Question 1

Based on the classical view,
A)Unemployment never occurs.
B)Cyclical unemployment might occur temporarily.
C)All goods produced are always purchased at an unchanging price.
D)Persistent unemployment might be a problem.

Accepted Answer

The classical view acknowledges that cyclical unemployment might occur temporarily due to fluctuations in the business cycle. However, it does not recognize persistent unemployment as a problem and assumes that all goods produced are always purchased at an unchanging price.

Question 2

According to Keynes,which of the following should the government do when the economy overheats?
A)Employ more people.
B)Increase spending.
C)Raise taxes.
D)Practice laissez faire policies.

Accepted Answer

Keynes believed that during an overheating economy, the government should raise taxes in order to reduce aggregate demand and ultimately control inflation. Option A and B, which suggest increasing employment and spending respectively, would only further exacerbate the problem of overheating. Option D, practicing laissez faire policies, would not involve any government intervention and therefore would not be a viable solution according to Keynesian economics.

Question 3

According to the classical view,if consumer demand slowed down,
A)Prices would decrease,and the economy would return to its long-term growth trend.
B)Prices would increase,and the economy would return to its long-term growth trend.
C)Wages would increase,and the economy would return to its long-term growth trend.
D)Investment and government demand would increase,and the economy would return to its long-term growth trenD.Through the adjustment of prices,the economy quickly rebounds to its potential.

Accepted Answer

According to the classical view, if consumer demand slows down, there will be excess supply in the market leading to a decrease in prices. As prices decrease, consumers will start buying more, and firms will decrease their production to reduce their inventories. As a result, the economy will return to its long-term growth trend.

Question 4

Which of the following is true about business cycles in the United States?
A)They are remarkably similar in length but vary greatly in intensity.
B)They vary greatly in length,frequency,and intensity.
C)They are similar in frequency and intensity but not in length.
D)They are similar in length,frequency,and intensity.

Accepted Answer

Business cycles in the United States vary greatly in length, frequency, and intensity. While some may be short and mild, others can be long and severe. Additionally, the frequency of cycles can also differ, with some occurring more frequently than others. Therefore, option B is the most accurate statement.

Question 5

Say's Law states that
A)Supply creates its own demand.
B)Shifts of either supply or demand can achieve a given market equilibrium.
C)Wages and prices are inflexible,which prevents the achievement of market equilibrium.
D)Increased prices lead to increased supply.

Accepted Answer

Say's Law states that supply creates its own demand, meaning that as long as goods and services are produced, there will be enough income and purchasing power to buy them. This avoids the possibility of a general overproduction and the emergence of a general glut.

Question 6

Real GDP is better than nominal GDP for measuring growth because real GDP has been adjusted for changes in
A)The price level.
B)Unemployment.
C)The business cycle.
D)Productivity.

Accepted Answer

Real GDP is adjusted for changes in the price level to provide a more accurate measure of economic growth over time. Nominal GDP can be misleading because it includes the effects of inflation on prices, whereas real GDP factors out these effects.

Question 7

The study of aggregate economic activity for the economy as a whole is
A)Opportunity cost.
B)Scarcity.
C)Macroeconomics.
D)Microeconomics.

Accepted Answer

The study of aggregate economic activity for the economy as a whole is known as macroeconomics. It involves analyzing trends and behaviors of the entire economy, such as inflation, unemployment, and overall economic growth. Option A, opportunity cost is the value of the next best alternative foregone. Option B, scarcity is the limited availability of resources to satisfy unlimited wants and needs. Option D, microeconomics is the study of individual economic agents and their decision-making processes.

Question 8

The inflation-adjusted value of all goods and services produced is
A)The GDP deflator.
B)Nominal GDP.
C)GDP per capita.
D)Real GDP.

Accepted Answer

Real GDP measures the value of all goods and services produced in a given period of time adjusted for the effects of inflation. This allows for a more accurate comparison of economic growth over time.

Question 9

According to classical economists,market-driven economies
A)Are typically self-adjusting.
B)Are inherently unstable.
C)Require government intervention.
D)Are always in long-run equilibrium.

Accepted Answer

Classical economists believed that market-driven economies are typically self-adjusting through the mechanisms of supply and demand. They believed that in the long-run, markets would adjust and reach equilibrium on their own without government intervention.

Question 10

According to Keynes,when the economy falters,the government should do any of the following except
A)Practice a laissez faire policy approach.
B)Provide more dollars for unemployment benefits.
C)Make more money available.
D)Buy more output.

Accepted Answer

Keynes believed that during an economic downturn, the government should take an active role in stimulating the economy through policies such as increased government spending and lower interest rates. A laissez faire approach, which advocates for minimal government intervention in the economy, would not be in line with Keynes' ideas. Therefore, the answer is A.

Question 11

Unlike the classical economists,Keynes asserted that
A)The economy was inherently unstable.
B)Laissez faire policies would lead to macro equilibrium.
C)Prices and wages were flexible.
D)Markets would naturally self-adjust.

Accepted Answer

Keynes believed that the economy was inherently unstable and prone to booms and busts due to fluctuations in aggregate demand. He argued that government intervention and fiscal policy were necessary to stabilize the economy and maintain equilibrium.

