Deck 1: Introduction to Macroeconomics

Question 1

The inflation rate is the

A)percent increase in the average level of prices over a year.
B)percent increase in output over a year.
C)percent increase in the unemployment rate over a year.
D)price level divided by the level of output.

Answer 1

A

Question 2

The main reason that the United States has such a high standard of living is

A)low unemployment.
B)high average labor productivity.
C)low inflation.
D)high government budget deficits.

Answer 2

B

Question 3

During recessions,the unemployment rate ________ and output ________.

A)rises; falls
B)rises; rises
C)falls; rises
D)falls; falls

Answer 3

A

Question 4

The two major reasons for the tremendous growth in output in the U.S.economy over the last 125 years are

A)population growth and low inflation.
B)population growth and increased productivity.
C)low unemployment and low inflation.
D)low inflation and low trade deficits.

Question 5

The most direct effect of an increase in the growth rate of average labor productivity would be an increase in

A)the inflation rate.
B)the unemployment rate.
C)the long-run economic growth rate.
D)imported goods.

Question 6

Short-run contractions and expansions in economic activity are called

A)recessions.
B)expansions.
C)deficits.
D)the business cycle.

Question 7

The number of unemployed divided by the labor force equals

A)the inflation rate.
B)the labor force participation rate.
C)the unemployment rate.
D)the misery index.

Question 8

Average labor productivity is the

A)amount of workers per machine.
B)amount of machines per worker.
C)ratio of employed to unemployed workers.
D)amount of output per worker.

Question 9

If the price level was 100 in 2009 and 102 in 2010,the inflation rate was

A)102%.
B)20%.
C)2%.
D)0)2%.

Question 10

In analyzing macroeconomic data during the past year,you have discovered that average labor productivity fell,but total output increased.What was most likely to have caused this?

A)There is nothing unusual in this outcome because this is what normally occurs.
B)The capital/output ratio probably rose.
C)There was an increase in labor input.
D)Unemployment probably increased.

Question 11

A country is said to be experiencing deflation when

A)prices of most goods and services are rising over time.
B)prices of most goods and services are falling over time.
C)total output is rising over time.
D)total output is falling over time.

Question 12

A country is said to be experiencing inflation when

A)prices of most goods and services are rising over time.
B)prices of most goods and services are falling over time.
C)total output is rising over time.
D)total output is falling over time.

Question 13

The highest and most prolonged period of unemployment in the United States over the last 125 years occurred during

A)World War II.
B)the 1890s Depression.
C)the 1990-1991 recession.
D)the Great Depression of the 1930s.

Question 14

Before World War II,the average level of prices in the United States usually

A)fell during wartime and rose during peacetime.
B)fell during wartime and fell during peacetime.
C)rose during wartime and fell during peacetime.
D)rose during wartime and rose during peacetime.

Question 15

When national output rises,the economy is said to be in

A)an expansion.
B)a deflation.
C)an inflation.
D)a recession.

Question 16

From 1800 to 1940,the price level in the United States

A)trended neither upward nor downward.
B)fluctuated wildly.
C)declined slowly.
D)increased slowly.

Question 17

The unemployment rate is the

A)number of unemployed divided by the number of employed.
B)number of employed divided by the number of unemployed.
C)number of unemployed divided by the labor force.
D)labor force divided by the number of unemployed.

Question 18

During the Great Depression,the unemployment rate for the United States peaked at approximately

A)10%.
B)70%.
C)45%.
D)25%.

Question 19

Which of the following best describes a typical business cycle?

A)Economic expansions are followed by economic contractions.
B)Inflation is followed by unemployment.
C)Trade surpluses are followed by trade deficits.
D)Stagflation is followed by inflationary economic growth.

Question 20

In which of the following periods did average labor productivity in the United States grow the fastest?

A)1929 to 1935
B)1949 to 1973
C)1973 to 1995
D)1995 to 2008

Question 21

Aggregation is the process of

A)calculating real GDP based on nominal GDP and the price index.
B)summing individual economic variables to obtain economywide totals.
C)forecasting the components of GDP.
D)predicting when recessions will occur.

Question 22

An open economy is a national economy that

A)doesn't interact economically with the rest of the world.
B)has a stock market that is open to traders from anywhere in the world.
C)has extensive trading and financial relationships with other national economies.
D)has established diplomatic relations with most other national economies.

Question 23

A country has a trade surplus when

A)imports exceed exports.
B)imports equal exports.
C)exports exceed imports.
D)imports equal zero.

Question 24

A country has a trade deficit when

A)imports exceed exports.
B)imports equal exports.
C)exports exceed imports.
D)exports are zero.

Question 25

The difference between microeconomics and macroeconomics is that

A)microeconomics looks at supply and demand for goods,macroeconomics looks at supply and demand for services.
B)microeconomics looks at prices,macroeconomics looks at inflation.
C)microeconomics looks at individual consumers,macroeconomics looks at national totals.
D)microeconomics looks at national issues,macroeconomics looks at global issues.

Question 26

In the United States,monetary policy is determined by

A)the Federal Reserve.
B)the president.
C)private citizens.
D)the Treasury Department.

Question 27

The peak in U.S.government spending as a percent of GDP occurred during

A)World War II.
B)the 1960s war on poverty.
C)the Great Depression.
D)the war against Iraq in the 2000s.

Question 28

Why were the U.S.government budget deficits of the 1980s and early 1990s so unusual from a historical point of view?

A)It was the first time the U.S.government had ever run deficits.
B)In the past,deficits were usually that large only in wartime.
C)It was the first time that deficits were accompanied by very high rates of inflation.
D)It was the first time that deficits diverted funds from other productive uses,such as investment in modern equipment.

Question 29

Data on exports and imports for the United States over the period from 1890 to 2008 show that

A)the United States had large trade deficits throughout this entire period.
B)the United States had large trade surpluses throughout this entire period.
C)the percentage of total output exported by U.S.firms fell dramatically during World War I and World War II.
D)a higher percentage of U.S.goods was exported in recent years than in earlier years.

Question 30

Macroeconomic information for the economy of Anchovy is given below.
(a)What was the growth rate of average labor productivity in Anchovy between Year 1 and Year 2?
(b)What was the inflation rate in Anchovy between Year 1 and Year 2?
(c)What was the unemployment rate in Year 1? In Year 2?

Question 31

An economy that doesn't interact economically with the rest of the world is called ________ economy.

A)a closed
B)an open
C)a surplus
D)an authoritarian

Question 32

In the 1980s,1990s,and 2000s,the United States has had a

A)small trade surplus.
B)small trade deficit.
C)large trade deficit.
D)large trade surplus.

Question 33

Following World War I and World War II,the United States had a

A)small trade surplus.
B)small trade deficit.
C)large trade deficit.
D)large trade surplus.

Question 34

Using the CPI measure of the price level,which is 100 in the base year of 2007,calculate the annual inflation rates for
(a)2008,when the index is 103.7.
(b)2009,when the index is 105.5.
(c)2010,when the index is 107.7.

Question 35

A closed economy is a national economy that

A)doesn't interact economically with the rest of the world.
B)has a stock market that is not open to traders from outside the country.
C)has extensive trading and financial relationships with other national economies.
D)has not established diplomatic relations with other national economies.

Question 36

What is meant by aggregation? Why is aggregation important for macroeconomic analysis?

Question 37

U.S.imports are goods and services

A)produced abroad and sold to Americans.
B)produced in the United States and sold to Americans.
C)produced abroad and sold to foreigners.
D)produced in the United States and sold to foreigners.

Question 38

Critics of the government's fiscal policies argued that government deficits

A)prevented capital from flowing into the United States.
B)were linked to the excess of imports over exports that occurred in the 1980s.
C)caused the level of unemployment in the United States to increase during the 1980s.
D)had directly contributed to a decline in the level of demand in the American economy.

