1. The passage discusses the key differences between classical and modern Keynesian macroeconomics, as well as topics like business cycles, inflation, unemployment, and aggregate supply and demand. 2. It contains multiple choice questions testing understanding of these macroeconomic concepts. 3. The questions cover the causes of inflation, effects of inflation, types of unemployment, and equilibrium in the macroeconomy.

1. This assignment is for A-plus Writer......
The distinction between classical and modern Keynesian
macroeconomics is based on
a.
the exact year the Great Depression started in the U.S. (1929).
b.
the publication of
The Wealth of Nations
.
c.
the publication of
The General Theory of Employment, Interest, and Money.
d.
the approval of Congress of
President Roosevelt’s New Deal.
Starting with the trough, which of the following is the correct
order of what then occurs in the business cycle?
a.
recession, prosperity, recession, prosperity

2. b.
prosperity, recession, another trough
c.
expansion, peak, recession, another trough
d.
recession, expansion, peak, another trough
It ______ a wise policy to reduce inflation to 0% since the
_______ according to the Phillips’ Curve.
a.
is --
unemployment rate also decreases
b.
may not be – unemployment rate increases
c.
is --
deficit decreases
d.

3. may not be – deficit increases
____________ argued that the best way to solve the problem of
recession and unemployment was to rely on the natural
workings of the market.
a.
Keynes
b.
Marx
c.
the classical economists
An increase in aggregate demand with an upward (positively)
sloping supply curve will
a.
increase employment.
b.
keep the price level constant.
c.
increase output.

4. d.
all of the above.
e.
a) and c) are correct.
If both the demand curve and supply curve to the right, which of
the following will definitely occur?
a.
Price increases.
b.
Price decreases.
c.
Quantity increases.
d.
Quantity decreases.
e.
Both a) and c) are correct.

5. Which one of the following items is
NOT
a factor cost?
a.
proprietor's income
b.
employees' compensation
c.
business transfer payments
d.
dividends
e.
rental income of persons
Consider a $20,000 certificate of deposit that yields a 10
percent annual interest rate.
If there is 5 percent inflation, then 10 percent can be considered

6. a.
the nominal interest rate.
b.
the real interest rate.
c.
both of these
Demand-pull inflation is caused by a shift to the ______in the
_______ demand curve.
a.
right -- aggregate
b.
left -- aggregate
c.
right -- microeconomic
d.
left -- microeconomic

7. If both the unemployment rate and the inflation rate increase,
the best term to describe it is
a.
the Phillips Curve.
b.
aggregate demand.
c.
aggregate supply.
d.
stagflation.
If the unemployment rate decreases from the previous month,
then one can infer the change in the total number of people
working from the month before
a.
increases.
b.
decreases.
c.

8. stays the same.
d.
could be any of the above.
Other things being equal, inflation initially decreases the
_______ interest rate.
a.
real
b.
nominal
c.
both of these.
If nominal GDP is increasing at the same rate as real GDP, then
it is definitely true that there is
a.

9. inflation.
b.
output increasing over time.
c.
both of these.
What does Mary's decision to stop looking for a job do to the
unemployment rate?
a.
nothing
b.
increase it
c.
decrease it
d.
need to know if she is frictionally or structurally unemployed

10. Savers are lenders to a bank.
They.
a.
are hurt by inflation.
b.
benefit from inflation.
c.
benefit at low inflation rates and are hurt at high rates of
inflation.
d.
benefit at high rates of inflation and are hurt at low rates of
inflation.
An increase in oil prices will shift the aggregate ________
curve __________.
a.
demand -- to the left

11. b.
demand --
to the right
c.
supply -- to the left
d.
supply -- to the right
Both an increase in microeconomic demand, caused by an
increase in need for a good, and an increase in macroeconomic
demand, caused by an increase in government spending, would
be shown by a shift to the right of lines.
a.
true
b.
false

12. It is more correct to say that inflation redistributes rather than
decreases overall income.
a.
true
b.
false
Which range of the aggregate supply curve is horizontal?
a.
Keynesian
b.
intermediate
c.
classical
d.