Question 12

Who believed that small disturbances in output,prices,or unemployment were likely to be magnified by the invisible hand of the marketplace?
A)President Herbert Hoover.
B)Adam Smith.
C)John Maynard Keynes.
D)Jean-Baptiste Say.

Accepted Answer

This belief is a central tenet of Keynesian economics, which was developed by John Maynard Keynes.

Question 13

According to classical theory,
A)Keynes had "neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand."
B)Macro equilibrium might start out badly and get worse in the absence of government intervention.
C)Flexible wages and prices allow a laissez faire economy to adjust wages and prices to shifts in aggregate demand.
D)Business cycles are not relevant and do not occur.

Accepted Answer

Classical theory holds that flexible wages and prices allow an economy to self-adjust to changes in aggregate demand. This suggests that laissez-faire policies can lead to efficient outcomes without government intervention. In contrast, Keynesian theory (choice A and B) argues that government intervention is necessary to counteract fluctuations in aggregate demand and stabilize the economy. Choice D is also incorrect as classical theory acknowledges the existence of business cycles, but argues that these cycles are a natural part of the economy's adjustment process.

Question 14

The government can "prime the pump" by doing all of the following except
A)Buying more output.
B)Employing more people.
C)Making more money available.
D)Raising taxes.

Accepted Answer

Raising taxes would not provide more disposable income or encourage spending, thus it would not be a way to "prime the pump." The other options would all potentially lead to increased spending and stimulate economic growth.

Question 15

Which of the following was not characteristic of the U.S.economy during the Great Depression?
A)Families lost their farms.
B)Automobile production fell.
C)The stock market crashed.
D)Unemployment reached 50 percent.

Accepted Answer

Unemployment did reach a high of approximately 25% during the Great Depression, but it did not reach 50%.

Question 16

Which of the following is characteristic of a downturn in the business cycle?
A)Lower unemployment rates.
B)Lower real output.
C)Higher interest rates.
D)None of the choices are correct.

Accepted Answer

A downturn in the business cycle is typically characterized by a decrease in real output, meaning that businesses are producing and selling fewer goods and services. Lower unemployment rates and higher interest rates are not typically associated with a downturn, as unemployment tends to rise and interest rates tend to fall in response to economic weakness. Therefore, the best choice is B, lower real output.

Question 17

According to Keynes,which of the following can be used to slow down an overheated economy?
A)Decrease government purchases.
B)Decrease taxes.
C)Make more money available.
D)Employ more people.

Accepted Answer

According to Keynesian economics, to slow down an overheated economy, the government can reduce its own spending, which reduces the overall demand for goods and services in the economy, slowing down the rate of inflation.

Question 18

If wages and prices are flexible,then a recession is best eliminated when prices
A)And wages both rise.
B)And wages both fall.
C)Rise and wages drop.
D)Drop and wages rise.

Accepted Answer

When wages and prices are both flexible, a recession can be best eliminated when both fall. This adjustment helps in restoring equilibrium in the market by increasing the demand for labor (as lower wages make hiring more attractive to employers) and increasing the demand for goods and services (as lower prices make them more affordable to consumers), thereby stimulating economic activity.

Question 19

Alternating periods of economic growth and contraction in real GDP define
A)Capitalism.
B)The business cycle.
C)Macro equilibrium.
D)Say's Law.

Accepted Answer

The business cycle is characterized by alternating periods of economic growth and contraction in real GDP. Capitalism refers to an economic system where private individuals and businesses own and operate the means of production. Macro equilibrium pertains to a state where aggregate supply equals aggregate demand in the macroeconomy. Say's Law refers to the idea that supply creates its own demand in a market economy.

Question 20

In the early 1900s,which of the following was not true?
A)Falling price levels appeared to limit an increase in unemployment.
B)Periods of high unemployment tended to be brief.
C)Say's Law seemed to work.
D)Government intervention was commonly used to stimulate the economy.

Accepted Answer

Government intervention was not commonly used to stimulate the economy in the early 1900s. The prevailing economic theory at the time was laissez-faire, which advocated for minimal government intervention in the economy. It wasn't until the Great Depression in the 1930s that government intervention became more widely accepted as a means of stimulating the economy.

Quiz 8: The Business Cycle

Based on the classical view,

According to Keynes,which of the following should the government do when the economy overheats?

According to the classical view,if consumer demand slowed down,

Which of the following is true about business cycles in the United States?

Say's Law states that

Real GDP is better than nominal GDP for measuring growth because real GDP has been adjusted for changes in

The study of aggregate economic activity for the economy as a whole is

The inflation-adjusted value of all goods and services produced is

According to classical economists,market-driven economies

According to Keynes,when the economy falters,the government should do any of the following except

Unlike the classical economists,Keynes asserted that

Who believed that small disturbances in output,prices,or unemployment were likely to be magnified by the invisible hand of the marketplace?

According to classical theory,

The government can "prime the pump" by doing all of the following except

Which of the following was not characteristic of the U.S.economy during the Great Depression?

Which of the following is characteristic of a downturn in the business cycle?

According to Keynes,which of the following can be used to slow down an overheated economy?

If wages and prices are flexible,then a recession is best eliminated when prices

Alternating periods of economic growth and contraction in real GDP define

In the early 1900s,which of the following was not true?