Paul Romer’s theory on the importance of knowledge differs from traditional theory in that Romer A) argues, that investment is not important in promoting growth, but that the acquisition of knowledge is the sole determinant of economic growth. B) argues that an investment-knowledge cycle allows a once-and-for-all increase in investment to permanently raise a country’s […]
When the price level increases, total planned real expenditures on goods and services falls. All of the following are responsible EXCEPT A) the interest rate effect. B) the real-balance effect. C) the substitution effect. D) the open economy effect. ANSWER C
In the classical model, the interest rate will adjust to equate A) consumption spending with real GDP. B) saving with investment. C) export spending with import spending. D) the economic growth rate with the growth rate of import spending. ANSWER B
Which of the following explains why the aggregate demand curve is downward sloping? A) the open economy effect B) the real-balance effect C) the interest rate effect D) all of the above ANSWER D
According to the above table, if real Gross Domestic Product (GDP) equals $30,000, what is the average propensity to consume? A) 0.75 B) 0.67 C) 0.8 D) 0.87 ANSWER D
Which of the following statements is true? A) A budget constraint is the same for a consumer at all levels of income. B) A budget constraint is a function of the income of the consumer and not the prices of the goods and services available for consumption. C) A budget constraint quantifies the trade-offs that […]
Fiscal policy includes all of the following EXCEPT A) policies that influence the rate of growth of the quantity of money in circulation. B) changing taxes. C) changing government spending. D) policies that influence aggregate demand. ANSWER A
Why is there NO persistent unemployment in the classical model? A) Unionization creates job security for workers. B) The wage level adjusts to eliminate unemployment. C) The interest rate adjusts to eliminate unemployment. D) The rate of economic growth is always high enough to allow those who want to work at current wages to find […]
Suppose that along the aggregate demand curve, real GDP equals $14.2 trillion when the GDP deflator is 90. If the GDP deflator were 95, real GDP along the aggregate demand curve would equal A) more than $14.2 trillion but less than $14.8 trillion. B) less than $14.2 trillion. C) $14.2 trillion. D) more than $14.8 […]
Other things being equal, along an aggregate demand curve, a higher price level is associated with A) a lower nominal GDP. B) a higher real GDP. C) higher income levels. D) a lower real GDP. ANSWER D
