Questions and Answers
Which of the following is not included in the study of macroeconomics?
Which of the following is a measure of overall economic well-being for the United States?
All of the following are used to measure a country's economic welfare except:
Which of the following is a macroeconomic outcome?
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Which of the following is a determinant of macroeconomic performance?
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Which of the following is not a determinant of macroeconomic outcomes?
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External shocks to an economy include:
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Which of the following are policy levers?
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The Classical view of the economy is characterized by:
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Which of the following concepts is not consistent with Classical theory?
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Self-adjustment of markets is assumed in:
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Which of the following is necessary for an economy to self-adjust fairly quickly, according to classical economists?
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The Classical approach dominated economic policy during:
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Say's Law implies that:
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Say's Law states that:
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Say's Law implies that:
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Say's Law is consistent with the _______ view of the economy.
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Which theories of the economy lead to the assertion that markets 'self-adjust' to deviations from their long-term growth trend?
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According to Say's Law, all goods produced will be sold:
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During the Great Depression, classical theorists believed that:
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Unlike the Classical economists, Keynes asserted that:
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According to Keynes:
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Keynes and classical economists disagree about whether:
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Keynesian theory became important when classical economic theory did not adequately explain a prolonged period of:
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A critical macroeconomic controversy is whether a market economy is inherently:
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The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is:
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Aggregate demand refers to:
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The difference between market demand and aggregate demand is that:
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The value of output in constant prices is measured by:
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The aggregate demand curve shows the relationship between the volume of purchases and:
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The aggregate demand curve is:
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Ceteris paribus, based on the aggregate demand curve, if the price level _______ the quantity of real output _______ increases.
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The aggregate demand curve is downward sloping because, ceteris paribus:
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Which of the following is not a reason for the downward slope of the aggregate demand curve?
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According to the real balances effect, when the price level:
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Ceteris paribus, if the average price level falls, then the _____ effect will result in _____ in the purchases of goods and services.
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Ceteris paribus, based on the real balances effect, if the price level falls:
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Which of the following is an example of the real balances effect, assuming the U.S. price level decreases?
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The foreign trade effect states that, ceteris paribus:
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When the U.S. price level increases relative to the price level in foreign economies, U.S. consumers tend to buy:
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According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy:
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Which of the following is an example of the foreign trade effect, assuming the U.S. price level decreases?
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Which of the following suggests that lower average prices stimulate more borrowing?
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The aggregate demand curve is downward sloping because, other things being equal:
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Which of the following is an example of the interest-rate effect, assuming the U.S. price level decreases?
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The total amount of output producers are willing and able to produce at alternative price levels in a given time period is known as:
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The short-run aggregate supply curve is:
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Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases.
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The aggregate supply curve is positively sloped because as the price level increases:
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One explanation for why production costs tend to rise as output increases is that producers:
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Which of the following is an explanation of why the aggregate supply curve slopes upward, assuming the price level increases?
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The intersection of the aggregate demand and supply curves definitely establishes:
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At the intersection of the aggregate supply and aggregate demand curves, the economy is experiencing:
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At macro equilibrium:
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Macro equilibrium always occurs:
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Which of the following results if the aggregate quantity supplied exceeds the aggregate quantity demanded?
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If the price level is:
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Which of the following will occur if the aggregate quantity supplied is less than the aggregate quantity demanded?
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Which of the following will occur if the price level is below the equilibrium level?
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Which of the following is definitely true if the economy is in macro equilibrium?
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The inability of labor-force participants to find jobs is known as:
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An increase in the average level of prices of goods and services is known as:
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Ceteris paribus, a leftward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to ______.
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Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus?
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Which of the following is likely to occur if a terrorist attack stops air travel in a country for some time, ceteris paribus?
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Ceteris paribus, a rightward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to ______.
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Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus?
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Ceteris paribus, a leftward shift of the aggregate demand curve will cause the equilibrium price level to _______ and equilibrium real output to ______.
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If the stock market plunged over the next week, consumers would:
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Which of the following would cause the aggregate demand curve to decrease, ceteris paribus?
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Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus?
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The aggregate demand curve is most likely to shift to the right when:
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Macro controversies focus primarily on the:
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Controversies between Keynesian, monetarist, supply-side, and eclectic theories focus on:
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Keynesian theory is referred to as a:
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If an economy is experiencing a recession, the Keynesian approach to achieving full employment is to:
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Keynes viewed the economy as inherently unstable and suggested that during a recession, policymakers should:
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According to Keynes, which of the following should occur because of a decrease in government expenditure, ceteris paribus?
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Which of the following is a mechanism Keynes advocated for dealing with a situation of depressed output?
