Question : 8.1   Potential GDP 1) The Classical macroeconomic model proposes that A) government : 1240943

8.1   Potential GDP

1) The Classical macroeconomic model proposes that

A) government intervention is required to help the economy reach its potential.

B) real GDP equals potential GDP as long as inflation equals zero.

C) changes in the quantity of money are critical in driving economic growth.

D) markets work efficiently to produce the best macroeconomic outcomes.

E) socialism produces the most efficient economic outcomes for a society.

2) The Keynesian macroeconomic model states that

A) the economy is inherently unstable and government intervention is required to maintain continued economic growth.

B) markets work efficiently to produce the best macroeconomic outcomes.

C) fluctuations in the quantity of money are responsible for most economic recessions.

D) changes in technology generate business cycles.

E) the economy is fairly stable.

3) According the Keynesian macroeconomic model, which of the following was responsible for starting the Great Depression?

A) too little private spending

B) too little government spending

C) high taxes

D) decreases in the quantity of money

E) decreases in technology

4) Which of the following ideas reflect the Monetarist macroeconomic model?

i)The Monetarist model supports the Classical model, in general.

ii)Decreases in the growth rate of the quantity of money trigger recessions.

iii)Government intervention is an appropriate tool to steady the economy.

A) i and ii

B) i only

C) i, ii and iii

D) ii and iii

E) i and iii

5) The Monetarist model expands the Keynesian model by proposing that

A) decreases in the quantity of money lead to higher interest rates.

B) the government should lower taxes promote economic growth.

C) decreases in tax rates generate higher consumption.

D) decreases in the growth rate of the quantity of money trigger expansions by controlling inflation.

E) markets should be left alone to determine the optimal outcome.

6) The Lucas Wedge shows

A) the negative impact a slowdown in real GDP growth has on potential GDP.

B) the increased impact of government spending on real GDP.

C) the negative impact inflation has on consumer spending.

D) the positive impact lower taxes have on real GDP.

E) whether a country needs to slow its real GDP growth rate.

7) The Lucas Wedge is estimated to

A) total over $406,000 per person as a result of the slowdown in the growth rate of real GDP.

B) have reached about $13,000 per person in the last year.

C) be about 2 percent of real GDP per year.

D) be negative due to the severe recession in 2008-2009.

E) be positive in some years and negative in others.

8) Which of the following would have the biggest payoff?

A) restoring real GDP growth to its 1960s growth rate

B) eliminating the Okun Gap

C) increasing the Okun Gap

D) making the Okun Gap equal the Lucas Wedge

E) increasing the Lucas Wedge

9) The level of real GDP the economy produces at full employment is called

A) sustainable GDP.

B) nominal GDP.

C) potential GDP.

D) maximum GDP.

E) Lucas GDP.

10) The level of real GDP the economy produces at full employment is

A) nominal GDP.

B) potential GDP.

C) never reached in reality.

D) called the Lucas level.

E) real GDP.