Question 1

Which of the following groups is the principal source of savings in an economy?

Accepted Answer

A)  banks 
B)  government 
C)  businesses 
D)  households 
A)  banks 
B)  government 
C)  businesses 
D)  households

Question 2

Because prices are sticky, a positive demand shock will lead to

Accepted Answer

A)  no change in unemployment. 
B)  an increase in unemployment. 
C)  a decrease in unemployment. 
D)  an unpredictable change in unemployment. 
A)  no change in unemployment. 
B)  an increase in unemployment. 
C)  a decrease in unemployment. 
D)  an unpredictable change in unemployment.

Question 3

Economists and policymakers are committed to encouraging a high and growing level of real GDP because

Accepted Answer

A)  this implies a lower price level. 
B)  this means a higher level of unemployment. 
C)  this implies an increase in investment. 
D)  this means greater consumption opportunities. 
A)  this implies a lower price level. 
B)  this means a higher level of unemployment. 
C)  this implies an increase in investment. 
D)  this means greater consumption opportunities.

Question 4

What are demand shocks? Describe a positive demand shock and a negative demand shock.

Accepted Answer

Demand shocks are unexpected changes in

Question 5

Which of the following statements is true?

Accepted Answer

A)  Financial investment refers to the creation and expansion of business enterprises. 
B)  Economic investment refers to the expansion of the economy's productive capability. 
C)  Economic investment refers to the purchase of assets such as stocks, bonds, and real estate. 
D)  Both economic investment and ﬁnancial investment refer to the purchase of assets such as stocks, bonds, and real estate. 
A)  Financial investment refers to the creation and expansion of business enterprises. 
B)  Economic investment refers to the expansion of the economy's productive capability. 
C)  Economic investment refers to the purchase of assets such as stocks, bonds, and real estate. 
D)  Both economic investment and ﬁnancial investment refer to the purchase of assets such as stocks, bonds, and real estate.

Question 6

Suppose a small economy produces only MP3 players. In year one, 10,000 MP3 players are produced and sold at a price of $100 each. In year two, 12,000 MP3 players are produced and sold
At a price of $80 each. Which of the following statements is true?

Accepted Answer

A)  Real GDP and nominal GDP both increase. 
B)  Real GDP increases, while nominal GDP remains constant. 
C)  Real GDP decreases, while nominal GDP increases. 
D)  Real GDP increases, while nominal GDP decreases. 
A)  Real GDP and nominal GDP both increase. 
B)  Real GDP increases, while nominal GDP remains constant. 
C)  Real GDP decreases, while nominal GDP increases. 
D)  Real GDP increases, while nominal GDP decreases.

Question 7

What impact will a negative demand shock have on the main measures of economic performance?

Accepted Answer

A)  Real GDP will increase and unemployment will decrease. 
B)  Real GDP will decrease and unemployment will increase. 
C)  Real GDP will decrease and unemployment will decrease. 
D)  Real GDP will increase and unemployment will increase. 
A)  Real GDP will increase and unemployment will decrease. 
B)  Real GDP will decrease and unemployment will increase. 
C)  Real GDP will decrease and unemployment will decrease. 
D)  Real GDP will increase and unemployment will increase.

Question 8

When ﬁrms face reduced demand for their goods and services during recessions, behavioral economics suggests that the ﬁrm should

Accepted Answer

A)  cut production and lay off workers according to the percent decline in sales. 
B)  explain to the workers that in order to make it through the recession, they all need to take a pay cut. 
C)  shut down until the recession is over. 
D)  increase morale by increasing production and hiring more workers. 
E)  reduce pay just for the salaried employees, not the hourly production workers. 
A)  cut production and lay off workers according to the percent decline in sales. 
B)  explain to the workers that in order to make it through the recession, they all need to take a pay cut. 
C)  shut down until the recession is over. 
D)  increase morale by increasing production and hiring more workers. 
E)  reduce pay just for the salaried employees, not the hourly production workers.

Question 9

In economics, the word "shocks" refers to

Accepted Answer

A)  situations where ﬁrms' expectations are not met. 
B)  any change in the demand for goods and services. 
C)  any change in the supply of goods and services. 
D)  a decrease in real GDP. 
A)  situations where ﬁrms' expectations are not met. 
B)  any change in the demand for goods and services. 
C)  any change in the supply of goods and services. 
D)  a decrease in real GDP.

