Question 1

(Consider This) Suppose that Toyota buys a factory previously owned by Chrysler Motors. Economists would

Accepted Answer

A)  consider this to be an economic investment. 
B)  not consider this to be an economic investment, because Toyota is less eﬃcient than Chrysler. 
C)  not consider this to be an economic investment, because no new capital is created through the purchase. 
D)  not consider this to be an economic investment, because there is no way to know how it will affect stock holdings in the two companies. 
A)  consider this to be an economic investment. 
B)  not consider this to be an economic investment, because Toyota is less eﬃcient than Chrysler. 
C)  not consider this to be an economic investment, because no new capital is created through the purchase. 
D)  not consider this to be an economic investment, because there is no way to know how it will affect stock holdings in the two companies.

Question 2

Refer to the ﬁgures. Which ﬁgure(s) represent(s) a situation where prices are ﬂexible?

Accepted Answer

A)  A only 
B)  B only 
C)  both A and B 
D)  neither A nor B 
A)  A only 
B)  B only 
C)  both A and B 
D)  neither A nor B

Question 3

At the end of the summer driving season, the demand for gasoline typically declines. This is an
example of a negative demand shock.

Accepted Answer

A) True 
 B)False

Question 4

How does inﬂation affect people's standard of living and savings?

Accepted Answer

Consider all the goods and services that

Question 5

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a positive demand shock?

Accepted Answer

A)  Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase. 
B)  Firms' inventories will decrease, causing them to increase production. Ultimately, real GDP will increase and unemployment will decrease. 
C)  Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will increase and unemployment will increase. 
D)  Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will decrease. 
A)  Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase. 
B)  Firms' inventories will decrease, causing them to increase production. Ultimately, real GDP will increase and unemployment will decrease. 
C)  Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will increase and unemployment will increase. 
D)  Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will decrease.

Question 6

Prices tend to be sticky because

Accepted Answer

A)  ﬁrms are worried that frequent price changes would annoy consumers. 
B)  most ﬁrms have agreements with each other to ﬁx prices at proﬁt-maximizing levels. 
C)  government controls most prices. 
D)  foreign competition discourages domestic ﬁrms from price changes. 
A)  ﬁrms are worried that frequent price changes would annoy consumers. 
B)  most ﬁrms have agreements with each other to ﬁx prices at proﬁt-maximizing levels. 
C)  government controls most prices. 
D)  foreign competition discourages domestic ﬁrms from price changes.

Question 7

When demand shocks lead to recessions, it is mainly due to

Accepted Answer

A)  price inﬂexibility. 
B)  the inability of government policy to affect demand. 
C)  unexpected changes in the supply of goods and services. 
D)  government regulations that prevent ﬁrms from adjusting output in response to the shocks. 
A)  price inﬂexibility. 
B)  the inability of government policy to affect demand. 
C)  unexpected changes in the supply of goods and services. 
D)  government regulations that prevent ﬁrms from adjusting output in response to the shocks.

Question 8

Supply shocks occur any time there is a change in the supply of goods and services.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not an effect of inﬂation that is troublesome to consumers?

Accepted Answer

A)  Household incomes may be rising slower than the overall prices. 
B)  The purchasing power of people's savings would decrease. 
C)  Workers' wages may be rising faster than the overall price level. 
D)  Their standard of living will fall if their household has a ﬁxed nominal income. 
A)  Household incomes may be rising slower than the overall prices. 
B)  The purchasing power of people's savings would decrease. 
C)  Workers' wages may be rising faster than the overall price level. 
D)  Their standard of living will fall if their household has a ﬁxed nominal income.

Question 10

Which of the following is most closely related to recessions?

Accepted Answer

A)  positive long-run economic growth 
B)  rapid growth in the price level 
C)  falling rates of unemployment 
D)  negative real growth in output 
A)  positive long-run economic growth 
B)  rapid growth in the price level 
C)  falling rates of unemployment 
D)  negative real growth in output

Question 11

Refer to the ﬁgures. Which of the following events would most likely result in higher unemployment?

Accepted Answer

A)  a shift from D2 to D1 in Figure A 
B)  a shift from D2 to D3 in Figure A 
C)  a shift from D2 to D1 in Figure B 
D)  a shift from D2 to D3 in Figure B 
A)  a shift from D2 to D1 in Figure A 
B)  a shift from D2 to D3 in Figure A 
C)  a shift from D2 to D1 in Figure B 
D)  a shift from D2 to D3 in Figure B

Question 12

Compare and contrast the characteristics of economic growth in ancient or preindustrial times with
modern economic growth today.

Accepted Answer

In ancient or preindustrial times, stand

Question 13

(Consider This) Which took the major brunt of the decline in total demand in the Great Recession,
real output or prices?

Accepted Answer

Real output took the brunt of the declin

Question 14

Before the period of modern economic growth,

Accepted Answer

A)  only civilizations such as the Roman Empire experienced economic growth. 
B)  rates of population growth virtually matched rates of output growth. 
C)  most economies realized high rates of growth in output per person. 
D)  output and population growth were stagnant. 
A)  only civilizations such as the Roman Empire experienced economic growth. 
B)  rates of population growth virtually matched rates of output growth. 
C)  most economies realized high rates of growth in output per person. 
D)  output and population growth were stagnant.

Question 15

Why are high rates of unemployment of concern to economists?

