Deck 9: Introduction to Macroeconomics

Question 1

Which of the following is NOT one of the four major concerns of macroeconomics?

A) the balance of payments
B) the circular flow of income
C) the percentage increase in prices
D) the rate of economic growth

Answer 1

B

Question 2

Which of the following statements is FALSE?

A) Short- term ups and downs in the economy are known as business cycles.
B) Business cycles are always symmetric - the length of an expansion is the same as the length of a contraction.
C) The rate of change in economic activity is used to assess whether an economy is expanding or contracting.
D) During a recession, output and employment are falling.

Answer 2

B

Question 3

When injections exceed withdrawals, total output will:

A) fall
B) not change
C) rise
D) accelerate

Answer 3

C

Question 4

Which of the following is likely to benefit from a high rate of inflation?

A) a person with $20,000 on deposit at a building society
B) a couple who have borrowed money at a fixed rate of interest to buy their home
C) a person who has retired on a fixed pension
D) a person who has bought a fixed interest bond

Question 5

Consider the household sector. According to the circular flow model, firms:

A) only demand from this market
B) both supply to and demand from this market
C) neither supply to nor demand from this market
D) only supply to this market

Question 6

To distinguish between nominal and real figures we must adjust for:

A) low economic growth
B) the rate of unemployment
C) a balance of payments deficit
D) inflation

Question 7

The labour force is the:

A) number of people employed plus those unemployed
B) ratio of the population to those not in the labour force
C) number of people employed minus the unemployed
D) ratio of those employed to those unemployed

Question 8

The period in the business cycle from a trough to a peak is:

A) a slowdown
B) an expansion or boom
C) a recession
D) a contraction or recession

Question 9

Which of the following is not regarded as an injection into the circular flow of income?

A) saving
B) investment
C) export expenditure
D) government expenditure

Question 10

Potential economic growth is:

A) the percentage annual increase in the economy's available resources
B) the percentage annual increase in nominal GDP
C) the percentage annual increase in the economy's potential to produce
D) the percentage annual increase in real GDP

Question 11

A household that spends less than it receives in income during a given period is:

A) running a surplus
B) investing
C) saving
D) receiving transfer payments

Question 12

The diagram that shows how the four objectives of macroeconomic policy are related to aggregate demand is the:

A) circular flow diagram
B) income- price diagram
C) aggregate demand- aggregate supply diagram
D) income- expenditure diagram

Question 13

Aggregate demand is comprised of:

A) C + I + G - X - M
B) C + I + G + (X - M)
C) C + I + G + (M - X)
D) C + I + G + X + M

Question 14

The annual average rate of economic growth for Australia between 2000 and 2007 was:

A) 1.6
B) 0.7
C) 1.7
D) 2.8

Question 15

Gross domestic product measured in current dollars is:

A) nominal GDP
B) real GDP
C) current GDP
D) constant GDP

Question 16

Inflation is:

A) an increase in the overall level of economic activity
B) a decrease in the overall level of economic activity
C) an increase in the overall price level
D) a decrease in the overall price level

Question 17

If the number of people classified as unemployed is 20 000 and the number of people classified as employed is 230 000, what is the unemployment rate?

A) 9.5%
B) 9.0%
C) 8.5%
D) 8.0%

Question 18

In the circular flow diagram the net flow from households to the banking sector is:

A) savings net of borrowings and withdrawals from deposits
B) savings
C) savings minus borrowings
D) savings plus borrowings

Question 19

If the number of people employed is 120 000 and the labour force is 150 000, the unemployment rate is:

A) 8%
B) 50%
C) 20%
D) 80%

Question 20

$$\begin{array} { l l } \text { Employed } & 5000 \\\text { Unemployed } & 500 \\\text { Not in thelabour force } & 2000\end{array}$$

-The labour force:

A) equals 5000
B) equals 5500
C) equals 7500
D) cannot be determined from this information

Question 21

A retired person is considered to be:

A) employed
B) not in the labour force
C) unemployed
D) underemployed

Question 22

The period in the business cycle from a peak to a trough is called:

A) a growth period
B) a slowdown, recession or slump
C) a depression
D) an expansion or boom

Question 23

Which of the following is not an economic cost of unemployment?

