Deck 5: Introduction to Macroeconomics

Question 1

Whose analysis serves as the foundation of modern macroeconomics?

A) Milton Friedman
B) John Maynard Keynes
C) Adam Smith
D) Joseph Schumpeter

Answer 1

John Maynard Keynes

Question 2

The high point of a business cycle is called the:

A) trough.
B) expansion.
C) recession.
D) peak.

Answer 2

peak.

Question 3

Business cycles:

A) are always the same duration.
B) are always the same magnitude.
C) are always the same duration and magnitude.
D) vary in duration and magnitude.

Answer 3

vary in duration and magnitude.

Question 4

Over the past 150 years,the U.S.economy has endured a recession on average about every:

A) one to two years.
B) four to five years.
C) 10 to 15 years
D) 50 years

Question 5

Suppose the Federal Reserve Bank of Chicago's National Activity Index increased to -0.13 in June from -0.29 in May.Which of the following is the best interpretation of this finding?

A) Economic activity improved slightly from May to June,but the economy is in a recession.
B) Economic activity improved slightly from May to June,but the rate of economic growth is below its historical trend.
C) The rate of economic growth declined in May and June.
D) Economic activity declined from May to June,and the rate of economic growth is below its historical trend.

Question 6

Which of the following events has significantly influenced the development of macroeconomic ideas?

A) World War II
B) the development of the modern corporation
C) the Industrial Revolution
D) the Great Depression

Question 7

An economy has historically grown at a rate of 2.25%.Currently,this economy is growing at a rate of 3%,and the unemployment rate is low by historical standards.The economy is expected to continue to grow in the near future,and the monetary authorities are concerned that inflation may increase.This economy is probably in the _____________ stage of the business cycle.

A) expansion
B) recovery
C) contraction
D) trough

Question 8

The study of macroeconomics as a specific discipline is due primarily to:

A) Adam Smith.
B) John Maynard Keynes.
C) Milton Friedman.
D) Joseph Schumpeter.

Question 9

Suppose the National Bureau of Economic Research announces that the economy has been in a recession for the past year.What effect might this announcement have on the economy?

A) The Federal Reserve will probably increase interest rates to fight the recession.
B) Employers will probably trim payrolls in an effort to cut costs in the face of decreased demand for their products.
C) Businesses will invest heavily in plant and equipment.
D) Businesses will add shifts to prepare for the upcoming recovery.

Question 10

An economy has historically grown at a rate of 1.25%.Economic activity decreased every quarter over the past year,but the decline stopped this quarter.The economy is expected to grow at a rate of 1.4% in the near future,and the monetary authorities are concerned that inflation may increase.This economy is probably in the _____________ stage of the business cycle.

A) expansion
B) recovery
C) contraction
D) trough

Question 11

Suppose the Federal Reserve Bank of Chicago's National Activity Index drops to -0.83 this month after being above +0.36 for the previous three months.This movement in the index indicates that:

A) the economy has probably moved into a recession.
B) the rate of economic growth has slowed,but not enough to suggest that a recession is imminent.
C) the rate of economic growth has dropped below the historical trend rate of growth,and the economy has reached a trough.
D) the economy is at its peak this month but will move into the recession stage in the near future.

Question 12

At the peak of the business cycle,the economy is typically operating:

A) at its capacity.
B) above capacity.
C) below capacity.
D) at its highest level ever.

Question 13

Macroeconomics was developed to explain:

A) the Great Depression.
B) jobless recoveries.
C) the Industrial Revolution.
D) the Internet boom.

Question 14

Suppose the Federal Reserve Bank of Chicago's National Activity Index hovered around +0.25 for a few months and then dropped to -1.5 in November.Which of the following is the best interpretation of this finding?

A) The economy grew at a rate of 0.25% for a few months,but economic growth actually decreased by 1.5% in November.
B) The rate of economic growth slowed in November,but the economy did not move into a recession.
C) The economy was in an expansion in October but moved into a recession in November.
D) Economic activity was above the historical trend rate of growth,but it is likely that the economy moved into a recession in November.

Question 15

An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n):

A) unemployment trap.
B) recession.
C) jobless recovery.
D) microeconomic problem.

Question 16

During a typical economic recovery:

A) inflation drops.
B) people become pessimistic.
C) unemployment drops.
D) incomes fall.

Question 17

What event was a major influence on the development of macroeconomics?

A) the Great Depression
B) the Employment Act of 1946
C) the establishment of the Federal Reserve System in the United States
D) the U.S.entry into World War II

Question 18

Most of the recessions of the past half century have lasted between:

A) 6 and 18 months.
B) two and four years.
C) one year and 11 years.
D) two and three months.

