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1. ________________ economists place an emphasis on __________ run economic performance. A. Phillips; short |
C. Neoclassical; long |
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2. The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________. A. long term growth; cyclical unemployment |
B. potential GDP; natural rate of unemployment |
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3. Which of the following is a building block of neoclassical economics? A. the size of the economy is determined by real GDP |
D. wages and prices will adjust in a flexible manner |
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4. Which of the following government policies would be supported by neoclassical macroeconomic assumptions? A. focus on long-term growth and on controlling inflation |
A. focus on long-term growth and on controlling inflation |
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5. Which of the following represents a Keynesian point of view of macroeconomics? A. focus on long-term growth in the economy |
C. creating increases in aggregate demand to reduce unemployment |
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6. From a neoclassical viewpoint, government should focus less on: A. long-term growth. |
D. cyclical unemployment. |
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7. The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________. A. economic growth; the size of the economy |
A. economic growth; the size of the economy |
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8. The Keynesian view of economics assumes that: A. the Keynesian Phillips curve is vertical. |
B. wages are sticky. |
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9. In the neoclassical version of the AD/AS model, which of the following should you use to represent the AS curve? A. the AS curve shifting as productivity increases |
C. a vertical line drawn at the level of potential GDP |
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10. Which of the following is a distinguishing characteristic of the neoclassical view? A. increasing price levels will increase the unemployment rate |
D. flexibility of wages and prices over time |
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11. A vertical AS curve means that the level of aggregate supply (or potential GDP) will determine the real GDP of the economy, regardless of the level of: A. cyclical unemployment. |
C. aggregate demand. |
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12. In the neoclassic model, economic growth over time shifts potential GDP and the ______________ gradually to the right. A. vertical AS curve |
A. vertical AS curve |
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13. In the neoclassical model, the AS curve shifts to the right over time as_______________________ and potential GDP expands. A. the macroeconomy adjusts back to real GDP |
B. productivity increases |
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14. Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in: A. a rise in level of output. |
B. an increase in price level. |
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15. If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur? A. change in government policy to decrease in aggregate demand |
C. inflationary increase in price level |
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16. If an economy experiences a decrease in aggregate demand due to a decline in consumer confidence and output falls below potential GDP, which of the following is likely to occur? A. more consumption and less saving |
D. a rise in unemployment |
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17. Suppose that a rise in business confidence has led to more investment in the economy and higher levels of output. In the short-run Keynesian analysis, the rise in aggregate demand will: A. lower unemployment. |
A. lower unemployment. |
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18. From a neoclassical view, which of the following is a true statement? A. Lower wages will cause an economy-wide increase in the price of a key input. |
D. The economy cannot sustain production above its potential GDP in the long run. |
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19. Which of the following is a valid criticism of the rational expectations theory? A. prices do not wait on events |
B. the assumption seems too strong |
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20. In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment. A. wage levels |
C. aggregate demand |
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21. In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP. A. potential GDP and aggregate supply |
A. potential GDP and aggregate supply |
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22. The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future. A. adaptive expectations |
B. rational expectations |
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23. At a macroeconomic level, the theory of rational expectations points out that if the ______________________ is vertical over time, then people should rationally expect this pattern. A. GDP |
D. aggregate supply curve |
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24. When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary. A. aggregate demand |
A. aggregate demand |
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25. In the neoclassical view, the economy has a ___________________________ to move back to potential GDP. A. rational tendency |
C. self-correcting tendency |
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26. After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall? A. neoclassical theory |
C. rational expectations |
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27. If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important? A. encouraging higher wages |
D. encouraging long-term growth |
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28. From a neoclassical view, which of the following is less important? A. fighting unemployment |
A. fighting unemployment |
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29. The shape of the ______________ involves a tradeoff between unemployment and inflation. A. aggregate demand curve |
C. Phillips curve |
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30. Suppose that productivity growth in an economy over a two-year period has fallen to less than 2% per year, causing a severe recession. From the neoclassical view, which of the following will be more important in these circumstances? A. an increase in the annual unemployment rate |
D. the growth rate of long-term productivity |
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31. Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP? A. zero |
A. zero |
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32. From a neoclassical perspective, which of the following would most likely be viewed as an element that underpins long-run productivity growth in the economy? A. flexible price levels |
C. investments in human capital |
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33. The ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment? A. market forces |
C. neoclassical |
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34. Which of the following is most strongly supported by the Keynesian perspective of macroeconomics? A. inflation is a price that might have to be paid to achieve lower unemployment |
A. inflation is a price that might have to be paid to achieve lower unemployment |
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35. If aggregate supply is vertical, then which of the following statements must be true? A. Aggregate demand does not affect the quantity of output. |
A. Aggregate demand does not affect the quantity of output. |
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36. In order to shift the vertical supply curve to the left, which of the following would have to occur? A. increase in productivity |
B. breakdown of key market institutions |
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37. Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause: A. at least a slight increase in aggregate demand. |
D. at least a slight increase in unemployment. |
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38. Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession? A. price and wage stickiness is reasonable in the short run |
C. standard of living is ultimately determined by long-term growth |
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39. A typical neoclassical aggregate supply (AS) curve ______________ and a typical neoclassical Phillips curve __________________. A. slopes upward; slopes downward |
B. is vertical; is vertical |
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40. A typical Keynesian aggregate supply (AS) curve _______________ and a typical Keynesian Phillips curve _____________. A. is vertical; is vertical |
D. slopes upward; slopes downward |
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41. Referring to the diagram above, complete the following sentence: Any increase in aggregate demand in the short-run will lead to: A. an increase in output (Q1 to Q2), but it will also lead to prices increasing. |
A. an increase in output (Q1 to Q2), but it will also lead to prices increasing. |
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42. Referring to the diagram above, which of the following is a true statement? A. The increase in supply (Q1 to Q2) may come about because of increased money supply. |
B. The increase in output (Q1 to Q2) may come about because of lower levels of taxation. |
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43. Referring to the diagram above, which of the following is a true statement? A. Short-run increased output will lower output costs, but demand for higher profits will increase prices. |
C. Higher cost levels of increased output will force an increase in price for the product. |
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44. A vertical aggregate supply curve, where the quantity of output is consistent with many different price levels, also implies: A. an upward sloping Phillips curve. |
D. a vertical Phillips curve. |
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45. If aggregate supply is vertical, then aggregate demand does not affect: A. either wages or prices. |
C. the quantity of output. |
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