Part 1 of 1 47 0 50 0 Points Question 1 of 50 0 0 1 0 Points According to Keynesian theory A sticky prices and wages do not have an effect on aggregate expenditures B because of sticky prices and wages changes in total spending have the biggest impact on output and employment C wage and price stickiness cause output and employment to remain close to their full employment levels even when total spending changes D wages and prices fall in the early stages of a recession even when total spending is declining Answer Key B Question 2 of 50 1 0 1 0 Points The classical school focused on the long run forces that determined an economy s potential level of output A True B False Answer Key True Question 3 of 50 1 0 1 0 Points An important distinction between the classical and Keynes s view of the economy is that A Keynes stressed the supply side of an economy while classical economists stressed the demand side of the economy B classical economists argued that output gaps were caused by shifts in the long run aggregate supply while Keynes maintained that output gaps were created by shifts in aggregate demand C Keynes stressed the demand side of an economy while classical economists stressed the supply side of the economy D classical economists argued that output gaps were caused by shifts in the long run aggregate supply while Keynes maintained that output gaps were created by wage and price rigidities Answer Key C Question 4 of 50 1 0 1 0 Points Transfer payments typically A rise during expansionary periods B fall during recessions C do not change as the economy expands and contracts during the business cycle D fall during expansionary periods and rise during recessionary periods Answer Key D Question 5 of 50 1 0 1 0 Points The General Theory of Employment Interest and Money was written by A Robert Lucas B David Ricardo C John Maynard Keynes D Thomas Malthus Answer Key C Question 6 of 50 1 0 1 0 Points John Maynard Keynes argued that A flexibility in wages and prices could block adjustments to full employment B stickiness in wages and prices could block adjustments to full employment C wage and price rigidities were caused by producer and consumer expectations about future prices D wage and price rigidities could be eliminated by government wage and price setting Answer Key B Question 7 of 50 1 0 1 0 Points Milton Friedman is a leader and major proponent of A monetarism B classical economics C Keynesian economics D rational expectations theory Answer Key A Question 8 of 50 1 0 1 0 Points The bulk of federal receipts come from A property taxes and personal income tax B personal income tax and from payroll taxes C corporate income taxes and personal income tax D personal income tax and property taxes Answer Key B Question 9 of 50 1 0 1 0 Points If the economy s short run aggregate supply curve is upward sloping a decrease in aggregate demand will cause A an increase in the price level and employment B a decrease in the price level and employment C an increase in the price level and a decrease in employment D a decrease in the price level and an increase in employment Answer Key B Question 10 of 50 1 0 1 0 Points Taxes assessed on firms and employees on wages and salaries earned are called A dividend taxes B payroll taxes C corporate profits taxes D earned income taxes Answer Key B Question 11 of 50 1 0 1 0 Points Which of the following is true about the Great Depression A Following the Great Depression of 1929 the economy did not regain its potential output until the early 1940s when the pressures of WWII sharply increased aggregate demand B Expansionary monetary and fiscal policies successfully moved the economy from the Great Depression of 1929 within three to five years C The Great Depression of 1929 was considered to be a normal stage of business cycles D The Great Depression could be explained by classical economic theory Answer Key A Question 12 of 50 1 0 1 0 Points Payments to households that do not require anything in exchange are called A transfer payments B government purchases C consumption expenditures D investment expenditures Answer Key A Question 13 of 50 1 0 1 0 Points According to Milton Friedman any divergence in unemployment from its natural rate is temporary because A anticipated price changes affect nominal wages in the short run but workers will rectify this over time B unanticipated price changes affect real wages in the short run but workers will rectify this over time C anticipated price changes affect real wages in the short run but workers will rectify this over time D unanticipated price changes create inflation which is addressed by policymakers over time Answer Key B Question 14 of 50 1 0 1 0 Points A liquidity trap is said to exist when a change in monetary policy has no effect on A the money supply B the natural level of employment C aggregate supply D interest rates Answer Key D Question 15 of 50 1 0 1 0 Points What is an automatic stabilizer A It refers to a discretionary policy that is triggered when actual output is not equal to potential output to improve the economy s performance B It refers to a stabilization program that keeps inflation in check automatically C It refers to any government program that tends to reduce fluctuations in GDP automatically D It refers to a government program that is automatically triggered when the economy enters a recession Answer Key C Question 16 of 50 1 0 1 0 Points A fundamental feature of early classical macroeconomics is that A aggregate demand and aggregate income are usually unequal B prices of inputs and outputs are relatively rigid C the economy s level of employment can remain substantially below its natural level over a prolonged period of time D the economy can achieve full employment on its own though there could be temporary periods in which employment falls below the natural level Answer Key D Question 17 of 50 1 0 1 0 Points The national debt A is the sum of all past federal deficits plus any surpluses B grows when the government runs a deficit C grows when government spending increases D is a major problem facing the U S government Answer Key B Question 18 of 50 0 0 1 0 Points Supply side economics is the school of thought that advocates the use of A monetary policy to stimulate short run aggregate supply B fiscal policy to stimulate short run aggregate demand C monetary policy to stimulate short run aggregate demand D tax cuts to stimulate short run aggregate supply Answer Key D Question 19 of 50 1 0 1