Deck 6: An Introduction to Macroeconomics

Question 1

The Great Recession occurred in:

A) 1970-74
B) 1985-87
C) 1992-94
D) 2007-09

Answer 1

2007-09

Question 2

Economists and policy makers are committed to encouraging a high and growing level of real GDP because:

A) This implies a lower price level
B) This means a higher level of unemployment
C) This implies an increase in investment
D) This means greater consumption opportunities

Answer 2

This means greater consumption opportunities

Question 3

Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to real GDP?

A) Real GDP doubles
B) Real GDP is halved
C) Real GDP doesn't change
D) There is not enough information to determine what happens to real GDP

Answer 3

Real GDP doesn't change

Question 4

Inflation is troublesome to consumers because of the following effects, except:

A) Household incomes may be rising slower than the overall prices
B) The purchasing power of people's savings would decrease
C) Workers' wages may be rising faster than the overall price level
D) The standard of living would fall if a household has a fixed nominal income

Question 5

High rates of unemployment are undesirable because they:

A) Always lead to a decline in nominal GDP
B) Are associated with higher levels crime and illness
C) Cannot be reduced through government policy
D) Are associated with increases in the price level

Question 6

The period when output and living standards decline is referred to as:

A) Inflation
B) Economic decline
C) An inventory downturn
D) A recession

Question 7

High rates of unemployment:

A) Indicate that society is not using a large portion of the talent and skills of its people
B) Are associated with higher price levels
C) Always correspond to a decrease in nominal GDP
D) Do not affect an economy's output of goods and services

Question 8

Macroeconomics is primarily concerned with studying two broad topics:

A) Long-run economic growth and short-run business cycles
B) The price of oil and gas abroad and prices of energy in the domestic market
C) The stock market and the housing market
D) Household incomes and firms' profits

Question 9

Suppose a small economy produces only HD TV sets. In year 1, 100,000 sets are produce and sold at a price of $1,200 each. In year 2, 100,000 sets are produced and sold at a price of $1,000 each. As a result:

A) Nominal GDP stays constant, while real GDP decreases
B) Nominal GDP decreases, while real GDP stays constant
C) Nominal GDP and real GDP both decrease
D) Nominal GDP decreases, and real GDP decreases even more

Question 10

An increase in the overall level of prices in an economy is called:

A) Growth
B) Expansion
C) Inflation
D) Nominal GDP growth

Question 11

Nominal gross domestic product:

A) Is not affected by the level of inflation
B) Changes only when there is a change in output
C) Changes only when there is a change in the price level
D) Can change when there is a change in either output or the price level

Question 12

Which of the following is most likely to be an indication of higher unemployment?

A) An increase in real GDP
B) An increase in nominal GDP
C) A decrease in real GDP
D) A decrease in nominal GDP

Question 13

Suppose a small economy produces only MP3 players. In year 1, 10,000 MP3 players are produce and sold at a price of $100 each. In year 2, 12,000 MP3 players are produced and sold at a price of $80 each. Which of the following statements is true?

A) Real GDP and nominal GDP both increase
B) Real GDP increases while nominal GDP remains constant
C) Real GDP decreases while nominal GDP increases
D) Real GDP increases while nominal GDP decreases

Question 14

Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to nominal GDP?

A) Nominal GDP doubles
B) Nominal GDP is halved
C) Nominal GDP doesn't change
D) There is not enough information to determine what happens to nominal GDP

Question 15

Real gross domestic product:

A) Is a measure of inflation
B) Will increase if there is an increase in the price level
C) Will increase if there is an increase in the level of output
D) Can change from one year to the next even if there is no change in output

Question 16

The major statistics that provide macroeconomists a picture of the health of an economy include the following, except:

A) Real gross domestic product
B) Inflation statistics
C) Prices of oil and gasoline
D) Unemployment data

Question 17

Suppose a family's income increases by 5% at the same time that inflation is 6%. Then the family's living standard:

A) Will increase by 5%
B) Will not change
C) Will increase by 1%
D) Will decrease

Question 18

Real gross domestic product is a measure of the:

A) Average price level in the economy
B) Value of final output produced within a country in one year, using current prices
C) Value of final output produced within a country in one year, adjusted for changing prices
D) Total value of available resources in a nation

Question 19

Nominal gross domestic product:

A) Is a measure of the overall level of prices
B) Measures the value of final output produced within a nation in one year, using current prices
C) Measures the value of final output produced within a nation in one year, adjusted for changing prices
D) Only changes when the level of output changes

Question 20

Short-run fluctuations in output and employment are referred to as:

A) Economic growth
B) Business cycles
C) Inventory cycles
D) Recession and inflation

Question 21

The amount of investment is ultimately limited by the amount of:

A) Production
B) Saving
C) Employment
D) Inflation

Question 22

There is a trade-off between:

A) Saving and investment
B) Current production and future consumption
C) Current consumption and future consumption
D) Consumption and spending

Question 23

Which of the following is not an adjustment made when comparing standards of living across countries?

