Deck 6: Macroeconomics: the Big Picture

Question 1

A rubber-necking traffic jam an example of:

A) microeconomics in action.
B) individual behavior that has a large aggregate impact.
C) the paradox of thrift.
D) an outcome smaller than the sum of its parts.

Answer 1

individual behavior that has a large aggregate impact.

Question 2

The topics studied in macroeconomics include:

A) inflation.
B) monopolies.
C) spillovers, such as pollution.
D) mergers.

Answer 2

inflation.

Question 3

Which is a microeconomic question, rather than a macroeconomic question?

A) Will a decrease in the income tax rate lift the nation out of a recession?
B) Will an increase in consumer spending cause inflation?
C) Will a decrease in the income tax rate lead to a government budget deficit?
D) Will an increase in the cigarette tax reduce the number of packs sold?

Answer 3

Will an increase in the cigarette tax reduce the number of packs sold?

Question 4

Macroeconomics focuses on:

A) the economy as a whole.
B) individual decisions.
C) wages.
D) the allocation of scarce resources.

Question 5

Macroeconomics entails the study of the:

A) overall behavior of the economy.
B) individual decision makers.
C) market structures.
D) cost and production decisions by firms.

Question 6

In the paradox of thrift:

A) firms that are pessimistic about the future lay off the most saving-conscientious workers.
B) when families and business are feeling pessimistic about the future, they spend more.
C) increased saving by individuals increases their chances of becoming unemployed.
D) risky behavior during economic tough times has large negative consequences for society.

Question 7

How the actions of individuals and firms interact to produce a particular economy-wide level of performance is the focus of:

A) macroeconomics.
B) fiscal policy.
C) monetary policy.
D) microeconomics.

Question 8

Choose the best answer. The topics studied in macroeconomics include:

A) inflation.
B) unemployment.
C) economic growth.
D) inflation, unemployment, and economic growth.

Question 9

A key insight into macroeconomics is that in the short run the combined effect of individual decisions:

A) is always the same as what one individual intended.
B) may be very different from what any one individual intended.
C) is always beneficial to the economy as a whole.
D) is always detrimental to the economy as a whole.

Question 10

The concept that the whole is greater than the sum of its parts best characterizes:

A) microeconomics.
B) supply and demand.
C) macroeconomics.
D) business forecasting.

Question 11

Which question is the MOST appropriate to the study of MICROECONOMICS?

A) How does the aggregate price level affect consumer spending?
B) How does the level of interest rates affect investment spending?
C) How much will Sony charge for the new game system to be introduced later this year?
D) How does the GDP affect overall government spending?

Question 12

In contrast to the conclusions drawn from microeconomics, many economists argue that in macroeconomics, government:

A) control of rent prices increases overall economic activity.
B) intervention in markets usually leaves society as a whole worse off.
C) taxation of goods and services does not cause a deadweight loss of economic welfare.
D) intervention in markets can prevent or reduce the effects of adverse events on the macroeconomy.

Question 13

Promotion of employment and growth in the economy as a whole is the focus of:

A) macroeconomics.
B) fiscal policy.
C) monetary policy.
D) microeconomics.

Question 14

Which is MOST likely a macroeconomic, not microeconomic, question?

A) Is the national unemployment rate rising or falling?
B) Are consumers buying more bottled water and less fruit juice?
C) Are salaries for nurses rising or falling?
D) Should a tax be levied on each ton of carbon dioxide a factory emits?

Question 15

What do a rubber-necking traffic jam and the paradox of thrift have in common?

A) Individual behavior has large negative consequences for the whole of society.
B) Seemingly bad behavior ends up harming everyone.
C) Seemingly careless behavior leads to good times for all.
D) Government intervention can only make matters worse.

Question 16

If all of the households and businesses start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as the:

A) quantity theory.
B) crowding-out theory.
C) paradox of thrift.
D) permanent income hypothesis.

Question 17

Which would NOT be classified as a MACROECONOMIC question?

A) How many people are employed in the economy as a whole?
B) What determines the overall level of prices?
C) What determines the overall trade in goods, services, and financial assets between the United States and the rest of the world?
D) What determines a university's cost of offering a new course?