Question 10

Which of the following is not a factor that increases short-run price stickiness?

Accepted Answer

A)  Consumers tend to prefer stable prices. 
B)  Stable prices make it easier for consumers to plan their spending. 
C)  A ﬁrm can lower its price without fear that rival ﬁrms will also lower their prices. 
D)  Firms try to avoid price wars. 
A)  Consumers tend to prefer stable prices. 
B)  Stable prices make it easier for consumers to plan their spending. 
C)  A ﬁrm can lower its price without fear that rival ﬁrms will also lower their prices. 
D)  Firms try to avoid price wars.

Question 11

Real GDP can change due to changes in the price level.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is used to compare the average standard of living across countries?

Accepted Answer

A)  real GDP 
B)  nominal GDP 
C)  purchasing power parity 
D)  GDP per person 
A)  real GDP 
B)  nominal GDP 
C)  purchasing power parity 
D)  GDP per person

Question 13

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

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 14

Shocks to the economy occur when

Accepted Answer

A)  stock prices rise by more than 10 percent per year. 
B)  government takes a more active role in the economy. 
C)  prices are ﬂexible. 
D)  actual economic events do not match what people expected. 
A)  stock prices rise by more than 10 percent per year. 
B)  government takes a more active role in the economy. 
C)  prices are ﬂexible. 
D)  actual economic events do not match what people expected.

Question 15

Savings are generated when current consumption is less than current income.

Accepted Answer

A) True 
 B)False

Question 16

The period when output and living standards decline is referred to as

Accepted Answer

A)  inﬂation. 
B)  economic decline. 
C)  an inventory downturn. 
D)  a recession. 
A)  inﬂation. 
B)  economic decline. 
C)  an inventory downturn. 
D)  a recession.

Question 17

Which among the following countries had the highest GDP per person in 2017?

Accepted Answer

A)  Switzerland 
B)  United States 
C)  Japan 
D)  China 
A)  Switzerland 
B)  United States 
C)  Japan 
D)  China

Question 18

Which of the following is the best example of economic investment?

Accepted Answer

A)  Apple builds a new plant to manufacture iPads. 
B)  Your college purchases a 5-year-old building in order to have more classrooms. 
C)  A retiree purchases U.S. government bonds. 
D)  A company, like Bank of America, acquires another company, like Merrill Lynch. 
A)  Apple builds a new plant to manufacture iPads. 
B)  Your college purchases a 5-year-old building in order to have more classrooms. 
C)  A retiree purchases U.S. government bonds. 
D)  A company, like Bank of America, acquires another company, like Merrill Lynch.

Question 19

An increase in the overall level of prices in an economy is called

Accepted Answer

A)  growth. 
B)  expansion. 
C)  inﬂation. 
D)  nominal GDP growth. 
A)  growth. 
B)  expansion. 
C)  inﬂation. 
D)  nominal GDP growth.

Question 20

Negative demand shocks have a more signiﬁcant impact on output and employment when prices
are ﬂexible.

Accepted Answer

A) True 
 B)False

Exam 6: An Introduction to Macroeconomics

Which of the following groups is the principal source of savings in an economy?

Because prices are sticky, a positive demand shock will lead to

Economists and policymakers are committed to encouraging a high and growing level of real GDP because

What are demand shocks? Describe a positive demand shock and a negative demand shock.

Which of the following statements is true?

Suppose a small economy produces only MP3 players. In year one, 10,000 MP3 players are produced and sold at a price of $100 each. In year two, 12,000 MP3 players are produced and sold At a price of $80 each. Which of the following statements is true?

What impact will a negative demand shock have on the main measures of economic performance?

When ﬁrms face reduced demand for their goods and services during recessions, behavioral economics suggests that the ﬁrm should

In economics, the word "shocks" refers to

Which of the following is not a factor that increases short-run price stickiness?

Real GDP can change due to changes in the price level.

Which of the following is used to compare the average standard of living across countries?

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

Shocks to the economy occur when

Savings are generated when current consumption is less than current income.

The period when output and living standards decline is referred to as

Which among the following countries had the highest GDP per person in 2017?

Which of the following is the best example of economic investment?

An increase in the overall level of prices in an economy is called

Negative demand shocks have a more signiﬁcant impact on output and employment when prices are ﬂexible.

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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