A) an increase in wages for those workers who are employed as there are fewer people in the labour force
B) loss of tax revenue to the government
C) lower profit levels for firms than if there was full employment
D) loss of income to the individual who becomes unemployed

Question 24

Which of the following is NOT a cost of inflation?

A) exports may become more competitive
B) firms have to adjust prices
C) difficulties arise for firms when trying to predict revenues
D) income is redistributed to those on fixed incomes

Question 25

$$\begin{array} { l l } \text { Employed } & 5000 \\\text { Unemployed } & 500 \\\text { Not in thelabour force } & 2000\end{array}$$

-The unemployment rate:

A) is 10%
B) is 9.09%
C) is 11%
D)cannot be determined from this information

Question 26

Which of the following statements is FALSE?

A) When unanticipated inflation occurs regularly, the degree of risk associated with investments in the economy increases.
B) Inflation that is higher than expected benefits debtors, and inflation that is lower than expected benefits creditors.
C) Whether you gain or lose during a period of inflation depends on whether your income rises faster or slower than the prices of things you buy.
D) There are no costs or losses associated with correctly anticipated inflation.

Question 27

Within the circular flow model, withdrawals comprise:

A) saving, net taxes and export expenditure
B) net saving, net taxes and import expenditure
C) saving, investment and import expenditure
D) consumption, net taxes and import expenditure

Question 28

The unemployment rate is:

A) the difference between the total number of people in the labour force and the number of employed
B) the ratio of the number of people unemployed to the total number in the population
C) the ratio of the number of unemployed to the total number of people in the labour force
D) the ratio of those unemployed to those employed

Question 29

Of the following four countries which had the highest rate of economic growth over the period 2000 to 2007:

A) Australia
B) Japan
C) United States of America
D) United Kingdom

Question 30

The account in which changes in a country's foreign reserves are recorded is the:

A) financial account
B) current account
C) capital account
D) merchandise trade account

Question 31

The upper turning point of the business cycle is the:

A) expansion
B) slump
C) peaking out
D) slowdown

Question 32

The term business cycle refers to the:

A) long- term trends in the level of economic activity
B) short- term fluctuations in the economy
C) long- term trends in the price level
D) short- term ups and downs in the price level

Question 33

Which of the following would normally NOT be considered as a macroeconomic issue?

A) economic growth
B) the price of wheat
C) inflation
D) unemployment

Question 34

Your boss gives you a pay rise of five percent and inflation is twelve percent. The change in your real wage is:

A) 5%
B) 7%
C) 12%
D) - 7%

Question 35

The number of people classified as employed is 250 000 and the number of people classified as unemployed is 50 000. The size of the labour force:

A) equals 250 000
B) equals 200 000
C) equals 50 000
D) equals 300 000

Question 36

The annual average rate of inflation for Australia between 2000 and 2007 was:

A) 7.2
B) 2.4
C) 9.8
D) 1.1

Question 37

When withdrawals exceed injections, total output will:

A) not change
B) fall
C) rise
D) accelerate

Question 38

The record of a country's transactions in goods, services and assets with the rest of the world is its:

A) capital account
B) current account
C) balance of trade
D) balance of payments

Question 39

Economic growth is measured by:

A) the percentage change in the price level over a period of time
B) the percentage increase in nominal GDP over a period of time
C) the percentage increase in real GDP over a period of time
D) the level of output in a given year

Question 40

Between 2003 and 2013, annual inflation in Australia was normally:

A) below 1%
B) between 1% and 4%
C) between 5% and 10%
D) over 10%

Question 41

Will an increase in the rate of potential growth lead to an increase in the rate of actual growth?