Accepted Answer

A)  Higher rates of unemployment generally lead to higher inﬂation rates. 
B)  Environmental destruction is more prevalent when unemployment rates are high. 
C)  There is lost output that could have been produced if the unemployed had been working. 
D)  All of these options are reasons why economists are concerned about high unemployment rates. 
A)  Higher rates of unemployment generally lead to higher inﬂation rates. 
B)  Environmental destruction is more prevalent when unemployment rates are high. 
C)  There is lost output that could have been produced if the unemployed had been working. 
D)  All of these options are reasons why economists are concerned about high unemployment rates.

Question 16

For many decades prior to the Industrial Revolution, the standards of living in England and China

Accepted Answer

A)  remained roughly constant. 
B)  increased steadily. 
C)  declined substantially. 
D)  increased many times over. 
A)  remained roughly constant. 
B)  increased steadily. 
C)  declined substantially. 
D)  increased many times over.

Question 17

Suppose a small economy produces only smart TVs. In year one, 100,000 TVs are produced and sold at a price of $1,200 each. In year two, 100,000 TVs are produced and sold at a price of $1,000
Each. As a result,

Accepted Answer

A)  nominal GDP stays constant, while real GDP decreases. 
B)  nominal GDP decreases, while real GDP stays constant. 
C)  nominal GDP and real GDP both decrease. 
D)  nominal GDP decreases, and real GDP decreases even more. 
A)  nominal GDP stays constant, while real GDP decreases. 
B)  nominal GDP decreases, while real GDP stays constant. 
C)  nominal GDP and real GDP both decrease. 
D)  nominal GDP decreases, and real GDP decreases even more.

Question 18

Describe the difference between real GDP and nominal GDP.

Accepted Answer

Nominal GDP is GDP measured in terms of

Question 19

Evaluate the statement that "unexpected declines in demand, with inﬂexible prices, generate a rise
in unemployment and a fall in output. "

Accepted Answer

This is a true statement. When prices ar

Question 20

Kara's Kittens typically produces and sells at its optimal (lowest per-unit cost) level of 30 scratching posts per week. Kara's also maintains an inventory of 20 scratching posts. If prices are sticky and
There is a positive demand shock this week resulting in demand for 40 scratching posts, we would
Expect Kara's to

Accepted Answer

A)  sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs. 
B)  permanently expand production to 40 scratching posts per week. 
C)  raise prices on scratching posts. 
D)  introduce a new line of scratching posts. 
A)  sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs. 
B)  permanently expand production to 40 scratching posts per week. 
C)  raise prices on scratching posts. 
D)  introduce a new line of scratching posts.

(Consider This) Suppose that Toyota buys a factory previously owned by Chrysler Motors. Economists would

Refer to the ﬁgures. Which ﬁgure(s) represent(s) a situation where prices are ﬂexible?

At the end of the summer driving season, the demand for gasoline typically declines. This is an example of a negative demand shock.

How does inﬂation affect people's standard of living and savings?

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a positive demand shock?

Prices tend to be sticky because

When demand shocks lead to recessions, it is mainly due to

Supply shocks occur any time there is a change in the supply of goods and services.

Which of the following is not an effect of inﬂation that is troublesome to consumers?

Which of the following is most closely related to recessions?

Refer to the ﬁgures. Which of the following events would most likely result in higher unemployment?

Compare and contrast the characteristics of economic growth in ancient or preindustrial times with modern economic growth today.

(Consider This) Which took the major brunt of the decline in total demand in the Great Recession, real output or prices?

Before the period of modern economic growth,

Why are high rates of unemployment of concern to economists?

For many decades prior to the Industrial Revolution, the standards of living in England and China

Suppose a small economy produces only smart TVs. In year one, 100,000 TVs are produced and sold at a price of $1,200 each. In year two, 100,000 TVs are produced and sold at a price of $1,000 Each. As a result,

Describe the difference between real GDP and nominal GDP.

Evaluate the statement that "unexpected declines in demand, with inﬂexible prices, generate a rise in unemployment and a fall in output. "

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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Exam 6: An Introduction to Macroeconomics

(Consider This) Suppose that Toyota buys a factory previously owned by Chrysler Motors. Economists would

Refer to the ﬁgures. Which ﬁgure(s) represent(s) a situation where prices are ﬂexible?

At the end of the summer driving season, the demand for gasoline typically declines. This is an example of a negative demand shock.

How does inﬂation affect people's standard of living and savings?

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a positive demand shock?

Prices tend to be sticky because

When demand shocks lead to recessions, it is mainly due to

Supply shocks occur any time there is a change in the supply of goods and services.

Which of the following is not an effect of inﬂation that is troublesome to consumers?

Which of the following is most closely related to recessions?

Refer to the ﬁgures. Which of the following events would most likely result in higher unemployment?

Compare and contrast the characteristics of economic growth in ancient or preindustrial times with modern economic growth today.

(Consider This) Which took the major brunt of the decline in total demand in the Great Recession, real output or prices?

Before the period of modern economic growth,

Why are high rates of unemployment of concern to economists?

For many decades prior to the Industrial Revolution, the standards of living in England and China

Suppose a small economy produces only smart TVs. In year one, 100,000 TVs are produced and sold at a price of $1,200 each. In year two, 100,000 TVs are produced and sold at a price of $1,000 Each. As a result,

Describe the difference between real GDP and nominal GDP.

Evaluate the statement that "unexpected declines in demand, with inﬂexible prices, generate a rise in unemployment and a fall in output. "

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

Filters