Economics Chapter 11 Flashcards

Questions and Answers

Which of the following is not included in the study of macroeconomics?

GDP growth

Market structures (correct)

Unemployment

Inflation

Which of the following is a measure of overall economic well-being for the United States?

Market structures

GDP growth (correct)

Inflation rates

The U.S. unemployment rate (correct)

All of the following are used to measure a country's economic welfare except:

Standard of living

A change in relative prices (correct)

Unemployment rate

GDP

Which of the following is a macroeconomic outcome?

International balance Signup and view all the answers

Which of the following is a determinant of macroeconomic performance?

Policy levers Signup and view all the answers

Which of the following is not a determinant of macroeconomic outcomes?

Economic growth Signup and view all the answers

External shocks to an economy include:

Disruptions in trade, wars, and natural disasters Signup and view all the answers

Which of the following are policy levers?

Government regulation, tax policy, and the availability of money Signup and view all the answers

The Classical view of the economy is characterized by:

A laissez-faire approach Signup and view all the answers

Which of the following concepts is not consistent with Classical theory?

Use of monetary policy Signup and view all the answers

Self-adjustment of markets is assumed in:

Classical economic theory Signup and view all the answers

Which of the following is necessary for an economy to self-adjust fairly quickly, according to classical economists?

Flexible wages and prices Signup and view all the answers

The Classical approach dominated economic policy during:

The period before the Great Depression Signup and view all the answers

Say's Law implies that:

The economy will not experience a long-term decrease in output Signup and view all the answers

Say's Law states that:

Supply creates its own demand Signup and view all the answers

Say's Law implies that:

Whatever is produced will be sold Signup and view all the answers

Say's Law is consistent with the _______ view of the economy.

Classical Signup and view all the answers

Which theories of the economy lead to the assertion that markets 'self-adjust' to deviations from their long-term growth trend?

Classical theories Signup and view all the answers

According to Say's Law, all goods produced will be sold:

If prices are flexible and free to change Signup and view all the answers

During the Great Depression, classical theorists believed that:

Decreases in production were temporary Signup and view all the answers

Unlike the Classical economists, Keynes asserted that:

The economy was inherently unstable Signup and view all the answers

According to Keynes:

Government intervention in the economy is necessary at times Signup and view all the answers

Keynes and classical economists disagree about whether:

Government intervention should be used to correct business cycles Signup and view all the answers

Keynesian theory became important when classical economic theory did not adequately explain a prolonged period of:

Deflation with high unemployment Signup and view all the answers

A critical macroeconomic controversy is whether a market economy is inherently:

Stable or unstable Signup and view all the answers

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:

Aggregate demand Signup and view all the answers

Aggregate demand refers to:

The collective behavior of all buyers Signup and view all the answers

The difference between market demand and aggregate demand is that:

Aggregate demand applies to all goods and market demand applies to a specific good Signup and view all the answers

The value of output in constant prices is measured by:

Real GDP Signup and view all the answers

The aggregate demand curve shows the relationship between the volume of purchases and:

The price level Signup and view all the answers

The aggregate demand curve is:

Downward sloping to the right Signup and view all the answers

Ceteris paribus, based on the aggregate demand curve, if the price level _ the quantity of real output _ increases.

Decreases; demanded Signup and view all the answers

The aggregate demand curve is downward sloping because, ceteris paribus:

People are willing and able to buy more goods and services at lower average prices Signup and view all the answers

Which of the following is not a reason for the downward slope of the aggregate demand curve?

The cost effect Signup and view all the answers

According to the real balances effect, when the price level:

Falls, cash is worth more and therefore people buy more Signup and view all the answers

Ceteris paribus, if the average price level falls, then the _ effect will result in _ in the purchases of goods and services.

Real balances; an increase Signup and view all the answers

Ceteris paribus, based on the real balances effect, if the price level falls:

Purchasing power increases Signup and view all the answers

Which of the following is an example of the real balances effect, assuming the U.S. price level decreases?

The purchasing power of money increases and people buy more goods Signup and view all the answers

The foreign trade effect states that, ceteris paribus:

The quantity demanded of domestic goods rises when the domestic price level falls Signup and view all the answers

When the U.S. price level increases relative to the price level in foreign economies, U.S. consumers tend to buy:

More imported goods and fewer domestically produced goods, ceteris paribus Signup and view all the answers

According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy:

More American-made products Signup and view all the answers

Which of the following is an example of the foreign trade effect, assuming the U.S. price level decreases?

