Deck 26: An Introduction to Macroeconomics

Question 1

The business cycle depicts

A)fluctuations in the general price level.
B)the phases a business goes through from when it first opens to when it finally closes.
C)the evolution of technology over time.
D)short-run fluctuations in output and employment.

Answer 1

short-run fluctuations in output and employment.

Question 2

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

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

Answer 2

GDP per person

Question 3

In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation?

A)purchasing power parity
B)the quantity of resources available to the economy
C)population size
D)different currency values

Answer 3

the quantity of resources available to the economy

Question 4

Savings are generated whenever

A)prices are rising.
B)current spending exceeds current income.
C)current income exceeds current spending.
D)real GDP exceeds nominal GDP.

Question 5

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

A)Nominal and real GDP would both rise.
B)Nominal and real GDP would both be unchanged.
C)Real GDP would rise, but nominal GDP would be unchanged.
D)Nominal GDP would rise, but real GDP would be unchanged.

Question 6

Why are high rates of unemployment of concern to economists?

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 7

Before the period of modern economic growth,

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 8

Which of the following countries would economists say definitively is achieving modern economic growth?

A)Zimbabwe experiences a 5.6 percent increase in nominal GDP.
B)South Africa experiences a 4.2 percent increase in real GDP.
C)Ghana experiences a 3.6 percent increase in nominal GDP per person.
D)Nigeria experiences a 2.7 percent increase in real GDP per person.

Question 9

The term "recession" describes a situation where

A)inflation rates exceed normal levels.
B)output and living standards decline.
C)an economy's ability to produce is destroyed.
D)government takes a less active role in economic matters.

Question 10

When economists refer to "investment," they are describing a situation where

A)people are buying shares of corporate stock.
B)resources are devoted to increasing future output.
C)money is saved in a bank account.
D)financial assets are purchased in the hope of a monetary gain.

Question 11

Unemployment describes the condition where

A)equipment and machinery are going unused.
B)a person cannot get a job but is willing to work and is actively seeking work.
C)a person does not have a job, regardless of whether or not he or she wants one.
D)any resource sits idle.

Question 12

Which of the following statements is most accurate about advanced economies?

A)Economies experience a positive growth trend over the short run but experience significant variability in the long run.
B)Economies experience a positive growth trend over the long run but experience significant variability in the short run.
C)Economies experience positive and stable growth over both the long run and short run.
D)Economies experience little long-run growth in output but can experience significant growth in the short run.

Question 13

Macroeconomics is mostly focused on

A)the individual markets within an economy.
B)only the largest industries in the economy.
C)the economy as a whole.
D)why specific businesses fail.

Question 14

Which of the following is most closely related to recessions?

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 15

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each.This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each.Based on this information, we can conclude that Harry's production of large pepperoni pizzas

A)increased both nominal and real GDP from last year.
B)increased nominal GDP from last year, but real GDP was unaffected.
C)increased real GDP from last year, but nominal GDP was unaffected.
D)did not change either nominal or real GDP from last year.

Question 16

Why are economists concerned about inflation?

A)Inflation generally causes unemployment rates to rise.
B)Real GDP is necessarily falling when there is inflation.
C)Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
D)Inflation increases the value of people's savings and encourages overspending on goods and services.

Question 17

Real GDP measures the

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

Question 18

Higher rates of unemployment are linked with

A)greater political stability because the employed tend to be more politically active.
B)higher crime rates, as the unemployed seek to replace lost income.
C)lower rates of heart disease, as the unemployed have eliminated job stress.
D)improvements in overall health, as the unemployed have more leisure time to be physically active.

Question 19

Harry's Pizza Parlor produced 10,000 large pizzas last year that sold for $10 each.This year Harry's produced 11,000 large pizzas (identical to last year's pizzas) but sold them for $12 each.Based on this information, we can conclude that Harry's production of large pizzas

A)increased nominal GDP from last year, but real GDP was unaffected.
B)increased both nominal and real GDP from last year.
C)increased real GDP from last year, but nominal GDP was unaffected.
D)did not change either nominal or real GDP from last year.

Question 20

Modern economic growth refers to countries that have experienced an increase in

A)real GDP over time.
B)nominal GDP over time.
C)real output spread evenly across all sectors of the economy.
D)real output per person.

Question 21

Which of the following is an example of a supply shock?

A)A surge in consumer optimism prompts increased buying of goods and services.
B)A surprise tax rebate from the government gives people more money to spend.
C)A dramatic increase in energy prices increases production costs for firms in the economy.
D)Government increases spending on education.

Question 22

(Consider This) Which of the following is an example of economic investment?

A)Volvo buys an old factory building from General Motors.
B)Nike buys a new machine that increases shoe production.
C)Bill Gates buys shares of stock in IBM.
D)Warren Buffet buys U.S.savings bonds.

Question 23

For which of the following goods are services are prices least sticky?

A)taxi fares
B)haircuts
C)microwave ovens
D)airline tickets

Question 24

Suppose that Techno TV produces LCD televisions.At a price of $2,000 per television, Techno determines that its optimal output is 3,000 television sets per week.If prices are sticky and fears of a recession reduce demand for LCD televisions, we would expect Techno to

A)reduce output in the long run.
B)reduce output in the short run.
C)raise prices in the short run to compensate for lost revenue.
D)lower prices in the short run to offset the reduced demand.

Question 25

Which of the following statements best describes price flexibility in the economy?

A)Prices tend to be sticky in the short run and stuck in the long run.
B)Prices tend to be just as sticky in the short run as in the long run.
C)Prices tend to be sticky in the short run but become more flexible over time.
D)Prices tend to be flexible in the short run but become more sticky over time.

Question 26

If an economy wants to increase its current level of investment, it must

A)sacrifice future consumption.
B)print more money.
C)offer more stocks and bonds to financial investors.
D)sacrifice current consumption.

Question 27

Banks and other financial institutions

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 28

For which of the following goods and services are prices most sticky?

A)taxi fares
B)beer
C)coin-operated laundry machines
D)airline tickets

Question 29

Which of the following best explains why prices tend to be inflexible even when demand changes?

A)Government regulations limit the number of times a firm can change prices in a year.
B)In most industries the profit-maximizing price does not change even when demand changes.
C)Production costs do not tend to change when a firm varies its level of output.
D)Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

Question 30

Which of the following is an example of a demand shock?

A)Hurricane Harry knocks out oil drilling platforms in the Gulf of Mexico.
B)Consumers become worried about job loss and buy fewer goods and services than expected.
C)Floods in the Midwest destroy crops.
D)The federal government unexpectedly requires automobile producers to raise fuel efficiency standards.

Question 31

(Consider This) In 2008 and 2009, the United States experienced what has come to be known as the

A)Great Depression.
B)Great Recession.
C)Great Expansion.
D)Great Stagnation.

Question 32

In situations of sticky prices and negative demand shocks, we would expect firms to

A)deplete inventories before increasing production.
B)reduce production before building up inventories.
C)build up inventories before reducing production.
D)lower prices before reducing production or building up inventories.

Question 33

Increased present saving

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 34

(Consider This) What is the difference between financial investment and economic investment?

A)There is no difference between the two.
B)Financial investment refers to the purchase of financial assets only; economic investment refers to the purchase of any new or used capital goods.
C)Economic investment is adjusted for inflation; financial investment is not.
D)Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.

Question 35

The overall behavior of the economy

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 36

Shocks to the economy occur when

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 37

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

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 38

Which of the following results from firms holding inventories?

A)The economy is much more susceptible to business cycle fluctuations.
B)Demand shocks occur with greater frequency.
C)Demand shocks occur less frequently.
D)Firms can maintain production levels and adjust inventories in response to demand shocks.

Question 39

Supply shocks

A)occur more frequently than demand shocks.
B)usually result from fiscal and monetary policy changes.
C)occur when sellers face unexpected changes in the availability and/or prices of key inputs.
D)have been responsible for most of the recessions in the United States since World War II.

Question 40

Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?

