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 D C B

23. Review from ALL Chapters

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

25. Production Possibilities Frontier

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

27. Using our resources efficiently

28. What does it mean when we are at point E?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. Three basic economic questions
Scarcity
Three basic economic questions
What to produce
How to produce
For whom to produce