Question 1

Real GDP measures the

Accepted Answer

A)  total dollar value of all goods and services produced within the borders of a country using current prices. 
B)  value of ﬁnal goods and services produced within the borders of a country, adjusted for price changes. 
C)  total dollar value of all goods and services consumed within the borders of a country, corrected for price changes. 
D)  value of all goods and services produced in the world, using current prices. 
A)  total dollar value of all goods and services produced within the borders of a country using current prices. 
B)  value of ﬁnal goods and services produced within the borders of a country, adjusted for price changes. 
C)  total dollar value of all goods and services consumed within the borders of a country, corrected for price changes. 
D)  value of all goods and services produced in the world, using current prices.

Question 2

Real gross domestic product is a measure of the

Accepted Answer

A)  average price level in the economy. 
B)  value of ﬁnal output produced within a country in one year, using current prices. 
C)  value of ﬁnal output produced within a country in one year, adjusted for changing prices. 
D)  total value of available resources in a nation. 
A)  average price level in the economy. 
B)  value of ﬁnal output produced within a country in one year, using current prices. 
C)  value of ﬁnal output produced within a country in one year, adjusted for changing prices. 
D)  total value of available resources in a nation.

Question 3

Increased present saving

Accepted Answer

A)  comes at the expense of reduced current investment. 
B)  comes at the expense of reduced current consumption. 
C)  can only occur if the government increases the amount of money in circulation. 
D)  is only possible if the economy is experiencing positive growth in real GDP. 
A)  comes at the expense of reduced current investment. 
B)  comes at the expense of reduced current consumption. 
C)  can only occur if the government increases the amount of money in circulation. 
D)  is only possible if the economy is experiencing positive growth in real GDP.

Question 4

An unexpected negative demand shock would lead to a decrease in inventories.

Accepted Answer

A) True 
 B)False

Question 5

One major reason for sticky prices could be that ﬁrms selling ﬁnal goods and services do not want
to annoy customers with frequently changing prices.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would an economist consider to be investment?

Accepted Answer

A)  Boeing builds a new factory 
B)  Oprah buys a $10 million home from a fellow celebrity 
C)  a stockbroker buys 10,000 shares of Starbucks stock 
D)  All of these choices are correct. 
A)  Boeing builds a new factory 
B)  Oprah buys a $10 million home from a fellow celebrity 
C)  a stockbroker buys 10,000 shares of Starbucks stock 
D)  All of these choices are correct.

Question 7

Prices tend to be sticky partially because sellers know that consumers prefer stable prices.

Accepted Answer

A) True 
 B)False

Question 8

Savings are transferred from savers to borrowers through the following intermediaries, except

Accepted Answer

A)  mutual funds. 
B)  pension funds. 
C)  real estate brokers. 
D)  insurance companies. 
A)  mutual funds. 
B)  pension funds. 
C)  real estate brokers. 
D)  insurance companies.

Question 9

Banks and other ﬁnancial institutions

Accepted Answer

A)  are the primary investors in equipment, factories, and other capital goods. 
B)  lack relevance in the modern economy because they focus primarily on ﬁnancial assets and generally do not engage in real investment activity. 
C)  promote economic growth by helping to direct household savings to businesses that want to invest. 
D)  often hinder economic activity by creating barriers between household savers and ﬁrms wanting to invest in capital goods. 
A)  are the primary investors in equipment, factories, and other capital goods. 
B)  lack relevance in the modern economy because they focus primarily on ﬁnancial assets and generally do not engage in real investment activity. 
C)  promote economic growth by helping to direct household savings to businesses that want to invest. 
D)  often hinder economic activity by creating barriers between household savers and ﬁrms wanting to invest in capital goods.

Question 10

Higher unemployment rates are linked with higher crime rates and higher rates of physical and
mental illness.

Accepted Answer

A) True 
 B)False

Question 11

The opportunity cost of investment is a reduction in future consumption.

Accepted Answer

A) True 
 B)False

Question 12

Real GDP is preferred to nominal GDP as a measure of economic performance because

Accepted Answer

A)  nominal GDP uses current prices and thus may over or understate true changes in output. 
B)  nominal GDP only includes goods and excludes services. 
C)  nominal GDP is not adjusted for population changes. 
D)  real GDP accounts for changes in the quality of goods and services produced. 
A)  nominal GDP uses current prices and thus may over or understate true changes in output. 
B)  nominal GDP only includes goods and excludes services. 
C)  nominal GDP is not adjusted for population changes. 
D)  real GDP accounts for changes in the quality of goods and services produced.

