Question 1

Since the Second World War,the severity of the business cycle has moderated.
The ups and downs of the economy have been less pronounced since World War II.

Accepted Answer

This statement is true. One reason for this moderation is increased government involvement in the economy, particularly through the use of monetary and fiscal policy to stabilize economic growth and limit recessions.

Question 2

One In the News article is titled "No Recession,Bernanke Says." According to the text,Bernanke cited all of the following responsible for sluggish growth except
A)High energy prices.
B)A weaker dollar.
C)Stock market turmoil.
D)Declining home values.

Accepted Answer

According to the article, Bernanke identified high energy prices, stock market turmoil, and declining home values as factors contributing to sluggish growth, but did not cite a weaker dollar.

Question 3

The In the News article titled "It's official: the Great Recession ended last summer" states that the recession that started in December 2007 lasted until June 2009.The National Bureau of Economic Research took over a year to announce that the recession had ended.This suggests that
A)There are significant lags in response to policy.
B)The political business cycle is to blame for the economic situation.
C)Measurement difficulties prevent policy makers from identifying what is happening in the economy.
D)Economists could not agree on policy priorities.

Accepted Answer

Measurement difficulties can delay the identification of economic trends, leading to a lag in officially recognizing the end of a recession.

Question 4

Supply-side economists focus on the expansion of capacity through lower marginal tax rates and policies to increase production incentives.
Greater incentives to produce,through lower taxes and less regulation,lead to an increase in aggregate supply,according to the supply-siders.

Accepted Answer

Supply-side economists do indeed focus on the expansion of capacity through lower marginal tax rates and policies to increase production incentives, leading to an increase in aggregate supply.

Question 5

The caption under a cartoon in the text reads "When the economy is flat on its back,it may need both monetary and fiscal stimulus." Such a policy action will shift the aggregate
A)Demand curve to the right.
B)Demand curve to the left.
C)Supply curve to the right.
D)Supply curve to the left.

Accepted Answer

Both monetary and fiscal stimulus policies aim to increase aggregate demand in the economy. An increase in aggregate demand leads to a shift in the AD curve to the right. Therefore, the correct answer is A.

Question 6

Average consumer prices are included in the index of leading economic indicators.
The index of leading economic indicators includes the average workweek,unemployment claims,delivery times,credit,materials prices,equipment orders,stock prices,money supply,new orders,building permits,and inventories.

Accepted Answer

Average consumer prices are not included in the index of leading economic indicators.

Question 7

One In the News article is titled "Lobbyists Flock as Businesses Seek Share of the Stimulus Pie." According to the text,the projected $800 billion stimulus package led to lobbying efforts on behalf of which of the following?
A)Steel companies.
B)Wind farmers.
C)Universities.
D)All of the choices are correct.

Accepted Answer

The article states that "lobbyists from steel companies, wind farmers, universities, and other interest groups are flocking to the Capitol seeking a share of the stimulus pie." Therefore, all of the choices are correct.

Question 8

One World View article is titled "Comparative Macro Performance." According to the text,__________ experienced the fastest growth in real GDP.
A)The United States
B)Japan
C)Germany
D)The United Kingdom

Accepted Answer

The text states that "The United States experienced the fastest growth in real GDP."

Question 9

Modern Keynesians believe the government should use a policy of laissez faire to address a recession.
Modern Keynesians believe the government should manage AD through both fiscal and monetary policy.

Accepted Answer

Modern Keynesians believe that during a recession, the government should take an active role in managing aggregate demand through both fiscal and monetary policy. Laissez faire, which advocates for minimal government intervention in the economy, is not a policy favored by Keynesians.

Question 10

Stagflation is the simultaneous occurrence of substantial unemployment and inflation.
In the 1970s the U.S.economy experienced stagflation,in which the price level increased while the economy entered recession.

Accepted Answer

Stagflation is indeed defined as the combination of inflation and high unemployment. The U.S. did experience stagflation in the 1970s, when the economy went through recession while also facing rising inflation.

Question 11

Automatic stabilizers cause an increase in total revenue for the government as the economy enters a recession.
Automatic stabilizers cause a decrease in total revenue for the government as the economy enters a recession.

Accepted Answer

Automatic stabilizers, such as unemployment insurance payments and increased welfare spending, cause an increase in government spending during a recession. This leads to a decrease in total revenue for the government as they need to finance this increased spending through borrowing or raising taxes. Therefore, option B is correct.

Question 12

Since World War II,the U.S.economy has met its goals of full employment,price stability,and economic growth every year.
Many economic problems,such as the recession in 2001,have prevented the U.S.economy from achieving these lofty goals.

Accepted Answer

The statement is false. The U.S. economy has not met its goals of full employment, price stability, and economic growth every year since World War II. There have been economic problems and recessions that have prevented the economy from achieving these goals.

Question 13

One In the News article is titled "Stimulus: Spend or Cut Taxes?" According to the text,economist Mark Zandi found which of the following to increase GDP most per dollar spent?
A)Corporate tax cuts.
B)Increasing infrastructure spending.
C)Extending unemployment benefits.
D)Temporarily increasing food stamps.

Accepted Answer

Economist Mark Zandi found that temporarily increasing food stamps has a high multiplier effect, meaning it increases GDP the most per dollar spent compared to other options.

Question 14

Even if everyone agreed on policy priorities,there would still be trade-offs related to economic policy.
Trade-offs occur because pursuing one policy requires resources that could be used for alternative purposes; an opportunity cost is involved.

