Question 1

Refer to the information provided in Figure 16.1 below to answer the questions that follow.
  Figure 16.1
-Refer to Figure 16.1.Suppose the economy is currently at Point B.If investors are optimistic about future growth in aggregate output,investment

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 2

If a firm is able to produce the same amount of output even after reducing its labor workforce,this implies that the firm has

Accepted Answer

The firm's ability to maintain output levels with fewer workers indicates that it previously had more labor than was necessary for its production processes, hence the term "excess labor."

Question 3

When forming their expectations,firms gather information about all the following factors EXCEPT

Accepted Answer

Firms gather information about the projected demand for their products, the health of the macroeconomy, and the future plans of their competitors. However, they would not gather information about the historical supply of their competitors’ line of products because this information is not relevant to their future expectations.

Question 4

The tendency for investment to increase when aggregate output increases is the result of the ________ effect.

Accepted Answer

The accelerator effect states that an increase in aggregate output (income) leads to a proportionate increase in investment. This is because higher output signals higher demand for goods and services, which in turn leads firms to invest in additional capital to produce more.

Question 5

An unexpected increase in inventories has

Accepted Answer

An unexpected increase in inventories indicates that the demand for the product has decreased. This suggests that future production must be reduced to prevent further increases in inventory levels. Hence, an unexpected increase in inventories has a negative effect on future production.

Question 6

Which of the following relationships is correct?

Accepted Answer

The equation for calculating the stock of inventories at the end of a period involves adding the beginning stock of inventories to the production during the period and then subtracting the sales that occurred during the period. This is because the stock of inventories at the end of the period is equal to the beginning stock plus the amount produced during the period, less the amount that was sold. Therefore, the correct equation is: Stock of Inventories (End of Period) = Stock of Inventories (Beginning of Period) + Production - Sales. Option C is the only one that follows this formula.

Question 7

The desired level of inventories is the level at which the extra cost (in lost sales)from lowering inventories by a small amount is

Accepted Answer

The desired level of inventories is achieved when the extra cost from lowering inventories (in terms of lost sales) is just equal to the extra gain from lower inventories (in terms of interest revenue and decreased storage costs). This balance ensures that the inventory level is optimized for cost efficiency without sacrificing sales.

Question 8

Refer to the information provided in Figure 16.1 below to answer the questions that follow.
  Figure 16.1
-Refer to Figure 16.1.Which of the following could cause a movement from Point B to Point C?

Accepted Answer

A decrease in the interest rate typically leads to an increase in investment and consumption, causing a movement along the demand curve from Point B to Point C.

Question 9

The tendency for ________ to decrease when ________ decreases is the result of the accelerator effect.

Accepted Answer

The accelerator effect refers to the phenomenon where investment decreases as a result of a decrease in aggregate output. This is because businesses invest more when they anticipate higher demand (reflected in higher aggregate output) and invest less when they expect lower demand.

Question 10

At the beginning of 2013,the Shades of Gray Company has 8,000 pairs of sunglasses in stock.During 2013,the company produces 120,000 pairs of sunglasses and sells 112,000 pairs of sunglasses.The Shades of Gray Company's stock of inventory at the end of 2013 is ________ pairs of sunglasses.

Accepted Answer

The company started with 8,000 pairs, produced 120,000 pairs, totaling 128,000 pairs. After selling 112,000 pairs, 16,000 pairs remain in stock.

Question 11

The Unique Toy Company rents space by the square foot in a warehouse to store its inventory.The owner of the warehouse just doubled the rent he charges the Unique Toy Company.Everything else equal,the rent increase is likely to ________ Unique's optimal level of inventory.

Accepted Answer

When the rent is doubled, it increases the cost of carrying inventory for Unique Toy Company. Therefore, it is likely to decrease the optimal level of inventory as the company may not find it profitable to store the same amount of inventory at a higher cost.

Question 12

Change in inventories equals the difference between

Accepted Answer

Change in inventories equals the difference between production and sales because it measures the change in the amount of inventory that a firm holds in a period of time. If production is greater than sales, it means that the firm has produced more goods than it has sold, resulting in an increase in inventory. Conversely, if sales are greater than production, it means that the firm has sold more goods than it has produced, resulting in a decrease in inventory. Therefore, the change in inventories can be calculated as the difference between production and sales.

