Question 1

In the 1960s,government policy makers believed that they could:
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 changes in the money supply to virtually eliminate business cycles.
E)use taxation and government spending to fine-tune the economy.

Accepted Answer

In the 1960s, policymakers believed in Keynesian economics, which advocated using fiscal policy, including taxation and government spending, to manage economic fluctuations and fine-tune the economy.

Question 2

The Reagan tax cut of 1981 was an attempt to:
A)stimulate aggregate supply.
B)stimulate aggregate demand.
C)stabilize the value of the U.S.dollar.
D)increase demand for U.S.exports.
E)reduce the federal budget deficit.

Accepted Answer

The Reagan tax cut of 1981, part of the economic policy known as "Reaganomics," was primarily aimed at stimulating aggregate supply by reducing the marginal tax rates on income from both labor and capital. This approach was based on supply-side economics, which posits that lower taxes can lead to increased investment, production, and economic growth.

Question 3

Which of the following decades is known as the "Golden Age of Keynesian Economics"?
A)The 1930s
B)The 1950s
C)The 1960s
D)The 1970s
E)The 1980s

Accepted Answer

The 1960s is known as the "Golden Age of Keynesian Economics" as it was a time of high economic growth, low unemployment rates, and governments heavily influenced by Keynesian economic policies. This period was characterized by the belief in fiscal policy as an effective tool for stabilizing the economy, as well as government intervention in the form of public spending and regulation. However, this era began to decline in the 1970s due to the oil crisis and stagflation.

Question 4

The tax cuts passed during the Reagan administration were designed primarily to:
A)boost savings among consumers.
B)shift the aggregate demand curve rightward.
C)reduce the balance-of-payments deficit.
D)increase the supply of productive resources.
E)increase the tax base and include more tax payers.

Accepted Answer

The Reagan administration's tax cuts were primarily aimed at increasing the supply of productive resources by incentivizing investment and economic growth, a concept known as supply-side economics.

Question 5

In combating stagflation,a government-induced:
A)increase in aggregate demand would help reduce inflation but aggravate unemployment.
B)decrease in aggregate demand would help reduce unemployment but aggravate inflation.
C)increase in aggregate demand would help reduce unemployment but aggravate inflation.
D)decrease in aggregate demand would help reduce both unemployment and inflation.
E)increase in aggregate demand would help reduce both unemployment and inflation.

Accepted Answer

An increase in aggregate demand can help reduce unemployment by stimulating economic activity and job creation, but it can also lead to higher inflation by increasing the overall demand for goods and services.

Question 6

The aim of supply-side economics is to:
A)increase government spending to stimulate aggregate supply.
B)stimulate exports to increase the balance of payments.
C)decrease wages to make production cheaper.
D)lower taxes to increase the supply of resources.
E)reduce both the inflation and unemployment problems through increases in taxes.

Accepted Answer

The aim of supply-side economics is to increase the supply of resources, which can be achieved through lowering taxes, providing incentives for investment and entrepreneurship, and reducing regulations on businesses. The idea is that by making it easier and cheaper for businesses to produce goods and services, they will increase their output and create more jobs, ultimately leading to economic growth. Lowering taxes is one of the main strategies used in supply-side economics to increase the supply of resources.

Question 7

Which of the following was true of the United States before 1970?
A)The government was not responsible for promoting employment,output,and purchasing power.
B)Most macroeconomic instability was caused by changes in international oil prices.
C)Most macroeconomic instability was caused by shifts of aggregate demand.
D)Most macroeconomic instability was caused by the depreciation of the dollar.
E)The government was responsible for using monetary policy to correct a depression.

Accepted Answer

Before 1970, macroeconomic instability in the United States was primarily attributed to shifts in aggregate demand, as the economy was influenced by factors such as consumer spending, investment, and government expenditure.

Question 8

Which of these is most likely to result when a demand-management policy is used in an economy that is experiencing stagflation?
A)A decrease in investment spending
B)An increase in the rate of inflation
C)An increase in unemployment
D)A decrease in the rate of inflation
E)A decrease in real GDP

Accepted Answer

The answer of Which of these is most likely to...

