1. Suppose the economy 7.
The term _____ refers to the
suffers a high rate of short-term ups and downs in
unemployment. According to the level of economic
Keynesian economists, the activity.
government should increase
Answer: business cycle
employment by
8. Government policies
Answer: increasing
regarding taxes and
government spending
expenditures are called _____
2. Unemployment means that
Answer: fiscal policy
Answer: at the going
9. _____ is any government
wage rate, there are
attempt to regulate inflation
people who want to work
or unemployment.
but cannot find work.
Answer: Macroeconomic
3. According to Classical
policy
models, the level of
employment is determined 10.Which of the following is an
primarily by assumption used by
Classical economists?
Answer: prices and
wages Answer: Wages adjust
both upward and
4. In a business cycle, a peak
downward
represents the end of
________ and a trough 11.The government wants to
represents the end of encourage consumer
________. spending through cutting
income taxes. This is an
Answer: an expansion; a
example of
recession
Answer: fiscal policy
5. It has become conventional
to classify an economic 12.According to Keynes, the
downturn as a recession level of employment is
when aggregate output determined by
declines for
Answer: the level of
Answer: two aggregate demand for
consecutive quarters. goods and services.
6. In the circular flow diagram, 13.The trend of the economy is
the different payments
made by firms to households Answer: the long run
include growth path of the
economy.
Answer: wages and
profits 14.An increase in the overall
price level is known as
Answer: inflation households, the government,
and the rest of the world.
15.The major lesson of the
circular flow diagram is that Answer: households, the
government, and the rest
Answer: total income in
of the world.
the economy must
always equal total 20.Since 1970, the U.S.
spending. economy has experienced
five recessions
16.Which of the following is a periods of high inflation.
CORRECT statement?
three periods of stagflation.
Wages adjust both upward and
four recessions
downward
None of the above
Wages are inflexible.
Answer: three periods of
None of the above
stagflation.
Wages adjust both downward
21.Which of the following
but not upward.
statements is FALSE?
Wages adjust upward but not
Short-term ups and downs in
downward
the economy are known as
Answer: None of the business cycles.
above
None of the above
17.A period during which
The rate of change in economic
aggregate output rises is
activity is used to assess
known as _____
whether an economy is
Answer: expansion expanding or contracting.
18.A period of very rapid During a recession, output and
increase in the overall price employment are falling.
level is known as _____
Business cycles are not
Answer: hyperinflation symmetric: the length of an
expansion is not the same as
19.The demanders in the
the length of a contraction.
goods-and-services market
are Answer: None of the
above.
government and business firms
22.Rapid increases in the price
households and business firms.
level during periods of
households, the government, recession or high
business firms, and importers. unemployment are known as
_____
None of the above
Answer: stagflation 30._____ occurs when the
average price level declines.
23.To get the economy out of a
slump, Keynes believed that Answer: Deflation
the government should
31.In the circular flow diagram,
Answer: decrease taxes firms ________ labor and
and/or increase households ________ goods
government spending. and services.
24.A period when the economy supply, demand
shrinks is known as _____
demand, supply
Answer: recession
supply, supply
25.Which of the following
demand, demand
would be an example of fine
tuning? Answer: demand, supply
Answer: The national 32.According to the Classical
government enacts model, unemployment
legislation to increase
spending to try to could not persist because wages
stimulate the economy. would rise to eliminate the
excess supply of labor.
26.To bring the economy out of
an inflationary period, could not persist because wages
Keynes argued that the would rise to eliminate the
government should excess supply of labor.
Answer: increase taxes None of the above
and/or decrease could be eliminated through
government spending. fiscal and monetary policies.
27.If the labor force is 500 and could be eliminated only
employment is 450, then the through government
unemployment rate is _____% intervention.
Answer: 10% Answer: could not
28.Between a peak and a persist because wages
trough, the economy goes would fall to eliminate
through a(n) the excess supply of
labor.
Answer: recession
33.The unemployment rate
29.If the labor force is 50 equals
million and 48 million are
employed then the (labor force) - employed/labor
unemployment rate is _____% force.
Answer: 4% unemployed/employed.
(employed - unemployed)/labor
force.
(labor force - employed)/labor
force.
labor force/population.
Answer: (unemployed /
labor force)
34.If output is rising and
unemployment is falling, the
economy MUST be in a(n)
Answer: expansion