Question 13

The phrase that was coined by John Maynard Keynes to describe the feelings of investors was the ________ of entrepreneurs.

Accepted Answer

The phrase coined by John Maynard Keynes to describe the feelings of investors was "animal spirits". It refers to the unpredictable and emotional factors that influence economic decision-making, such as confidence, excitement, and fear.

Question 14

Output is likely to respond more to sales increases in high-output periods than in low-output periods,provided that firms have enough capital and labor to support the output increase.

Accepted Answer

When a firm is already operating at high output levels, increasing sales will result in a higher increase in output than when it is operating at low output levels. This is because at high output levels, the firm has the capacity to increase production without incurring significant additional costs. However, if the firm does not have enough capital and labor to support the output increase, then the response to sales increases may not be significant.

Question 15

The unemployment rate does not tend to fall as soon as the economy pulls out of a recession.Which of the following best explains this?

Accepted Answer

During a recession, firms may hold excess labor since they have decreased demand for their goods and services. As the economy pulls out of the recession, firms may not immediately hire new workers since they may already have excess labor that can be utilized. It takes time for firms to see sustained demand for their goods and services before they increase their workforce.

Question 16

Refer to the information provided in Figure 16.1 below to answer the questions that follow.
  Figure 16.1
-Refer to Figure 16.1.If the economy is currently at Point C,pessimism about future growth in aggregate output moves the economy to Point

Accepted Answer

Pessimism about future growth in aggregate output typically reduces aggregate demand, shifting the economy to a lower output and price level, which is represented by a movement to Point E.

Question 17

Refer to the information provided in Figure 16.1 below to answer the questions that follow.
  Figure 16.1
-Refer to Figure 16.1.Growth in aggregate output causes a ________ through the accelerator effect.

Accepted Answer

The accelerator effect states that as aggregate output increases, firms will need to invest in capital goods to produce more goods and services, leading to an increase in investment spending. This increase in investment spending causes a larger shift in the IS curve. Therefore, growth in aggregate output causes a shift from I₃ to I₂ as shown in Figure 16.1.

Question 18

The costs that a firm incurs when it changes its production level are ________ costs.

Accepted Answer

Adjustment costs refer to the costs that a firm incurs when it changes its production level, such as the cost of retraining employees, the cost of new equipment or technology, and the cost of changing suppliers or marketing strategies. Accelerated costs refer to costs that happen at a faster rate than expected, sunk costs are costs that have already been incurred and cannot be recovered, and depreciation is the decrease in value of an asset over time.

Question 19

Refer to the information provided in Figure 16.1 below to answer the questions that follow.
  Figure 16.1
-Refer to Figure 16.1.Which of the following could cause a movement from Point C to Point B?

Accepted Answer

The answer of Refer to the information provided in Figure...

Question 20

A firm is less likely to invest in new capital if

Accepted Answer

If a firm does not expect future sales to grow, it is less likely to invest in new capital because it may not see a need for additional production capacity. Without potential sales growth, the investment may not result in profitable returns. Options A and D suggest positive investment conditions, while option B suggests the absence of investment opportunities rather than a lack of incentive.

Quiz 16: Household and Firm Behavior in the Macroeconomy: a Further Look

Refer to the information provided in Figure 16.1 below to answer the questions that follow. Figure 16.1 -Refer to Figure 16.1.Suppose the economy is currently at Point B.If investors are optimistic about future growth in aggregate output,investment

If a firm is able to produce the same amount of output even after reducing its labor workforce,this implies that the firm has

When forming their expectations,firms gather information about all the following factors EXCEPT

The tendency for investment to increase when aggregate output increases is the result of the ________ effect.

An unexpected increase in inventories has

Which of the following relationships is correct?

The desired level of inventories is the level at which the extra cost (in lost sales) from lowering inventories by a small amount is

Refer to the information provided in Figure 16.1 below to answer the questions that follow. Figure 16.1 -Refer to Figure 16.1.Which of the following could cause a movement from Point B to Point C?

The tendency for to decrease when decreases is the result of the accelerator effect.