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1. At equilibrium GDP: (Points: 5) savings = investment,
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1. At equilibrium GDP: (Points: 5)
savings = investment, but aggregate demand does not equal aggregate supply.
savings = investment and aggregate demand = aggregate supply.
savings does not equal investment and aggregate demand does not equal aggregate supply.
savings does not equal investment, but aggregate demand = aggregate supply.
2. Say's law states that: (Points: 5)
we can have inflation or a recession, but never both at the same time.
the normal state of economic affairs is a recession.
demand creates its own supply.
supply creates its own demand.
3. Each of the following supports the classical theory of employment EXCEPT: (Points: 5)
the interest mechanism.
government spending programs.
4. To fight a depression, Keynes said that the government should: (Points: 5)
spend money on carefully chosen projects.
spend a lot of money.
5. Classical economists believed that: (Points: 5)
if saving exceeded investment, prices and interest rates would rise as business accumulated unwanted inventories.
flexible prices and wages could not restore an economy to full employment if the interest rate were rigid.
our economy was either at, or tended toward full employment.
voluntary unemployment reflected economic inefficiency.
6. The amount of real output that will be made available by sellers at various price levels is called the: (Points: 5)
real balance effect
7. The principal cause of the Great Depression of the 1930s was a collapse in: (Points: 5)
the average price level.
8. The aggregate demand curve shows a(n): (Points: 5)
positive relationship between prices and quantities.
inverse relationship between the price level and the aggregate quantity demanded.
independent relationship between the price level and the aggregate quantity demanded.
inverse relationship between the product price and the quantity of a good demanded.
9. When aggregate supply exceeds aggregate demand: (Points: 5)
explosive inflations occur.
the economy is in disequilibrium.
planned saving will equal planned investment.
10. Keynes's analysis of the Great Depression led to which of the following recommendations regarding government policy? (Points: 5)
An annually balanced budget
A decrease in government spending
An increase in government spending
An increase in taxes
11. Budget deficits are appropriate during: (Points: 5)
recessions, but not inflations.
inflations, but not recessions.
recessions and inflations.
neither recessions nor inflations.
12. Each of the following is an example of discretionary fiscal policy EXCEPT: (Points: 5)
public works spending.
making the automatic stabilizers more effective.
changes in tax rates.
the unemployment insurance program.
13. During recessions: (Points: 5)
corporations pay much less corporate income taxes.
less people collect unemployment benefits.
the government will raise taxes and run a budget surplus.
14. In the 1930s, John Maynard Keynes said that our main economic problem was: (Points: 5)
weak aggregate demand.
too much government spending.
big budget deficits.
high interest rates.
15. According to __________, deficits cause crowding-out. (Points: 5)
the federal government
16. A deficit is created when: (Points: 5)
the government is taking in more than it is paying out.
there are lower taxes and higher government spending.
the government is paying out more than it is taking in.
government spending is predominantly overseas.
17. When government expenditures in a given year exceed tax receipts, there exists: (Points: 5)
a budget surplus.
a budget deficit.
18. An illustration of the term "automatic stabilizer" is provided by: (Points: 5)
the tendency of tax collections to rise as the economy moves into a recession.
the tendency of tax collections to fall as the economy moves into a recession.
increases in tax rates as the economy moves into a recession.
decreases in tax rates as the economy moves into a recession.
19. The multiplier effect occurs because: (Points: 5)
as saving levels increase, a greater pool of loanable funds is available for investment spending by businesses.
increases in income cause a chain reaction of spending by many businesses and individuals.
increases in income cause tax revenues to increase, thereby stimulating increases in government spending levels.
businesses copy the spending decisions of their competitors.
20. Which of the following is NOT an example of a fiscal policy lag? (Points: 5)
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