U.S. goods are less expensive for Americans so they buy fewer imports and more domestic goods Signup and view all the answers

Which of the following suggests that lower average prices stimulate more borrowing?

The interest rate effect Signup and view all the answers

The aggregate demand curve is downward sloping because, other things being equal:

A lower average price level causes lower interest rates, which stimulate loan-financed purchases Signup and view all the answers

Which of the following is an example of the interest-rate effect, assuming the U.S. price level decreases?

The demand for loans decreases so interest rates decline and loan-financed purchases increase Signup and view all the answers

The total amount of output producers are willing and able to produce at alternative price levels in a given time period is known as:

Aggregate supply Signup and view all the answers

The short-run aggregate supply curve is:

Upward sloping to the right Signup and view all the answers

Ceteris paribus, based on the aggregate supply curve, if the price level _ the quantity of real output _ increases.

Increases; produced Signup and view all the answers

The aggregate supply curve is positively sloped because as the price level increases:

Profit margins increase in the short run Signup and view all the answers

One explanation for why production costs tend to rise as output increases is that producers:

May have to pay overtime wages to workers Signup and view all the answers

Which of the following is an explanation of why the aggregate supply curve slopes upward, assuming the price level increases?

Production costs increase and producers charge higher prices for their goods Signup and view all the answers

The intersection of the aggregate demand and supply curves definitely establishes:

Macro equilibrium Signup and view all the answers

At the intersection of the aggregate supply and aggregate demand curves, the economy is experiencing:

Macro equilibrium Signup and view all the answers

At macro equilibrium:

Aggregate demand equals aggregate supply Signup and view all the answers

Macro equilibrium always occurs:

When aggregate demand equals aggregate supply at the average price level Signup and view all the answers

Which of the following results if the aggregate quantity supplied exceeds the aggregate quantity demanded?

A surplus pushes the average prices down to macro equilibrium Signup and view all the answers

If the price level is:

Above equilibrium, this results in excess supply Signup and view all the answers

Which of the following will occur if the aggregate quantity supplied is less than the aggregate quantity demanded?

There will be a shortage Signup and view all the answers

Which of the following will occur if the price level is below the equilibrium level?

Consumers will bid the price level up by competing for goods Signup and view all the answers

Which of the following is definitely true if the economy is in macro equilibrium?

The price level and the output level may or may not be optimal Signup and view all the answers

The inability of labor-force participants to find jobs is known as:

Unemployment Signup and view all the answers

An increase in the average level of prices of goods and services is known as:

Inflation Signup and view all the answers

Ceteris paribus, a leftward shift of the aggregate supply curve will cause the equilibrium price level to _ and equilibrium real output to .

Increase; decrease Signup and view all the answers

Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus?

An increase in the cost of natural gas Signup and view all the answers

Which of the following is likely to occur if a terrorist attack stops air travel in a country for some time, ceteris paribus?

Aggregate supply will decrease or shift to the left Signup and view all the answers

Ceteris paribus, a rightward shift of the aggregate supply curve will cause the equilibrium price level to _ and equilibrium real output to .

Decrease; increase Signup and view all the answers

Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus?

Aggregate supply will increase or shift to the right. Signup and view all the answers

Ceteris paribus, a leftward shift of the aggregate demand curve will cause the equilibrium price level to _ and equilibrium real output to .

Decrease; decrease Signup and view all the answers

If the stock market plunged over the next week, consumers would:

Demand fewer goods and services Signup and view all the answers

Which of the following would cause the aggregate demand curve to decrease, ceteris paribus?

An increase in income taxes. Signup and view all the answers

Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus?

