Classical Economists – Principles of Macroeconomics Final

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Classical Economists, Full Employment, Principles of Macroeconomics Final Exam

The key words in this Macroeconomics course include Classical Economists, Government Intervention, Economy, Full Employment, Great Depression, Aggregate Demand, Money Supply, Labor Supply, Gross Domestic Product (GDP), Stagflation, Inflation, Deflation, Long-Run Aggregate Supply (LRAS), Short-Run Aggregate Supply (SRAS), Principles of Macroeconomics.


Classical economists believe that government intervention in the economy is unnecessary because

supply is less important than demand in determining economic output.

prices are sticky and will not prevent the economy from adjusting to full employment.

prices are flexible and, therefore, the economy will adjust back to full employment on its own.

savings is a drain on output and must be limited.

the short run is more important than the long run, and economic policy only works in the short run.


The Great Depression is characterized by a decrease in aggregate demand. Of the following factors, which would have caused aggregate demand to decrease?

an advancement in technology

an increase in the labor supply

a decrease in expected future income

an increase in the money supply

an increase in government spending


Use the following graph to answer the following questions.


With regard to the Great Depression, the movement from point A to point B demonstrates what?

stagflation accompanied by a decrease in real gross domestic product (GDP)

inflation accompanied by an increase in real gross domestic product (GDP)

inflation accompanied by a decrease in real gross domestic product (GDP)

deflation accompanied by a decrease in real gross domestic product (GDP)

deflation accompanied by an increase in real gross domestic product (GDP)


During the Great Recession, a major financial crisis followed the collapse of housing prices, which led to

an increase in income tax rates to shrink the federal budget deficit.

the decline in the health of many large financial firms and banks.

an increase in expected income.

skyrocketing oil prices.

a decrease in the money supply by the Federal Reserve.


Use the following graph to answer the following questions.


Lines Y1 and Y2 represent

an aggregate demand adjustment.

short-run aggregate supply (SRAS).

short-run aggregate demand (SRAD).

long-run aggregate demand (LRAD).

long-run aggregate supply (LRAS).


Use the following graph to answer the following questions. The graph depicts an economy where aggregate demand and long-run aggregate supply (LRAS) have decreased, with no change in short-run aggregate supply (SRAS).


During the Great Recession, real gross domestic product (GDP) decreased, yet the aggregate price level remained largely unchanged, as depicted in the graph. Unemployment increased to above-normal levels. Which of following best explains why this happened?

A stock market crash, large numbers of bank failures, an increase in tax rates, and a tight money supply caused a recession.

A significant decline in military spending following the end of a war led to a recession.

A sudden increase in oil prices caused inflation and a deep recession.

A sharp recession followed the United States abandoning the gold standard.

A decline in housing prices and stock prices, plus a financial crisis, caused a recession.