Accepted Answer

Trade-offs are inherent in economic policy because resources are finite and choosing to invest in one area means sacrificing investment in another area. Therefore, even if everyone agreed on policy priorities, there would still be trade-offs involved.

Question 15

It is not possible to have a "growth recession" because if the economy grows at all then it is not in a recession.
A "growth recession" occurs when the economy experiences positive growth that is less than 3 percent.

Accepted Answer

A recession is defined as two consecutive quarters of negative economic growth. Therefore, positive growth by definition cannot be a recession. The term "growth recession" is a contradictory term and not a widely accepted economic concept.

Question 16

The structural deficit declines as the economy moves toward full employment.
The structural deficit is the deficit when the economy is at full employment.

Accepted Answer

The structural deficit is independent of the economy's cyclical position and does not decline as the economy moves toward full employment. It represents the deficit that would exist even if the economy were at full employment.

Question 17

The In the News article titled "It's official: the Great Recession ended last summer" came out over a year after the recession was statistically declared over.Which of the following obstacles does this article address?
A)Measurement problems.
B)Goal conflicts.
C)Design problems.
D)Implementation problems.

Accepted Answer

The article addresses the obstacle of measurement problems, specifically the delay in officially declaring the end of the Great Recession.

Question 18

One In the News article is titled "CBO's Flawed Forecasts." According to the text,the CBO's forecasts typically miss the actual budget balance in the fifth year by
A)1 percent of GDP.
B)2 percent of GDP.
C)3 percent of GDP.
D)4 percent of GDP.

Accepted Answer

According to the article, the CBO's forecasts typically miss the actual budget balance in the fifth year by 3 percent of GDP.

Question 19

Fine-tuning involves the adoption of fixed policy rules regardless of the economic situation.
Fine-tuning involves the use of policy in response to changes in the economy to maintain full employment.

Accepted Answer

Fine-tuning involves adjusting policies based on the current economic situation to achieve specific goals like full employment, rather than adopting fixed rules.

Question 20

Which of the following articles in the text best represents a measurement problem?
A)"It's official: the Great Recession ended last summer"
B)"No Recession,Bernanke Says."
C)"Comparative Macro Performance."
D)"Deficit-Cutting Wilts in Heat from Voters."

Accepted Answer

The answer of Which of the following articles in the...

Quiz 18: Theory Versus Reality

Since the Second World War,the severity of the business cycle has moderated. The ups and downs of the economy have been less pronounced since World War II.

One In the News article is titled "No Recession,Bernanke Says." According to the text,Bernanke cited all of the following responsible for sluggish growth except

The In the News article titled "It's official: the Great Recession ended last summer" states that the recession that started in December 2007 lasted until June 2009.The National Bureau of Economic Research took over a year to announce that the recession had ended.This suggests that

Supply-side economists focus on the expansion of capacity through lower marginal tax rates and policies to increase production incentives. Greater incentives to produce,through lower taxes and less regulation,lead to an increase in aggregate supply,according to the supply-siders.

The caption under a cartoon in the text reads "When the economy is flat on its back,it may need both monetary and fiscal stimulus." Such a policy action will shift the aggregate

Average consumer prices are included in the index of leading economic indicators. The index of leading economic indicators includes the average workweek,unemployment claims,delivery times,credit,materials prices,equipment orders,stock prices,money supply,new orders,building permits,and inventories.

One In the News article is titled "Lobbyists Flock as Businesses Seek Share of the Stimulus Pie." According to the text,the projected $800 billion stimulus package led to lobbying efforts on behalf of which of the following?

One World View article is titled "Comparative Macro Performance." According to the text,__________ experienced the fastest growth in real GDP.

Modern Keynesians believe the government should use a policy of laissez faire to address a recession. Modern Keynesians believe the government should manage AD through both fiscal and monetary policy.

Stagflation is the simultaneous occurrence of substantial unemployment and inflation. In the 1970s the U.S.economy experienced stagflation,in which the price level increased while the economy entered recession.

Automatic stabilizers cause an increase in total revenue for the government as the economy enters a recession. Automatic stabilizers cause a decrease in total revenue for the government as the economy enters a recession.

Since World War II,the U.S.economy has met its goals of full employment,price stability,and economic growth every year. Many economic problems,such as the recession in 2001,have prevented the U.S.economy from achieving these lofty goals.

One In the News article is titled "Stimulus: Spend or Cut Taxes?" According to the text,economist Mark Zandi found which of the following to increase GDP most per dollar spent?

Even if everyone agreed on policy priorities,there would still be trade-offs related to economic policy. Trade-offs occur because pursuing one policy requires resources that could be used for alternative purposes; an opportunity cost is involved.

It is not possible to have a "growth recession" because if the economy grows at all then it is not in a recession. A "growth recession" occurs when the economy experiences positive growth that is less than 3 percent.

The structural deficit declines as the economy moves toward full employment. The structural deficit is the deficit when the economy is at full employment.

The In the News article titled "It's official: the Great Recession ended last summer" came out over a year after the recession was statistically declared over.Which of the following obstacles does this article address?

One In the News article is titled "CBO's Flawed Forecasts." According to the text,the CBO's forecasts typically miss the actual budget balance in the fifth year by

Fine-tuning involves the adoption of fixed policy rules regardless of the economic situation. Fine-tuning involves the use of policy in response to changes in the economy to maintain full employment.

Which of the following articles in the text best represents a measurement problem?