Question 1

-Refer to the graphs in the exhibit.Which of the following might cause a shift in the aggregate demand curve from AD to AD' in period 1?  
A) an increase in household wealth 
B) a fall in domestic interest rates 
C) an increase in government spending 
D) an appreciation of the dollar relative to other currencies

Accepted Answer

The answer of  
-Refer to the graphs in the...

Question 2

How did Keynes propose that government should shock the economy out of the Great Depression?  
A) by increasing aggregate supply 
B) by increasing aggregate demand 
C) by raising prices in order that firms could earn higher profits and employ more people 
D) by reducing prices in order that people could afford to buy more goods and services

Accepted Answer

Keynes proposed that government should shock the economy out of the Great Depression by increasing aggregate demand. This could be achieved through government spending or tax cuts, providing more money for consumers to spend and businesses to invest, thereby stimulating economic activity and creating jobs.

Question 3

According to Keynes, the policy of incurring budget deficits will cause the equilibrium price level to rise.What is the corresponding effect on equilibrium output?  
A) It rises. 
B) It falls. 
C) It remains the same. 
D) It first rises, and then falls.

Accepted Answer

According to Keynes, increasing government spending through budget deficits will increase aggregate demand and cause the equilibrium price level to rise. This increase in demand will increase the level of output, resulting in an increase in equilibrium output. Therefore, the best choice is A) It rises.

Question 4

-Refer to the graphs in the exhibit.In period 4, the price level starts at 2.When the aggregate supply curve shifts from AS' to AS'' what happens to the price level?  
A) It changes to 1. 
B) It changes to 2. 
C) It changes to 3. 
D) It changes to 4.

Accepted Answer

The answer of  
-Refer to the graphs in the...

Question 5

-Refer to the graphs in the exhibit.In period 2, which of the following would cause the aggregate supply curve to shift from AS to AS'?  
A) an increase in resource prices, improved technology, or an extension of patent protection 
B) a decrease in resource prices, improved technology, or an extension of patent protection 
C) an appreciation of the dollar, higher inflation in Europe, or a decrease in resource prices 
D) a depreciation of the dollar, higher inflation in Asia, or improved technology

Accepted Answer

In period 2, if there is a decrease in resource prices, it will reduce the firms' costs and increase their profits. With improved technology, firms can produce goods at a lower cost, which increases their profit margins. Extension of patent protection encourages innovation and investment in new technologies, which can further improve productivity and lower costs. These factors lead to a shift in the aggregate supply curve from AS to AS' indicating an increase in potential output at every price level. Therefore, option B is the correct answer.

Question 6

According to Keynes, what should the government do if private-sector demand is insufficient to maintain full employment?  
A) It should act to make the economy's natural transition to the lower level of employment as easy as possible. 
B) It should shock the economy with an increase in aggregate demand. 
C) It should reduce aggregate supply to reduce inflation. 
D) It should print money to promote consumer spending.

Accepted Answer

According to Keynes, if private-sector demand is insufficient to maintain full employment, the government should shock the economy with an increase in aggregate demand, such as through fiscal or monetary policy, to stimulate economic activity and create jobs. Option A is an incorrect answer as Keynes believed that the government should actively intervene during times of economic downturns to promote economic growth and increase employment opportunities. Option C is also incorrect as reducing aggregate supply would further reduce employment opportunities and worsen the situation. Option D is incorrect as Keynes did not advocate for printing money as a solution to economic problems.

Question 7

What did the Keynesian approach to fiscal policy call for?  
A) budget deficits during periods of inflationary pressure 
B) budget surpluses during periods of high unemployment 
C) a balanced budget despite the state of the economy 
D) tax cuts during recession

Accepted Answer

The Keynesian approach to fiscal policy called for tax cuts during a recession to stimulate economic growth and increase consumer spending. This would help to boost employment and overall economic activity.

Question 8

Which of the following best describes the Keynesian approach to economic policy?  
A) supply-sided 
B) classical 
C) demand-sided 
D) laissez-faire

Accepted Answer

The Keynesian approach to economic policy focuses on demand-sided policies. This means that the government intervenes in the economy to stimulate demand, often through increased government spending, in order to boost economic growth and reduce unemployment. This approach contrasts with laissez-faire (D) policies that advocate for minimal government intervention in the economy. Supply-sided (A) and classical (B) approaches prioritize supply and emphasize free markets and reducing barriers to production.

