Deck 23: The Goals of Macroeconomic Policy

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

Labor productivity measures output per hour of work.

Question 9

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

Question 10

Unemployment rates differ widely among various groups in the population.

Question 11

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

Question 12

Cyclical unemployment occurs when real GDP falls below potential GDP.

Question 13

Unemployment insurance benefits the macroeconomy by supporting purchasing power.

Question 14

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

Question 15

Technological change and labor productivity are negatively related.

Question 16

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

Question 17

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

Question 18

As capital goods depreciate, the growth of labor productivity will increase.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

Inflation tends to redistribute real income from lenders to borrowers.

Question 26

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

Question 27

Low inflation rates tend to accelerate into higher and higher rates of inflation.

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

Businesses will want to borrow more funds as the real rate of interest decreases.

Question 37

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

Question 38

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

Question 39

Inflation is a serious problem because inflation causes real wages to decline.

Question 40

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

Question 41

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 42

Environmentalists worry that economic growth imposes costs on society.Among these costs are

A)pollution.
B)crowding.
C)waste disposal.
D)All of the above are costs.

Question 43

The production function has ____ on the horizontal axis.

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

Question 44

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 45

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 46

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 47

An increase in capital stock will shift the production function

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

Question 48

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 49

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 50

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 51

The estimate of potential GDP would decrease if

A)the rate of capital depreciation increased.
B)the labor force decreased.
C)the price level grew.
D)All of the above would increase potential GDP.

Question 52

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 53

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 54

A decrease 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 55

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 56

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

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

Question 57

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

Question 58

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 59

The fastest growing economy between 1870 and 1979 was

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

Question 60

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 61

One basic way to boost the nation's growth rate is to

A)increase wages paid to labor.
B)slow the rate of technical progress.
C)reduce the population growth rate.
D)accumulate more capital

Question 62

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 63

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 64

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 65

An economy can increase its total output of goods and services if it

A)increases the hours of work or output per hour.
B)increases the hours of work or decreases output per hour.
C)decreases hours of work or decreases output per hour.
D)decreases hours of work and decreases output per hour.

Question 66

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 67

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 68

The growth rate of potential GDP is the sum of two other growth rates.These other growth rates are

A)population and resource base.
B)goods output and services output.
C)labor input and labor hours worked.
D)labor input and labor productivity.

Question 69

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.

Question 70

Economists oppose limiting economic growth possibilities because such limits would inevitably involve

A)some expansion of private sector production.
B)an increase in government spending.
C)some form of mandatory controls on economic activity.
D)mandated balanced federal budgets.

Question 71

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 72

Increasing economic growth may be beneficial because

A)mass poverty is a serious problem in the United States.
B)most Americans do not have the basic goods and services necessary for a decent life.
C)the price level falls only if the economy is growing.
D)most of the world is still below the poverty level of income.

Question 73

The growth rate of potential GDP depends, among other factors, on the

A)rate of technological progress.
B)unemployment rate.
C)size of the labor force.
D)rate of capital stock depreciation.

Question 74

If economic output is increased by increasing the number of people working in the economy, then

A)both GDP per capita and labor productivity will increase.
B)both GDP per capita and labor productivity will decrease.
C)GDP per capita will increase.
D)Labor productivity will increase.

Question 75

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 76

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 77

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 78

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 79

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 80

Labor productivity is calculated by dividing GDP by

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