Question 1

Demand shocks may be positive or negative.

Accepted Answer

A) True 
 B)False  True

Question 2

The "sticky price" model is the only one used by macroeconomists.

Accepted Answer

A) True 
 B)False  False

Question 3

Citizens living in the richest nations today have material standards of living that are on average
more than 50 times higher than people living in the poorest countries.

Accepted Answer

A) True 
 B)False  True

Question 4

Sticky prices could be the result of ﬁrms being afraid of price wars.

Accepted Answer

A) True 
 B)False

Question 5

Prices tend to be stickier in the shorter run than in the longer run.

Accepted Answer

A) True 
 B)False

Question 6

If prices of goods and services were inﬂexible, then

Accepted Answer

A)  a negative demand shock would lead to increased real GDP in the short run. 
B)  a positive demand shock would lead to increased real GDP in the short run. 
C)  a negative demand shock would have no short-run effect on real GDP. 
D)  there would be no short-run demand shocks. 
A)  a negative demand shock would lead to increased real GDP in the short run. 
B)  a positive demand shock would lead to increased real GDP in the short run. 
C)  a negative demand shock would have no short-run effect on real GDP. 
D)  there would be no short-run demand shocks.

Question 7

Which of the following statements best describes price ﬂexibility in the economy?

Accepted Answer

A)  Prices tend to be sticky in the short run and stuck in the long run. 
B)  Prices tend to be just as sticky in the short run as in the long run. 
C)  Prices tend to be sticky in the short run but become more ﬂexible over time. 
D)  Prices tend to be ﬂexible in the short run but become more sticky over time. 
A)  Prices tend to be sticky in the short run and stuck in the long run. 
B)  Prices tend to be just as sticky in the short run as in the long run. 
C)  Prices tend to be sticky in the short run but become more ﬂexible over time. 
D)  Prices tend to be ﬂexible in the short run but become more sticky over time.

Question 8

Refer to the graphs. Suppose a ﬁrm is currently producing 500 computers per week and charging a price of $1,000. How will the ﬁrm respond to a negative demand shock if prices are ﬂexible?

Accepted Answer

A)  The ﬁrm will continue to produce 500 computers per week and charge a price of $600. 
B)  The ﬁrm will continue to produce 500 computers per week and charge a price of $1,200. 
C)  The ﬁrm will cut production to 300 computers per week and charge a price of $1,000. 
D)  The ﬁrm will cut production to 300 computers per week and charge a price of $600. 
A)  The ﬁrm will continue to produce 500 computers per week and charge a price of $600. 
B)  The ﬁrm will continue to produce 500 computers per week and charge a price of $1,200. 
C)  The ﬁrm will cut production to 300 computers per week and charge a price of $1,000. 
D)  The ﬁrm will cut production to 300 computers per week and charge a price of $600.

Question 9

(Last Word) Behavioral economics incorporates culture and the studies of

Accepted Answer

A)  sociology and economics. 
B)  psychology and economics. 
C)  mathematics and economics. 
D)  ﬁnance and economics. 
E)  None of these choices are correct. 
A)  sociology and economics. 
B)  psychology and economics. 
C)  mathematics and economics. 
D)  ﬁnance and economics. 
E)  None of these choices are correct.

Question 10

Harry's Pizza Parlor produced 10,000 large pizzas last year that sold for $10 each. This year Harry's produced 11,000 large pizzas (identical to last year's pizzas) but sold them for $12 each. Based on
This information, we can conclude that Harry's production of large pizzas

Accepted Answer

A)  increased nominal GDP from last year, but real GDP was unaffected. 
B)  increased both nominal and real GDP from last year. 
C)  increased real GDP from last year, but nominal GDP was unaffected. 
D)  did not change either nominal or real GDP from last year. 
A)  increased nominal GDP from last year, but real GDP was unaffected. 
B)  increased both nominal and real GDP from last year. 
C)  increased real GDP from last year, but nominal GDP was unaffected. 
D)  did not change either nominal or real GDP from last year.

Question 11

(Consider This) The term "economic investment" refers to money spent purchasing newly created
capital goods such as factories, tools, and warehouses.