Question 13

Inﬂation refers to an increase in the overall level of prices.

Accepted Answer

A) True 
 B)False

Question 14

When prices are inﬂexible, the economy will respond to demand shocks through short-run changes
in output and unemployment.

Accepted Answer

A) True 
 B)False

Question 15

Economists need different models of the economy because

Accepted Answer

A)  the economy behaves differently depending on how much time has passed after a demand shock. 
B)  we need a different model to analyze a positive demand shock than we need to analyze a negative demand shock. 
C)  the way economic performance is measured changes over time. 
D)  prices tend to be less ﬂexible over time. 
A)  the economy behaves differently depending on how much time has passed after a demand shock. 
B)  we need a different model to analyze a positive demand shock than we need to analyze a negative demand shock. 
C)  the way economic performance is measured changes over time. 
D)  prices tend to be less ﬂexible over time.

Question 16

Refer to the ﬁgure. Assuming this market is representative of the economy as a whole, a positive demand shock will

Accepted Answer

A)  increase both the price level and the quantity of output produced. 
B)  increase output but leave prices unchanged. 
C)  lower the price level but leave output unchanged. 
D)  raise the price level but leave output unchanged. 
A)  increase both the price level and the quantity of output produced. 
B)  increase output but leave prices unchanged. 
C)  lower the price level but leave output unchanged. 
D)  raise the price level but leave output unchanged.

Question 17

The average amount of time between price changes for gasoline is

Accepted Answer

A)  two to three days. 
B)  two to three weeks. 
C)  two to three months. 
D)  two to three years. 
A)  two to three days. 
B)  two to three weeks. 
C)  two to three months. 
D)  two to three years.

Question 18

The overall behavior of the economy

Accepted Answer

A)  is remarkably stable over time. 
B)  differs over time as prices become increasingly ﬂexible in the months and years following a shock. 
C)  differs over time as prices become increasingly sticky in the months and years following a shock. 
D)  is easily controlled and stabilized by government policy. 
A)  is remarkably stable over time. 
B)  differs over time as prices become increasingly ﬂexible in the months and years following a shock. 
C)  differs over time as prices become increasingly sticky in the months and years following a shock. 
D)  is easily controlled and stabilized by government policy.

Question 19

Suppose that real GDP increases by 5 percent while the population of a country increases by 7 percent. In this situation,

Accepted Answer

A)  output per person necessarily increases. 
B)  output per person necessarily decreases. 
C)  output per person necessarily remains unchanged. 
D)  there is not enough information to determine what happens to output per person. 
A)  output per person necessarily increases. 
B)  output per person necessarily decreases. 
C)  output per person necessarily remains unchanged. 
D)  there is not enough information to determine what happens to output per person.

Question 20

Shocks occur when actual events do not match expectations.

Accepted Answer

A) True 
 B)False

Exam 6: An Introduction to Macroeconomics

Real GDP measures the

Real gross domestic product is a measure of the

Increased present saving

An unexpected negative demand shock would lead to a decrease in inventories.

One major reason for sticky prices could be that ﬁrms selling ﬁnal goods and services do not want to annoy customers with frequently changing prices.

Which of the following would an economist consider to be investment?

Prices tend to be sticky partially because sellers know that consumers prefer stable prices.

Savings are transferred from savers to borrowers through the following intermediaries, except

Banks and other ﬁnancial institutions

Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.

The opportunity cost of investment is a reduction in future consumption.

Real GDP is preferred to nominal GDP as a measure of economic performance because

Inﬂation refers to an increase in the overall level of prices.

When prices are inﬂexible, the economy will respond to demand shocks through short-run changes in output and unemployment.

Economists need different models of the economy because

Refer to the ﬁgure. Assuming this market is representative of the economy as a whole, a positive demand shock will

The average amount of time between price changes for gasoline is

The overall behavior of the economy

Suppose that real GDP increases by 5 percent while the population of a country increases by 7 percent. In this situation,

Shocks occur when actual events do not match expectations.

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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