Chapter 8

Chapter 8: The Business Cycle

Multiple Choice Questions

1. The study of aggregate economic activity for the economy as a whole is:

A) Opportunity cost. B) Scarcity. C) Macroeconomics. D) Microeconomics.

Answer: C Type: Definition Page: 151

2. Macroeconomics is the study of:

A) Aggregate economic behavior of the economy as a whole.

B) Individual segments of the economy.

C) How individual households make decisions.

D) How individual businesses make decisions.

Answer: A Type: Definition Page: 151

3. Alternating periods of economic growth and contraction in real GDP define:

A) Capitalism. B) The business cycle. C) Macro equilibrium. D) Say's Law.

Answer: B Type: Definition Page: 151

4. The business cycle is defined as:

A) Changing wages and prices.

B) An effort to reach full employment.

C) The growth of real GDP.

D) Alternating periods of economic growth and contraction.

Answer: D Type: Definition Page: 151

STABLE OR UNSTABLE?

5. According to Classical theory:

A) Keynes had "neglected to take account of the drag on prosperity which can be exercised by an insufficiency of effective demand."

B) Macro equilibrium might start out badly and get worse in the absence of government intervention.

C) Flexible wages and prices allow a laissez-faire economy to adjust to shifts in aggregate demand.

D) Business cycles are not relevant and do not occur.

Answer: C Type: Basic Understanding Page: 151

6. A cornerstone of the Classical view was:

A) The law of demand adjusted the economy to shifts in aggregate demand.

B) A laissez-faire economy.

C) Flexible wages and prices.

D) All of the above.

Answer: D Type: Basic Understanding Page: 151

7. Which theory of the economy led to the assertion that markets "self-adjust" to deviations from their long-term growth trend?

A) Classical...