Question 1

If the economy is currently in a recessionary gap,

Accepted Answer

A)  all economists will agree that the economy can remove itself from the recessionary gap without government intervention.
B)  some economists will argue that the economy can remove itself from the recessionary gap without government intervention.
C)  no economist will state that the economy can remove itself from the recessionary gap without government intervention.
D)  all economists will agree that over time the recessionary gap will worsen.

Question 2

Exhibit 9-8
Suppose that at a given price level the following values exist in a hypothetical economy:
Consumption = $7,000 billion
Investment = $1,900 billion
Government Purchases = $1,700 billion
Exports = $300 billion
Imports = $300 billion
Assume that the level of total expenditures is equal to the value of goods and services that suppliers want to sell.
-Refer to Exhibit 9-8. If saving increases by $500 billion, the new level of consumption will equal ______________. According to classical economists investment would _______________ and total expenditures would ________________________.

Accepted Answer

A)  $6,500 billion; then decrease by $500 billion; fall by $500 billion
B)  $6,500 billion; then increase by $500 billion; fall by $500 billion
C)  $7,500 billion; remain constant; fall by $500 billion
D)  $6,500 billion; then increase by $500 billion; remain constant

Question 3

Exhibit 9-4
 3. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from A) AD3 to AD1. B) SRAS1 to SRAS2. C) SRAS2 to SRAS1. D) AD3 to AD2. E) none of the above" class="answers-bank-image d-inline" rel="preload" >
-Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P3. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from

Accepted Answer

A)  AD3 to AD1.
B)  SRAS1 to SRAS2.
C)  SRAS2 to SRAS1.
D)  AD3 to AD2.
E)  none of the above

Question 4

According to classical economists,

Accepted Answer

A)  spending equals saving.
B)  saving equals income.
C)  income equals wealth.
D)  none of the above

Question 5

A recessionary gap exists if (actual)  Real GDP is __________ Natural Real GDP.

Accepted Answer

A)  less than
B)  greater than
C)  equal to
D)  b and c
E)  none of the above

Question 6

When there is an inflationary gap, (actual)  Real GDP is __________ Natural Real GDP, and the (actual)  unemployment rate is __________ the natural unemployment rate.

Accepted Answer

A)  greater than; less than
B)  greater than; greater than
C)  less than; greater than
D)  less than; less than
E)  less than; equal to

Question 7

If the economy is self-regulating and in an inflationary gap,

Accepted Answer

A)  wages and prices will fall.
B)  wages will rise, but prices will fall.
C)  wages and prices will rise.
D)  wages will fall, but prices will rise.
E)  neither wages nor prices will change.

Question 8

If the natural unemployment rate is 5.5 percent, then the economy is in a recessionary gap when the actual unemployment rate is

Accepted Answer

A)  greater than 5.5 percent.
B)  between 0 and 5.5 percent.
C)  0 percent.
D)  5.5 percent.

Question 9

Exhibit 9-3
 
-Refer to Exhibit 9-3. The economy is in short-run equilibrium and has an inflationary gap at point

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.
E)  E.

Question 10

It is possible for the economy to be producing at a point that lies beyond its institutional production possibilities frontier (PPF), but not its physical PPF.

Accepted Answer

A) True 
 B)False

Question 11

An inflationary gap exists when AD and SRAS

Accepted Answer

A)  fail to intersect.
B)  intersect to the right of Natural Real GDP.
C)  intersect to the left of Natural Real GDP.
D)  both have a positive slope.

Question 12

When the economy is in an inflationary gap, the labor market is experiencing a _____________. In a self-regulating economy, wage rates will then ___________ and the ______________ curve will shift __________________.

Accepted Answer

A)  shortage; rise; SRAS; leftward
B)  shortage; fall; SRAS; leftward
C)  surplus; rise; AD; rightward
D)  shortage; fall; AD; rightward
E)  surplus; fall; SRAS; rightward

Question 13

Exhibit 9-5
 
-Refer to Exhibit 9-5. Imagine an AD curve and an SRAS curve intersecting at Point I on graph (1) . Which point(s)  would this correspond to on graph (2) ?

