Question

8. A “laissez-faire” approach to the macroeconomy before the Great Depression influences our government to:

            a) See business downturns as a “serious malady” in a “healthy” system, and therefore take only short-term deficit spending measures to help recovery.

            b) See business downturns as a “serious malady” to an otherwise “healthy system,” and therefore wait for recovery to occur naturally.

            c) See business downturns as a “serious malady” to an otherwise “healthy system,” and therefore work to redesign the system to avoid such failure in the future.

            d) See business downturns as a failure of the type of system Adam Smith envisaged, and thus move toward a modern, more managed economy.

            e) See business downturns as a failure of the current system to be the type that Adam Smith envisaged, and thus move toward less government interference in the macro economy

9. Keynes believed that the Great Depression was caused by:

            a) Unemployment.

            b) Deficit spending by the government.

            c) The tax increases put through by President Herbert Hoover.

            d) The policies of “demand-style” economies.

            e) A fall in aggregate demand.

10. Keynes believed that the best method for ending the Great Depression would be to:

            a) Increase the money supply so that individuals would have more to spend.

            b) Cut government spending and increase taxes to reduce.

            c) Increase government spending and cut taxes so that consumers would spend more.

            d) Cut both government spending and taxes so that government would not be such a large     part of the economy.

            e) Increase both government spending and taxes to increase the role government played     in the economy.

11. Keynes was:

            a) In favor of a federal budget deficit to cure an inflation.

            b) Opposed to a federal budget surplus to cure an inflation.

            c) In favor of a federal budget deficit to cure a recession.

            d) In favor of a federal budget deficit regardless of the state of the economy.

12. Proponents of monetarism:

            a) Feel that fiscal policy of worthless.

            b) View government spending as the most important public policy tool.

            c) View taxation as the most important public policy tool.

            d) Support Keynesian economics.

            e) View the money supply as the most important public policy tool.

13. The word “stagflation” describes a situation in which:

            a) Inflation is stagnated.

            b) Inflation increases with economic growth.

            c) Inflation and unemployment occur at the same time.

            d) Inflation is low enough to grow economic growth.

            e) Inflation is zero.

14. The main difference between economic change before 1970 and after 1970 is that before 1970:

            a) Most macroeconomic instability was caused by simultaneous shifts in aggregate demand and aggregate supply.

            b) Most macroeconomic instability was caused by shifts in aggregate supply.

            c) Most macroeconomic instability was caused by shifts in aggregate demand.

            d) The government assumed no direct responsibility for the level of employment.

            e) The government itself was a much less important player in the macroeconomy.

15. The labor force consists of:

            a) All the people in the economy.

            b) All the people in the economy over 16 years of age.

            c) All the adults in the economy able to work.

            d) All the adults in the economy who hold jobs or are looking for them.

            e) All the adults in the economy qualified to hold a job.

16. Consider an economy with 100 people, 70 of whom hold jobs and 10 of whom are looking. The number of people in the labor force is:

            a) 100

            b) 30

            c) 10

            d) 80

            e) 70

17. Consider an economy with 100 people, 70 of whom hold jobs and 10 of whom are looking. The rate of unemployment is:

            a) 10 percent.

            b) 12.5 percent.

            c) 14.3 percent.

            d) 20 percent.

18. The labor force participation rate for women in the United States has

            a) Stayed the same over the last 30 years      

            b) Increased significantly since the 1950s     

            c) Been influenced by decreasing real wages since 1960     

            d) Trended substantially downward since the 1950s

            e) Increased only very slightly since the 1950s

Answer 1

Q-8

Answer is (e)

Laissez- faire economics theory restricts goverment intervention in the economy. It holds that the economy is strongest when all that goverment does is protect individual rights.

Q-9

Answer is (e) " A fall in the aggregate demand"

According to the Keynes, a reduction in aggregate demand took the economy from above its potential output to below its potential output. This plunge in aggregate demand began with a collapse in investment.

Q-10

Answer is (c) " Increase goverment spending and cut taxes so that the consumer would spend more"

Keynes believed that goverment must step in and spend money to get the economy back. Also the taxes on the public must be reduced so that people have money and can spend money.

Q-11

Answer is (c) " In favor of a federal budget deficit to cure a recession"

It is commonly believed that Keynes primary policy prescription for economic stabilization and full employment is federal goverment deficit. Keynes policy for promoting full employment or reducing economics fluctuations was the socialization of investment.

Q-12

Answer is (e) " View the money supply as the most important public policy tool"

According to this, the goverment should keep the money supply fairly steady , expanding it slightly each year to allow the natural growth of the economy.

Q-13

Answer is (c) " Inflation and unemployment occurs at same time"

Stagflation simply refers to an increase in inflation accompanied by decrease in real output and employment.

Q-14 Answer is (a)

Q-15

Answer is (d) " All the adults who holds job and who are looking for job"

The labor force is the sum of employed and unemployed( but who are looking for a job)

Q-16

Answer is (d) " 80"

The labor force is the sum of employed and unemployed( but who are looking for a job)

So we have 70+10 = 80

Q-17

Answer is 25%

The unemployment rate is given by the total number of unemployed devided by total number of labor force, so we have:-

20/80 = 0.25 * 100 = 25%

Q-18

Answer is (e) " Increased very slightly since 1950s"

In 1950, the participation rate was 34%. The rate rose to 38% in 1960, 43% 9n 1970, 52 % in 1980, 58% in 1990 and all time high by 2000 at 60%.

Thankyou, Hope it helped

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