Deck 22: The Goals of Macroeconomic Policy

Question 1

Small differences in economic growth rates translate into significant differences in living standards.

Answer 1

True

Question 2

The costs of unemployment to an individual out of work are larger now than in the 1930s.

Answer 2

False

Question 3

Unemployment insurance cannot eliminate the national costs of lost output due to unemployed labor.

Answer 3

True

Question 4

Full employment is defined by all economists as precisely 5 percent of the labor force.

Question 5

Frictional unemployment will typically be a short-term problem for someone between jobs.

Question 6

Labor productivity measures output per hour of work.

Question 7

Unemployment insurance benefits the macroeconomy by supporting purchasing power.

Question 8

The unemployment rate for married men is usually higher than the rate for teenagers.

Question 9

As capital goods depreciate, potential output falls.

Question 10

The growth of the labor force and the growth of labor productivity help determine the rate of GDP growth.

Question 11

Cyclical unemployment occurs when real GDP falls below potential GDP.

Question 12

A nation's standard of living depends on its population and labor productivity.

Question 13

Given the labor force, either more capital or better technology will shift the production function downward.

Question 14

Frictional unemployment is a "necessary" cost of a dynamic economy.

Question 15

Economists generally assume that faster economic growth is negative for society.

Question 16

Unemployment rates differ widely among various groups in the population.

Question 17

Someone unemployed for a long period of time due to technological change would be described as structurally unemployed.

Question 18

The production function shows the volume of output that can be produced from given inputs.

Question 19

Technological change and labor productivity are negatively related.

Question 20

The growth rate in potential GDP is equal to the growth rate in the population.

Question 21

The United States has never suffered through periods of hyperinflation in its history.

Question 22

Inflation tends to redistribute real income from lenders to borrowers.

Question 23

Real wages more accurately reflect the payment to labor because they are adjusted for the effects of inflation.

Question 24

The most important determinant of the decisions to lend or borrow is the real rate of interest.

Question 25

The incentive to lend increases as the real rate of interest decreases.

Question 26

When the expected inflation rate equals the actual inflation rate, the real interest rate was accurately estimated.

Question 27

To protect themselves from the effects of inflation, lenders try to estimate the expected rate of inflation.

Question 28

The basic data source to track the number of unemployed comes from a calculation of applications for new unemployment benefits.

Question 29

As the real interest rate increases, households will make less purchases on credit cards.

Question 30

According to the U.S. Bureau of Labor Statistics, the term "employed" includes all full time workers and part-time workers.

Question 31

Inflation is a very minor problem for lenders because it is relatively easy to estimate future rates of inflation.

Question 32

The nominal rate of interest is the difference between the real rate and the expected rate of inflation.

Question 33

Taxes on capital gains and interest decline as inflation rates increase.

Question 34

A principal benefit of inflation is that it makes economic decisions easier.

Question 35

Variable inflation rates may be more costly socially than low but predictable rates of inflation.

Question 36

Low inflation rates and high inflation rates impose different costs on society.

Question 37

Changes in relative prices usually lead to increases in real income because prices have changed.

Question 38

Hyperinflation may cause the collapse of the market system.

Question 39

The public often overestimates the negative effects of inflation due to a focus on nominal rates of interest.

Question 40

Due to the distortionary effects of inflation, capital investment may be reduced due to higher price levels.

Question 41

The amount of goods and services the economy could produce if the labor force is fully employed is called

A) nominal GDP.
B) real GDP.
C) actual GDP.
D) potential GDP.

Question 42

A decrease in the stock of capital may

A) decrease potential GDP.
B) increase labor productivity.
C) increase real GDP.
D) decrease skilled labor.

Question 43

An increase in the capital stock would be expected to

A) decrease the labor force.
B) increase the level of output.
C) decrease real GDP per capita.
D) increase real GDP per capita.

Question 44

Labor productivity is defined as

A) the amount of output a typical worker turns out in an hour of work.
B) the amount of output the best worker turns out in a day of work.
C) the amount of output improvement in a year of work.
D) the amount of average output improvement for a team in a year of work.

Question 45

If the capital stock increases, then the economy can produce ____ output with the ____ amount of labor.

A) same, same
B) less, same
C) more, same
D) less, less

Question 46

An increase in capital stock will shift the production function

A) downward.
B) rightward.
C) upward.
D) outward.

Question 47

In the analysis of potential GDP, labor and capital are considered

A) inputs.
B) final goods and services.
C) byproducts of economic growth.
D) outputs.

Question 48

Economists generally assume that ____ economic growth is better for society.

A) slower
B) faster
C) stable
D) declining

Question 49

Potential GDP would increase if

A) the rate of capital depreciation increased.
B) the labor force decreased.
C) the price level grew.
D) the rate of capital growth increased.

Question 50

If the capital stock decreases, then the economy will produce ____ output with the ____ amount of labor.

A) same, same
B) less, same
C) more, same
D) more, decreased

Question 51

Real GDP is the product of the

A) total hours of work times the labor force.
B) labor force times the output per hour.
C) nation's capital stock times the output per hour.
D) total hours of work times the output per hour.

Question 52

Policy should create an environment in which the economy can expand its productive capacity rapidly, because that is the ultimate source of higher living standards. This task is the realm of

A) growth policy.
B) stabilization policy.
C) labor policy.
D) inflation policy.

Question 53

The fastest growing economy between 1870 and 1979 was

A) the United Kingdom.
B) the United States.
C) Japan.
D) Brazil.

