stimulate the economy always lead to inflation.

Correct AnswerverifiedShow Answer

Supply-side economics was popular during the presidential administration of Bill Clinton.

Correct AnswerverifiedShow Answer

New Keynesian economics emphasizes that prices in the economy are flexible, so price changes will quickly eliminate high unemployment.

Correct AnswerverifiedShow Answer

According to the classical school of economics, the ultimate effect of a decrease in aggregate demand when the economy is operating at full employment would be:

Correct AnswerverifiedShow Answer

According to new classical economics, the aggregate demand curve for an economy is downward sloping because of the:

Correct AnswerverifiedShow Answer

According to new classical economics, the wealth effect, the interest rate effect, and the foreign trade effect:

Correct AnswerverifiedShow Answer

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