13. any of these depending on what is the level of full employment
income.
Bottleneck inflation occurs
a.
in an economy with substantial amounts of unemployment.
b.
at full employment.
c.
before full employment.
d.
when resources are perfectly interchangeable.
e.
both c) and d) are correct.
Which is the best description of the effects of inflation?
a.
Inflation redistributes income.

14. Since some benefit, inflation is not really a problem.
b.
Inflation decreases everyone’s nominal and real income.
c.
Inflation decreases everyone’s nominal income but not anyone’s
real income.
d.
Inflation redistributes income arbitrarily.
Therefore some win and some lose from inflation.
The following questions are from Robert Heilbroner’s
WORLDLY PHILOSOPHERS, chapter 9 on Keynes & chapter 6
on Marx.
Heilbroner’s chapter on Keynes had an example of the building
of the railroads in order to show that investment
a.
occurs mostly in a market economy.

15. b.
occurs mostly in a nonmarket economy.
c.
occurs in spurts.
d.
occurs in a steady linear fashion.
Marx’s dialectic materialism, based on the work of Hegel,
focuses on
a.
change.
b.
the social and physical environment.
c.
both of these.
The business crises of Marx included

16. a.
replacing labor with machines.
b.
falling consumption.
c.
falling profits.
d.
all of the above.
e.
both a) and b) are correct.
Macroeconomics covers all of the following EXCEPT
a.
prices on average.
b.
unemployment.

17. c.
inflation.
d.
why an orange is more expensive (or less expensive) than an
apple
A graph
a.
can be used to show either a positive or negative relationship
between two variables.
b.
can illustrate both microeconomic demand and aggregate
demand.
c.
is used because it is impossible to describe any economic
relationship verbally.
d.
all of the above.

18. e.
both a) and b) are correct.
In macroeconomics, economists are often concerned about
whether there is enough spending.
If there is not sufficient spending, there will be _________, a
result of too little _____________.
a.
unemployment
‑‑ aggregate supply
b.
unemployment
‑‑ aggregate demand
c.
inflation
‑‑ aggregate supply
d.
inflation

19. ‑
aggregate demand
In the business cycle diagram, an expansion would be shown as
a.
the bottom (trough)
b.
the top (peak)
c.
the falling portion of GDP growth
d.
the increasing portion of GDP growth
Which of the following best describes the general cause of
business cycles?
a.
too little production.
b.
instability of aggregate demand over time.
c.
instability of aggregate supply over time.

20. d.
not only the excessive issuing of credit cards in the 1980s, but
also the savings and loan bailout, and the overbuilding of
office, hotel, and retail space
If nominal GDP is increasing at the same rate as real GDP, then
it is definitely true that there is inflation.
a.
true
b.
false
Which of the following is
NOT
an accurate description of what can cause inflation?
a.
too many dollars chasing too few goods.
b.
an increase in labor costs when productivity is not increasing.
c.
an increase in the price of fruits and vegetables even when meat
prices are declining.

21. d.
the level of spending exceeds the level of production at full
employment.
Cost‑push inflation can be called
a.
an inflation caused by the consumer side of the supply and
demand equation.
b.
an inflation caused by the seller side of the supply and demand
equation.
c.
the inflation that generally occurs because too many dollars are
chasing too few goods.
d.
both a) and c) are correct.
Which of the following people is structurally unemployed?
a.
Brendan left his job as a soda jerk in New Jersey to become a
soda jerk in Madrid, NM.
He was unemployed for 6 weeks during the transition.
b.
Mildred quit her job after giving birth to a child.

22. c.
Clem, a skilled corset maker, lost his job when his factory shut
down due to a permanent reduction in the demand for corsets.
d.
Dwanella lost her job when the electronics assembly plant was
shut down temporarily due to low sales of the product.
If one produces more because of longer hours at work, then one
can infer an increase in productivity.
a.
true
b.
false
If there is a problem with savings and its effect on the economy,
it occurs at the ________ level.
a.
macroeconomic
b.
microeconomic
c.