Question 19

A business cycle is:

A) the periodic fluctuation of economic activity.
B) the engine of economic growth.
C) a period lasting about 50 years.
D) identical to the consumption life cycle.

Question 20

U.S.business cycles since 1950 have shown:

A) expansions to be just as lengthy as recessions.
B) expansions to be longer than recessions.
C) expansions to be shorter than recessions.
D) stable unemployment rates.

Question 21

When a recession gets under way:

A) firms start to lay off workers to reduce costs.
B) consumer confidence rises because people expect the eventual recovery.
C) inflation always rises because the government prints more money.
D) inflation falls because the government reduces its budget deficit.

Question 22

When the National Activity Index is at zero,the economy is growing at _____ rates.Negative values imply _____ trends.Positive values imply that growth is _____ the long-term trend.

A) rapidly;slowing;equal to
B) slowly;accelerating;equal to
C) historical;slowing;faster than
D) historical;accelerating;slower than

Question 23

The _____ is a weighted average of 85 indicators of aggregate economic performance,designed to pinpoint signs of a recession in a reasonable time frame.

A) consumer price index
B) National Activity Index
C) producer price index
D) Dow Jones Industrial Index

Question 24

The National Activity Index was developed by:

A) the National Bureau of Economic Research.
B) the Federal Reserve Bank of Chicago.
C) the U.S.Treasury.
D) the Conference Board.

Question 25

A criticism of the National Bureau of Economic Research's business cycle dating committee is that it:

A) makes premature judgments as to the turning points of the business cycle.
B) makes little use of the national income and product accounts.
C) dates peaks and troughs only after the fact.
D) does not update or revise data.

Question 26

Which of the following statements is TRUE about the National Activity Index?

A) When the index has a zero value,the economy has reached a trough.
B) Negative values always mean the economy is in a recession.
C) Positive values indicate the economy may face a period of increasing inflation.
D) Negative values mean the economy is growing more slowly than its long-term trend.

Question 27

Which is NOT a criticism of the National Bureau of Economic Research's recession dating?

A) Dates are announced long after the economy turned.
B) Deliberations are not made public.
C) Its use of revised data introduces errors in dating.
D) There is no single consistent methodology used in dating.

Question 28

The Leading Economic Index is produced by:

A) the National Bureau of Economic Research.
B) the Federal Reserve Bank of Chicago.
C) the U.S.Treasury.
D) the Conference Board.

Question 29

Which phase of the business cycle occurs immediately after a recovery?

A) peak
B) trough
C) boom
D) recession

Question 30

The National Bureau of Economic Research:

A) is a government agency that dates business cycles in the United States.
B) is a nonprofit research organization that dates business cycles in the United States.
C) consists of elected officials from the U.S.Senate.
D) is a nonprofit research organization that only determines when recessions begin.

Question 31

Which phase of the business cycle occurs immediately before a trough?

A) peak
B) recession
C) boom
D) recovery

Question 32

A change in the Leading Economic Index is supposed to reflect:

A) how the economy behaved in the recent past.
B) how the economy is behaving.
C) how the economy will behave in the near future.
D) an average of how the economy has behaved over the most recent business cycle.

Question 33

Alternating periods of macroeconomic expansion and contraction are known as:

A) hyperinflations.
B) business cycles.
C) budget surpluses and deficits.
D) trade surpluses and deficits.

Question 34

Which of the following is TRUE about business cycles?

A) They all have the same approximate length.
B) Every cycle is unique.
C) Each recession causes the same amount of unemployment.
D) The intensity tends to be constant from recession to recession,but the duration differs.

Question 35

We are least likely to be heading into a recession when the National Activity Index equals:

A) -0.33.
B) 0.55.
C) -0.98.
D) 0.81.

Question 36

The "business cycle" refers to:

A) short-run fluctuations in macroeconomic activity.
B) the long-run increase in GDP.
C) changes in the economy over the course of the four seasons.
D) changes in the economy between winter and summer.

Question 37

A(n)_____ in the business cycle usually means the economy is operating at its capacity.

A) upward trend
B) peak
C) recession
D) recovery

Question 38

Which organization determines the beginning and end dates of a recession?

A) the Council of Economic Advisers
B) the National Bureau of Economic Research
C) the U.S.Treasury Department
D) the Federal Reserve Board of Governors

Question 39

Which of the following is NOT a criticism of the dating of business cycles by the National Bureau of Economic Research (NBER)?

A) Economists use different methodologies to measure business cycles.
B) NBER dates peaks and troughs only after the fact.
C) The NBER deliberations are not public.
D) The NBER is sometimes manipulated by the federal government.