Accepted Answer

A)  A or B
B)  C
C)  D or E
D)  F
E)  G

Question 14

When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in a(n)  ____________________ gap. In this situation, the (actual)  unemployment rate is ___________ than the natural unemployment rate, and there is a ________________ in the labor market.

Accepted Answer

A)  recessionary; greater; shortage
B)  inflationary; less; shortage
C)  inflationary; greater; surplus
D)  recessionary; greater; surplus
E)  recessionary; less; shortage

Question 15

The classical economists felt that saving would be equal to investment because

Accepted Answer

A)  wages are flexible.
B)  prices of domestic goods are flexible.
C)  interest rates are flexible.
D)  prices of imports are flexible.

Question 16

When consumers start to spend less and save more, classical macroeconomists believe that interest rates will then ______________ resulting in a(n)  ________________ in investment.

Accepted Answer

A)  rise; increase
B)  fall; increase
C)  fall; decrease
D)  rise; decrease

Question 17

The classical economists argued that saving is matched by an equal amount of investment because of

Accepted Answer

A)  wage flexibility.
B)  price flexibility.
C)  money flexibility.
D)  interest rate flexibility.
E)  b and c

Question 18

If the economy is currently operating below its institutional production possibilities frontier (institutional PPF) , it is

Accepted Answer

A)  in long-run equilibrium.
B)  in a recessionary gap.
C)  in an inflationary gap.
D)  definitely not self-regulating.
E)  b and d

Question 19

The economy can operate

Accepted Answer

A)  beyond its institutional PPF but not beyond its physical PPF.
B)  on both its institutional PPF and its physical PPF, but not at the same time.
C)  under its physical PPF but not under its institutional PPF.
D)  a and b
E)  a, b, and c

Question 20

Suppose the economy's short-run equilibrium level is at a point to the left of Natural Real GDP. Which of the following statements is true?

Accepted Answer

A)  The economy is in an inflationary gap.
B)  The economy is in a recessionary gap.
C)  The economy is in long-run equilibrium.
D)  This situation is actually impossible.

Exam 9: Classical Macroeconomics and the Self Regulating Economy

According to classical economists,

Correct Answer
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Exhibit 9-3 -Refer to Exhibit 9-3. The economy is in short-run equilibrium and has an inflationary gap at point

Correct Answer
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If the economy is currently operating below its institutional production possibilities frontier (institutional PPF) , it is

Correct Answer
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It is possible for the economy to be producing at a point that lies beyond its institutional production possibilities frontier (PPF), but not its physical PPF.

Correct Answer
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Suppose the economy's short-run equilibrium level is at a point to the left of Natural Real GDP. Which of the following statements is true?

Correct Answer
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A recessionary gap exists if (actual) Real GDP is __________ Natural Real GDP.

Correct Answer
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If the economy is self-regulating and in an inflationary gap,

Correct Answer
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The classical economists felt that saving would be equal to investment because

Correct Answer
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When there is an inflationary gap, (actual) Real GDP is Natural Real GDP, and the (actual) unemployment rate is the natural unemployment rate.

Correct Answer
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If the natural unemployment rate is 5.5 percent, then the economy is in a recessionary gap when the actual unemployment rate is

Correct Answer
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When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in a(n) ______________ gap. In this situation, the (actual) unemployment rate is _ than the natural unemployment rate, and there is a ____________ in the labor market.

Correct Answer
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The economy can operate

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If the economy is currently in a recessionary gap,

Correct Answer
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An inflationary gap exists when AD and SRAS

Correct Answer
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Exhibit 9-5 -Refer to Exhibit 9-5. Imagine an AD curve and an SRAS curve intersecting at Point I on graph (1) . Which point(s) would this correspond to on graph (2) ?

