Question 1

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

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a)  is producing at its potential GDP.


b)  is producing at its equilibrium point.


c)  is producing at a point where output is less than potential GDP.


d)  is producing at a point where output is more than potential GDP.



Question 2

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

Question 16 options:

a)  national income (Y)


b)  expenditure-output


c)  inflationary gap


d) recessionary gap



Question 3


Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

a)  decreased trade


b)  bigger leakages


c)  increased trade


d)  smaller leakages



Question 4

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

a)  increase slightly


b) . decrease substantially


c)  shift substantially


d)  remain unchanged



Question 5

Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.


a)  policy prescription


b)  set of menu costs


c)  pricing strategy


d)  macro-economic model



Question 6


Which of the following is a distinguishing characteristic of a Keynesian cross diagram?


a)  45-degree line


b)  real GDP on the horizontal axis


c)  a flat line


d)  several different Phillips curves



Question 7


Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?

a)  interest rates


b)  exchange rates


c) MPS


d)  foreign income



Question 8


According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

a)  sticky wage


b)  sticky wage and price


c)  coordination


d)  Keynesian