Question 40

The National Activity Index:

A) is a weighted average of 85 indicators of national economic activity.
B) is a weighted average of estimates of economic activity by the National Bureau of Economic Research (NBER) and the Bureau of Economic Activity (BEA).
C) is produced by the NBER.
D) is a measure of unemployment and participation in the labor force.

Question 41

We are most likely to see a recession if interest rates on long-term bonds are __________ and interest rates on short-term bonds are _________.

A) 8%;6%
B) 5%;5%
C) 7%;7%
D) 2%;4%

Question 42

Which is NOT a main use of the national income and product accounts?

A) to compare U.S.economic performance with that of other countries
B) to support the macroeconomic theory of the political party in power
C) to track the success of macroeconomic policy
D) to gauge the economy's position in the business cycle

Question 43

We should most likely expect a recession if,compared with the same months the previous year,the Leading Economic Index:

A) falls for three months in a row.
B) rises for three months in a row.
C) rises for six months in a row.
D) falls for six months in a row.

Question 44

The main reason the national income and product accounts were devised was to:

A) provide businesses with data on the economy.
B) help government manage the business cycle.
C) provide employment for statisticians during the Great Depression.
D) test out accounting theory developed during the early 20th century.

Question 45

The national income and product accounts provide:

A) the ability to track business cycles.
B) the ability to account for nonmarket activities,such as car maintenance.
C) a comprehensive measure of domestic unemployment.
D) a comprehensive measure of domestic inflation.

Question 46

One of the key concepts involved in the circular flow diagram is that:

A) households and businesses are in conflict with each other.
B) the national economy is similar to a zero-sum game.
C) one person's spending is another person's income.
D) the sum of the resource and product markets must equal household income.

Question 47

The diagram that illustrates how households and businesses interact through product and resource markets is called the:

A) product-resource diagram.
B) economic agents graph.
C) circular flow diagram.
D) economic interactivity diagram.

Question 48

We are most likely to see a recession if interest rates on long-term bonds are:

A) higher than interest rates on short-term bonds.
B) the same as interest rates on short-term bonds.
C) rising.
D) lower than interest rates on short-term bonds.

Question 49

In the simple circular flow model:

A) income is equal to spending.
B) saving is equal to consumer spending.
C) factor payments are equal to goods and services.
D) goods and services are equal to consumer spending.

Question 50

Simon Kuznets:

A) devised the gross national product as a way of measuring a nation's economic output.
B) set up the National Bureau of Economic Research.
C) was Secretary of Treasury during World War II.
D) invented the hair net.

Question 51

A simple circular flow diagram shows that the factors of production are:

A) owned by the government.
B) purchased by households.
C) purchased by businesses.
D) traded in the market for goods and services.

Question 52

The National Bureau of Economic Research determines that a recession is over:

A) after one year of economic growth.
B) when the economy is in a trough.
C) when the unemployment rate declines below 5%.
D) when the stock market reaches its prerecession level.

Question 53

The national income and product accounts do all of the following EXCEPT:

A) let economists judge our nation's economic performance.
B) compare U.S.income and output to that of other nations.
C) track the economy's condition over the course of the business cycle.
D) track changes in income distribution.

Question 54

Which of the following is TRUE within the circular flow of economic activity?

A) Households are sellers of products and sellers of production factors.
B) Business firms are buyers and sellers of production factors.
C) Households are sellers of products and buyers of production factors.
D) Business firms are sellers of products and buyers of production factors.

Question 55

Which of the following is TRUE within the circular flow of economic activity?

A) Households are buyers of products and sellers of production factors.
B) Business firms are buyers and sellers of production factors.
C) Households are sellers of products and buyers of production factors.
D) Business firms are buyers of products and sellers of production factors.

Question 56

In a simple circular flow diagram,total spending on goods and services in the product market:

A) is greater than the total income earned in the resource market.
B) is less than the total income earned in the resource market.
C) is done by the government.
D) equals the total income earned in the resource market.

Question 57

The event that stimulated the U.S.government's commitment to tracking the economy's health through a national income accounting system was the:

A) Civil War and Reconstruction.
B) Panic of 1907.
C) Great Depression.
D) Oil embargo of 1973.

Question 58

National income and product accounts came about in the United States during the 1930s as a result of:

A) the theories of John Maynard Keynes.
B) a lack of reliable economic data.
C) the work of the Council of Economic Advisers.
D) the work of the Federal Reserve.

Question 59

According to the circular flow model,the value of the household sector and the value of the business sector will:

A) never be the same.
B) always be equal.
C) differ by the amount of the resource market.
D) differ by the amount of the product market.