Aggregate demand will decrease or shift to the left Signup and view all the answers

The aggregate demand curve is most likely to shift to the right when:

Taxes fall Signup and view all the answers

Macro controversies focus primarily on the:

Potential to shift aggregate demand and supply Signup and view all the answers

Controversies between Keynesian, monetarist, supply-side, and eclectic theories focus on:

The shape and sensitivity of aggregate supply and aggregate demand curves Signup and view all the answers

Keynesian theory is referred to as a:

Demand-side theory Signup and view all the answers

If an economy is experiencing a recession, the Keynesian approach to achieving full employment is to:

Employ expansionary fiscal policy Signup and view all the answers

Keynes viewed the economy as inherently unstable and suggested that during a recession, policymakers should:

Cut taxes and/or increase government spending Signup and view all the answers

According to Keynes, which of the following should occur because of a decrease in government expenditure, ceteris paribus?

A leftward shift of the aggregate demand curve. Signup and view all the answers

Which of the following is a mechanism Keynes advocated for dealing with a situation of depressed output?

Increasing government expenditure Signup and view all the answers

If an economy is experiencing a recession, the Keynesian approach to achieving full employment is to:

Use tax cuts or more government spending or both Signup and view all the answers

Which of the following economic theories focus on aggregate demand to explain changes in unemployment and inflation?

Keynesian and monetarist Signup and view all the answers

Both Keynesian and monetarist theories believe that _ aggregate _ causes inflation.

Excessive; demand Signup and view all the answers

Monetary theory is referred to as:

A demand-side theory Signup and view all the answers

According to monetary theories, an increase in the money supply shifts the aggregate:

Demand curve to the right Signup and view all the answers

According to monetary theories, a decrease in the money supply shifts the aggregate:

Demand curve to the left Signup and view all the answers

According to supply-side theories, an increase in supply incentives shifts the aggregate:

Supply curve to the right Signup and view all the answers

According to supply-side theories, if producers are less willing and able to supply goods at prevailing prices, then aggregate:

Supply shifts to the left Signup and view all the answers

According to supply-side theories, if the costs of production rise, then aggregate:

Supply shifts to the left Signup and view all the answers

Which of the following explanations of the business cycle focuses on both aggregate supply and aggregate demand shifts?

Eclectic explanations Signup and view all the answers

If an economy is experiencing a recession, the classical approach to achieving full employment is to:

Do nothing and wait for natural market forces to improve the economy Signup and view all the answers

Which of the following stresses the inability of the government to improve short-run market outcomes?

New classical economics Signup and view all the answers

According to Keynesian theory, the correct fiscal policy action to stimulate the economy would be to:

Increase government expenditures to increase aggregate demand Signup and view all the answers

Keynesian policy levers include:

Fiscal policy Signup and view all the answers

A tax cut can best be characterized as:

Both fiscal and supply-side policy Signup and view all the answers

Monetary policy:

Is controlled by the Federal Reserve Signup and view all the answers

Monetary policy can best cure a recession by:

Reducing interest rates, which shifts aggregate demand to the right Signup and view all the answers

Individual employment and training programs are levers most likely to be advocated by:

Supply-side economists Signup and view all the answers

Which of the following is an example of supply-side policy?

The tax cuts in 1981 Signup and view all the answers

Which of the following causes the aggregate supply curve to shift to the left, ceteris paribus?

An increase in the cost of labor Signup and view all the answers

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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Economics Chapter 11 Flashcards

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?

Which of the following is a determinant of macroeconomic performance?

Which of the following is not a determinant of macroeconomic outcomes?

External shocks to an economy include:

Which of the following are policy levers?

The Classical view of the economy is characterized by:

Which of the following concepts is not consistent with Classical theory?

Self-adjustment of markets is assumed in:

Which of the following is necessary for an economy to self-adjust fairly quickly, according to classical economists?

The Classical approach dominated economic policy during:

Say's Law implies that:

Say's Law states that:

Say's Law implies that:

Say's Law is consistent with the _______ view of the economy.

Which theories of the economy lead to the assertion that markets 'self-adjust' to deviations from their long-term growth trend?

According to Say's Law, all goods produced will be sold:

During the Great Depression, classical theorists believed that:

Unlike the Classical economists, Keynes asserted that:

According to Keynes:

Keynes and classical economists disagree about whether:

Keynesian theory became important when classical economic theory did not adequately explain a prolonged period of:

A critical macroeconomic controversy is whether a market economy is inherently:

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:

Aggregate demand refers to:

The difference between market demand and aggregate demand is that:

The value of output in constant prices is measured by:

The aggregate demand curve shows the relationship between the volume of purchases and:

The aggregate demand curve is:

Ceteris paribus, based on the aggregate demand curve, if the price level _______ the quantity of real output _______ increases.

