37) Classical economists who assume the "invisible hand" works reasonably well do NOT argue that
A) the government should have a limited role in the economy.
B) government policies will be ineffective and counterproductive.
C) the government should actively intervene in the economy to eliminate business cycles.
D) wages and prices adjust quickly to bring the economy back to equilibrium.
Answer: C
Diff: 2 Type: MC Page Ref: 12
38) The classical approach to macroeconomics assumes that
A) wages, but not prices, adjust quickly to balance quantities supplied and demanded in markets.
B) wages and prices adjust quickly to balance quantities supplied and demanded in markets.
C) prices, but not wages, adjust quickly to balance quantities supplied and demanded in markets.
D) neither wages nor prices adjust quickly to balance quantities supplied and demanded in markets.
Answer: B
Diff: 1 Type: MC Page Ref: 11
39) The Keynesian approach to macroeconomics assumes that
A) wages, but not prices, adjust quickly to balance quantities supplied and demanded in markets.
B) wages and prices adjust quickly to balance quantities supplied and demanded in markets.
C) prices, but not wages, adjust quickly to balance quantities supplied and demanded in markets.
D) neither wages nor prices adjust quickly to balance quantities supplied and demanded in markets.
Answer: D
Diff: 1 Type: MC Page Ref: 12
40) John Maynard Keynes disagreed with the classical economists because he assumed that
A) wages and prices adjusted slowly.
B) international trade played a major role in the macroeconomy.
C) government intervention in the economy could not reduce business cycles.
D) unemployment would be eliminated quickly by the invisible hand of the market.
Answer: A
Diff: 1 Type: MC Page Ref: 12
41) The critical assumptions behind the idea of Adam Smith's invisible hand are
A) wage-price flexibility and individuals pursuing their own self-interests.
B) balanced budget and balance trade.
C) zero unemployment and high economic growth.
D) high economic growth and low inflation.
Answer: A
Diff: 1 Type: MC Page Ref: 12
42) How did Keynes propose to solve the problem of high unemployment?
A) increase the growth rate of the money supply
B) allow wages to decline so that firms will want to hire more workers
C) put on wage and price controls so that wages won't rise and firms won't have to lay people off to cut costs
D) have the government increase its demand for goods and services
Answer: D
Diff: 2 Type: MC Page Ref: 13
43) Economists evaluate an economic model based on
A) the results of the model.
B) the testability of the implications of the model by empirical analysis.
C) data availability.
D) the consistency of the assumptions with the Classical model.
Answer: B
Diff: 1 Type: MC Page Ref: 8
44) When an economist wants to develop a theory to explain the effect of the price of oil on economic growth
A) the first step is to state the research question.
B) the first step is to examine the data.
C) the first step is to work out the implications of the theory.
D) he/she should start with microeconomic analysis.
Answer: A
Diff: 1 Type: MC Page Ref: 9
45) Comparative static experiments
A) are conducted in social sciences labs.
B) assume the model is in equilibrium.
C) use data to compare empirical results.
D) use economic surveys to analyze economic behaviour.
Answer: B
Diff: 2 Type: MC Page Ref: 10
46) Analyzing the effect of a shock on a macroeconomic model is called
A) forecasting.
B) disequilibrium analysis.
C) comparative static experiments.
D) shock analysis.
Answer: C
Diff: 2 Type: MC Page Ref: 10
47) A theoretical analysis of the effect of an oil shock on inflation is an example of
A) the Classical model.
B) the Keynesian model.
C) why economists disagree.
D) a comparative static experiment.
Answer: D
Diff: 3 Type: MC Page Ref: 10