Correct Answer
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When the economy is in an inflationary gap, the labor market is experiencing a _______. In a self-regulating economy, wage rates will then _ and the curve will shift ________.

Correct Answer
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When consumers start to spend less and save more, classical macroeconomists believe that interest rates will then resulting in a(n) __ in investment.

Correct Answer
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Exhibit 9-4 -Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P₃. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from

Correct Answer
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The classical economists argued that saving is matched by an equal amount of investment because of

Correct Answer
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Exam 9: Classical Macroeconomics and the Self Regulating Economy

According to classical economists,

Correct AnswerverifiedShow Answer

Exhibit 9-3 -Refer to Exhibit 9-3. The economy is in short-run equilibrium and has an inflationary gap at point

Correct AnswerverifiedShow Answer

If the economy is currently operating below its institutional production possibilities frontier (institutional PPF) , it is

Correct AnswerverifiedShow Answer

It is possible for the economy to be producing at a point that lies beyond its institutional production possibilities frontier (PPF), but not its physical PPF.

Correct AnswerverifiedShow Answer

Suppose the economy's short-run equilibrium level is at a point to the left of Natural Real GDP. Which of the following statements is true?

Correct AnswerverifiedShow Answer

A recessionary gap exists if (actual) Real GDP is __________ Natural Real GDP.

Correct AnswerverifiedShow Answer

If the economy is self-regulating and in an inflationary gap,

Correct AnswerverifiedShow Answer

The classical economists felt that saving would be equal to investment because

Correct AnswerverifiedShow Answer

When there is an inflationary gap, (actual) Real GDP is __________ Natural Real GDP, and the (actual) unemployment rate is __________ the natural unemployment rate.

Correct AnswerverifiedShow Answer

If the natural unemployment rate is 5.5 percent, then the economy is in a recessionary gap when the actual unemployment rate is

Correct AnswerverifiedShow Answer

When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in a(n) ____________________ gap. In this situation, the (actual) unemployment rate is ___________ than the natural unemployment rate, and there is a ________________ in the labor market.

Correct AnswerverifiedShow Answer

The economy can operate

Correct AnswerverifiedShow Answer

If the economy is currently in a recessionary gap,

Correct AnswerverifiedShow Answer

An inflationary gap exists when AD and SRAS

Correct AnswerverifiedShow Answer

Exhibit 9-5 -Refer to Exhibit 9-5. Imagine an AD curve and an SRAS curve intersecting at Point I on graph (1) . Which point(s) would this correspond to on graph (2) ?

Correct AnswerverifiedShow Answer

When the economy is in an inflationary gap, the labor market is experiencing a _____________. In a self-regulating economy, wage rates will then ___________ and the ______________ curve will shift __________________.

Correct AnswerverifiedShow Answer

When consumers start to spend less and save more, classical macroeconomists believe that interest rates will then ______________ resulting in a(n) ________________ in investment.

Correct AnswerverifiedShow Answer

Exhibit 9-4 -Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P3. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from

Correct AnswerverifiedShow Answer

The classical economists argued that saving is matched by an equal amount of investment because of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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When there is an inflationary gap, (actual) Real GDP is Natural Real GDP, and the (actual) unemployment rate is the natural unemployment rate.

Correct Answer
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When the current state of the economy is such that Real GDP is greater than Natural Real GDP, the economy is in a(n) ______________ gap. In this situation, the (actual) unemployment rate is _ than the natural unemployment rate, and there is a ____________ in the labor market.

Correct Answer
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When the economy is in an inflationary gap, the labor market is experiencing a _______. In a self-regulating economy, wage rates will then _ and the curve will shift ________.

Correct Answer
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When consumers start to spend less and save more, classical macroeconomists believe that interest rates will then resulting in a(n) __ in investment.

Correct Answer
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Exhibit 9-4 -Refer to Exhibit 9-4. Assume the economy is self-regulating and currently is in long-run equilibrium with the price level equal to P₃. After an initial increase in U.S. exports, the economy will move to long-run equilibrium by a shift from

Correct Answer
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