Question 60

The idea that all income ultimately goes to households,which then use it to buy goods and services from firms,is a central idea of the:

A) production possibilities frontier.
B) supply and demand model.
C) circular flow diagram.
D) classical model.

Question 61

GDP can be found either by adding up all of the __________ or all of the __________ in the economy.

A) spending;taxes
B) spending;income
C) investment;income
D) net interest payments;taxes

Question 62

In the circular flow diagram,the clockwise direction shows the flow of _____,where households supply _____ and businesses supply _____.

A) money;purchases of goods and services;income to households
B) money;labor;goods and services
C) goods and services;labor;goods and services
D) goods and services;purchases of goods and services;income to households

Question 63

Which of the following is TRUE in the case of the simple circular flow model with no saving?

A) Total spending is greater than total income.
B) Total spending equals total income only at full employment.
C) Total spending equals total income.
D) Total spending is less than total income.

Question 64

One important reason economists track business investment is that:

A) it helps them decide which stocks to purchase.
B) it is a leading indicator of the business cycle.
C) business investment is an excellent proxy for government investment.
D) it shows them where the economy has been.

Question 65

If personal consumption is $100,investment is $25,government purchases total $25,imports equal $20,and exports equal $10,then GDP equals:

A) $160.
B) $180.
C) $150.
D) $140.

Question 66

Total spending in an economy is the sum of:

A) durable goods plus nondurable goods plus services.
B) imports minus exports.
C) personal consumption plus gross private investment plus government spending plus net exports.
D) food plus housing plus business plus government spending.

Question 67

Gross domestic product is a measure of:

A) an economy's total output.
B) household production.
C) the total weight of all goods produced.
D) production by owners of labor and capital only.

Question 68

In the national income and product accounts system the two main approaches to measuring the size of the economy are:

A) income and expenditures.
B) imports and exports.
C) production and consumption.
D) government and private.

Question 69

The sum of all income,including wages,salaries and benefits,profits,rental income,and interest,is called:

A) labor income.
B) gross domestic income.
C) national income.
D) pretax income.

Question 70

Which of the following statements is CORRECT?

A) Households supply both labor and nonlabor resources.
B) In the circular flow model,incomes and resources flow in the same direction.
C) The four main factors of production are water,land,entrepreneurial ability,and energy.
D) Owners of factors of production pay income to firms.

Question 71

Investment in structures,equipment,software,and net inventory is known as:

A) total business spending.
B) gross private domestic investment.
C) net business spending.
D) net investment in durables.

Question 72

The U.S.gross domestic product is equal to the total market value of all:

A) intermediate goods and services produced by resources in the United States.
B) final goods and services produced by resources in the United States.
C) final goods and services produced by U.S.citizens in the United States.
D) intermediate goods and services produced by U.S.citizens in the United States.

Question 73

Expenditures by individuals for durable goods,nondurable goods,and services is known as:

A) personal consumption expenditure.
B) total spending.
C) personal calculated expenditure.
D) personal computed expenditure.

Question 74

Which component is the smallest part of U.S.GDP?

A) personal consumption expenditures
B) gross private domestic investment
C) government purchases of goods and services
D) net exports

Question 75

What is an example of a final good?

A) tartar sauce purchased by a fish restaurant
B) corn purchased by a hog farmer
C) bacon purchased at a grocery store
D) rubber purchased by a bicycle company

Question 76

Which ONE of the following would be included in the GDP calculations?

A) a windshield purchased by General Motors
B) a hamburger purchased by a hungry restaurant patron
C) petroleum purchased by a refiner from the company that drilled it
D) nails purchased by a building contractor

Question 77

The simple circular flow diagram shows that economic aggregates can be calculated either by the _____________ flows in the product market or by the ______________ flowing to households in the resource market.

A) spending;income
B) income;spending
C) output;spending
D) spending;output

Question 78

In the circular flow diagram,the counterclockwise direction shows the flow of _____,where households supply _____ and businesses supply _____.

A) money;purchases of goods and services;income to households
B) money;labor;goods and services
C) goods and services;labor;goods and services
D) goods and services;purchases of goods and services;income to households

Question 79

The two approaches used by government in estimating GDP are:

A) statistical and nonstatistical.
B) survey and nonsurvey.
C) income and earnings.
D) expenditure and income.

Question 80

Gross domestic product is the total market value of all:

A) final goods and services produced in the United States by labor and property.
B) final and intermediate goods and services produced in the United States by labor and property.
C) intermediate goods produced in the United States by labor and property.
D) final goods and services sold in the United States.