Set 11

A study of how increases in the minimum wage rate will affect the national
unemployment rate is an example of
1. descriptive economics.
2. normative economics.
3. macroeconomics.
4. microeconomics.
Aggregate supply is the total amount
1. of goods and services produced in an economy.
2. produced by the government.
3. of products produced by a given industry.
4. of labour supplied by all households.
The total demand for goods and services in an economy is known as
1. aggregate demand.
2. national demand.
3. gross national product.
4. economy-wide demand.
Deflation is
1. an increase in the overall level of economic activity.
2. an increase in the overall price level.
3. a decrease in the overall level of economic activity.
4. a decrease in the overall price level.
A recession is
1. a period of declining prices.
2. a period during which aggregate output declines.
3. a period of declining unemployment.
4. a period of falling trade volumes.
Involuntary unemployment means that
1. people are not willing to work at the going wage rate.
2. at the going wage rate, there are people who want to work but cannot
  find work .
3. there are some people who will not work at the going wage rate.
4. here is excess demand in the labour market.
A cut in the income tax rate designed to encourage household consumption is
an example of
1. expansionary demand-side policy.
2. contractionary demand-side policy.
3. expansionary supply-side policy.
4. contractionary supply-side policy.
A cut in the tax rate designed to reduce the cost of capital and hence encourage
business investment is an example of
1. expansionary demand-side policy.
2. contractionary demand-side policy.
3. expansionary supply-side policy.
4. contractionary supply-side policy.
Macroeconomics is the branch of economics that deals with
1. the economy as a whole.
2. imperfectly competitive markets.
3. only the long run adjustments to equilibrium in the economy.
4. the functioning of individual industries and the behaviour of individual
  decision-making units - business firms and households.
A group of modern economists who believe that price and wage rigidities do
not provide the only rationale for macroeconomic policy activism are called:
1. New-Keynesians.
2. Keynesians.
3. Monetarists.
4. The Classical school.
Macroeconomic theory that emphasised the theories of Keynes and deemphasised the Classical theory developed as the result of the failure of
1. economic theory to explain the simultaneous increases in inflation and unemployment during the 1970s.
2. fine tuning during the 1960s.
3. the economy to grow at a rapid rate during the 1950s.
4. the Classical model to explain the prolonged existence of high D.
  unemployment during the Great Depression .
Keynes believed falling wages were not a solution to persistent
unemployment because
1. falling wages demoralised workers.
2. this would reduce the purchasing power of labourers as consumers.
  This in turn would bleaken firms’ prospects of selling more goods,
  hence inducing them to cut their investment (and hence labour)
  demand.
3. the unemployment was caused by frictional and structural factors.
4. wages would fall more than required to clear the labour market.
The practice of using fiscal and monetary policy to stabilise the economy is
known as
1. fine tuning of demand
2. monetarism
3. laissez faire economics
4. supply side economics
According to Classical models, the level of employment is determined
primarily by
1. interest rates.
2. the level of prices.
3. the level of aggregate supply in the economy
4. the level of aggregate demand for goods and services.
According to Keynes, the level of employment is determined by
1. interest rates.
2. the level of prices.
3. the level of aggregate supply in the economy
4. the level of aggregate demand for goods and services.
According to the Classical model, unemployment
1. could not persist because wages would fall to eliminate the excess
  supply of labour.
2. could persist for long periods of time because wages are not flexible.
3. could be eliminated only through government intervention.
4. could never exist.
To get the economy out of a slump, Keynes believed that the government
should
1. increase both taxes and government spending.
2. increase taxes and/or decrease government spending.
3. cut both taxes and government spending.
4. decrease taxes and/or increase government spending .
Aggregate demand refers to the total demand for all domestically produced
goods and services in an economy generated from
1. the household and government sectors.
2. the household sector.
3. all sectors except the rest of the world.
4. all sectors including the rest of the world.
Government policies that focus on increasing production rather than demand
are called:
1. fiscal policies.
2. monetary policies.
3. incomes policies.
4. supply-side policies.
Prices that do not always adjust rapidly to maintain equality between quantity
supplied and quantity demanded are
1. market prices.
2. sticky prices.
3. fixed prices.
4. regulatory prices.
The economists who emphasised wage-flexibility as a solution for
unemployment were
1. Monetarists.
2. New-Keynesians.
3. Classical economists.
4. Keynesians.
According to the Classical economists, the economy
1. requires fine tuning to reach full employment.
2. should not be left to market forces.
3. will never be at full employment.
4. is self correcting.
Monetarism became popular because it was able to, unlike Classical or
Keynesian economics, explain
1. stagflation in the late 1970s.
2. demand-pull inflation in the 1960s.
3. low growth rates in the 1950s.
4. the prolonged existence of high unemployment during the Great
  Depression.
Keynes’ explanation for low firm investment during the Great Depression was
1. low savings, which placed a constraint on investment
2. high real borrowing rates, which discouraged firm borrowing
3. high savings, which left consumers with less money to spend on goods
  and serviced produced by firms
4. A permanent change in Europe’s corporate ownership structures
Rapid increases in the price level during periods of recession or high
unemployment are known as
1. slump.
2. stagnation .
3. stagflation.
4. inflation.
The hypothesis that people know the 'true model' of the economy and that
they use this model and all available information to form their expectations of the future is the
1. rational-expectations hypothesis.
2. active-expectations hypothesis.
3. static-expectations hypothesis.
4. adaptive-expectations hypothesis.
Neo-Classical theories were an attempt to explain
1. how unemployment could have persisted for so long during the Great
  Depression.
2. the stagflation of the 1970s.
3. why policy changes that are perceived as permanent have more of an
  impact on a person's behaviour than policy changes that are viewed as
  temporary.
4. he increase in the growth rate of real output in the 1950s
A group of modern economists who believe that markets clear very rapidly
and that expanding the money supply will always increase prices rather than
employment are the
1. New-Keynesians.
2. Keynesians.
3. Monetarists.
4. The Classical school.
Say’s law states that:
1. Supply creates its own demand.
2. Demand creates its own supply.
3. There is no such things as a free lunch
4. Macroeconomic policy activism is essential to ensure full-employment.
The aggregate supply (AS) curve and aggregate demand (AD) curve in a
realistic Keynesian world are:
1. AS: fully horizontal; AD: downward sloping
2. AS:horizontal only till the full capacity level; AD: downward sloping
3. AS:vertical; AD: upward sloping
4. AS:horizontal; AD: vertical

Set 11

Quiz