A)Firms respond to shorter-term demand shocks by adjusting production levels; more persistent changes in demand result in changes in inventories.
B)Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.
C)Firms are reluctant to adjust inventory levels because the costs are higher than changing the quantity of output produced.
D)Firms are quick to let go of workers when negative demand shocks occur.

Question 41

In order to achieve modern economic growth, a nation's output must grow faster than its population.

Question 42

A nation that realizes a 3 percent increase in its output per person is experiencing modern economic growth.

Question 43

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

Question 44

(Last Word) According to the Austrian School, the best explanation for what caused the Great Recession was that

A)tax rates that were too high discouraged spending.
B)government spending that was too low created insufficient public capital.
C)interest rates that were too low induced excessive borrowing.
D)interest rates that were too high discouraged firm borrowing and investment.

Question 45

The business cycle reflects both short-run fluctuations in output and long-run economic growth.

Question 46

Inflation reduces the purchasing power of a person's income and savings.

Question 47

China's GDP per person in 2014 was about one-third of U.S.GDP per person in the same year.

Question 48

In 2008-2009, the U.S.economy lost 8 million jobs and saw the unemployment rate rise from 4.6 percent to as high as 10.1 percent.

Question 49

A sometimes short, sometimes extended period of declining output and living standards is referred to as a recession.

Question 50

Economists and policymakers are generally more concerned about nominal GDP than real GDP.

Question 51

(Consider This) The U.S.recession that occurred in 2008 and 2009 represented a case where

A)government policy intervention effectively offset the negative demand shock and minimized the effects on output and employment.
B)prices were somewhat flexible, so the impact of the demand shock was felt about the same in terms of price and output changes.
C)prices were relatively flexible, minimizing the impact on total output and employment.
D)prices were relatively sticky and most of the impact was on total output.

Question 52

Modern economic growth refers to any situation where a nation's output increases.

Question 53

Any person without a job is considered to be unemployed.

Question 54

The business cycle is primarily concerned with changes in the level of overall prices over time.

Question 55

(Last Word) Advocates for a structural solution to the Great Recession argued that

A)government should cut taxes across the board to stimulate demand for goods and services.
B)firms should be allowed to go bankrupt, allowing the economy to correct for resource misallocations.
C)firms in financial distress should be taken over by the government and run for the public good.
D)massive public works projects should be implemented to produce public capital, keep people employed, and help workers maintain job skills.

Question 56

Economists refer to purchases of stocks and bonds as "investment."

Question 57

From 1995 until the start of the recession in 2007, the U.S.economy grew at the same rate as the economy of Japan.

Question 58

Nominal GDP measures a nation's output in current year prices.

Question 59

Output per person has grown steadily since the beginning of the Roman Empire.

Question 60

Real GDP measures the change in the price level over time.

Question 61

Prices tend to be stickier in the shorter run than in the longer run.

Question 62

In the short run, firms are more likely to respond to demand shocks by altering inventory levels than by changing how much they produce.

Question 63

In the very short run, demand shocks will tend to change the level of output but have little effect on prices.

Question 64

Economists believe that most short-run fluctuations in output are the result of supply shocks.

Question 65

Economists believe that expectations have little impact on macroeconomic outcomes.

Question 66

Increasing investment in the present means forgoing future consumption.

Question 67

A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption.

Question 68

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

Question 69

A demand shock occurs when large numbers of consumers unexpectedly reduce their purchases of goods and services.

Question 70

Banks and other financial institutions provide the link between savers and economic investors in the macroeconomy.

Question 71

Milk prices tend to be stickier than gasoline prices.

Question 72

The amount of investment in an economy is ultimately limited by the amount of savings in that economy.

Question 73

In the very short run, firms tend to respond to demand shocks by changing their prices.

Question 74

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

Question 75

Prices tend to be more flexible when there are only two or three rival firms rather than a large number of sellers in the market.

Question 76

Shocks occur when actual events do not match expectations.

Question 77

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

Question 78

Demand shocks may be positive or negative.

Question 79

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

Question 80

Demand shocks cause problems in the macroeconomy primarily because prices are sticky.