Question 1

Refer to the figure below.  In the figure, a business cycle trough is shown by which point(s) ?

Accepted Answer

A)   A and C and E
B)   B and D
C)   A only
D)   D onlyE) None of the above
F) C) and D)

Question 2

Assuming that the government can act immediately before the multiplier takes effect, then to offset a reduction in investment by $1 billion, government purchases must be:

Accepted Answer

A)   increased by $1 billion.
B)   decreased by $1 billion.
C)   increased by $0.5 billion.
D)   increased by $2 billion.E) A) and B)
F) A) and C)

Question 3

In the basic Keynesian model, a tax cut:

Accepted Answer

A)   reduces short-run equilibrium output.
B)   increases short-run equilibrium output.
C)   reduces potential output.
D)   increases potential output.E) A) and B)
F) C) and D)

Question 4

Which of the following is most likely to occur in the labor market during a recession?

Accepted Answer

A)   The growth rate of real wages declines.
B)   Bonuses and promotions become more frequent.
C)   New entrants to the labor market have an easier time finding jobs.
D)   The supply of labor increases dramatically.E) A) and B)
F) B) and D)

Question 5

Recessions in the United States typically are:

Accepted Answer

A)   limited to a few industries.
B)   limited to specific regions of the country.
C)   widely felt outside the United States.
D)   confined to the domestic economy.E) None of the above
F) C) and D)

Question 6

When aggregate expenditure is given as Y = 400 + 0.5Y, short-run equilibrium output equals:

Accepted Answer

A)   1,200.
B)   400.
C)   600.
D)   800.E) C) and D)
F) A) and B)

Question 7

If potential output for an economy equals $5 billion, and actual output equals $4.5 billion, then this economy has a(n) :

Accepted Answer

A)   budget deficit.
B)   trade deficit.
C)   expansionary gap.
D)   recessionary gap.E) B) and D)
F) None of the above

Question 8

Which of the following does not describe a characteristic of short-term economic fluctuations?

Accepted Answer

A)   Expansions and recessions are felt in only a few sectors of the economy.
B)   Expansions and recessions are irregular in length and severity.
C)   The unemployment rate rises during recessions.
D)   Durable-goods industries are more sensitive to short-term fluctuations than service and non-durable industries.E) B) and D)
F) A) and B)

Question 9

If there is 3 percent frictional unemployment, 4 percent structural unemployment, and -2 percent cyclical unemployment, then the natural rate of unemployment equals:

Accepted Answer

A)   1%.
B)   2%.
C)   5%.
D)   7%.E) B) and D)
F) All of the above

Question 10

The dates of the "official" peaks and troughs of business cycles in the United States are determined by the:

Accepted Answer

A)   Federal Reserve Board.
B)   Congressional Budget Office.
C)   National Bureau of Economic Research
D)   Council of Economic Advisers.E) B) and C)
F) C) and D)

Question 11

A recession occurs when ______, when _______, or when both of these occur.

Accepted Answer

A)   potential output grows slowly; actual output falls below potential output
B)   potential output grows slowly; actual output rises above potential output
C)   potential output grows rapidly; actual output equals potential output
D)   potential output grows rapidly; actual output falls below potential outputE) A) and B)
F) A) and D)

Question 12

In the short run, ______ determines output, and in the long run ______ determines output.

Accepted Answer

A)   potential output; prices
B)   potential output; total spending
C)   total spending; potential output
D)   total spending; pricesE) A) and D)
F) None of the above

Question 13

The changing age structure of the US population and more efficient labor markets are both possible explanations for:

Accepted Answer

A)   the decline in the natural rate of unemployment.
B)   the increase in the cyclical rate of unemployment.
C)   the 2001 recession.
D)   the stagnation of real wages.E) A) and D)
F) C) and D)

Question 14

The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time.  The economy experienced an expansion that lasted from:

Accepted Answer

A)   July 1953 to May 1954.
B)   May 1954 to April 1957.
C)   July 1953 to April 1957.
D)   May 1954 to April 1958.E) None of the above
F) A) and D)

Question 15

In the short run with predetermined prices, when output is less than aggregate expenditure, firms will:

Accepted Answer

A)   reduce production.
B)   increase production.
C)   increase aggregate expenditure.
D)   decrease aggregate expenditure.E) A) and D)
F) A) and C)

Question 16

As disposable income decreases, consumption:

Accepted Answer

A)   increases.
B)   decreases.
C)   may either increase or decrease depending on the mpc.
D)   may either increase or decrease depending on the wealth effect.E) A) and B)
F) B) and D)

Question 17

In reference to short-term economic fluctuations, the "peak" refers to:

Accepted Answer

A)   a period in which the economy is growing at a rate significantly above normal.
B)   the high point of economic activity prior to a downturn.
C)   the high point of economic activity prior to a recovery.
D)   a particularly strong and protracted expansion.E) A) and D)
F) None of the above

Question 18

Autonomous expenditure is the portion of aggregate expenditure that:

Accepted Answer

A)   equals aggregate output.
B)   equals planned spending.
C)   equals induced expenditure.
D)   is independent of income.E) All of the above
F) C) and D)

Question 19

In the Keynesian model an expansionary gap will develop if there is:

Accepted Answer

A)   an increase in average labor productivity.
B)   too little spending.
C)   stabilization policy.
D)   too much spending.E) C) and D)
F) B) and D)

Question 20

If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals:

Accepted Answer

A)   3%.
B)   4%.
C)   5%.
D)   6%.E) A) and B)
F) A) and C)

Exam 10: Short-Term Economic Fluctuations and Fiscal Policy

Recessions in the United States typically are:

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As disposable income decreases, consumption:

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In the Keynesian model an expansionary gap will develop if there is:

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In the short run, ______ determines output, and in the long run ______ determines output.

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If potential output for an economy equals $5 billion, and actual output equals $4.5 billion, then this economy has a(n) :

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When aggregate expenditure is given as Y = 400 + 0.5Y, short-run equilibrium output equals:

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In the basic Keynesian model, a tax cut:

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Which of the following does not describe a characteristic of short-term economic fluctuations?

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A recession occurs when ______, when _______, or when both of these occur.

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In reference to short-term economic fluctuations, the "peak" refers to:

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In the short run with predetermined prices, when output is less than aggregate expenditure, firms will:

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If there is 3 percent frictional unemployment, 4 percent structural unemployment, and -2 percent cyclical unemployment, then the natural rate of unemployment equals:

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The changing age structure of the US population and more efficient labor markets are both possible explanations for:

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The dates of the "official" peaks and troughs of business cycles in the United States are determined by the:

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Refer to the figure below. In the figure, a business cycle trough is shown by which point(s) ?

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If there is 2 percent frictional unemployment, 3 percent structural unemployment, and 1 percent cyclical unemployment, then the natural rate of unemployment equals:

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Which of the following is most likely to occur in the labor market during a recession?

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Autonomous expenditure is the portion of aggregate expenditure that:

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Assuming that the government can act immediately before the multiplier takes effect, then to offset a reduction in investment by $1 billion, government purchases must be:

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The following data give the dates of successive turning points in U.S. economic activity and the corresponding levels of real GDP at the time. The economy experienced an expansion that lasted from:

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In the short run, determines output, and in the long run determines output.

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A recession occurs when , when _, or when both of these occur.

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