Question 9

On a graph showing the aggregate demand and aggregate supply curves,stagflation can be represented by a:
A)leftward shift of the aggregate supply curve.
B)rightward shift of the aggregate supply curve.
C)upward movement along the aggregate supply curve.
D)rightward shift of the aggregate demand curve.
E)upward movement along the aggregate demand curve.

Accepted Answer

Stagflation occurs when there is a decrease in aggregate supply due to high inflation and reduced economic output. This results in a leftward shift of the aggregate supply curve as there is less supply available at each price level.

Question 10

If the government of a country owes $3,500 billion to the International Monetary Fund and then borrows $300 billion more this year,it implies that the:
A)national debt is $300 billion and fiscal deficit is $3.8 trillion.
B)national debt is $3,800 billion and fiscal deficit is $300 billion.
C)national debt is $4,100 billion.
D)fiscal deficit is $3,800 billion.
E)national debt and fiscal deficit both equal $3.8 trillion.

Accepted Answer

The national debt increases to $3,800 billion ($3,500 billion + $300 billion borrowed this year), and the fiscal deficit for the year is the amount borrowed, which is $300 billion.

Question 11

The term inflation is used to describe a(n):
A)rise in the value of money.
B)decline in nominal income.
C)sustained increase in the price level.
D)general reduction in prices.
E)economic problem faced only by the elderly population.

Accepted Answer

Inflation is a sustained increase in the general price level of goods and services in an economy. This means that prices are generally increasing over time, leading to a decline in the purchasing power of money. A rise in the value of money (A) would be deflation, while a decline in nominal income (B) may or may not be caused by inflation. A general reduction in prices (D) would be deflation. Finally, inflation is not an economic problem faced only by the elderly population (E), but affects all individuals and groups in an economy.

Question 12

Confidence in Keynesian economics:
A)diminished in the 1960s as the unemployment rate fell.
B)flourished in the 1960s despite two major recessions.
C)diminished in the 1960s as unemployment increased.
D)diminished in the 1970s as inflation occurred simultaneously with two recessions.
E)flourished through the 1980s despite Reagan's supply-side policies.

Accepted Answer

Confidence in Keynesian economics decreased in the 1970s as inflation occurred simultaneously with two recessions, which was seen as a challenge to the theory's ability to stabilize the economy.

Question 13

Identify the correct statement.
A)A budget deficit is a flow variable,while debt is a stock variable.
B)A budget deficit is a stock variable,while debt is a flow variable.
C)A budget deficit and debt are both stock variables.
D)The budget deficit decreases when aggregate demand decreases.
E)Debt increases when the budget deficit decreases.

Accepted Answer

A budget deficit is based on the difference between government spending and revenue in a certain period, while debt accumulates over time and is the total amount owed by a government. Therefore, budget deficit is a flow variable as it measures changes in a period of time, while debt is a stock variable as it is the total amount of accumulated deficits over time. Choice B and C are incorrect as they mix up the definitions of stock and flow variables. Choice D is incorrect as the budget deficit can increase or decrease depending on the changes in government spending and revenue, not on aggregate demand. Choice E is incorrect as decreasing the budget deficit means reducing the amount of new debt accumulation, so debt should decrease rather than increase.

Question 14

Keynesian policies are ineffective at combating stagflation because stagflation is caused by:
A)budget surpluses.
B)decreases in aggregate supply.
C)trade deficits.
D)decreases in aggregate demand.
E)budget deficits.

Accepted Answer

Stagflation is caused by a decrease in aggregate supply, which means that prices are rising while output is decreasing. Keynesian policies focus on increasing aggregate demand, which may lead to inflationary pressures and exacerbate stagflation. Therefore, Keynesian policies are ineffective in combating stagflation.

Question 15

The term stagflation refers to:
A)a simultaneous reduction in output and the price level.
B)a simultaneous increase in output and the price level.
C)a decline in the price level accompanied by increases in real output and employment.
D)an increase in the price level accompanied by decreases in real output and employment.
E)a simultaneous increase in both the trade deficit and the budget deficit.