Question 39

What are the major factors affecting the long-term growth of the economy's output?

Question 40

A central bank is an institution that

A)pays for government expenditures.
B)controls a nation's monetary policy.
C)runs a country's stock market.
D)determines a nation's fiscal policy.

Question 41

John Maynard Keynes disagreed with the classical economists because he believed that

A)wages and prices adjust slowly.
B)international trade plays a major role in the macroeconomy.
C)government intervention in the economy cannot reduce business cycles.
D)unemployment will be eliminated quickly by the invisible hand of the market.

Question 42

Adam Smith's idea of the "invisible hand" says that given a country's resources and its initial distribution of wealth,the use of markets will

A)insulate a nation from the effects of political instability.
B)eliminate problems of hunger and dissatisfaction.
C)eliminate inequalities between the rich and the poor.
D)make people as economically well off as possible.

Question 43

Why is macroeconomic forecasting so difficult? Does this difficulty mean economics is a worthless field of study?

Question 44

Many people perceive erroneously that most macroeconomists spend a lot of time engaged in

A)forecasting.
B)macroeconomic research.
C)macroeconomic analysis.
D)data development.

Question 45

Equilibrium in the economy means

A)unemployment is zero.
B)quantities demanded and supplied are equal in all markets.
C)prices are not changing over time.
D)tax revenues equal government spending,so the government has no budget deficit.

Question 46

Testing a theory by comparing the theory's implications with data obtained in the real world is called

A)empirical analysis.
B)descriptive calibration.
C)historical variance analysis.
D)univariate analysis.

Question 47

Keynes assumed that wages and prices were slow to adjust in order to explain

A)persistently high unemployment.
B)high inflation.
C)the high level of interest rates.
D)why inflation fell in recessions.

Question 48

Which of the statements below is primarily normative in nature?

A)There is an unequal distribution of income in the United States.
B)The distribution of income is more unequal in the United States than it is in Japan.
C)The inequality of income that exists in the United States is partly caused by an unequal distribution of wealth.
D)The distribution of income in the United States should be more equal than it is.

Question 49

Briefly describe the following tasks of macroeconomists: forecasting; analysis; research; and data development.

Question 50

The two most comprehensive,widely accepted macroeconomic models are

A)the classical model and the supply-side model.
B)the supply-side model and the real business cycle model.
C)the classical model and the Keynesian model.
D)the Austrian model and the Keynesian model.

Question 51

Match each of the following jobs to its major area: forecasting,analysis,research,or data development.Explain your answers.
(a)Economist at university,testing theories about the efficient allocation of resources in the foreign exchange market
(b)Economist at Wall Street firm trying to predict the rate of inflation next year using past data
(c)Economist at auto firm looking at demand for new automobiles
(d)Economist at the International Trade Commission trying to determine whether foreign firms are dumping goods in the United States
(e)Economist at the Commerce Department developing new methods for calculating price indexes
(f)Economist consulting in Eastern Europe about how to set up free-market financial systems.

Question 52

Assumptions for economic theories and models should be

A)rejected if they are not totally realistic.
B)logical rather than empirically testable.
C)simple and reasonable rather than complex.
D)maintained until overwhelming evidence to the contrary occurs.

Question 53

Keynes was motivated to create a macroeconomic theory different from classical theory because

A)he believed in government intervention in the economy.
B)he believed in the idea of the invisible hand.
C)monetary policy was more important than the classicals acknowledged.
D)classical theory was inconsistent with the data in the Great Depression.

Question 54

Classical economists argue that

A)the government should have an active role in the economy.
B)government policies will be ineffective and counterproductive.
C)the government should actively intervene in the economy to eliminate business cycles.
D)wages and prices don't adjust quickly,so the economy is slow to return to equilibrium.

