Deck 1: The Science of Macroeconomics

Question 1

Recessions are periods when real GDP:

A)increases slowly.
B)increases rapidly.
C)decreases mildly.
D)decreases severely.

Answer 1

C

Question 2

Compared with a recession, real GDP during a depression:

A)increases more rapidly.
B)increases at approximately the same rate.
C)decreases at approximately the same rate.
D)decreases more severely.

Answer 2

D

Question 3

Endogenous variables are:

A)fixed at the moment they enter the model.
B)determined within the model.
C)the inputs of the model.
D)from outside the model.

Answer 3

B

Question 4

A typical trend during a recession is that:

A)the unemployment rate falls.
B)the popularity of the incumbent president rises.
C)incomes fall.
D)the inflation rate rises.

Question 5

Deflation occurs when:

A)real GDP decreases.
B)the unemployment rate decreases.
C)prices fall.
D)prices increase, but at a slower rate.

Question 6

During the period between 1900 and 2000, the unemployment rate in the United States was highest in the:

A)1920s.
B)1930s.
C)1970s.
D)1980s.

Question 7

Important characteristics of macroeconomic models include all of the following except:

A)simplifying assumptions.
B)functional relationships based on controlled experiments.
C)endogenous and exogenous variables.
D)implicit or explicit consistency with microeconomic foundations.

Question 8

The inflation rate in the United States averaged about:

A)zero between 1900 and 1950.
B)zero between 1950 and 2000.
C)10 percent between 1900 and 1950.
D)10 percent between 1950 and 2000.

Question 9

A measure of how fast prices are rising is called the:

A)growth rate of real GDP.
B)inflation rate.
C)unemploymentrateD.market-clearing rate.

Question 10

A period of falling prices is called:

A)deflation.
B)inflation.
C)a depression.
D)a recession.

Question 11

Real GDP over time and the growth rate of real GDP .

A)grows; fluctuates
B)is steady; is steady
C)grows; is steady
D)is steady; fluctuates

Question 12

The ability of macroeconomists to predict the future course of economic events:

A)is no better than the meteorologist's ability to predict the next month's weather.
B)is much better than the meteorologist's ability to predict the next month's
C)weather. has gotten worse over time.
D)is less precise than it was in the 1920s.

Question 13

Variables that a model tries to explain are called:

A)endogenous.
B)exogenous.
C)market clearing.
D)fixed.

Question 14

Macroeconomic models are used to explain how variables influence _ variables.

A)endogenous; exogenous
B)exogenous; endogenous
C)microeconomic; macroeconomic
D)macroeconomic; microeconomic

Question 15

Macroeconomists cannot conduct controlled experiments, such as testing various tax and expenditure policies, because:

A)it is against the law.
B)they tried it once and it did not work.
C)they must make use of the data history gives them.
D)economists already know the answers that would come out of the experiments.

Question 16

Variables that a model takes as given are called:

A)endogenous.
B)exogenous.
C)market clearing.
D)macroeconomic.

Question 17

In an economic model:

A)exogenous variables and endogenous variables are both fixed when they enter the model.
B)endogenous variables and exogenous variables are both determined within the model.
C)endogenous variables affect exogenous variables.
D)exogenous variables affect endogenous variables.

Question 18

A severe recession is called a(n):

A)depression.
B)deflation.
C)exogenous event.
D)market-clearing assumption.

Question 19

All of the following are important macroeconomic variables except:

A)real GDP.
B)the unemployment rate.
C)the marginal rate of substitution.
D)the inflation rate.

Question 20

In the U.S. economy today, real GDP per person, compared with its level in 1900, is about:

A)50 percent higher.
B)twice as high.
C)three times as high.
D)eight times as high.

Question 21

The production function for an economy can be expressed as Y = F(K,L), where Y is real GDP, K is the quantity of capital in the economy, and L is the quantity of labor in the economy.
a. If F( ) = 100 + 3K + 9L, what is real GDP if the quantity of capital is 200 and the quantity of labor is 500?
b. What is/are the endogenous variable(s) in this model?
c. What is/are the exogenous variable(s) in this model?

Question 22

In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza _ and the quantity purchased _ _.

A)increases; increases
B)decreases; increases
C)decreases; decreases
D)increases; decreases

Question 23

In a simple model of the supply and demand for pizza, the endogenous variables are:

A)the price of pizza and the price of cheese.
B)aggregate income and the quantity of pizza sold.
C)aggregate income and the price of cheese.
D)the price of pizza and the quantity of pizza sold.

Question 24

Macroeconomic models:

A)assume all wages and prices are sticky.
B)assume all wages and prices are flexible.
C)make different assumptions to explain different aspects of the macroeconomy.
D)focus primarily on the optimizing behavior of households and firms.

Question 25

In the relationship expressed in functional form, Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ):

A)is the growth rate of real GDP when the amount of capital and labor in the economy is fixed.
B)indicates that the variables inside the parentheses are endogenous variables in the model.
C)is the symbol that stands for government input into the production process.
D)is the function telling how the variables in the parentheses determine real GDP.

Question 26

Assume that the equation for demand for bread at a small bakery is Q^d = 60 - 10P + 3Y, where Q^d is the quantity of
b
bread demanded in loaves and Y is the average income in the town in thousands of dollars.
a. If the average income in the town is 10, state the equation for Qd in terms of P .
b
b. Draw a graph of the demand curve with Qd on the horizontal axis and P on the vertical axis. Label the
b
curve DD.

Question 27

In a simple graphical model of the supply and demand for pizza with the price of pizza measured vertically and the quantity of pizza measured horizontally:

A)the supply curve slopes upward and to the right.
B)the demand curve slopes upward and to the right.
C)the supply curve slopes downward and to the right.
D)at the equilibrium price, the supply of pizza exceeds the demand for pizza.

Question 28

Which statement below best illustrates the "art," rather than the "science" of macroeconomics?

A)Macroeconomic data provides the motivation for new macroeconomic theory.
B)Macroeconomic relationships can be expressed using symbols and equations.
C)Macroeconomists must determine which simplifying assumptions give misleading results.
D)Graphs and charts can be used to illustrate the history of macroeconomic variables.

Question 29

In a simple model of the supply and demand for pizza, when aggregate income increases, the price of pizza _ and the quantity purchased _ _.

A)increases; decreases
B)increases; increases
C)decreases; increases
D)decreases; decreases

Question 30

Assume that the equation for demand for bread at a small bakery is Q^d = 60 - 10P + 3Y, where Q^d is the quantity of
b
bread demanded in loaves, P is the price of bread in dollars per loaf, and Y is the average income in the town in
b
thousands of dollars. Assume also that the equation for supply of bread is Q^s = 30 + 20P - 30 P , where Q^s is the
b f
quantity supplied and P is the price of flour in dollars per pound. Assume finally that markets clear, so that Q^d = Q^s.
f
a. If Y is 10 and P is $1, solve mathematically for equilibrium Q and P .
f b
b. If the average income in the town increases to 15, solve for the new equilibrium Q and P .
b

Question 31

The quantity of coffee demanded, Q^D, depends on the price of coffee, P , and the price of tea, P . The quantity of
c T
coffee supplied, Q^S, depends on the price of coffee, P , and the price of electricity, P , according to the following
c E
equation:
Q^D = 17 - 2 P + 10 P
c T
Q^S = 2 + 3 P - 5 P
c E
a. If the price of tea is $1.00 and the price of electricity is $0.50, what is the equilibrium price and quantity of coffee?
b. What is/are the endogenous variable(s) in this model?
c. What is/are the exogenous variable(s) in this model?