Question 9

What would an increase in government spending cause, other things constant?  
A) a leftward shift of the aggregate supply curve 
B) a rightward shift of the aggregate supply curve 
C) a leftward shift of the aggregate demand curve 
D) a rightward shift of the aggregate demand curve

Accepted Answer

An increase in government spending leads to an increase in aggregate demand as the government spends more on goods and services, leading to an increase in overall spending in the economy. This results in a rightward shift of the aggregate demand curve.

Question 10

In the 1960s, what did government policy makers believe that they could do?  
A) stabilize the economy by letting the market system solve all problems 
B) reduce unemployment by running federal budget surpluses 
C) eliminate government's role in stabilization policy 
D) use taxation and government spending to fine-tune the economy

Accepted Answer

In the 1960s, government policy makers believed in using taxation and government spending to fine-tune the economy. This is known as discretionary fiscal policy and was believed to be an effective way to stabilize the economy and avoid recessions.

Question 11

Consider the period between 1929 and the depth of the Great Depression in 1933.In terms of aggregate demand and aggregate supply, which of the following best describes what happened in Canada during this period?  
A) The aggregate supply curve shifted inward with no change in the aggregate demand curve. 
B) The aggregate demand curve shifted inward with no change in the aggregate supply curve. 
C) The aggregate demand curve shifted outward with no change in the aggregate supply curve. 
D) The aggregate supply curve shifted outward with no change in the aggregate demand curve.

Accepted Answer

During the period between 1929 and the depth of the Great Depression in 1933, there was a decrease in consumer spending, investment, and international trade. This caused a decrease in aggregate demand, which shifted inward. However, there was no significant change in the aggregate supply curve during this time. Therefore, option B is the correct answer.

Question 12

According to Keynes, what should the government do in order to get the economy out of a recession?  
A) plan for a budget deficit 
B) encourage firms to export to other nations, thereby jump-starting the economy 
C) follow an expansionary monetary policy 
D) follow a contractionary monetary policy

Accepted Answer

According to Keynesian economics, during a recession, the government should increase its spending on infrastructure and other public services, even if that requires running a budget deficit. This increased spending will hopefully stimulate demand and lead to a recovery in economic activity. Encouraging exports, following an expansionary monetary policy or contractionary monetary policy may not be effective in jump-starting the economy during a recession.

Question 13

Which of the following policy prescriptions for overcoming a depression is most closely associated with John Maynard Keynes?  
A) He believed that a serious economic contraction is a natural phase in an otherwise healthy system, and thus no intervention is needed during a depression. 
B) He advocated for tax increases in order to balance the federal government's budget during the Great Depression. 
C) He advocated for a decrease in the money supply to stabilize the economy during the Great Depression. 
D) He argued that increased government demand should offset reduced private sector demand in order to prevent depression.

Accepted Answer

John Maynard Keynes believed in the use of fiscal policy, including increased government spending and tax cuts, to stimulate demand and prevent or overcome a depression. He argued that during a depression, private sector spending decreases, leading to a decrease in overall demand, and that the government must step in to increase demand to prevent further contraction of the economy. This approach is known as Keynesian economics.

Question 14

According to Keynes, the policy of incurring budget surpluses will cause the equilibrium price level to fall.What is the corresponding effect on equilibrium output?  
A) It rises. 
B) It falls. 
C) It remains the same. 
D) It first rises, and then falls.

Accepted Answer

According to the Keynesian theory, when the government incurs budget surpluses, it decreases its spending, which decreases the aggregate demand, leading to a fall in the equilibrium price level. This fall in the price level leads to a decrease in the equilibrium output, as the quantity demanded falls due to a decline in real income. Thus, option B is the correct choice.

Question 15

Which decade is known as the golden age of Keynesian economics?  
A) the 1930s 
B) the 1950s 
C) the 1960s 
D) the 1970s

Accepted Answer

The 1960s is known as the golden age of Keynesian economics because it was a period of sustained economic growth, low unemployment, and relatively stable prices. Many governments implemented Keynesian policies to stimulate their economies through increased government spending and tax cuts. However, the effectiveness of these policies came into question during the economic turmoil of the 1970s, leading to a shift towards neoliberal economic policies in the following decades.