Question 18

Which would most likely be a MICROECONOMIC question?

A) Should I go to business school or take a job?
B) What determines the overall salary levels paid to workers in a given year?
C) What government policies should be adopted to promote full employment and growth?
D) What determines the level of output for the economy as whole?

Question 19

Which question is the MOST appropriate to the study of MACROECONOMICS?

A) How does the aggregate price level affect overall consumer spending?
B) How does the level of interest rates affect Delta's decision to buy a new airplane?
C) How much will Sony charge for the new game system to be introduced later this year?
D) What determines whether Wachovia opens a new office in Beijing?

Question 20

The topics studied in macroeconomics include:

A) the price of a motorcycle.
B) the wages of engineers.
C) the general price level in the economy.
D) how much ice cream consumers buy.

Question 21

In 1936 economic theory changed dramatically with the publication of:

A) The General Theory of Employment, Interest, and Money, by John Maynard Keynes.
B) The Wealth of Nations, by Adam Smith.
C) The Road to Serfdom, by F. A. Hayek.
D) Principles of Economics, by Paul Samuelson.

Question 22

The modern macroeconomic tools used by the government are _____ policy and _____ policy.

A) tax; antitrust
B) fiscal; monetary
C) monetary; exchange rate
D) capital; labor

Question 23

Use of fiscal policy involves changes in:

A) interest rates.
B) government spending.
C) the quantity of money.
D) the quantity of money and interest rates.

Question 24

Fiscal policy attempts to affect the overall level of spending through:

A) changes in the inflation rate.
B) changes in the quantity of money or the interest rate.
C) changes in tax policy or government spending.
D) discretionary regulation of profits and wages.

Question 25

If macroeconomic policy has been successful over time, it is likely that the economy has NOT seen:

A) any inflation.
B) any severe recessions.
C) any unemployment.
D) a business cycle.

Question 26

Among the tools available to macroeconomic policy makers is:

A) fiscal policy, for use in manipulating government spending and taxation.
B) antitrust policy, to break up monopolies.
C) environmental policy, to clean up the economy.
D) improving standards for food and drugs.

Question 27

The economist whose writings in the 1930s argued that the cause of an economic depression is inadequate spending was:

A) Herbert Hoover.
B) John Maynard Keynes.
C) Andrew Mellon.
D) Joseph Schumpeter.

Question 28

Fiscal policy attempts to affect the level of overall spending by making changes in:

A) the interest rate.
B) the money supply.
C) banking regulations.
D) taxes and spending.

Question 29

Monetary policy attempts to affect the overall level of spending through:

A) changes in the inflation rate.
B) changes in the quantity of money and the interest rate.
C) changes in tax policy or government spending.
D) discretionary regulation of profits and wages.

Question 30

The onset of the Great Depression:

A) was not a shock to anyone, since most economists predicted the Roaring Twenties were bound to end in disaster.
B) caused a disagreement between the Hoover administration and conventional economists because Hoover wanted the government to intervene much more quickly than most others.
C) came as a considerable shock to the conventional wisdom of economics at that time and opened the door for critiques of mainstream thought by economists like John Maynard Keynes.
D) was in 1918 at the end of World War I.

Question 31

Changing the level of government spending is an example of _____ policy.

A) fiscal
B) interest rate
C) monetary
D) exchange rate

Question 32

When the Great Depression reached its trough in 1933, the unemployment rate was approximately _____%.

A) 5
B) 10
C) 25
D) 50

Question 33

The central mission of modern macroeconomics is to prevent:

A) shortages.
B) surpluses.
C) high gas prices.
D) a deep recession like the Great Depression.

Question 34

Changing interest rates is an example of _____ policy.

A) fiscal
B) tax
C) monetary
D) exchange rate

Question 35

The view that the government should take an active role in the macroeconomy dates to:

A) the Civil War.
B) World War I.
C) the Great Depression.
D) the Vietnam War.

