Question 1

In the study of short-run fluctuations in national income, potential income output) is usually assumed to be

Accepted Answer

In the study of short-run fluctuations in national income, potential income output is typically assumed to be constant, as it represents the level of output an economy can sustain in the long run given its resources and technology.

Question 2

Consider an economy in which existing capital is being used at a high degree, shortages in labour and goods markets are developing, and costs are rising. Which of the following terms best describes this stage of the business cycle?

Accepted Answer

This stage is called the peak of the business cycle. At this point in time, the economy is operating at near-full capacity, causing shortages in labour and goods markets leading to increased costs. A peak represents the culmination of economic expansion when an economy is operating at or near its full potential.

Question 3

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.  TABLE 19-1
-Refer to Table 19-1 What is the output gap in 2012?

Accepted Answer

The answer of The table below provides macroeconomic data for...

Question 4

Which of the following correctly describes the meaning of the expression Y < Y*?

Accepted Answer

Y represents actual output and Y* represents potential output. Y < Y* indicates that the actual output is less than potential output, which is a recessionary gap.

Question 5

In macroeconomics, the ʺoutput gapʺ is the difference between

Accepted Answer

The output gap is the difference between potential real national income (what an economy is capable of producing at full employment) and actual real national income (what is actually being produced). This is a common measure used in macroeconomics to analyze economic performance and potential for growth. The other choices are not accurate descriptions of the output gap.

Question 6

On a graph showing real national income on the vertical axis and time on the horizontal axis, the fluctuations of real national income around the trend -line would indicate the

Accepted Answer

The fluctuations of real national income around the trend-line represent the ups and downs of the business cycle. The trend-line itself represents the path of potential output. The distribution of income, inflation rate, and unemployment rate are not directly represented by the fluctuations of real national income.

Question 7

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.  TABLE 19-1
-Refer to Table 19-1. In the year 2012, it is probably the case that workers are and factories are
)

Accepted Answer

The answer of The table below provides macroeconomic data for...

Question 8

Suppose actual output is less than potential output. If the output gap measures the output loss due to the failure to achieve full employment, it can generally be concluded that the larger this output gap, the

Accepted Answer

A negative output gap indicates that actual output is less than potential output, which means there is a shortfall in the level of economic activity. This leads to lower demand for labor and hence greater unemployment, resulting in a higher unemployment rate. Therefore, the correct choice is B.

Question 9

Which of the following correctly describes the meaning of the expression Y > Y*?

Accepted Answer

Y represents actual output and Y* represents potential output. Therefore, Y > Y* means that actual output is more than potential output, which implies an inflationary gap.

Question 10

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.  TABLE 19-1
-Refer to Table 19-1. What is the output gap in 2010?

Accepted Answer

Output gap = Potential GDP - Actual GDP
In 2010, Potential GDP = $13.1 trillion
Actual GDP = $13.4 trillion
Output gap = $13.1 trillion - $13.4 trillion = -$3 billion (since actual GDP is greater than potential GDP, the economy is operating above potential, resulting in a negative output gap)

Question 11

An output gap with Y < Y*

Accepted Answer

An output gap with Y < Y* represents a loss of output due to unemployed resources. This means that even though there are resources available to produce more output, they are not being used, resulting in a loss of potential output. This is not desirable because it represents an inefficient use of resources and can result in lower economic growth.

Question 12

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.  TABLE 19-1
-Refer to Table 19-1. What is the unemployment rate when this economy is at ʺfull employmentʺ?

Accepted Answer

Full employment occurs when the unemployment rate equals the natural rate of unemployment, which is determined by structural and frictional factors and is not affected by cyclical factors. Based on the table, the natural rate of unemployment is 4.3%. Therefore, full employment occurs when the unemployment rate equals 4.3%. The actual unemployment rate in the table is 6.3%, which is 2 percentage points above the natural rate of unemployment, indicating a cyclical or demand-side factor contributing to the higher unemployment.

Question 13

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.  TABLE 19-1
-Refer to Table 19-1. In which years are the factors of production in this economy said to be ʺfully employedʺ?

Accepted Answer

The answer of The table below provides macroeconomic data for...