Question 16

What did Keynes believe was the best method for ending the Great Depression?  
A) increase the money supply in order that individuals would have more to spend 
B) cut government spending and increase taxes in order to reduce or even eliminate the government's deficit 
C) increase government spending and cut taxes in order that consumers could spend more 
D) cut government spending and taxes in order that government would NOT be such a large part of the economy

Accepted Answer

Keynes believed in the concept of deficit spending and proposed increasing government spending and cutting taxes in order to stimulate demand and encourage consumer spending, which would then lead to economic growth and increased employment opportunities. He argued that in times of economic downturn, the government should play an active role in stabilizing the economy by using fiscal policy to increase demand and thereby promote economic recovery. This approach is commonly referred to as "Keynesian economics" and has since become a widely accepted framework for macroeconomic policy.

Question 17

Keynes advocated federal budget deficits.What did he believe that such a deficit would overcome?  
A) inflation 
B) unemployment 
C) trade deficits 
D) trade surpluses

Accepted Answer

Keynes believed that federal budget deficits could overcome unemployment by stimulating demand and increasing spending in the economy. He argued that during times of economic downturns, the private sector may not generate enough demand to maintain full employment, and therefore government should step in to create demand through deficit spending.

Question 18

What does the Keynesian approach to government economic policy emphasize?  
A) the role of individual self-interest as a powerful stabilizing force 
B) the role of money in the economy 
C) the role of supply-side economics 
D) the role of aggregate demand

Accepted Answer

The Keynesian approach emphasizes the role of aggregate demand in driving economic growth and stabilizing the economy through government intervention, such as fiscal policy and monetary policy. This is in contrast to supply-side economics, which emphasizes the role of tax and regulatory policies in incentivizing businesses and individuals to invest and produce more, as well as the role of individual self-interest as a stabilizing force in the economy. The role of money in the economy is also important, but it is not the primary focus of the Keynesian approach.

Question 19

According to Keynesian economics, what does fine-tuning the economy mean?  
A) making government economic policy more "people oriented" 
B) using government policies to adjust the economy and promote economic stability 
C) tinkering with microeconomic problems, such as externalities and losing sight of the big picture 
D) placing fewer regulations on the private sector, thereby eliminating the need for government intervention

Accepted Answer

Fine-tuning the economy according to Keynesian economics means using government policies (such as fiscal and monetary policies) to adjust the economy and promote economic stability. This includes managing aggregate demand, stabilizing prices, and reducing unemployment through government intervention.

Question 20

According to Keynes, what does the term "animal spirits" refer to?  
A) unstable investment spending 
B) unstable consumption spending 
C) unstable government spending 
D) unstable exports

Accepted Answer

According to Keynes, "animal spirits" refer to the unpredictable and emotional motivations that drive investment decisions, leading to unstable investment spending.

Quiz 6: Introduction to Macroeconomics

-Refer to the graphs in the exhibit.Which of the following might cause a shift in the aggregate demand curve from AD to AD' in period 1?

How did Keynes propose that government should shock the economy out of the Great Depression?

According to Keynes, the policy of incurring budget deficits will cause the equilibrium price level to rise.What is the corresponding effect on equilibrium output?

-Refer to the graphs in the exhibit.In period 4, the price level starts at 2.When the aggregate supply curve shifts from AS' to AS'' what happens to the price level?

-Refer to the graphs in the exhibit.In period 2, which of the following would cause the aggregate supply curve to shift from AS to AS'?

According to Keynes, what should the government do if private-sector demand is insufficient to maintain full employment?

What did the Keynesian approach to fiscal policy call for?

Which of the following best describes the Keynesian approach to economic policy?

What would an increase in government spending cause, other things constant?

In the 1960s, what did government policy makers believe that they could do?

Consider the period between 1929 and the depth of the Great Depression in 1933.In terms of aggregate demand and aggregate supply, which of the following best describes what happened in Canada during this period?

According to Keynes, what should the government do in order to get the economy out of a recession?

Which of the following policy prescriptions for overcoming a depression is most closely associated with John Maynard Keynes?

According to Keynes, the policy of incurring budget surpluses will cause the equilibrium price level to fall.What is the corresponding effect on equilibrium output?

Which decade is known as the golden age of Keynesian economics?

What did Keynes believe was the best method for ending the Great Depression?

Keynes advocated federal budget deficits.What did he believe that such a deficit would overcome?

What does the Keynesian approach to government economic policy emphasize?

According to Keynesian economics, what does fine-tuning the economy mean?

According to Keynes, what does the term "animal spirits" refer to?