QUESTION 1

1. Which of the following phrases best summarizes the attitude of new classical economists toward managing business cycles?

a. Manage the money supply carefully.

b.If consumers stop spending, the government should start.

c. Subsidize creative destruction.

d. Keep your hands off.

QUESTION 2

1. During a recession,

a. incomes rise and employment decreases.

b. incomes fall and unemployment increases.

c. incomes fall and unemployment falls.

d. incomes rise and unemployment increases.

QUESTION 3

1. Most experts agree that business cycles ended after World War II.

a. True

b. False

QUESTION 4

1. Which of the following statements is most correct?

a. During a recession, lower demand for goods and services causes less inflation.

b. During a recession, higher demand for goods and services causes higher inflation.

c. During a recession, deflation causes lower demand for goods and services.

d. During a recession, lower demand for goods and services causes higher inflation.

QUESTION 5

1. When economy-wide business fluctuations are positive, they are referred to as

a. contractions.

b. expansions.

c. anti-cycles.

d. corrections.

QUESTION 6

1. John Maynard Keynes believed that a decrease in consumer spending could lead to an economic contraction. To correct this problem, he proposed that governments should spend money on public goods such as roads and schools.

a. True

b. False

QUESTION 7

1. Advocates of the real business cycle theory would be most likely to believe that which of the following factors could influence the business cycle?

a. A change in interest rates by the Federal REserve board

b. A dropoff in consumer spending

c. a sharp rise in oil prices

d. Tensions between union leaders and top-level management

QUESTION 8

1. Who believed that fluctuations in the business cycle were the result of class conflicts between labor and capital?

a. Schumpeter

b. Marx

c. Rousseau

d. Keynes

QUESTION 9

1. A period when real GDP is increasing is known as a(n)

a. peak.

b. expansion.

c. incline.

d. recession.

QUESTION 10

1. If inflation is falling and trade balances are improving, then the economy is probably in a recession.

a. True

b. False

QUESTION 11

1. Imagine that in the first quarter of this year, the number of jobs swelled, and both interest rates and prices increased. In the second quarter of this year, the number of jobs decreased slightly, while both interest rates and prices fell sharply. Between the first and second quarters, we may have experienced a(n) _________ in the business cycle.

a. peak

b. expansion

c. trough

d. equilibrium point

QUESTION 12

1. One historical example of a trough in the business cycle came during

a. the Panic of 1893.

b. World War I.

c. World War II.

d. the 1990s.

QUESTION 13

1. The long-run trend in real GDP is

a. constant.

b. downward.

c. upward.

d. such that it cannot be described as a trend.

QUESTION 14

1. When, over a sustained period of time, the growth of real GDP falls below what is considered the normal growth rate, the economy experiences

a. inflation.

b. deflation.

c. expansion.

d. recession.

QUESTION 15

1. If the unemployment rate is decreasing and prices are rising, the economy is likely in what stage of the business cycle?

a. recession

b. depression

c. trough

d. expansion