Accepted Answer

Stagflation is a macroeconomic situation where there is a combination of high inflation and stagnant economic growth, which leads to rising unemployment levels. This means that the price level is increasing (inflation) while real output (GDP) and employment are decreasing, which is described in choice D.

Question 16

Suppose an economy is initially in equilibrium and there is a sudden increase in oil prices.Which of the following is the most likely result?​
A)Growth in real GDP
B)Price stability
C)Full employment output
D)Stagflation
E)Deflation

Accepted Answer

A sudden increase in oil prices can lead to an increase in production costs, leading to a decrease in aggregate supply. This can result in a stagnant economy with high inflation rates, known as stagflation. Therefore, the most likely result is D.

Question 17

Which of these is a central argument of Keynes's General Theory?
A)Competition does not allocate resources efficiently in a modern industrial economy.
B)Full employment can be maintained even during a major recession if wage rates are lowered far enough.
C)Modern industrial economies do not tend automatically toward full employment rates of output.
D)Money does not play an important role in either causing or curing recession.
E)Government can best stabilize the economy by letting the market system automatically adjust toward full employment.

Accepted Answer

Keynes argued that modern industrial economies do not tend automatically toward full employment rates of output, which requires active government intervention to stabilize the economy.

Question 18

The term "fine-tuning the economy" implies:
A)making government economic policy more "people oriented".
B)using government policies to adjust the economy and promote economic stability.
C)solving 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.
E)designing policies based exclusively on leading economic indicators.

Accepted Answer

"Fine-tuning the economy" implies using government policies to adjust and stabilize the economy, suggesting that choice B is the best answer. The other options (A, C, D, and E) do not accurately reflect the concept of fine-tuning the economy.

Question 19

The word stagflation describes a situation in which:
A)a higher price level occurs simultaneously with higher employment.
B)a lower price level occurs simultaneously with economic growth.
C)a higher price level occurs simultaneously with lower aggregate output.
D)a lower price level occurs simultaneously with federal budget deficits.
E)a higher price level occurs simultaneously with federal budget surpluses.

Accepted Answer

Stagflation is a term used to describe a situation when there is a higher price level occurring simultaneously with lower aggregate output or economic growth. This is a paradoxical phenomenon as we typically expect inflation to accompany economic growth. However, in stagflation, we see a rare combination of rising prices and stagnant economic growth. This situation can be challenging for policymakers as traditional solutions for fighting inflation such as raising interest rates may further dampen economic growth.

Question 20

A federal policy that leads to an increase in aggregate supply is likely to result in:
A)lower levels of employment.
B)an increase in aggregate demand.
C)a higher price level.
D)lower levels of real GDP.
E)an economic expansion.

Accepted Answer

A federal policy that leads to an increase in aggregate supply will increase the availability of goods and services in the economy, which will lead to a decrease in prices and an increase in real GDP. This increase in production and availability of goods and services will also stimulate economic expansion.

Quiz 5: Introduction to Macroeconomics

In the 1960s,government policy makers believed that they could:

The Reagan tax cut of 1981 was an attempt to:

Which of the following decades is known as the "Golden Age of Keynesian Economics"?

The tax cuts passed during the Reagan administration were designed primarily to:

In combating stagflation,a government-induced:

The aim of supply-side economics is to:

Which of the following was true of the United States before 1970?

Which of these is most likely to result when a demand-management policy is used in an economy that is experiencing stagflation?

On a graph showing the aggregate demand and aggregate supply curves,stagflation can be represented by a:

If the government of a country owes $3,500 billion to the International Monetary Fund and then borrows $300 billion more this year,it implies that the:

The term inflation is used to describe a(n) :

Confidence in Keynesian economics:

Identify the correct statement.

Keynesian policies are ineffective at combating stagflation because stagflation is caused by:

The term stagflation refers to:

Suppose an economy is initially in equilibrium and there is a sudden increase in oil prices.Which of the following is the most likely result?

Which of these is a central argument of Keynes's General Theory?

The term "fine-tuning the economy" implies:

The word stagflation describes a situation in which:

A federal policy that leads to an increase in aggregate supply is likely to result in: