Deck 1: The Science of Macroeconomics

Question 1

All of the following are types of macroeconomics data except the:

A) price of a Dell computer.
B) growth rate of real GDP.
C) inflation rate.
D) unemployment rate.

Answer 1

price of a Dell computer.

Question 2

Macroeconomics is the study of the:

A) activities of individual units of the economy.
B) decision-making by households and firms.
C) economy as a whole.
D) interaction of firms and households in the marketplace.

Answer 2

economy as a whole.

Question 3

Real GDP ______ over the long run and the growth rate of real GDP ______ in the short run.

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

Answer 3

grows; fluctuates

Question 4

Recessions are periods when real GDP:

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

Question 5

The inflation rate in Canada averaged about:

A) zero between 1920 and 1945.
B) zero between 1945 and 2005.
C) 10 percent between 1920 and 1945.
D) 10 percent between 1945 and 2005.

Question 6

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 7

In the Canadian 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) 11 times as high.

Question 8

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 weather.
C) has gotten worse over time.
D) is less precise than it was in the 1920s.

Question 9

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

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

Question 10

The total income of everyone in the economy adjusted for the level of prices is called:

A) a recession.
B) an inflation.
C) real GDP.
D) a business fluctuation.

Question 11

A typical trend during a recession is that:

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

Question 12

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 13

Deflation occurs when:

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

Question 14

The study of the economy as a whole is called:

A) household economics.
B) business economics.
C) microeconomics.
D) macroeconomics.

Question 15

A graph of the rate of inflation in Canada over the twentieth century shows:

A) an overall upward trend interrupted by a large downturn in the 1930s.
B) some periods of deflation in the first half of the century,but almost entirely positive rates of inflation in the second half of the century.
C) a relatively steady,positive level throughout the century except for deflation in the 1930s.
D) a constant rate of inflation in the first half of the century followed by an upward trend in the second half.

Question 16

A severe recession is called a(n):

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

Question 17

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.

Question 18

Macroeconomics does not try to answer the question of:

A) why do some countries experience rapid growth.
B) what is the rate of return on education.
C) why do some countries have high rates of inflation.
D) what causes recessions and depressions.

Question 19

The inflation rate is a measure of how fast:

A) the total income of the economy is growing.
B) unemployment in the economy is increasing.
C) prices in the economy are rising.
D) the number of jobs in the economy is expanding.

Question 20

Two striking features of a graph of Canadian real GDP per capita over the twentieth century are the:

A) overall upward trend interrupted by downturns in the 1920s and the 1930s.
B) nearly constant level,with a large downturn in the 1930s.
C) downward trend in the first half of the century followed by the upward trend in the second half.
D) constant level in the first half of the century followed by the upward trend in the second half.

Question 21

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 22

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

A) Macroeconomic data provide 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 23

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 24

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 25

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 26

In an economic model:

A) exogenous variables and endogenous variables are both determined outside 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 27

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 behaviour of households and firms.

Question 28

Exogenous variables are:

A) determined outside the model.
B) determined within the model.
C) the outputs of the model.
D) explained by the model.

Question 29

A graph of the unemployment rate for Canada over the twentieth century shows:

A) a consistent upward trend in the unemployment rate.
B) an overall downward trend in the unemployment rate interrupted by a large upturn in the 1930s.
C) rates of unemployment always greater than zero,with substantial variations from year to year.
D) alternating periods of positive and negative rates of unemployment.

Question 30

All of the following statements about sticky prices are true except:

A) in the short run,some wages and prices are sticky.
B) the sticky-price model describes the equilibrium toward which the economy slowly gravitates.
C) for studying year-to-year fluctuations,most macroeconomists believe that price stickiness is a better assumption than is price flexibility.
D) magazine publishers tend to change their newsstand prices only every three or four years.

Question 31

The assumption of continuous market clearing means that:

A) sellers can sell all that they want at the going price.
B) buyers can buy all that they want at the going price.
C) in any given month,buyers can buy all that they want and sellers can sell all that they want at the going price.
D) at any given instant,buyers can buy all that they want and sellers can sell all that they want at the going price.

Question 32

A period of falling prices is called:

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

Question 33

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 34

Which of the following statements about economic models is true?

