Question 1

Which of the following is true for a market that clears?
A) An excess supply of anything traded will lead to a fall in its price.
B) An excess demand of anything traded will lead to a fall in its price.
C) An excess supply of anything traded will lead to a rise in its price.
D) An excess demand of anything traded will not lead to a price change.
E) A high price will lead to a high demand.

Accepted Answer

In a market that clears, the price adjusts to ensure that the quantity demanded equals the quantity supplied. If there is excess supply (more of a good or service supplied than demanded), this results in sellers having to compete with each other to sell their product, which leads to a fall in the price. Conversely, if there is excess demand (more of a good or service demanded than supplied), buyers have to compete with each other to purchase the product, leading to a rise in the price. Therefore, option A is the correct answer.

Question 2

Which economic phenomenon is the short-run macro model most useful in explaining?
A) The sources of employment in the long run
B) The trend of output in the long run
C) The sources of cyclical unemployment
D) The reasons why some workers become discouraged
E) The sources of long-run economic growth

Accepted Answer

The short-run macro model is most useful in explaining the sources of cyclical unemployment, which is unemployment that is caused by changes in the business cycle, such as recessions or expansionary periods. This type of unemployment is typically a temporary phenomenon and can be influenced by changes in aggregate demand and aggregate supply. The short-run macro model can help to identify the causes of cyclical unemployment and analyze potential policy responses.

Question 3

The short-run macro model
A) is an attempt to explain why the economy tends to perform better in the short run than in the long run
B) was developed during the Great Depression to explain the economy's continuing poor performance
C) lost its popularity during the 1950s
D) was developed during the early 19th century
E) explains the forces that work to drive the economy to full employment

Accepted Answer

The short-run macro model was developed during the Great Depression to explain the economy's poor performance and to address issues like unemployment and underutilized resources.

Question 4

Which of the following real-world phenomena does the classical model ignore?
A) Frictional unemployment
B) Inflation
C) Real output growth
D) Cyclical unemployment
E) Structural unemployment

Accepted Answer

The answer of Which of the following real-world phenomena does...

Question 5

According to Keynesian economists,
A) the economy will return quickly to full employment in most cases
B) if output is below its potential,the economy will soon return to full employment
C) production can be stuck below its full-employment level for extended periods of time
D) the Great Depression proved that classical economics does a good job of explaining how the economy operates
E) he economy will achieve full employment in the short run but,in the long run,GDP will fluctuate

Accepted Answer

Keynesian economists believe that the economy can be stuck in a period of below full-employment production for an extended period of time, which is known as a recessionary gap. This is not temporary like option A and B suggest, and it contradicts the idea that classical economics (option D) can explain how the economy operates. Option E is partially correct as it acknowledges the short-run achievement of full employment, but it doesn't recognize the possibility of long-term stagnation.

Question 6

One reason why economists often appear to disagree when asked about the impact of some bad economic news is that
A) they do not understand the economy very well
B) economics is a very difficult science,and so there are many incorrect economic projections being made
C) economists rarely disagree;people just think they are disagreeing because they do not understand the language of economics
D) economists often appear to be disagreeing when one is talking about long-run impact while the other is referring to short-run impacts
E) economists are by nature competitive individuals and they often disagree

Accepted Answer

Economists may disagree because they are referring to different time frames. For example, one economist may be considering the short-term impact of a policy on employment, while another economist may be looking at the long-term impact on economic growth. It is important to consider the time frame being discussed when interpreting economic analysis or projections.

Question 7

Which of the following events triggered intense debate over the classical model of the economy?
A) The U.S.Civil War
B) World War I
C) the Baby Boom
D) The Great Depression
E) World War II

Accepted Answer

The Great Depression triggered intense debate over the classical model of the economy as it exposed the limitations of laissez-faire capitalism and raised questions about the role of government intervention in the economy.

Question 8

A key assumption of the classical model is that
A) government intervention is important to get markets to clear
B) prices adjust until quantity supplied equals quantity demanded
C) markets never clear in the long run
D) demand adjusts in order to meet supply
E) prices remain constant and supply and demand adjust

Accepted Answer

The classical model assumes that markets clear by adjusting prices until quantity supplied equals quantity demanded. This is often referred to as the "invisible hand" of the market, where self-interested individuals and firms interact in a competitive marketplace to determine economic outcomes without the need for government intervention.

Question 9

Which of the following is a definition of economic fluctuations?
A) Movements in prices around their long-run trend
B) Shifts in the long-run trend of output
C) Movements of the real wage over the long run
D) Shifts in the long-run trend of prices
E) Movements in output around its long-run trend

Accepted Answer

Economic fluctuations refer to movements in output around its long-run trend. Fluctuations can be positive (expansions) or negative (recessions), and they reflect changes in the overall level of economic activity.

Question 10

John Maynard Keynes and his followers argued that
A) the classical model does a good job of explaining the economy's operation in both the short run and long run
B) the short run is unimportant so economists should focus their attention on the long run
C) the economy should be allowed to function with minimal government interference
D) the economy operates the same way in both the short run and long run
E) while the classical model might explain economic performance in the long run,the long run could take a long time to reach

Accepted Answer

John Maynard Keynes and his followers believed that while the classical model might explain economic performance in the long run, the long run could take a long time to reach. They argued that in the short run, the economy could be affected by a variety of factors and that government intervention could be necessary to stabilize the economy.