Question 36

One role of government policy is to:

A) provide insurance to cover damages from macroeconomic fluctuations.
B) attempt to manage short-run macroeconomic fluctuations.
C) subsidize private insurance for businesses to cover harm from macroeconomic fluctuations.
D) avoid Keynesian economics.

Question 37

Which two types of policy are considered to be macroeconomic?

A) monetary and fiscal policy
B) monetary and regulation policy
C) fiscal and regulation policy
D) fiscal policy and price controls

Question 38

Use of monetary policy entails changes in:

A) government spending.
B) tax receipts.
C) the quantity of money.
D) tax rates.

Question 39

Fiscal policy refers to changes in _____ to affect overall spending in the economy:

A) interest rates
B) government spending and taxation
C) the quantity of money
D) interest rates and of government spending

Question 40

Monetary policy attempts to affect the overall level of spending by making changes in:

A) taxes.
B) taxes and spending.
C) taxes and interest rates.
D) interest rates and the quantity of money.

Question 41

The switching between recessions and expansions is known as the:

A) unemployment rate.
B) long-run economic growth.
C) business cycle.
D) macroeconomy.

Question 42

The short-run alternation between economic downturns and recessions, then economic upturns and expansions is known as the _____ cycle.

A) business
B) contractionary
C) expansionary
D) disequilibrium

Question 43

Recessions are periods when:

A) output rises.
B) the aggregate price level rises.
C) the unemployment rate is falling.
D) output and employment are falling in many industries.

Question 44

In a typical business cycle, the trough is immediately followed by the:

A) peak.
B) recession.
C) depression.
D) expansion.

Question 45

In a typical business cycle, the peak is immediately followed by the:

A) recession.
B) trough.
C) expansion.
D) depression.

Question 46

A business cycle is a:

A) very deep and prolonged economic downturn.
B) period in which output and employment are rising.
C) period in which output and employment are falling.
D) short-run shift between economic upturns and downturns.

Question 47

Keynesian economics stressed:

A) the importance of total spending.
B) the self-correcting power of free markets.
C) the long run.
D) that the Depression should run its course to bring down the high cost of living.

Question 48

The General Theory of Employment, Interest, and Money was written by:

A) Robert Lucas.
B) David Ricardo.
C) John Maynard Keynes.
D) Thomas Malthus.

Question 49

For the past several months, per capita output has increased at a slower and slower rate. Over the same period, the unemployment rate has been falling, but it appears that both have leveled off. Where in the business cycle is the economy?

A) peak
B) recession
C) trough
D) expansion

Question 50

The General Theory of Employment, Interest, and Money, written by _____ and published in _____, transformed the way economists thought about macroeconomics.

A) Milton Friedman; 1946
B) Paul Samuelson; 1940
C) John Maynard Keynes; 1936
D) Paul Lucas; 1966

Question 51

John Maynard Keynes believed that the government should:

A) actively try to mitigate the effects of recessions by using fiscal and monetary policies.
B) not interfere with the economy but let the economy self-correct.
C) intervene only when there is a boom but let the recession run its course.
D) not use fiscal and monetary policies, as these policies have long-term adverse effects.

Question 52

Changing government spending and taxes to affect overall spending is use of _____ policy.

A) tax-and-spend
B) monetary
C) fiscal
D) free-trade

Question 53

An economic expansion in the United States is typically associated with a(n):

A) falling inflation rate.
B) increase in the poverty rate.
C) increase in output.
D) decrease in corporate profits.

Question 54

An expansion is a period in which:

A) output declines.
B) the price level falls.
C) output rises.
D) deflation occurs.

Question 55

A change in the level of overall spending in the economy due to a change in the interest rate, brought about by a change in the quantity of money, is an example of _____ policy.

A) monetary
B) fiscal
C) free-market
D) trickle-down

Question 56

Economists have identified several consecutive quarters of falling employment, and forecasts for the next few months suggest more of the same. The economy is at the _____ stage of the business cycle.

A) recession
B) expansion
C) peak
D) trough

Question 57

If during several quarters, the economy is simultaneously increasing its levels of output and employment, then the economy is in a(n):

A) depression.
B) expansion.
C) recession.
D) turning point between a recovery and a downturn.

