Question 1

The ability of macroeconomists to predict the future course of economic events:

Accepted Answer

A)   is no better than the meteorologist's ability to predict the next month's weather.
B)   is much better than the meteorologist's ability to predict the next month's weather.
C)   has gotten worse over time.
D)   is less precise than it was in the 1920s. A

Question 2

The unemployment rate:

Accepted Answer

A)   was zero during the 1990s in the United States.
B)   was zero on average between 1900 and 1950 in the United States.
C)   has never been zero in the United States.
D)   is usually zero when the economy is not in a recession or depression. C

Question 3

When studying the short-run behavior of the economy, an assumption of ______ is more plausible, in contrast to studying the long-run equilibrium behavior of an economy, when an assumption of ______ is more plausible.

Accepted Answer

A)   inflation; unemployment
B)   unemployment; inflation
C)   flexible prices; sticky prices
D)   sticky prices; flexible prices D

Question 4

The study of the economy as a whole is called:

Accepted Answer

A)   household economics.
B)   business economics.
C)   microeconomics.
D)   macroeconomics.

Question 5

A severe recession is called a(n):

Accepted Answer

A)   depression.
B)   deflation.
C)   exogenous event.
D)   market-clearing assumption.

Question 6

In a simple model of the supply and demand for pizza, the endogenous variables are:

Accepted Answer

A)   the price of pizza and the price of cheese.
B)   aggregate income and the quantity of pizza sold.
C)   aggregate income and the price of cheese.
D)   the price of pizza and the quantity of pizza sold.

Question 7

Macroeconomists cannot conduct controlled experiments, such as testing various tax and expenditure policies, because:

Accepted Answer

A)   it is against the law.
B)   they tried it once and it did not work.
C)   they must make use of the data history gives them.
D)   economists already know the answers that would come out of the experiments.

Question 8

How does the distinction between flexible and sticky prices impact the study of macroeconomics?

Accepted Answer

A)   The study of flexible prices is confined to microeconomics, while macroeconomics focuses on sticky prices.
B)   Macroeconomists use flexible prices to explain inflation and sticky prices to explain unemployment.
C)   Flexible prices are typically assumed in the study of the long run, while sticky prices are assumed in the study of the short run.
D)   Endogenous variables are measured using flexible prices, while exogenous variables are measured using sticky prices.

Question 9

The assumption of continuous market clearing means that:

Accepted Answer

A)   sellers can sell all that they want at the going price.
B)   buyers can buy all that they want at the going price.
C)   in any given month, buyers can buy all that they want and sellers can sell all that they want at the going price.
D)   at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

Question 10

Which of the following is the best example of a flexible price?

Accepted Answer

A)   the price of a cup of coffee in a coffee shop
B)   the price of gasoline at a service station
C)   the price of a ticket at a movie theater
D)   the price of a book in a bookstore

Question 11

Recessions are periods when real GDP:

Accepted Answer

A)   increases slowly.
B)   increases rapidly.
C)   decreases mildly.
D)   decreases severely.

Question 12

Column A below lists the names of four U.S. presidents, while Column B lists four economic events that occurred during the tenures of those U.S. presidents. Match each president to the economic event that occurred during his tenure. $$\begin{array} { l l } 
\text { Column A } & \text { Column B } \
\text { 1. Jimmy Carter } & \text { a budget surplus } \
\text { 2. Ronald Regan } & \text { b. inflation } \
\text { 3. Bill Clinton } & \text { c. steep rise in mortgage defaults } \
\text { 4. Barrack Obama } & \text { d. budget deficit }
\end{array}$$

Accepted Answer

The answer of Column A below lists the names of...

Question 13

In the relationship expressed in functional form, Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ):

Accepted Answer

A)   is the growth rate of real GDP when the amount of capital and labor in the economy is fixed.
B)   indicates that the variables inside the parentheses are endogenous variables in the model.
C)   is the symbol that stands for government input into the production process.
D)   is the function telling how the variables in the parentheses determine real GDP.

Question 14

Deflation occurs when:

Accepted Answer

A)   real GDP decreases.
B)   the unemployment rate decreases.
C)   prices fall.
D)   prices increase, but at a slower rate.

Question 15

Using a market-clearing model to analyze the demand for haircuts is ______ because the price of a haircut usually changes ______.

Accepted Answer

A)   realistic; frequently
B)   realistic; infrequently
C)   unrealistic; frequently
D)   unrealistic; infrequently

Question 16

Which of the combinations listed is not a U.S. president and an important economic issue of his administration?

Accepted Answer

A)   President Carter, inflation
B)   President Reagan, budget deficits
C)   President G.H.W. Bush, budget deficits
D)   President Clinton, inflation

Question 17

All of the following statements about sticky prices are true except:

Accepted Answer

A)   in the short run, some wages and prices are sticky.
B)   the sticky-price model describes the equilibrium toward which the economy slowly gravitates.
C)   for studying year-to-year fluctuations, most macroeconomists believe that price stickiness is a better assumption than is price flexibility.
D)   magazine publishers tend to change their newsstand prices only every three or four years.

Question 18

Variables that a model tries to explain are called:

Accepted Answer

A)   endogenous.
B)   exogenous.
C)   market clearing.
D)   fixed.

Question 19

In a simple graphical model of the supply and demand for pizza with the price of pizza measured vertically and the quantity of pizza measured horizontally:

Accepted Answer

A)   the supply curve slopes upward and to the right.
B)   the demand curve slopes upward and to the right.
C)   the supply curve slopes downward and to the right.
D)   at the equilibrium price, the supply of pizza exceeds the demand for pizza.

Question 20

Macroeconomists are like scientists because they both:

Accepted Answer

A)   design data and conduct controlled experiments to test their theories.
B)   rely on data analyzed from experiments they set up in a laboratory.
C)   are unlimited in their use of controlled experiments.
D)   collect data, develop hypotheses, and analyze the results.

Exam 1: The Science of Macroeconomics