Question 54

An economy could produce above its potential GDP for a short period of time by

A) reducing the size of the labor force.
B) increasing the price of final goods and services.
C) adding extra shifts of work, such as overtime or night shifts.
D) increasing the money supply.

Question 55

Potential GDP is an estimate of the economy's ability to produce goods and services if the

A) labor force is fully employed.
B) price level is stable.
C) trade balance is zero.
D) federal budget is balanced.

Question 56

Environmentalists concern with rapid economic growth is that it will

A) lead to increases in pollution, crowding, and waste disposal.
B) turn naturalists into capitalists.
C) prevent society from taking action to clean up excessive pollution.
D) underutilize natural resources.

Question 57

The term "unemployed" includes all people who want a job, but don't have one.

Question 58

Policy makers should manage aggregate demand so that it grows in line with the economy's capacity to produce. This task is the realm of

A) growth policy.
B) stabilization policy.
C) labor policy.
D) inflation policy.

Question 59

An increase in the capital stock has the same effect on the production function as an increase in

A) labor.
B) output.
C) GDP.
D) technology.

Question 60

The production function has ____ on the horizontal axis.

A) real GDP
B) capital stock
C) technology
D) labor input

Question 61

The growth rate of potential GDP is not affected by

A) the growth rate of the labor force.
B) the growth rate of a nation's capital stock.
C) the rate of technological progress.
D) environmentalists' ability to pass regulations.

Question 62

The growth rates of actual and potential GDP

A) are similar in both the short and long run.
B) are similar in the short run but not the long run.
C) are similar in the long run but not the short run.
D) are different in both the short and long run.

Question 63

One of the key factors that determine an economy's real GDP is labor productivity, which is a measure of

A) output per hour of work.
B) labor force per hour.
C) input per hour worked.
D) total hours worked.

Question 64

To measure how productive workers in the economy are, the best measure to use would be

A) real GDP.
B) GDP divided by the population.
C) GDP divided by the nation's capital stock.
D) GDP divided by hours worked.

Question 65

GDP equals hours of work multiplied by output per hour. This can be rewritten as

A) growth rate of potential GDP = growth rate of labor input + growth rate of labor productivity.
B) potential GDP = wages + cost of production.
C) growth rate of real GDP = growth rate of labor input + growth rate of marginal output.
D) growth rate of GDP = growth rate of wages + growth rate of labor productivity.

Question 66

Labor productivity is calculated by dividing GDP by

A) population.
B) the price level.
C) capital stock
D) labor force.

Question 67

Faster economic growth in the United States may lead to the serious macroeconomic problem of higher

A) levels of unemployment.
B) federal budget deficits.
C) levels of inflation.
D) levels of poverty.

Question 68

Suppose the small country of Trantor has a steady growth rate of 2.5 percent. Its GDP is expected to double in

A) 70 years.
B) 5 years.
C) 2.5 years.
D) 28 years.

Question 69

Adding together the growth rate of labor input and the growth rate of labor productivity yields the growth rate of

A) nominal GDP.
B) actual GDP.
C) potential GDP.
D) final GDP.

Question 70

Growth in potential GDP depends on

A) the labor force growth rate, capital stock growth rate, and rate of technical progress.
B) government spending, growth in prices, and labor productivity.
C) cyclical fluctuations and growth in the capital stock.
D) growth in real GDP, nominal GDP, and the population.

Question 71

One of the determinants of real GDP is output per hour of labor. This statistic is called labor

A) force growth.
B) productivity.
C) force participation.
D) force input.

Question 72

When the growth rates of actual and potential GDP diverge, they usually diverge because

A) actual GDP growth equals potential GDP growth.
B) actual GDP growth falls below potential GDP growth.
C) potential GDP growth rates fall below actual GDP growth rates.
D) potential GDP growth rates fluctuate while actual GDP growth rates remain stable.

Question 73

What two growth rates comprise of the growth rate of potential GDP?

A) Capital gains and investment
B) Money and prices
C) Labor input and hours worked
D) Government spending and net exports

Question 74

Mandatory controls on economic activity would

A) limit economic growth possibilities.
B) prevent the economy from achieving potential GDP.
C) reduce the amount of poverty.
D) increase potential GDP.

Question 75

Economists and psychologists are often on opposite sides of the economic growth debate. The nature of the debate is such that

A) economists emphasize the benefits of growth to finance valuable programs, and psychologists question whether more goods make people happier.
B) economists emphasize that more money means more income for the government, and psychologists believe poorer people are happier.
C) economists believe that economic growth imposes no serious costs on the economy, and psychologists question the statistical reliability of GDP numbers.
D) economists stress the importance of money relative to leisure, and psychologists stress the importance of an unstructured life.

Question 76

A nation's growth rate can be increased by

A) increasing government spending.
B) regulation on the tech sector.
C) investment towards capital.
D) deportation of skilled immigrants.

Question 77

If the rate of technical progress decreases, then the growth

A) of the labor force will decrease.
B) of the capital stock will decrease.
C) rate of potential GDP will decrease.
D) rate of unemployment will decrease.

Question 78

If the population increase in India is smaller than the increase in Indian real GDP, then GDP per capita will

A) decrease.
B) increase.
C) remain constant.
D) increase more slowly than real GDP.

Question 79

Which of the following would decrease the total output of goods and services?

A) Mandatory controls on production
B) Increases the hours of work
C) Increases in labor input growth
D) Increases in capital stock

Question 80

According to economists, one of the signs of an unhealthy economy is a(n)

A) rising labor productivity.
B) increasing real GDP.
C) declining real GDP.
D) declining unemployment.