A) Converting each country's GDP into U.S. dollars
B) Dividing each country's GDP by the size of its population
C) Adjusting for different price levels across countries
D) Adjusting for different unemployment rates across countries

Question 24

Saving in the economy:

A) Occurs when current spending is less than current incomes
B) Is generally not a determinant of future output
C) And investment are essentially the same concept
D) Occurs when current consumption is more than current output

Question 25

A higher rate of investment now will generate:

A) More saving now
B) More current consumption
C) More future production
D) More future inflation

Question 26

Macroeconomic models help clarify important questions such as the following, except:

A) Can governments reduce the severity of their economies' recessions?
B) Is a policy of manipulating interest rates more effective at mitigating short-run economic fluctuations than a policy of changing the tax rates?
C) How will OPEC manipulate and maintain the price of crude oil in the world markets?
D) Is there a trade-off between lower unemployment and lower inflation?

Question 27

Which among the following countries had the highest GDP per person in 2011?

A) Canada
B) The U.S.
C) Japan
D) China

Question 28

If a family's income increases by 5% at the same time that inflation is 3.5%, then the:

A) Family will need to spend more in order to maintain its standard of living
B) Family will need to spend less in order to maintain its standard of living
C) Family's standard of living is not affected by inflation
D) Family will need to spend the same amount in order to maintain its standard of living

Question 29

Under modern economic growth, the annual average increase in output per person is:

A) Often not large, perhaps 2% per year
B) Often large, perhaps greater than 5% per year
C) Often small, perhaps less than 1% per year
D) Often the same in rich countries as in poor countries

Question 30

Rapid and sustained economic growth of nations:

A) Started around the time of Jesus
B) Started a few centuries before the time of Jesus
C) Was triggered by the establishment of the Roman Empire in the first millennium
D) Is a relatively modern phenomenon

Question 31

In 2011, output per person in the U.S. was about:

A) $32,000
B) $21,000
C) $48,000
D) $65,000

Question 32

Modern economic growth:

A) Started occurring since the time of the Roman Empire
B) Has been experienced by all countries around the world
C) Refers to the phenomenon when a country's total output rises
D) Makes a country's output per person rise at a compounded rate

Question 33

Which among the following countries had the highest GDP per person in 2011?

A) Mexico
B) India
C) Russia
D) China

Question 34

Suppose that real GDP increases by 5% while the population of a country increases by 7%. Then:

A) Output per person necessarily increases
B) Output per person necessarily decreases
C) Output per person necessarily remains unchanged
D) There is not enough information to determine what happens to output per person

Question 35

Purchasing power parity refers to:

A) Converting each country's GDP into U.S. dollars
B) Dividing each country's GDP by the size of its population
C) Adjusting GDP figures for the fact that prices are much lower in some countries than in others
D) Adjusting different GDP figures for inflation over time

Question 36

For many decades prior to the Industrial Revolution, the standards of living in England and China:

A) Remained roughly constant
B) Increased steadily
C) Declined substantially
D) Increased many times over

Question 37

In earlier centuries, the Roman and Chinese economies:

A) Expanded in such a way that output per person increased
B) Expanded in such a way that output per person decreased
C) Declined in such a way that output per person decreased
D) Expanded but output per person remained virtually stagnant

Question 38

At the core of understanding economic growth is the idea that to raise living standards over time, an economy must:

A) Produce and consume goods and services
B) Save and invest
C) Export and import
D) Employ resources and earn incomes

Question 39

Investment happens when:

A) Current income is greater than current spending
B) Current consumption is greater than current output
C) Resources are devoted toward increasing current output
D) Resources are devoted toward increasing future output

Question 40

Before the late 1700's, living standards in the richest part of the world were:

A) About five times higher than living standards in the poorest parts of the world
B) At most only two to three times higher than living standards in the poorest parts of the world
C) About 50 times higher than living standards in the poorest parts of the world
D) About the same as living standards in the poorest parts of the world

Question 41

The term "shock":

A) Always refers to an unexpectedly bad event
B) Always refers to an increase in inflation
C) Does not tell us whether what has happened is unexpectedly bad or unexpectedly good
D) Always refers to a decrease in real GDP and an increase in unemployment

Question 42

Which of the following is the best example of economic investment?

A) Apple builds a new plant to manufacture iPads
B) Your college purchases a 5-year old building in order to have more classrooms
C) A retiree purchases U.S. government bonds
D) A company like Bank of America acquires another company like Merrill Lynch

Question 43

Sharply rising oil prices are most likely to lead to a:

A) Negative demand shock
B) Positive demand shock
C) Negative supply shock
D) Positive supply shock

Question 44

Which of the following is the best example of financial investment?

A) Ford Motor Co. builds a new manufacturing plant
B) A student pursues an MBA degree
C) A retiree purchases Google stock
D) A young couple purchases a new home

Question 45

Decisions about saving and investment are:

A) Generally made under conditions of complete certainty about the future
B) Complicated by the fact that the future is uncertain
C) Unaffected by expectations of the future
D) Independent of expectations about the future

Question 46

Which of the following groups is the principal source of savings in an economy?

A) Banks
B) Government
C) Businesses
D) Households

Question 47

Which of the following statements is true?

