Exam 3

During the oil crisis of the 1970s, what immediate economic effect did the quadrupling of oil prices by OPEC have on many Western Economies?

• A significant increase in the stock market valuations

• A rapid growth in the technology sector

• Stagflation, characterized by high inflation and high unemployment

• A decrease in consumer spending on luxury goods

The Neoclassical school of macroeconomic thought generally advocates for which of the following approaches to managing economic fluctuations?

• Acitve government intervention through fiscal policies to smooth out economic cycles

• Minimal intervention other than some supply-side policies

• Regular and significant adjustments to the central bank's interest rates to manage inflaiton and unemployment

• Large-scale public works programs to directly create employment and stimulate demand

Which of the following would lead to an outwards shift of the long-run aggregate supply curve?

• A decrease in the wage rates

• A decrease in input costs

• Both a and b

• Neither a nor b

An increase in the real interest rate would lead to an ______ shift of the ______ curve.

• Inward; AD

• Inward; SRAS

• Outwards; AD

• Outwards; SRAS

Economic theory suggests that fluctuations in economic activity are a natural part of the economic cycle. Which of the following statements best describes the predictability of these fluctuations?

• Economic fluctuations are completely predictable with modern economic models

• While some patterns and indicators can forecast economic trends, exact timing and magnitude of fluctuations are difficult to predict accurately

• Economic fluctuations occur entirely at random, with no discernible patterns or indicators

• Economic fluctuations are solely dependent on government discal policy, making them highly predictable

When price levels rise, people must spend more of their money to continue making the same purchases they previously did, causing a reduction in savings (leading to changes in the loanable funds market). This is one reason why the aggregate demand curve is downward sloping and is called the ________.

• Foreign price effect

• Sticky wealth theory

• Real wealth effect

• Interest rate effect

Which of the following shifts occurred during the COVID pandemic?

• A decrease in the AD curve

• A decrease in the SRAS curve

• Both A and B

• Neither A nor B

In a given economy, the government decides to increase spending on infrastructure by spending $100 million. This initial spending not only pays the salaries of the construction workers but also enables them to spend more on goods and services. This increases income for other businesses and their employees, leading to additional spending and income increases throughout the economy. The total increase in the economy's GDP turns out to be $300 million. What does this scenario best illustrate?

• The crowding-out effect

• The real wealth effect

• The multiplier effect

• The interest rate effect

According to sticky wage theory, why might unemployment rates increase during an economic downturn?

• Wages do not adjust downward quickly in response to reduced demand for labor, leading firms to reduce the number of employees

• Workers demand higher wages during downturns, leading to increased production costs and layoffs

• Wages increase automatically in response to inflaiton, leading to higher unemployment

• The government mandates wage increases during downturns to stimulate the economy, resulting in layoffs

The 2008 financial crisis had many contributing factors. Which of the following played a crucial role in causing the crisis?

• A sharp increase in the price of commodities like oil and gold

• A sudden decrease in consumer demand for electronics

• Overinvestment in renewable energy projects

• Widespread defaults on subprime mortgages leading to a banking crisis