Chapter 5 (5.3)

Question 1

Economic growth theory aims to explain the short-term fluctuations in real GDP.

true
false

Answer 1

False

Question 2

Potential GDP is

the upward trend line in real GDP.
a measure of short-term movements in GDP.
another name for real GDP.
another name for GDP.
another name for aggregate demand.

Answer 2

the upward trend line in real GDP

Question 3

Which of the following is not a determinant of aggregate supply capability?

aggregate demand
the supply of labor
the supply of technology
available know-how
the number of factories in the economy

Answer 3

aggregate demand

Question 4

Economic policies that focus on long-term growth are referred to as:

fiscal policies
monetary policies
demand-side policies
regional policies
supply-side policies

Answer 4

supply-side policies

Question 5

Fiscal policy affects economic growth by

providing unemployment compensation.
developing new government agencies.
controlling strategic industries.
affecting incentives to invest, work, hire workers, and develop new technologies.
funding higher education.

Answer 5

affecting incentives to invest, work, hire workers, and develop new technologies.

Question 6

The theory of economic fluctuations emphasizes fluctuations in:

technology
the growth rate of potential GDP
potential GDP
aggregate supply
aggregate demand

Answer 6

aggregate demand

Question 7

Policies used to influence economic fluctuations are often called:

demand-side policies
supply-side policies
normative policies
recessionary policies
positive policies

Answer 7

demand side policies

Question 8

The primary tools that the Federal Reserve uses to influence private spending are

changes in stock prices.
changes in financial regulations.
changes in taxes.
changes in government purchases.
changes in interest rates.

Answer 8

change in interest rates

Question 9

If the economy is going into a recession, the Federal Reserve is likely to

do nothing because it is not clear what effect interest rates have on aggregate demand.
raise interest rates to increase aggregate demand.
lower interest rates to reduce aggregate demand.
raise interest rates to decrease aggregate demand.
lower interest rates to increase aggregate demand.

Answer 9

lower interest rates to increase aggregate demand.

Question 10

Which of the following statements is true?

Fiscal policy influences only economic fluctuations, and monetary policy influences only economic growth.

Fiscal and monetary policy influence both economic growth and economic fluctuations.

Fiscal and monetary policy influence only economic fluctuations.

Fiscal policy influences only economic growth, and monetary policy influences only economic fluctuations.

Fiscal and monetary policy influence only economic growth.

Answer 10

Fiscal and monetary policy influence both economic growth and economic fluctuations.

Question 11

A key assumption of the theory of economic fluctuations is that real GDP fluctuates around potential GDP.

true
false

Answer 11

true

Question 12

The theory of economic fluctuations emphasizes fluctuations in the supply of goods and services as the reason for the ups and downs in the economy.

true
false

Answer 12

false