Question 42

Demand- pull inflation is caused by people demanding high wages.

Question 43

A fall in the inflation rate means there has been a general decrease in the price level.

Question 44

Discuss four of the major concerns of macroeconomics.

Question 45

The costs associated with restaurants having to print new menus due to inflation are classified by economists as 'menu costs'.

Question 46

While the magnitudes of the phases of the business cycle vary over time, the business cycle itself tends to be approximately the same time length for each cycle.

Question 47

For each of the following, indicate if the person would be classified as employed, unemployed, or not in the labour force: (a) a 65- year- old man who left his job and is now helping his daughter in her business for 10 hours a week; (b) a 20- year- old undergraduate who is looking for a summer job; (c) a 30- year- old woman with a PhD in history who has not been able to find a teaching position and is driving a taxi for 30 hours a week; and (d) a 40- year- old coal miner who isn't working and has given up searching for a job.

Question 48

Suppose the inflation rate is seven percent and the nominal interest rate is ten percent, the real interest rate is:

A) 10%
B) 7%
C) 3%
D) 17%

Question 49

If a country's actual growth rate has increased this must also mean that the country's potential growth rate has also risen.

Question 50

How is the rate of unemployment measured in Australia?

Question 51

Why did Australia escape the worst of the global recession of 2008- 2009?

Question 52

Explain the costs associated with anticipated inflation.

Question 53

Net saving is an injection into the circular flow of income model of the economy.

Question 54

Differentiate between the current and the financial accounts in the balance of payments accounts.

Question 55

Distinguish demand- pull and cost- push inflation.

Question 56

During the global recession of 2008- 2009 Australia was the only country in the world which actually experienced negative growth.

Question 57

The economic growth rate is the increase in real output in dollar terms per year.

Question 58

Explain why the ups and downs of the business cycle are not 'smooth and regular', but are irregular in the real world.

Question 59

In the circular flow of income diagram what are injections and withdrawals? Give examples.

Question 60

The statements below refer to the circular flow of income at the current point in time. Correctly match the following pairs.
Statement
a() Firms pay households for the supply of their inputs.
b() There is a legal requirement that workers put more money in the superannuation funds.
c() Company taxes increase.
Answer

Question 61

Transfer payments are made by the government to recipients without any productive activity taking place at the time the benefits are received.

Question 62

The rate of inflation is measured by the percentage change in the price level from year to year.

Question 63

The record of a country's transactions in goods, services, and assets with the rest of the world is its balance of trade.

Question 64

In May 2010 the Australian government announced plans to introduce a 40- percent tax on the 'super profits' of firms in the mining sector, while simultaneously making a slight reduction in the normal company tax level. What are the potential advantages and disadvantages of such a tax?

Question 65

Children and pensioners who are not classified as being employed are classified as unemployed.

Question 66

Imported goods and services are not included in aggregate demand.

Question 67

Explain the costs associated with unanticipated inflation.

Question 68

Explain the circular flow of income model, and discuss the relationship between injections and withdrawals.

Question 69

GDP measures the value of intermediate goods; therefore some double counting occurs in its measurement.

Question 70

There are no costs associated with inflation if the inflation rate is perfectly anticipated.

Question 71

Outline the benefits and costs of economic growth.

Question 72

If planned injections are greater than planned withdrawals, the rate of inflation might rise.

Question 73

Explain the costs of unemployment.

Question 74

Between 2000 and 2007 average annual growth rates in Australia were higher than in the United States, Japan and the United Kingdom.

Question 75

Why do economists focus on real figures, while politicians sometimes use real and sometimes nominal figures?

Question 76

Real GDP values the output of an economy in current price levels.

Question 77

Economic growth can only be achieved by demand- side policies and not policies that seek to increase aggregate supply.

Question 78

The unemployment rate is 10%, this means that the average worker has been employed for 10% of the year.

Question 79

A short- term rise in aggregate demand does not guarantee long- term economic growth.