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If an economy is experiencing a recession, the Keynesian approach to achieving full employment is to:
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Which of the following economic theories focus on aggregate demand to explain changes in unemployment and inflation?
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Both Keynesian and monetarist theories believe that _______ aggregate _______ causes inflation.
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Monetary theory is referred to as:
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According to monetary theories, an increase in the money supply shifts the aggregate:
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According to monetary theories, a decrease in the money supply shifts the aggregate:
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According to supply-side theories, an increase in supply incentives shifts the aggregate:
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According to supply-side theories, if producers are less willing and able to supply goods at prevailing prices, then aggregate:
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According to supply-side theories, if the costs of production rise, then aggregate:
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Which of the following explanations of the business cycle focuses on both aggregate supply and aggregate demand shifts?
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If an economy is experiencing a recession, the classical approach to achieving full employment is to:
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Which of the following stresses the inability of the government to improve short-run market outcomes?
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According to Keynesian theory, the correct fiscal policy action to stimulate the economy would be to:
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Keynesian policy levers include:
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A tax cut can best be characterized as:
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Monetary policy:
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Monetary policy can best cure a recession by:
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Individual employment and training programs are levers most likely to be advocated by:
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Which of the following is an example of supply-side policy?
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Which of the following causes the aggregate supply curve to shift to the left, ceteris paribus?
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Study Notes
Macroeconomics Overview
- Macroeconomics excludes market structures from its scope.
- Measures of economic well-being include the U.S. unemployment rate and GDP growth.
- Economic welfare metrics do not include changes in relative prices.
- Key macroeconomic outcomes encompass aspects like international balance.
Determinants and Theories
- Macro performance is influenced by policy levers, which include government regulation, tax policies, and money supply availability.
- Economic growth is not viewed as a determinant of macroeconomic outcomes.
- External shocks to economies consist of trade disruptions, wars, and natural disasters.
- The Classical view promotes a laissez-faire approach and assumes self-adjustment of markets is possible with flexible wages and prices.
Say's Law
- Say's Law states that supply creates its own demand, implying that whatever is produced will be sold if prices remain flexible.
- Classical economics holds that markets self-adjust to maintain long-term growth, suggesting that decreases in production are temporary.
Keynesian Perspective
- Keynes contended the economy is inherently unstable and advocates for government intervention to stabilize it during recessions.
- Keynesian theory emerged during the Great Depression, aimed at addressing prolonged deflation and high unemployment not explained by Classical theory.
- Keynes argued for expansionary fiscal policies, including tax cuts and increased government spending, to combat recessionary periods.
Aggregate Demand and Supply
- Aggregate demand reflects the total output that all market participants seek to purchase at various price levels.
- The aggregate demand curve is downward-sloping, indicating that lower prices stimulate higher total demand.
- Real balances effect explains that a lower price level increases purchasing power, hence boosting demand.
- The foreign trade effect suggests that lower domestic prices lead to increased demand for locally produced goods over imports.
- Aggregate supply indicates the total output producers are willing to create at different price levels and typically slopes upward.
Market Equilibrium
- Macro equilibrium occurs where aggregate demand equals aggregate supply, but the price level and output may not be optimal.
- Surpluses occur when aggregate supply exceeds demand, driving down prices to restore equilibrium.
- Shortages arise when demand surpasses supply, prompting price increases as consumers compete for limited goods.
Economic Shifts
- Economic conditions like natural disasters can shift aggregate supply or demand curves left or right, impacting equilibrium prices and output.
- For instance, increased production costs or crises like terrorist attacks decrease aggregate supply.
- Conversely, factors like reduced energy prices can shift aggregate supply outward.
Economic Theories and Policies
- Controversies in economics often revolve around the stability of market economies, with differing views from Keynesian, monetarist, supply-side, and eclectic theories.
- In a recession, Keynesians advocate for active government policies whereas classical economists suggest a passive approach, waiting for market adjustments.
- Fiscal policy, such as tax cuts, is a prominent lever advocated by both Keynesians and supply-side economists for stimulating economic growth.
Key Concepts and Policies
- Monetary policy is crucial for managing economic conditions and is controlled by the Federal Reserve.
- Supply-side economics emphasizes incentives for production and shifts in aggregate supply in response to production cost changes.
- Tax cuts can be characterized as both fiscal and supply-side policies aimed at stimulating economic activity.
Closing Notes
- Understanding the interplay between aggregate demand and supply, along with the implications of various economic theories, is essential for analyzing macroeconomic trends and policies.
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Test your knowledge with these flashcards covering key concepts from Chapter 11 of macroeconomics. Each card presents questions about measures of economic well-being in the United States, including GDP growth and unemployment rates. Perfect for revising and reinforcing your understanding of macroeconomic principles.