23. household
d.
firm
Consider John Maynard Keynes' quote "The ideas of economists
and political philosophers...from some academic scribbler of a
few years back.”
(See first page lecture and reading outline.)
Which of the following best describes what he is saying?
a.
Economists are strictly for university settings and have no
influence outside of the university.
b.
Almost all politicians quote economists since most politicians
have read most of the classic works of economics especially
Smith's
Wealth of Nations
and Keynes'
The General Theory
.
c.
Economists are generally ignored, even though economists are

24. usually correct.
d.
The ideas of economists influence the thinking of many
everyday people, including politicians, even if these people
have never had an economics course.
Which of the following, while they may be a "good thing" at the
microeconomic (individual) level, may not be such a good thing
when the need to maintain a high level of aggregate demand for
full employment is considered?
a.
increasing savings and falling wages
b.
increasing spending and increasing wages
c.
real and nominal interest rates
d.
supply and demand

25. Sandy discovers that by entering the Woolly Wild West Fun
Center via a side road she can avoid the long lines at the main
entrance.
Everyone at the park reaches the same collusion and acts upon
it.
This can best be described as an example of
a.
correct macroeconomic reasoning.
b.
the fallacy of composition.
c.
a normative way of thinking.
d.
both a) and c) are correct.
The level of real GDP and the price level are determined
a.
by the intersection of the microeconomic supply and demand
curves.
b.
by the intersection of the macroeconomic supply and demand
curves.
c.
by the macroeconomic supply curve.
d.
by the macroeconomic demand curve.

26. An increase in the price level means
a.
all prices are increasing.
b.
all prices that are increasing are increasing at the same rate.
c.
the average level of prices is increasing.
d.
both b) and c) are correct.
Which one of the following can be determined by all income
that the factors of production receive during a particular period?
a.
national income
b.
gross domestic product
c.
disposable income
d.

27. personal income
e.
both a) and d) are correct as long as transfer payments are also
included in national income.
Which one of the following items is
NOT
a factor cost?
a.
proprietor's income
b.
employees' compensation
c.
business transfer payments
d.
dividends
e.
rental income of persons

28. f prices on average have remained constant between 1970 and
1990 and the price of a McDonald's hamburger increased from
$1.00 to $4.00 then,
a.
there has been both a nominal and a real price change.
b.
there has been only a nominal price change.
c.
there has been only a real price change.
d.
there has been neither a real nor a nominal price change.
The Keynesian range of the aggregate __________ curve shows
an economy in which aggregate demand is relatively ________.
a.
supply – stable
b.
supply – low

29. c.
demand –constant
d.
demand -- high
e.
both a) and c) are correct.
Bottleneck inflation occurs
a.
in an economy with substantial amounts of unemployment.
b.
at full employment.
c.
before full employment.
d.
when resources are perfectly interchangeable.
e.
both c) and d) are correct.
Which is the best description of the effects of inflation?

30. a.
Inflation redistributes income.
Since some benefit, inflation is not really a problem.
b.
Inflation decreases everyone’s nominal and real income.
c.
Inflation decreases everyone’s nominal income but not anyone’s
real income.
d.
Inflation redistributes income arbitrarily.
Therefore some win and some lose from inflation.
Which of the following transactions should not be included in
the calculation of GDP?
a.
Jim purchases a new automobile.
b.
Joe pays a plumber $100 to fix a broken pipe.
c.
Sandy receives $100 in food stamps.
d.
Kurt purchases an airline ticket for $500 just before a big
reduction in fares.

31. If the consumer price index (CPI) was 80 in 2004, 100 in 2005,
and 110 in 2006, then the base year must be
a.
2004.
b.
2005.
c.
2006.
d.
The base year cannot be determined from the given information.
Which of the following is a type of unemployment that is due to
business cycles? This type of unemployment rises during
economic recessions and falls during economic expansions.
a.
cyclical unemployment.
b.
frictional unemployment.
c.
natural rate of unemployment.
d.
structural unemployment.
For the following questions go to:
http://www.usinflationcalculator.com/inflation/consumer-price-
index-and-annual-percent-changes-from-1913-to-2008/

32. What were the two listed inflation rates for year 2009?
a.
207.342 and 214.537
b.
4.1 percent and 2.8 percent
c.
2.7 percent and -0.4 percent
d.
3 percent and 3.1 percent
For this question, note that when computing percentage
changes, the denominator should be the initial number.
How would you compute the inflation rate from December 2008
to December 2009?
a.
215.949 – 210.228 divided by 215.949
b.

