Chapter 16 Review

1. Chapter 16 Review

2. Which is an example of the uncertainty caused by economic instability? • A consumer delays a purchase • A manufacturer increases output • A politician is reelected • An economist measures the GDP gap

3. The social cost of economic instability include all of the following except: • Stagflation • Wasted resources • Political instability • Crime and damage to family values

4. 3. Which of the following statements is FALSE? • Economic Instability is at the root of all social problems • A healthy economy helps the country deal with its social problems • Economic instability can lead to reduced spending on social programs • A healthy economy helps people feel more certain about the future

5. 4. Economists measure the cost of economic instability with • The misery index • The GDP gap • Constant GDP • Both a and b

6. 5. Economic instability wastes all of the following except: • Tax revenues • Human resources • Natural resources • Capital resources

7. 6. Macroeconomic equilibrium is determined by the • The aggregate demand curve • Aggregate supply curve • Intersection of the aggregate supply curve and the aggregate demand curve • Intersection of the supply curve and the demand curve

8. 7. What effect would a decrease in production cost for all firms have on the aggregate supply curve? The Curve would • Level off • Not change • Shift to the left • Shift to the right

9. 8. What effect would a decrease in consumer savings have on the aggregate demand curve? The curve would • Level off • Not change • Shift to the right • Shift to the left

10. 9. The aggregate demand curve has the slope it does because • The market tends toward equilibrium • It must intersect the aggregate supply curve • People willing to purchase less at higher prices • There is a single money supply of a fixed size in the economy at any one time

11. 10. All of the following would cause aggregate supply to increase EXCEPT • An increase in interest rates • An increase in labor productivity • The development of new technologies • A decrease in government regulations

12. 11. All of the following are elements of Keynesian economic framework EXCEPT • The multiplier • The Laffer curve • The accelerator • The consumption function

13. 12. All of the following are related to demand-side policies EXCEPT • Fiscal policy • Monetarism • Keynesian economics • The output-expenditure model

14. 13. Those who favor supply-side polices would tend to support the government playing • No role in the economy • An expanded role in the economy • A reduced role in the economy • A role in monetary policies only

15. Unemployment insurance and federal entitlement programs are two examples of • Monetarism • Supply side policy • Wage price controls • Automatic stabilizers

16. Which of the following policies would likely be favored by a monetarist? • Increasing the money supply at a steady rate determined by growth in real GDP • Increasing government spending to offset a reduction in spending in the investment sector • Lowering business tax rates to provide an incentive for businesses to produce more • Deregulating industries to minimize the government’s role in the economy

17. The use of discretionary fiscal policy has declined for all of the following reasons EXCEPT • government gridlock • The relatively short duration of recessions • Congressional budget caps have limited federal spending • The government usually knows of upcoming recessions far in advance

18. The United States relies most on which of the following policies • Monetary policy • Passive fiscal policies • Structural fiscal policies • Discretionary fiscal policies

19. All of the following describes economist EXCEPT • Economists have different backgrounds • Economists sometime seem to offer conflicting advice • Economists are continually seeking new answers to new problems • Economists are sharply divided into competing schools of thought with little overlap of ideas and beliefs

20. 19. Which is the best description of the role of the Council of Economic Advisors? • Carry out monetary policy • Report economic developments and propose strategies • Implement presidential economic policies • Keep the public informed about economic issues

21. 20. A president might ignore the recommendations of professional economic advisors in order to • Avoid an unpopular decision • Avoid participating in economic politics • Maintain presidential monetary authority • Adhere to the principles of political economics

22. A • A • A • D • A • C • D • C • D • A • B • B • C • D • A • D • A • D • B • A

23. Review from ALL Chapters

24. What is this a Picture of? A D B E C

25. Production Possibilities Frontier

26. What does point A, B, and C represent? A D B E C

27. Using our resources efficiently

28. What does it mean when we are at point E? A D B E C

29. Using our resources inefficiently • Unused resources

30. How do we get from point B to point D? A D B E C

31. Economic growth

32. Unlimited Wants Limited Resources Choices

33. Scarcity • Three basic economic questions • What to produce • How to produce • For whom to produce