Question 1

Capital, as defined in the text, is the total amount of money available to produce the goods and services.

Accepted Answer

Capital refers not only to money but also to physical assets like machinery, buildings, and tools used in the production of goods and services.

Question 2

Which of the following is the best description of what economic fluctuations theory aims to explain?

Accepted Answer

Economic fluctuations theory aims to explain the short-term fluctuations in real GDP, which includes changes in levels of business activities, employment rates, and economic growth rates.

Question 3

Which of the following is not a determinant of aggregate supply capability?

Accepted Answer

Aggregate demand is not a determinant of aggregate supply capability. Aggregate supply capability is determined by factors such as the supply of labor, capital goods (such as computers and factories), available know-how, natural resources, and technology. Aggregate demand, on the other hand, refers to the total demand for goods and services in the economy, which can affect the level of output and prices in the short run.

Question 4

The two branches of macroeconomic theory are

Accepted Answer

The two branches of macroeconomic theory are economic fluctuations theory and economic growth theory. These two branches focus on understanding and analyzing the dynamics of the overall economy in terms of fluctuations in economic activity and long-term trends in economic growth. Inflation and unemployment are important concepts in both branches, but they are not the main focus or dividing line between the two.

Question 5

What are the predicted short-term and long-term economic effects of the Japanese earthquake in 2011 on the Japanese economy?

Accepted Answer

The answer of What are the predicted short-term and long-term...

Question 6

Economic policies that focus on long-term growth are referred to as

Accepted Answer

Supply-side policies aim to increase the economy's capacity to produce goods and services over the long-term, leading to sustained economic growth. These policies may involve actions such as tax reductions, deregulation, or investment in education and technology. Demand-side policies, on the other hand, focus on short-term measures to stimulate consumer spending and business investment, such as fiscal stimulus or monetary policy. Regional policies refer specifically to policies aimed at promoting development in specific geographic regions.

Question 7

Discuss the relationship between each of the following variables based on the experience of the U.S. economy over the past 40 years.
(A)GDP and the unemployment rate
(B)The interest rate and the inflation rate
(C)GDP and the inflation rate

Accepted Answer

The answer of Discuss the relationship between each of the...

Question 8

Economic growth theory aims to explain the short-term fluctuations in real GDP.

Accepted Answer

Economic growth theory aims to explain the long-term trends and determinants of economic growth, rather than short-term fluctuations in real GDP. Short-term fluctuations are typically explained by business cycle theory.

Question 9

Economic growth theory

Accepted Answer

Economic growth theory explains the long-term upward rise in real GDP.

Question 10

Changes in know-how have very little effect on economic growth.

Accepted Answer

Advances in technology and knowledge have been shown to have a significant impact on economic growth, as they facilitate productivity and innovation in various sectors of the economy.

Question 11

Suppose at the beginning of 2011, I loaned out $100 and at the end of the year was paid back $108. The inflation rate during the year was 3 percent.
(A)What was the stated interest rate?
(B)What was the real interest rate?

Accepted Answer

The answer of Suppose at the beginning of 2011, I...

Question 12

The three determinants of the supply of real GDP are

Accepted Answer

The three determinants of the supply of real GDP are labor, capital, and technology. Labor refers to the number of workers available to produce goods and services. Capital refers to the tools, machines, and buildings that workers use to produce goods and services. Technology refers to the production methods used to combine labor and capital to produce goods and services. Together, these three determinants determine a country's potential to produce goods and services, or potential GDP.

Question 13

Potential real GDP is the GDP that economists would expect to observe when the unemployment rate is zero.

Accepted Answer

Potential real GDP is the level of GDP attainable when the economy is operating at a high level of resource use, not necessarily when unemployment is zero. It accounts for the natural rate of unemployment due to factors like frictional and structural unemployment.

Question 14

Which of the following statements is true?

Accepted Answer

Real GDP fluctuates around potential GDP because potential GDP represents the economy's maximum sustainable output, while real GDP represents the actual output produced in the economy, which can be above or below the potential level due to business cycles, supply shocks, and other factors. Therefore, it is normal for real GDP to deviate from potential GDP in the short run, but over the long run, they tend to converge.

Question 15

Another name for potential GDP is

Accepted Answer

Potential GDP is often associated with the concept of aggregate supply in the long run, where all resources are fully utilized.

Question 16

Fiscal policy affects economic growth by

Accepted Answer

Fiscal policy affects economic growth by influencing incentives for investment, work, hiring, and new technology development. For example, lower taxes for businesses and individuals can increase the incentive to invest and hire, while government spending on infrastructure can create jobs and boost overall economic activity. On the other hand, higher taxes and reduced government spending can slow economic growth by reducing these incentives. Controlling strategic industries, developing new agencies, funding higher education, and providing unemployment compensation can also influence economic growth, but to a lesser extent compared to directly affecting incentives through fiscal policy.

Question 17

Which of the following statements about potential GDP is true?

Accepted Answer

Potential GDP represents the long-run tendency of the economy to grow, which is determined by factors such as the size of the labor force, capital stock, and technological advancements. It does not represent the maximum level of real GDP (A), a downward trend in real GDP (B), a specific real interest rate (C), or the average level of real GDP (E).

Question 18

The production function shows the relationship between

Accepted Answer

The production function is a function that shows the relationship between inputs of labor, capital, and technology and the output of goods and services, or real GDP.

Question 19

Potential GDP is

Accepted Answer

Potential GDP is the long-run, upward trend line in real GDP. It represents the level of output that can be sustained in the long run given the economy's labor force, capital stock, and technology, among other factors.

Question 20

Name three important characteristics of the inflation experience of the past 40 years.

Accepted Answer

The answer of Name three important characteristics of the inflation...

Quiz 5: Macroeconomics: the Big Picture