33. 215.949 – 210.228 divided by 210.228
c.
215.303 – 214.537 divided by 215.303
d.
214.537 – 215.303 divided by 214.537
The next 4 questions are from Pugh and Garrett,
Introducing Keynesian Economics.
According to Pugh and Garratt what really got the U.S. out of
the Great Depression was
a.
Franklin Roosevelt's "New Deal"
b.
more reliance on laissez-faire to solve the unemployment
problem.
c.
balancing the budget so that tax revenues were always sufficient
to cover government spending.

34. d.
spending on World War II.
The Pugh and Garrett reading discussed the work of the
“Committee on National Expenditure” in 1931.
The Committee according to Pugh and Garrett
a.
agreed with Keynes’ solution to the Depression.
b.
wanted greater deficits.
c.
wanted to increase taxes and decrease government spending.
d.
both b) and c) are correct.
Pugh and Garratt on page 75 talk about the "trade cycle."

35. This
a.
is also called the business cycle.
b.
is represented by a
curve
with waves.
c.
was not recognized by either Keynes or Marx
d.
both a) and b) are correct.
Those who are shown in the cartoon dancing
a.
are most likely Keynesian rather than classical economists.

36. b.
are celebrating the end of WWI.
c.
are taking a laissez-faire attitude towards the unemployment
problem.
d.
studied economics at the Karl Marx Institute
Questions 32-37 are from Robert Heilbroner’s WORLDLY
PHILOSOPHERS.
**
Chapter 2, evolution of the market system
**
Chapter 3, Adam Smith
Heilbroner in his chapter on the evolution of the market
economy tells about the trial of Robert Keayne, who was
accused of "seeking riches for riches sakes."
What is the moral of the story?
a.

37. The law of upward sloping supply is a universal trait of human
behavior.
b.
The market system is a relatively new way of life historically
speaking.
c.
Both a) and b) are correct.
d.
Crime pays.
According to Heilbroner a possible way(s) of solving the
economic problem is
a.
tradition.
b.
command.
c.
the market system.
d.
all of the above.
Economic freedom is best associated with
a.
Adam Smith.

38. b.
the guilds in France.
c.
any system other than a market system.
According to Smith competition forces producers to
a.
produce goods that people want.
b.
charge the minimum price possible in line with the costs of
production.
c.
both of these.
Consider the following quote from chapter 3 for the next two
questions:
It is a curious paradox which thus ensues: the market, which is
the acme of individual freedom, is the strictest taskmaster of
all.

39. One may appeal the ruling of a planning board or win the
dispensation of a minister; but there is no appeal, no
dispensation, from the anonymous pressures of the market
mechanism.
Economic freedom is thus more illusory than at first appears.
One can do as one pleases in the market, but if one pleases to do
what the market disapproves, the price of individual freedom is
economic ruination.
This quote suggests there is a role for government regulation in
the market place.
true
false
What if no one wants to buy the widgets you want to sell in the
marketplace.
To whom do you complain?
a.
the government
b.
the news media.

40. c.
both of these.
d.
There is no one to complain to.
The next 3 questions are from
Keynes “An Open Letter to President Roosevelt.”
The purpose of Keynes’ letter to President Roosevelt is
a.
to congratulate him on his election as President.
b.
to urge deficit spending, an idea in
The General Theory
.
c.to urge deficit spending, an idea contrary to the spirit of
The General Theory
.
d.
to urge balancing the budget so the federal would not run out of
money during the Depression.
Keynes is against the idea of raising prices by destroying crops.
Therefore he wants
a.
to keep crop prices steady

41. b.
raise prices by increasing supply
c.raise prices by increasing demand
d.
both b) and c)are correct.
The following passage is in the letter.
Take the statement and reword it in your own words.
(Make it as easy to understand as possible.)
The statement should be no more than 20 words.
“When more purchasing power is spent, one expects rising
output at rising prices.”
You are in the classical range of the aggregate supply curve.
Advise the President on good economic policy.
The terms “aggregate demand”, “output”, “employment” and
“inflation” should be part of your answer.
Answer in no more than 75 words.