Question 14

When macroeconomists use the term ʺrecessionʺ they usually define it as a fall in real GDP that lasts for at least

Accepted Answer

When macroeconomists use the term "recession," they usually define it as a fall in real GDP that lasts for at least two consecutive quarters.

Question 15

On a graph showing real national income on the vertical axis and time on the horizontal axis, the trend -line would probably be a good approximation of the

Accepted Answer

A trend-line shows the long-term movement of economic growth, and potential output represents the maximum level of sustainable output. Therefore, the trend-line would be a good approximation of the path of potential output. The other options, such as the business cycle, distribution of income, inflation rate, and unemployment rate, are short-term fluctuations and do not provide a good approximation of long-term economic growth.

Question 16

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.  TABLE 19-1
-Refer to Table 19-1. In which years was this economy experiencing an inflationary gap?

Accepted Answer

The answer of The table below provides macroeconomic data for...

Question 17

Short-run fluctuations in real GDP around its trend value are

Accepted Answer

Short-run fluctuations in real GDP around its trend value are referred to in economics as ʺthe business cycle.ʺ This cycle has four phases: expansion, peak, contraction, and trough. Understanding the business cycle is crucial in the study of macroeconomics, as it helps predict economic growth and informs policy decisions.

Question 18

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms.  TABLE 19-1
-Refer to Table 19-1. In which years was this economy experiencing a recessionary gap?

Accepted Answer

A recessionary gap occurs when actual output is below potential output, which is given by the full-employment level of output. In this table, potential output is given by the trend output column. Whenever actual output (given by real GDP) is below trend output, there is a recessionary gap. From the table, we can see that real GDP is below trend GDP in 2009, 2010, and 2014, indicating that the economy was experiencing a recessionary gap in those years. Therefore, the best answer is B.

Question 19

Economic booms can cause problems as well as create benefits because they are often accompanied by

Accepted Answer

Economic booms often lead to increased demand for goods and services, pushing up prices and causing inflationary pressures. This can lead to a decrease in purchasing power and a decline in real income for consumers, offsetting some of the benefits of the boom. In addition, inflation can lead to higher interest rates, which can dampen investment and borrowing.

Question 20

In macroeconomics, what is the output gap?

Accepted Answer

The output gap is defined as the difference between actual output (Y) and potential output (Y*), which represents the level of output that could be produced if the economy were operating at full employment. Therefore, the best choice is E, which directly defines the output gap. The other choices are incorrect: A defines potential output but does not specify the output gap; B describes the costs of inflation, not the output gap; C describes a difference between two types of output, but not the output gap; and D describes the growth rate of real GDP, but not the output gap.

Quiz 19: What Macroeconomics Is All About

In the study of short-run fluctuations in national income, potential income output) is usually assumed to be

Consider an economy in which existing capital is being used at a high degree, shortages in labour and goods markets are developing, and costs are rising. Which of the following terms best describes this stage of the business cycle?

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1 What is the output gap in 2012?

Which of the following correctly describes the meaning of the expression Y < Y*?

In macroeconomics, the ʺoutput gapʺ is the difference between

On a graph showing real national income on the vertical axis and time on the horizontal axis, the fluctuations of real national income around the trend -line would indicate the

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1. In the year 2012, it is probably the case that workers are and factories are )

Suppose actual output is less than potential output. If the output gap measures the output loss due to the failure to achieve full employment, it can generally be concluded that the larger this output gap, the

Which of the following correctly describes the meaning of the expression Y > Y*?

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1. What is the output gap in 2010?

An output gap with Y < Y*

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1. What is the unemployment rate when this economy is at ʺfull employmentʺ?

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1. In which years are the factors of production in this economy said to be ʺfully employedʺ?

When macroeconomists use the term ʺrecessionʺ they usually define it as a fall in real GDP that lasts for at least

On a graph showing real national income on the vertical axis and time on the horizontal axis, the trend -line would probably be a good approximation of the

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1. In which years was this economy experiencing an inflationary gap?

Short-run fluctuations in real GDP around its trend value are

The table below provides macroeconomic data for a hypothetical economy. Dollar amounts are all in constant-dollar terms. TABLE 19-1 -Refer to Table 19-1. In which years was this economy experiencing a recessionary gap?

Economic booms can cause problems as well as create benefits because they are often accompanied by

In macroeconomics, what is the output gap?