Accepted Answer

A) True 
 B)False

Question 12

On average, salaries and wages make up about 70% of all costs of the ﬁrm.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements best describes how ﬁrms respond to demand shocks under conditions of inﬂexible prices?

Accepted Answer

A)  Firms respond to shorter-term demand shocks by adjusting production levels; more persistent changes in demand result in changes in inventories. 
B)  Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels. 
C)  Firms are reluctant to adjust inventory levels because the costs are higher than changing the quantity of output produced. 
D)  Firms are quick to let go of workers when negative demand shocks occur. 
A)  Firms respond to shorter-term demand shocks by adjusting production levels; more persistent changes in demand result in changes in inventories. 
B)  Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels. 
C)  Firms are reluctant to adjust inventory levels because the costs are higher than changing the quantity of output produced. 
D)  Firms are quick to let go of workers when negative demand shocks occur.

Question 14

An unexpected negative demand shock would lead to a decrease in real GDP when prices are
inﬂexible.

Accepted Answer

A) True 
 B)False

Question 15

If the prices of goods and services were ﬂexible, then the economy could always produce at its
optimal capacity.

Accepted Answer

A) True 
 B)False

Question 16

If expectations were always met, then ﬁrms would never contribute to any of the short-run
ﬂuctuations in employment and output that are observed in real-world economies.

Accepted Answer

A) True 
 B)False

Question 17

Inﬂation reduces the purchasing power of a person's income and savings.

Accepted Answer

A) True 
 B)False

Question 18

Prices for airline tickets change hourly. This would suggest that airline ticket prices are

Accepted Answer

A)  stuck. 
B)  determined in a monopolistic market. 
C)  relatively sticky. 
D)  extremely ﬂexible. 
A)  stuck. 
B)  determined in a monopolistic market. 
C)  relatively sticky. 
D)  extremely ﬂexible.

Question 19

One principle of economic growth is the notion that, to raise living standards over time, an economy must

Accepted Answer

A)  have full employment of its labor force. 
B)  devote some portion of its current output to increasing its future output. 
C)  maintain low inﬂation over the years. 
D)  have a small population so that its GDP per person will be high. 
A)  have full employment of its labor force. 
B)  devote some portion of its current output to increasing its future output. 
C)  maintain low inﬂation over the years. 
D)  have a small population so that its GDP per person will be high.

Question 20

Economists believe that most short-run ﬂuctuations are the result of supply shocks.

Accepted Answer

A) True 
 B)False

Exam 6: An Introduction to Macroeconomics

Demand shocks may be positive or negative.

The "sticky price" model is the only one used by macroeconomists.

Citizens living in the richest nations today have material standards of living that are on average more than 50 times higher than people living in the poorest countries.

Sticky prices could be the result of ﬁrms being afraid of price wars.

Prices tend to be stickier in the shorter run than in the longer run.

If prices of goods and services were inﬂexible, then

Which of the following statements best describes price ﬂexibility in the economy?

Refer to the graphs. Suppose a ﬁrm is currently producing 500 computers per week and charging a price of $1,000. How will the ﬁrm respond to a negative demand shock if prices are ﬂexible?

(Last Word) Behavioral economics incorporates culture and the studies of

Harry's Pizza Parlor produced 10,000 large pizzas last year that sold for $10 each. This year Harry's produced 11,000 large pizzas (identical to last year's pizzas) but sold them for $12 each. Based on This information, we can conclude that Harry's production of large pizzas

(Consider This) The term "economic investment" refers to money spent purchasing newly created capital goods such as factories, tools, and warehouses.

On average, salaries and wages make up about 70% of all costs of the ﬁrm.

Which of the following statements best describes how ﬁrms respond to demand shocks under conditions of inﬂexible prices?

An unexpected negative demand shock would lead to a decrease in real GDP when prices are inﬂexible.

If the prices of goods and services were ﬂexible, then the economy could always produce at its optimal capacity.

If expectations were always met, then ﬁrms would never contribute to any of the short-run ﬂuctuations in employment and output that are observed in real-world economies.

Inﬂation reduces the purchasing power of a person's income and savings.

Prices for airline tickets change hourly. This would suggest that airline ticket prices are

One principle of economic growth is the notion that, to raise living standards over time, an economy must

Economists believe that most short-run ﬂuctuations are the result of supply shocks.

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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