The aggregate demand curve is downward sloping because, ceteris paribus:

Which of the following is not a reason for the downward slope of the aggregate demand curve?

According to the real balances effect, when the price level:

Ceteris paribus, if the average price level falls, then the _____ effect will result in _____ in the purchases of goods and services.

Ceteris paribus, based on the real balances effect, if the price level falls:

Which of the following is an example of the real balances effect, assuming the U.S. price level decreases?

The foreign trade effect states that, ceteris paribus:

When the U.S. price level increases relative to the price level in foreign economies, U.S. consumers tend to buy:

According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy:

Which of the following is an example of the foreign trade effect, assuming the U.S. price level decreases?

Which of the following suggests that lower average prices stimulate more borrowing?

The aggregate demand curve is downward sloping because, other things being equal:

Which of the following is an example of the interest-rate effect, assuming the U.S. price level decreases?

The total amount of output producers are willing and able to produce at alternative price levels in a given time period is known as:

The short-run aggregate supply curve is:

Ceteris paribus, based on the aggregate supply curve, if the price level _______ the quantity of real output _______ increases.

The aggregate supply curve is positively sloped because as the price level increases:

One explanation for why production costs tend to rise as output increases is that producers:

Which of the following is an explanation of why the aggregate supply curve slopes upward, assuming the price level increases?

The intersection of the aggregate demand and supply curves definitely establishes:

At the intersection of the aggregate supply and aggregate demand curves, the economy is experiencing:

At macro equilibrium:

Macro equilibrium always occurs:

Which of the following results if the aggregate quantity supplied exceeds the aggregate quantity demanded?

If the price level is:

Which of the following will occur if the aggregate quantity supplied is less than the aggregate quantity demanded?

Which of the following will occur if the price level is below the equilibrium level?

Which of the following is definitely true if the economy is in macro equilibrium?

The inability of labor-force participants to find jobs is known as:

An increase in the average level of prices of goods and services is known as:

Ceteris paribus, a leftward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to ______.

Which of the following is likely to cause a leftward shift in the aggregate supply curve, ceteris paribus?

Which of the following is likely to occur if a terrorist attack stops air travel in a country for some time, ceteris paribus?

Ceteris paribus, a rightward shift of the aggregate supply curve will cause the equilibrium price level to _______ and equilibrium real output to ______.

Which of the following is likely to occur if OPEC increases the amount of oil it supplies and domestic energy prices fall, ceteris paribus?

Ceteris paribus, a leftward shift of the aggregate demand curve will cause the equilibrium price level to _______ and equilibrium real output to ______.

If the stock market plunged over the next week, consumers would:

Which of the following would cause the aggregate demand curve to decrease, ceteris paribus?

Which of the following is likely to occur if people reduce their spending because they are worried about an economic downturn, ceteris paribus?

The aggregate demand curve is most likely to shift to the right when:

Macro controversies focus primarily on the:

Controversies between Keynesian, monetarist, supply-side, and eclectic theories focus on:

Keynesian theory is referred to as a:

If an economy is experiencing a recession, the Keynesian approach to achieving full employment is to:

Keynes viewed the economy as inherently unstable and suggested that during a recession, policymakers should:

According to Keynes, which of the following should occur because of a decrease in government expenditure, ceteris paribus?

Ceteris paribus, based on the aggregate demand curve, if the price level _ the quantity of real output _ increases.

Ceteris paribus, if the average price level falls, then the _ effect will result in _ in the purchases of goods and services.

Ceteris paribus, based on the aggregate supply curve, if the price level _ the quantity of real output _ increases.

Ceteris paribus, a leftward shift of the aggregate supply curve will cause the equilibrium price level to _ and equilibrium real output to .

Ceteris paribus, a rightward shift of the aggregate supply curve will cause the equilibrium price level to _ and equilibrium real output to .

Ceteris paribus, a leftward shift of the aggregate demand curve will cause the equilibrium price level to _ and equilibrium real output to .

Both Keynesian and monetarist theories believe that _ aggregate _ causes inflation.