A) There is only one correct economic model.
B) All economic models are based on the same assumptions.
C) The purpose of economic models is to show how endogenous variables affect exogenous variables.
D) Economists use different models to address different questions.

Question 35

During the period between 1930 and 2005,the unemployment rate in Canada was highest in the:

A) 1930s.
B) 1960s.
C) 1970s.
D) 1980s.

Question 36

Variables that a model takes as given are called:

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

Question 37

Variables that a model tries to explain are called:

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

Question 38

Endogenous variables are:

A) determined outside the model.
B) determined within the model.
C) the inputs of the model.
D) from outside the model.

Question 39

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 labour in the economy.In this case G( ):

A) is the growth rate of real GDP when the amount of capital and labour 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 40

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

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

Question 41

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

Question 42

An assumption of _______ is more plausible for studying the short-run behaviour of the economy,while an assumption of ______ is more plausible for studying the long-run,equilibrium behaviour of the economy.

A) deflation; inflation
B) inflation; deflation
C) flexible prices; sticky prices
D) sticky prices; flexible prices

Question 43

When studying the short-run behaviour of the economy an assumption of ______ is more plausible,in contrast to studying the long-run equilibrium behaviour of an economy,when an assumption of ______ is more plausible.

A) inflation; unemployment
B) unemployment; inflation
C) flexible prices; sticky prices
D) sticky prices; flexible prices

Question 44

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 labour in the economy.a.If F( )= 100 + 3K + 9L,what is real GDP if the quantity of capital is 200 and the quantity of labour 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 45

Macroeconomics is based on microeconomics for all of the following reasons except:

A) when we study the economy as a whole,we must consider the decisions of individual economic actors.
B) aggregate variables are simply the sum of variables describing many individual decisions.
C) macroeconomic decisionmakers,when they make their choices,are required to maximize utility functions.
D) to understand the determinants of aggregate investment,we must think about a firm's deciding whether to build a new factory.

Question 46

Which of the following is the best example of a flexible price?

A) the price of a cup of coffee in a coffee shop
B) the price of gasoline at a service station
C) the price of a ticket at a movie theatre
D) the price of a bar of candy in a vending machine

Question 47

How does the distinction between flexible and sticky prices affect the study of macroeconomics?

A) The study of flexible prices is confined to microeconomics,while macroeconomics focuses on sticky prices.
B) Macroeconomists use flexible prices to explain inflation and sticky prices to explain unemployment.
C) Flexible prices are typically assumed in the study of the long run,while sticky prices are assumed in the study of the short run.
D) Endogenous variables are measured using flexible prices,while exogenous variables are measured using sticky prices.

Question 48

Macroeconomists are like scientists because they both:

A) design data and conduct controlled experiments to test their theories.
B) rely on data analyzed from experiments they set up in a laboratory.
C) are unlimited in their use of controlled experiments.
D) collect data,develop hypotheses,and analyze the results.

Question 49

Macroeconomics is:

A) based on microeconomic foundations.
B) completely separate from microeconomics.
C) explicitly based on microeconomic behaviour.
D) a subsidiary branch of microeconomics.

Question 50

Assume that the equation for demand for bread at a small bakery is Q^d = 60 - 10P_b + 3Y,where Q^d is the quantity of 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 Q^d in terms of P_b.
b.Draw a graph of the demand curve with Q^d on the horizontal axis and P_b on the vertical axis.Label the curve DD.

Question 51

Using a market-clearing model to analyze the demand for haircuts is ______ because the price of a haircut usually changes ______.

A) realistic; frequently
B) realistic; infrequently
C) unrealistic; frequently
D) unrealistic; infrequently

Question 52

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur:

A) from minute to minute.
B) from year to year.
C) in the long run.
D) in the short run.

Question 53

The quantity of coffee demanded,Q^d,depends on the price of coffee,P_c,and the price of tea,P_t.The quantity of coffee supplied,Q^s,depends on the price of coffee,P_c,and the price of electricity,P_e ,according to the following equation:
Q^d = 17 - 2P_c + 10 P_t
Q^s = 2 + 3P_c - 5 P_e
a.If the price of tea is $1 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?

Question 54

Which of the following is the best example of a sticky price?

A) the price of a barrel of oil
B) the price of the Canadian dollar in terms of euros
C) the price of a share of stock
D) the price of a soft drink in a vending machine