Question 11

What key observation did the classical model attempt to explain?
A) the economy performs well in the short run,but not so well in the long run
B) business cycles are the most important economic problem
C) over the short run,the economy performs rather poorly
D) markets do not clear without government intervention
E) over the long run,the economy performs rather well

Accepted Answer

The classical model attempted to explain why over the long run, the economy performs rather well.

Question 12

The Classical model
A) is now discredited
B) was developed by John Maynard Keynes
C) has been completely displaced by the short-run macro model
D) helps us to understand the performance of the economy in the long run
E) is most useful in helping us to predict when an economic downturn will occur

Accepted Answer

The Classical model helps us to understand the performance of the economy in the long run. It suggests that in the long run, markets will efficiently allocate resources, and the economy will tend towards full employment and potential output. The model emphasizes the importance of factors such as technology, productivity, and the supply of resources in determining the long-run performance of the economy.

Question 13

Classical economists believed that production could be stuck below its full employment level for a long period of time.

Accepted Answer

Classical economists believed in the concept of Say's Law, which stated that supply creates its own demand and any temporary imbalances would be resolved in the long run through market mechanisms. Therefore, they did not believe that production could be stuck below its full employment level for a long period of time. This idea was later challenged by Keynesian economics, which argued that in situations of low aggregate demand, the economy could remain stuck in a persistent state of unemployment.

Question 14

What major historical event led to the most significant challenge to classical economic thinking?
A) The war on poverty
B) The American Revolution
C) World War II
D) The Great Depression
E) The oil shocks of the 1970s

Accepted Answer

The Great Depression led to the most significant challenge to classical economic thinking, as it demonstrated the limitations of laissez-faire policies and sparked a shift towards Keynesian economics, which emphasized government intervention to stabilize the economy.

Question 15

Which of the following statements about modern macroeconomic theory is most accurate?
A) Keynes' ideas help us understand movements in output around its long-run trend,while the Classical model is more useful in explaining the long-run trend itself.
B) The classical model helps us understand movements in output around its long-run trend,while the short-run macro model is more useful in explaining the long-run trend itself.
C) Both classical and short-run macro models help us understand movements in output around its long-run trend,but neither model is effective at explaining the long-run trend itself.
D) Neither the classical nor the short-run macro model helps us understand movements in output around its long-run trend,but both are useful in explaining the long-run trend itself.
E) Only the short-run macro model is useful in understanding movements in output around its long-run trend,and in explaining the long-run trend itself.

Accepted Answer

Modern macroeconomic theory incorporates both Keynesian and Classical ideas, but each is better suited to explaining different aspects of the economy. Keynes' ideas help us to understand short-run fluctuations in output around its long-run trend, while the Classical model is more useful in explaining the long-run trend itself.

Question 16

A critical assumption in the classical model is that
A) markets are perfectly competitive in the short run
B) markets clear in the long run
C) markets clear in the short run
D) markets are perfectly competitive in the long run
E) all variables are expressed in nominal terms

Accepted Answer

Markets clear in the long run is a critical assumption in the classical model. This means that the quantity of goods and services supplied equals the quantity demanded at the equilibrium price.

Question 17

Which of the following is more of a short-run than a long-run goal?
A) Increasing the capital stock
B) Encouraging investment in human capital
C) Moderating economic fluctuations
D) Stimulating economic growth
E) Increasing private investment

Accepted Answer

Moderating economic fluctuations is more of a short-run goal as it focuses on stabilizing the economy in the present by minimizing volatility and reducing the severity of economic downturns. In the long run, policymakers usually aim to achieve sustained economic growth, increase investment in human and physical capital, and encourage private investment to promote economic development.

Question 18

A critical assumption in the classical model is that markets are always clear.

Accepted Answer

The answer of A critical assumption in the classical model...

Question 19

According to classical economics,
A) the economy moves to full employment in the long run
B) the economy is always at full employment in the short run
C) the economy is rarely at full employment
D) business cycles explain long-run fluctuations in the economy
E) the economy is at full employment in the short run,but in the long run,business cycle movements lead the economy away from full employment

Accepted Answer

Classical economics believes that in the long run, the economy will naturally move towards full employment as the flexible wage and price adjustments will lead to the equilibrium of supply and demand in the labor market.

Question 20

The classical model
A) is another name for the short-run macro model
B) was developed to explain the long period of poor economic performance during the Great Depression
C) is an attempt to explain why the economy tends to perform rather well over long periods of time
D) is believed by most economists to be a better explanatory model for short-term,rather than long-term,economic performance
E) was not really accepted as a legitimate economic theory until the 1950s

Accepted Answer

The classical model was developed to explain why the economy tends to perform rather well over long periods of time. It emphasizes the role of markets, supply and demand, and self-correction in achieving long-run macroeconomic stability.

Quiz 8:The Classical Long run Model

Which of the following is true for a market that clears?

Which economic phenomenon is the short-run macro model most useful in explaining?

The short-run macro model

Which of the following real-world phenomena does the classical model ignore?

According to Keynesian economists,

One reason why economists often appear to disagree when asked about the impact of some bad economic news is that

Which of the following events triggered intense debate over the classical model of the economy?

A key assumption of the classical model is that

Which of the following is a definition of economic fluctuations?

John Maynard Keynes and his followers argued that

What key observation did the classical model attempt to explain?

The Classical model

Classical economists believed that production could be stuck below its full employment level for a long period of time.

What major historical event led to the most significant challenge to classical economic thinking?

Which of the following statements about modern macroeconomic theory is most accurate?

A critical assumption in the classical model is that

Which of the following is more of a short-run than a long-run goal?

A critical assumption in the classical model is that markets are always clear.

According to classical economics,

The classical model