Macroeconomics Private and Public Choice 16th Edition by James D. Gwartney – Test Bank

1. The 1930s were a period of
a. strong economic expansion and rapid growth of real output.
b. high rates of inflation coupled with a low rate of unemployment.
c. depressed economic conditions and prolonged high rates of unemployment.
d. strong growth of real output even though the general level of prices was declining.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

2. The Keynesian model provided an explanation for
a. the prolonged unemployment of the 1930s.
b. the double-digit inflation rates of the 1970s.
c. the high unemployment rates of the 1970s.
d. the high inflation rates of the 1930s.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

3. Keynesian economists believed that the prolonged unemployment of the 1930s was the result of
a. the sharp reduction in the supply of money during 1929-1933 and another monetary contraction in 1938.
b. the high interest rates of the 1930s.
c. the double-digit inflation of the 1930s.
d. insufficient aggregate demand and the failure of market forces to direct the economy back to full employment.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

4. Prior to the time of John Maynard Keynes, most economists stressed that
a. low levels of aggregate demand would lead to prolonged periods of unemployment.
b. market economies were inherently unstable because of fluctuating aggregate demand.
c. market adjustments would automatically direct an economy to full employment within a relatively brief period of time.
d. budget deficits and surpluses were necessary for the control of economic fluctuations.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

5. Prior to the Great Depression, most economists believed that a recessionary downturn would be reversed by
a. higher wages that would stimulate aggregate demand and reduce unemployment.
b. lower wages that would increase the quantity of labor demanded and reduce unemployment.
c. an expansionary monetary policy on the part of the Federal Reserve System.
d. an increase in government spending that would stimulate aggregate demand and employment.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

6. Keynes rejected the view that lower wages would direct a recessionary economy back to full employment because
a. lower wages would cause the central bank to reduce the money supply and thereby prolong the recession.
b. lower wages would stimulate inflation and thereby prolong the recession.
c. market forces would quickly direct an economy back to full employment.
d. powerful trade unions and large corporations made wages highly inflexible.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

7. In the Keynesian view, equilibrium takes place when
a. the real and nominal interest rates are equal.
b. the level of total spending in the economy is equal to current output.
c. current output is equal to the economy’s long-run potential.
d. the money supply is growing at a constant rate.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

8. According to the Keynesian view, the prolonged unemployment of the Great Depression
a. was surprising because Keynesians believed that wage rates would decline and direct the economy to full employment.
b. was surprising because Keynesians believed that lower interest rates would direct the economy to full employment.
c. resulted because the total expenditures on goods and services were less than the full-employment rate of output.
d. resulted because the federal government ran large budget deficits during the 1930s.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

9. Within the framework of the Keynesian model,
a. changes in output rather than changes in prices direct the economy to equilibrium.
b. changes in prices rather than changes in output direct the economy to equilibrium.
c. changes in interest rates and resource prices will direct the economy to equilibrium.
d. the economy will continually be in equilibrium.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Comprehension
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM

10. Within the framework of the Keynesian model, if spending is abnormally low,
a. the economy will be in equilibrium at full employment, but inflation will be high.
b. equilibrium output will be less than the full-employment rate of output.
c. the equilibrium output rate will exceed the economy’s full-employment capacity.
d. the actual rate of unemployment will be less than the natural rate of unemployment.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
NATIONAL STANDARDS: United States – BUSPROG: Analytic – BUSPROG: Analytic
STATE STANDARDS: United States – AK – DISC: Understanding and Applying – DISC: Understanding and Applying Economic Models
TOPICS: The Great Depression and the Macroadjustment Process
KEYWORDS: Bloom’s: Comprehension
DATE CREATED: 5/19/2016 3:04 PM
DATE MODIFIED: 5/19/2016 3:04 PM