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Unformatted text preview: Practice third exam Spring 2010 Student: ___________________________________________________________________________ 1. According to classical theory: A. Keynes had &quot;neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand.&quot; B. Macro equilibrium might start out badly and get worse in the absence of government intervention. C. Flexible wages and prices allow a laissez-faire economy to adjust to shifts in aggregate demand. D. Business cycles are not relevant and do not occur. 2. If wages and prices are flexible, then a recession is best eliminated when prices: A. And wages both rise. B. And wages both fall. C. Rise and wages drop. D. Drop and wages rise. 3. Unlike the Classical economists, Keynes asserted that: A. The economy was inherently unstable. B. Laissez-faire policies would lead to macro equilibrium. C. Prices and wages were flexible. D. Markets would naturally self-adjust. 4. The government can &quot;prime the pump&quot; by doing all of the following except : A. Buying more output. B. Employing more people. C. Making more money available. D. Raising taxes. 5. According to Keynes, which of the following can be used to slowdown an overheated economy? A. Decrease government purchases B. Decrease taxes C. Make more money available D. Employ more people 6. Real GDP is better than nominal GDP for measuring growth because real GDP has been adjusted for changes in: A. The price level. B. Unemployment. C. The business cycle. D. Productivity. 7. In which of the following situations is the percentage change in real GDP always positive? A. Depression B. Inflation C. Recession D. Growth recession 8. In the absence of external shocks or government policy an economy would: A. Still experience business cycle fluctuations because of internal market forces. B. Not experience business cycle fluctuations. C. Not be able to expand production and output. D. Still experience business cycle fluctuations because of factors such as wars and tax policy. 9. The aggregate demand curve is downward-sloping because, other things being equal: A. People buy fewer goods and services at lower average incomes. B. People buy more goods and services at lower average prices. C. A higher average price level will induce producers to offer more output than otherwise. D. People buy more goods and services at higher average prices. 10. Assume you have $1,000 in a savings account at the beginning of the year and the price level is equal to 100. If the price level is equal to 115 at the end of the year, the real value of your savings is closest to: A. $870. B. $885. C. $1,115. D. $1,150. 11. Ceteris paribus , if average prices in the U.S. economy fall, then the: A. Real-balances effect will lead to a lower quantity of output demanded....
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- Spring '10