Question 55

A country that has many well-trained macroeconomic analysts will not necessarily have more beneficial macroeconomic policies because

A)economists' understanding of the economy remains poor.
B)there are few ways in which economists' complex models can be applied to the real world.
C)economists agree on so few government policies.
D)economic policy is usually made by politicians,not economists.

Question 56

A set of ideas about the economy that have been organized in a logical framework is called

A)empirical analysis.
B)a methodology.
C)economic theory.
D)data development.

Question 57

Positive analysis of economic policy

A)examines the economic consequences of policies but does not address the question of whether those consequences are desirable.
B)examines the economic consequences of policies and addresses the question of whether those consequences are desirable.
C)generates less agreement among economists than normative analysis.
D)is rare in questions of economic policy.

Question 58

The classical approach to macroeconomics assumes that

A)wages,but not prices,adjust quickly to balance quantities supplied and demanded in markets.
B)wages and prices adjust quickly to balance quantities supplied and demanded in markets.
C)prices,but not wages,adjust quickly to balance quantities supplied and demanded in markets.
D)neither wages nor prices adjust quickly to balance quantities supplied and demanded in markets.

Question 59

The main goal of macroeconomic research is to

A)predict how the macroeconomy will perform in the future.
B)analyze current macroeconomic data.
C)develop new data that can be used to understand better the operation of the economy.
D)make general statements about how the economy works.

Question 60

If the theory behind an economic model fits the data poorly,you would probably want to

A)use the theory to predict what would happen if the economic setting or economic policies change.
B)start from scratch with a new model.
C)enrich the model with additional assumptions.
D)restate the research question.

Question 61

Why is wage and price flexibility crucial to the idea of the "invisible hand?"

Question 62

Compare and contrast the classical and Keynesian schools of thought for the following economic issues.
(a)The flexibility of wages and prices.
(b)The importance of macroeconomic policies.

Question 63

Determine whether each of the following is a positive or normative statement.
(a)The Fed should lower interest rates to increase economic growth,because we're in a recession.
(b)Higher government budget deficits cause higher interest rates.
(c)The trade deficit should decline because of the fall in the value of the dollar.
(d)Because of our high inflation rate,we must reduce the rate of money growth.
(e)A generous unemployment insurance system is a primary cause of high unemployment in Europe.
(f)Increased average labor productivity in a country should lead to faster growth.
(g)Government budget deficits are too high in the United States and should be reduced.

Question 64

The primary factor that caused most economists to lose their faith in the classical approach to macroeconomic policy was

A)the high levels of unemployment that occurred during the Great Depression.
B)the presence of both high unemployment and high inflation during the 1970s.
C)the theoretical proof that classical ideas were invalid.
D)the evidence that classical ideas were useful during economic booms,but not during economic recessions.

Question 65

The primary factor that caused some economists to lose their faith in the Keynesian approach to macroeconomic policy was

A)the high levels of unemployment that occurred during the Great Depression.
B)the presence of both high unemployment and high inflation during the 1970s.
C)theoretical proof that Keynes's ideas were invalid.
D)evidence that Keynes's ideas were useful during economic recessions,but not during economic booms.

Question 66

In 1993,the debate heated up in the United States about the North American Free Trade Agreement (NAFTA),which proposed to reduce barriers to trade (such as taxes on or limits to imports)among Canada,the United States,and Mexico.Some people opposed strongly the agreement,arguing that an influx of foreign goods under NAFTA would disrupt the U.S.economy,harm domestic industries,and throw American workers out of work.How might a classical economist respond to these concerns? Would you expect a Keynesian economist to be more or less sympathetic to these concerns than the classical economist? Why?

Question 67

How did Keynes propose to solve the problem of high unemployment?

A)Increase the growth rate of the money supply.
B)Allow wages to decline,so that firms will want to hire more workers.
C)Put on wage and price controls,so wages won't rise and firms won't have to lay people off to cut costs.
D)Have the government increase its demand for goods and services.