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Economics for Today by Irvin Tucker (PowerPoint download)

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Economics for Today by Irvin Tucker (PowerPoint download) Powered By Docstoc
					Multiple Choice Tutorial
      Chapter 10
    Business Cycles

                           1
1. The basic idea behind Keynesian Economics
   a. If we let the natural adjustments to take
     place the economy will repair itself
   b. Because the economy is always tending
     toward a full employment equilibrium we
     should let the economy correct any
     malfunctions itself without government
     intervention
   c. When the economy is tending toward a less
     than full employment equilibrium we
     should use our discretionary fiscal policies
     to push the economy to a full employment
     equilibrium
   B. Fiscal policies can shift the aggregate
     demand curve to the right and thus shift the
     equilibrium to full employment              2
2. The idea behind Keynesian Economics is that
  if we can manage demand we can manage the
  economy.
   a. True
   b. False
True. By managing demand using our
  discretionary fiscal policies it was thought
  that we could manage the economy and guide
  it to a full employment equilibrium

                                            3
3. Because of the success on Keynesian
  Economics during the 1930s and the 1960s we
  know now that we can control the economy.
   a. True
   b. False
False. When stagflation hit us in the 1970s we
 learned that because the problem was a
 supply problem we could not solve it with
 demand remedies.

                                                 4
4. Which of the following is an example of a
  leakage?
   a. Banks lend money out a business owner
   b. Foreigners buy U.S. products
   c. People take their savings and deposit it in a
     savings account at a bank

C. When money leaves the income stream, that
 is it no longer circulates, we call it a leakage



                                                5
5. Which of the following is an example of an
  injection?
   a. Foreigners buy U.S. products
   b. People put their savings into a bank
   c. People pay their taxes

A. When foreigners buy U.S. products money
 flows into our income stream, we thus call it
 an injection.


                                                6
6. Gross Domestic Product (GDP) is defined as
  the market value of all
   a. resources produced in one year by U.S.
     firms
   b. final goods and services produced in one
     year by all resources located in the U.S.,
     regardless of who owns these resources
   c. final goods and services produced in one
     year in the U.S. by resources owned by U.S.
     citizens
 B. This is the official definition of GDP.

                                              7
7. What makes the investment sector so
  unstable?
   a. It is the largest sector of GDP
   b. It takes time to decide what to do about an
     investment
   c. Decisions are based on expectations of what
     investors think is going to happen in the
     future
   d. All of the above
    C. Because decisions are based on
     expectations and because so many
     things can influence expectations, the
     investment sector tends to be unstable
                                              8
8. Fear and uncertainty are the twin killers of
  investment.
   a. True
   b. False
A. Because investments are based partly on future
 expectations doubt and fear of what might
 happen will put a tamper on investments




                                                  9
9. A decrease in interest rates will lead to an
  increase in investments.
   a. True
   b. False
False. The answer is false because it is not true
 all of the time. If expectations are very
 negative, then a decline in interest rates may
 not be sufficient to spur on investments, but
 we say that everything else is equal, then a
 decline in interest rates should lead to an
 increase in investments.

                                                  10
10. Which of the following is an example of the
  acceleration principle?
   a. The bank lends out money and the
     borrower buys something with the money
   b. Apple invents a new product and Best Buy
     increases its’ sales volume
   c. The state builds a new highway and as a
     result several gas stations are built along
     the highway
C. The acceleration affect takes place due to
 induced investments. The gas stations were
 induced from the investment of building the
 highway
                                             11
END

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posted:9/14/2011
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