Exam 3 Econ

Consumption, investment, government spending, exports, and imports are:

all components of aggregate demand.

If markets throughout the global economy all have flexible and continually adjusting prices, then:

each economy will always head for its natural rate of unemployment.

Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.

policy prescription

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

shift substantially

The equilibrium quantity of labor and the equilibrium wage level decrease when:

labor demand shifts to the left, if wages are flexible.

The equilibrium quantity of labor and the equilibrium wage increase when:

labor demand shifts to the right, if wages are flexible.

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

labor supply shifts to the right, if wages are flexible,

The equilibrium quantity of labor decreases and the equilibrium wage increases when:

labor supply shifts to the left, if wages are flexible.

____________________ will not cause a shift of the AS curve in a Keynesian framework.

Changes in output prices

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

an increase; domestic investment

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

a major trading partner’s economic slowdown

According to the Keynesian framework, which of the following may help a country reduce inflation, but will not help that country to get out of a recession?

a decrease in the tax rate on consumer income

According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation

a decrease in military spending

According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.

increased spending by the government on health care

The Keynesian economic framework is based on an assumption that:

prices and wages are sticky and do not adjust rapidly.

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

coordination

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

menu costs

If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?

excess supply

When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:

tangible and/or intangible capital.

The onset of a trade deficit is most likely supported by a country’s:

strong economic growth.

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:

Keynesian Phillips curve tradeoff.

In macroeconomics, a _________________ is used to show the relationship between output and the input price level.

Phillips curve

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

is producing at a point where output is more than potential GDP.

26. The sum of all the income received for contributing resources to GDP is called ___________________.

national income

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

recessionary gap

Which of the following is a distinguishing characteristic of a Keynesian cross diagram?

45-degree line

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

bigger leakages

________________ economists place an emphasis on __________ run economic performance.

Neoclassical; long

The neoclassical perspective on macroeconomics emphasizes that in the long run, the economy seems to rebound back to its _____________ and its ____________________.

potential GDP; natural rate of unemployment

Which of the following is a building block of neoclassical economics?

wages and prices will adjust in a flexible manner

Which of the following government policies would be supported by neoclassical macroeconomic assumptions?

focus on long-term growth and on controlling inflation

Which of the following represents a Keynesian point of view of macroeconomics?

creating increases in aggregate demand to reduce unemployment

From a neoclassical viewpoint, government should focus less on:

cyclical unemployment.

The neoclassical view holds that long-term expansion of potential GDP due to _______________________ will determine ____________________.

economic growth; the size of the economy

The Keynesian view of economics assumes that:

wages are sticky.

Which of the following is a distinguishing characteristic of the neoclassical view?

flexibility of wages and prices over time

Over the long run, a surge in aggregate demand from a neoclassical perspective will most likely result in:

an increase in price level.

If a neoclassical model shows increasing wages in the economy over the long run, what else will likely occur?

inflationary increase in price level

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 rise in unemployment

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:

lower unemployment.

From a neoclassical view, which of the following is a true statement?

The economy cannot sustain production above its potential GDP in the long run.

Which of the following is a valid criticism of the rational expectations theory?

the assumption seems too strong

In the neoclassical view, changes in ____________________ can only have a short-run impact on output and on unemployment.

aggregate demand

In the long-run neoclassical view, when wages and prices are flexible, ________________________ determine the size of real GDP.

potential GDP and aggregate supply

The theory of _____________________ holds that people will use all information available to them to form the most accurate possible expectations about the future.

rational expectations

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.

aggregate supply curve

When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary.

aggregate demand

In the neoclassical view, the economy has a ___________________________ to move back to potential GDP.

self-correcting tendency

After reports of the subprime mortgage crisis began to appear in the media, which of the following most likely caused housing prices to fall?

rational expectations

If the neoclassical argument that the economy always moves back to potential GDP is accepted, then which of the following will be more important?

encouraging long-term growth

From a neoclassical view, which of the following is less important?

fighting unemployment

The shape of the ______________ involves a tradeoff between unemployment and inflation.

Phillips curve

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?

investments in human capital

The ___________________ argument tends to view inflation as a cost that offers no offsetting gains in terms of lower unemployment?

neoclassical

Which of the following is most strongly supported by the Keynesian perspective of macroeconomics?

inflation is a price that might have to be paid to achieve lower unemployment

Referring to a Keynesian Phillips curve, a reduction in inflation is likely to cause:

at least a slight increase in unemployment.

Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession?

standard of living is ultimately determined by long-term growth

A ______________________ is created each time the federal government spends more than it collects in taxes in a given year.

budget deficit

A ______________________ means that government spending and taxes are equal.

balanced budget

A __________________________ policy will cause a greater share of income to be collected from those with high incomes than from those with lower incomes.

progressive tax

A ________________________________ is calculated as a flat percentage of income earned, regardless of level of income.

proportional tax

When the share of individual income tax collected by the government from people with higher incomes is smaller than the share of tax collected from people with lower incomes, then the tax is ____________________.

regressive

What do goods like gasoline, tobacco, and alcohol typically share in common?

They are all subject to government excise taxes.

The federal government levies _____________________________ on people who pass assets ____________________________, either after death or during life.

an estate and gift tax; to the next generation

The government can use _____________ in the form of ____________________ to increase the level of aggregate demand in the economy.

an expansionary fiscal policy; an increase in government spending

If a government reduces taxes in order to increase the level of aggregate demand, what type of fiscal policy is being used?

expansionary

A typical ____________________________ fiscal policy allows government to decrease the level of aggregate demand, through increases in taxes.

contractionary

Which of the following terms is used to describe the set of policies that relate to government spending, taxation, and borrowing?

fiscal policies

If individual income tax accounts for more total revenue than the payroll tax in the U.S., why would over half the households in the country pay more in payroll taxes than in income taxes?

income tax is a progressive tax

28. When the government passes a new law that explicitly changes overall tax or spending levels, it is enacting:

discretionary fiscal policy.

Which of the following is least likely to be the result of economic disruptive patterns caused by a prolonged period of government budget deficits?

increasing exchange rates

A country’s economic data indicates that there has been a substantial reduction in the financial capital available to private sector firms. Which of the following most likely had the greatest influence on this economy?

especially large and sustained government borrowing

From a macroeconomic point of view, which of the following is a source of demand for financial capital?

government borrowing

The U.S. economy has two main sources for financial capital; _______________________ and ____________________________.

private savings from U.S. households and firms; inflows of foreign financial investment.

An additional investment in human capital, especially for the low-income nations of the world, will likely directly increase which of the following?

productivity and economic growth

The slope of the production possibility frontier is determined by the ________________ of expanding production of one good, measured by how much of the other good would be lost.

opportunity cost

When one nation can produce a product at lower cost relative to another nation, it is said to have a(n) __________________ in producing that product.

absolute advantage

The idea behind comparative advantage reflects the possibility that one party:

may be able to produce something at a lower opportunity cost than another party.

Which of the following is true?

A nation cannot have a comparative advantage in the production of every good.

According to international trade theory, a country should:

import goods in which it has a comparative disadvantage.

_____________________ identifies the area where a producer’s absolute advantage is relatively greatest, or where the producer’s absolute disadvantage in productivity is relatively least.

comparative advantage

Trade allows each country to take advantage of _________________ in the other country.

lower opportunity costs

Some nations that seek to produce all of their own needs face the problem that:

some industries are too small to be efficient if restricted to their domestic markets alone.

Intra-industry trade between similar trading partners allows the gains from ______________________ that arise when firms and workers specialize in the production of a certain product.

learning and innovation

When nations increase production in their area of _________________ and trade with each other, both sides can benefit.

comparative advantage

A tariff differs from a quota in that a tariff is:

a tax imposed on imports, whereas a quota is an absolute limit to the number of units of a good that can be imported.

Tariffs are taxes imposed on _________________.

imported products

_____________ are numerical limitations on the quantity of products that can be imported.

imports quotas

Which of the following is the best example of a quota?

a limit imposed on the number of men’s suits that can be imported from a foreign country

____________ means selling goods below their cost of production.

dumping

An import quota does which of the following?

increases the price of the domestic goods to consumers

__________________ are ways that a nation can draw up regulations, inspections, and paperwork to make it more costly or difficult to import products.

nontariff barriers

Economists would say tariffs:

limit voluntary exchanges.

Low-wage U.S. workers suffer from protectionism in all the industries that they don’t work in, because:

protectionism forces them to pay higher prices for basic necessities like clothing and food.

International trade is fundamentally a ________________________.

win-win situation

It is sometimes argued that nation should not depend too heavily on other countries for supplies of certain key products. This argument is commonly known as the _______________.

National Interest Argument