True/False
Indicate whether the sentence or statement is true
or false. |
| | 1. | All income
follows a circular flow between businesses and consumers. |
| | 2. | According to
Keynesian theory, leakages reduce aggregate demand. |
| | 3. | Keynesian
economists believe that a serious imbalance in leakages and injections caused the Great
Depression. |
| | 4. | The
government has no way of speeding up the economy to combat unemployment. |
| | 5. | Increasing
taxes and/or reducing government spending may eventually lower inflation. |
| | 6. | Monetarists
and Keynesian economists agree on the causes of the Great Depression. |
| | 7. | Monetarists
believe that the Fed should increase the money supply rapidly. |
| | 8. | Monetarists
generally oppose using fiscal policy to stimulate or slow the economy. |
| | 9. | Monetarists
criticize fiscal policy because the President alone has the power to enact it. |
| | 10. | Fiscal
policy generally has an immediate effect on the economy. |
Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question. |
| | 11. | People who
do not follow federal and state laws regarding employment are part of a. | frictional
unemployment. | c. | structural
unemployment. | b. | seasonal unemployment. | d. | the underground economy. | | | | |
|
| | 12. | Measuring
unemployment is difficult because a. | most people do not admit they are
unemployed. | b. | people do not respond to government surveys. | c. | there is an underground
economy. | d. | most unemployment is frictional. | | |
|
| | 13. | Cyclical
unemployment is a. | caused by seasonal
changes. | b. | caused by changes in the economy. | c. | associated with
fluctuations in the business cycle. | d. | caused by temporary layoffs. | | |
|
| | 14. | An economic
condition in which rising prices and unemployment occur at the same time is called a. | cost-push
inflation. | c. | stagflation. | b. | demand-pull inflation. | d. | anticipated inflation. | | | | |
|
| | 15. | Which of the
following describes a situation that can lead to demand-pull inflation? a. | rapid increase in the
money supply | c. | increase in
taxes | b. | decrease in the demand for goods | d. | rapid decrease in the money supply | | | | |
|
| | 16. | Keynesian
economists believe that the Great Depression resulted from a. | a circular flow of
income. | b. | an equilibrium. | c. | an imbalance in
leakages and injections. | d. | unemployment. | | |
|
| | 17. | Income that
is removed from the economy through consumer savings is called a. | an
injection. | c. | a
leakage. | b. | an imbalance. | d. | an equilibrium. | | | | |
|
| | 18. | Injections
into the economy occur through a. | business investment. | c. | unemployment. | b. | taxation. | d. | cutbacks on government
spending. | | | | |
|
| | 19. | Supporters
of fiscal policy believe inflation can be reduced by a. | increasing government
spending. | c. | decreasing
taxes. | b. | increasing taxes. | d. | increasing production. | | | | |
|
| | 20. | One way the
government can use fiscal policy to combat unemployment is by a. | increasing
taxes. | c. | eliminating tax credits
on investments. | b. | reducing government spending. | d. | decreasing taxes. | | | | |
|
| | 21. | Which of the
following is part of Milton Friedman's theory about stabilizing the economy? a. | when the amount of
money in circulation expands, people spend more | b. | when the amount of
money in circulation expands, people spend less | c. | Fed should not regulate
the nation's money supply | d. | Fed should use taxation as a way of stabilizing the
economy | | |
|
| | 22. | Monetarist
theory a. | supports the use of
fiscal policy to affect the economy. | b. | supports budget deficits. | c. | opposes the use of
fiscal policy to affect the economy. | d. | opposes balancing the budget. | | |
|
| | 23. | Rather than
operate with budget deficits each year, monetarists believe the government should a. | borrow money in the
credit market. | c. | use fiscal
policy. | b. | balance the federal budget. | d. | rapidly decrease the money supply. | | | | |
|
| | 24. | Monetarists
believe that a steady growth in the money supply would result in a. | rapid
inflation. | c. | recession. | b. | high unemployment rates. | d. | controlled expansion of the economy. | | | | |
|
| | 25. | Monetarists
criticize fiscal policy because a. | a single government designs and implements
it. | b. | there are lag times
between enacting the policy and its effective date. | c. | it becomes effective
immediately after it is enacted. | d. | government cannot implement it. | | |
|
Completion
Complete each sentence or
statement. |
| 26. | _________________________ always exists to some degree because of firings, layoffs,
and voluntary searches for new jobs.
|
| 27. | _________________________ affects construction workers and farmworkers.
|
| 28. | Economists
today consider the economy at ____________________ when the unemployment rate is less than 5
percent.
|
| 29. | Increases in
government spending and in business investment for expansion can result in
____________________.
|
| 30. | The wage
demands of labor unions and the excessive profit motive of large corporations cause
____________________.
|
Matching |
| | Match
each item with the correct statement below. a. | stabilization policies | b. | unemployment
rate | c. | full
employment | d. | demand-pull inflation | e. | cost-push
inflation | | |
|
| | 31. | percentage
of the civilian labor force that is unemployed, but is actively looking for work |
| | 32. | theory that
the wage demands of labor unions and the excessive profit motive of large corporations push up
prices |
| | 33. | attempts by
the federal government to keep the economy healthy |
| | 34. | when the
unemployment rate is lower than a certain number established by economists |
| | 35. | theory that
prices rise as the result of excessive business and consumer demand |
| | Match
each item with the correct statement below. a. | fiscal policy | b. | circular flow of
income | c. | equilibrium | d. | leakages | e. | injections | | |
|
| | 36. | removal of
money income from the economy |
| | 37. | economic
model that pictures income as flowing continuously between businesses and consumers |
| | 38. | state of the
economy in which leakages and injections balance each other |
| | 39. | federal
government's use of taxation and spending policies to affect overall business activity |
| | 40. | flow of
income into the economy |
| | Match
each item with the correct statement below. a. | monetarism | b. | monetarists | c. | monetary rule | d. | time
lags | e. | fiscal
policy | | |
|
| | 41. | government
use of taxation and spending to affect overall business activity |
| | 42. | periods
between the time fiscal policy is enacted and the time it becomes effective |
| | 43. | supporters
of the theory of Milton Friedman |
| | 44. | theory that
deals with the relationship between the amount of money the Fed places in circulation and the level
of activity in the economy |
| | 45. | belief that
the Fed should allow the money supply to grow at a consistent rate per year |