Question 58

In recent times, the U.S. government has been trying to help the economy through one of the worst economic slumps ever. The policies used are based on _____ theory.

A) Keynesian
B) classical
C) supply-side
D) trickle-down

Question 59

Keynesian economics promotes ideas that:

A) government intervention can be destabilizing.
B) the government can help a depressed economy via fiscal and monetary policies.
C) the private sector is perfectly capable of regulating itself.
D) the free market system will always prevail.

Question 60

Periods in which output and employment are falling in many industries are called:

A) recessions.
B) booms.
C) expansions.
D) deflations.

Question 61

The point at which a recession ends and the expansion begins is called the:

A) trough.
B) downturn.
C) peak.
D) lag.

Question 62

The most painful effect of a recession is:

A) inflation.
B) unemployment.
C) money neutrality.
D) liquidity trap.

Question 63

A country's real gross domestic product (GDP), undergoes periodic fluctuations called a(n):

A) recession.
B) business cycle.
C) expansion.
D) trough.

Question 64

In many countries, economists adopt the rule that a recession is a period of at least _____ during which aggregate output falls.

A) one quarter
B) two consecutive quarters
C) three consecutive quarters
D) a full year

Question 65

The trough of the business cycle:

A) comes right after the expansion phase.
B) comes before the recession phase.
C) is a temporary maximum level of real GDP.
D) is a temporary minimum level of real GDP.

Question 66

The sequence of business cycle phases is:

A) peak, trough, expansion, recession.
B) peak, expansion, trough, recession.
C) peak, recession, trough, expansion.
D) peak, expansion, recession, trough.

Question 67

The most widely used indicator of the conditions in the labor market is the:

A) unemployment rate.
B) population growth rate.
C) inflation rate.
D) trade deficit.

Question 68

In the United States, recessions are typically associated with a(n):

A) falling unemployment rate.
B) decrease in the number of people living in poverty.
C) decrease in the percentage of Americans with health insurance.
D) increase in corporate profits.

Question 69

A recession does NOT lead to:

A) higher unemployment.
B) reduced output.
C) reduced income and living standards.
D) higher employment.

Question 70

Use the following to answer questions:
(Figure: The Business Cycle) The movement from point B to C is called a(n):

A) trough.
B) expansion.
C) depression.
D) peak.

Question 71

A period of rising real GDP is a(n)_______in the business cycle:

A) peak.
B) trough.
C) expansion.
D) recession.

Question 72

Rising total output accompanied by increasing employment is generally known as a(n):

A) stagflation.
B) recession.
C) inflation.
D) expansion.

Question 73

The point on a business cycle when real GDP stops rising and begins falling is a(n):

A) peak.
B) trough.
C) expansion.
D) recession.

Question 74

Use the following to answer questions:
(Figure: The Business Cycle) Point B on this graph shows a(n):

A) peak.
B) trough.
C) expansion.
D) recession.

Question 75

The most painful consequence of a recession is:

A) rising unemployment.
B) increasing inflation.
C) increasing aggregate output.
D) higher interest rates.

Question 76

A pattern of expansion, then recession, then expansion again is a(n):

A) annual trend.
B) secular trend.
C) business cycle.
D) consumer cycle.

Question 77

Choose the best answer. The purpose of macroeconomic policy is to:

A) bring unemployment closer to the natural rate.
B) reduce the severity of recessions.
C) rein in excessively strong expansions.
D) bring unemployment closer to the natural rate, rein in excessively strong expansions, and reduce the severity of recessions.

Question 78

The point on a business cycle when real GDP stops falling and begins rising is a(n):

A) peak.
B) expansion.
C) trough.
D) recession.

Question 79

A period of falling real GDP is a(n)________ in the business cycle:

A) peak.
B) trough.
C) expansion.
D) recession.

Question 80

An independent panel of economic experts at the _____ analyzes the macroeconomy and determines when recessions begin and end.

A) Bureau of the Census
B) President's Council of Economic Advisers
C) Treasury Department
D) National Bureau of Economic Research