A) Financial investment refers to the creation and expansion of business enterprises
B) Economic investment refers to the creation and expansion of business enterprises
C) Economic investment refers to the purchase of assets such as stocks, bonds, and real estate
D) Both economic investment and financial investment refer to the purchase of assets such as stocks, bonds, and real estate

Question 48

Increased optimism about the future will lead to:

A) Less current investment and less future consumption
B) More current investment and more future consumption
C) More current investment and less future consumption
D) Less current investment and more future consumption

Question 49

Situations in which firms expect one thing to happen but then something else happens are called:

A) Recessions
B) Shocks
C) Business cycles
D) Fluctuations

Question 50

What impact will a negative demand shock have on the main measures of economic performance?

A) Real GDP will increase, inflation will increase, and unemployment will decrease
B) Real GDP will decrease, inflation will decrease, and unemployment will increase
C) Real GDP will decrease, inflation will increase, and unemployment will increase
D) Real GDP will increase, inflation will decrease, and unemployment will decrease

Question 51

Savings are transferred from savers to borrowers through the following intermediaries, except:

A) Mutual funds
B) Pension funds
C) Real estate brokers
D) Insurance companies

Question 52

What impact will a negative supply shock have on the main measures of economic performance?

A) Real GDP will increase, inflation will increase, and unemployment will decrease
B) Real GDP will decrease, inflation will decrease, and unemployment will increase
C) Real GDP will decrease, inflation will increase, and unemployment will increase
D) Real GDP will increase, inflation will decrease, and unemployment will decrease

Question 53

In economics, the word "shocks" refers to:

A) Situations where firms' expectations are not met
B) Any change in the demand for goods and services
C) Any change in the supply of goods and services
D) A decrease in real GDP

Question 54

Which of the following is the best example of investment as defined by economists?

A) A restaurant owner buys a freezer to store ingredients for the restaurant meals
B) A college professor buys a truck to drive around in
C) A business manager purchases stock on the New York Stock Exchange
D) A worker deposits money into a long-term retirement account

Question 55

An increase in worker productivity will lead to a:

A) Negative demand shock
B) Positive demand shock
C) Negative supply shock
D) Positive supply shock

Question 56

Financial institutions reward savers with the following, except:

A) Interest
B) Wages
C) Dividends
D) Capital gains

Question 57

One principle of economic growth is the notion that, to raise living standards over time, an economy must:

A) Have full employment of its labor force
B) Devote some portion of its current output to increasing its future output
C) Maintain low inflation over the years
D) Have a small population so that its GDP per person will be high

Question 58

If consumers become pessimistic, the economy is likely to experience a:

A) Negative demand shock
B) Positive demand shock
C) Negative supply shock
D) Positive supply shock

Question 59

Who are the main economic investors in a market economy?

A) Savers
B) Government
C) Businesses
D) Households

Question 60

Which of the following best represents the effect of an increase in investment?

A) Moving from point a to point b
B) Moving from point d to point c
C) Moving from point a to point c
D) Moving from point b to point d

Question 61

Inventories rise when:

A) Actual demand for output is more than expected
B) Actual demand for output is less than expected
C) Actual supply of output is less than expected
D) Actual demand for output is about the same as expected

Question 62

If prices are inflexible, then a negative demand shock will lead to:

A) A short-run increase in real GDP
B) A short-run decrease in real GDP
C) A short-run decrease in prices
D) No change in real GDP in the short run

Question 63

Suppose that inventories are rising. We could expect that, in the future:

A) Real GDP will likely increase
B) Real GDP will likely decrease
C) We can't predict what will happen to real GDP
D) Firms will raise prices of their goods and services

Question 64

Economists believe that most short-run fluctuations:

A) Are the result of demand shocks
B) Are the result of supply shocks
C) Will not last long because prices will adjust to equalize the quantities demanded and supplied of goods and services
D) Will always have a negative impact on real GDP, inflation, and unemployment

Question 65

Refer to the graphs above. Which of the following best represents negative demand shock when prices are inflexible?

A) The shift from D₂ to D₃ in graph B
B) The shift from D₂ to D₃ in graph A
C) The shift from D₂ to D₁ in graph B
D) The shift from D₂ to D₁ in graph A

Question 66

If prices of goods and services are free to quickly adjust, then:

A) A negative demand shock would lead to increased unemployment in the short run
B) A positive demand shock would lead to increased unemployment in the short run
C) A negative demand shock would have no short-run effect on unemployment
D) There would be no short-run demand shocks

Question 67

If prices are "sticky" in the short run, then:

A) The economy will respond to demand shocks primarily through changes in output and employment
B) The economy will respond to demand shocks primarily through changes in prices and inflation
C) Prices will adjust to equalize the quantities demanded and supplied of goods and services
D) Unemployment will not change in response to a demand shock

Question 68

Inventories held by firms:

A) Tend to increase the severity of short-run fluctuations
B) Tend to reduce the severity of short-run fluctuations
C) Are held by businesses because they are a costless way of responding to demand shocks
D) Are the result of positive demand shocks

Question 69

Business cycle fluctuations typically arise because:

A) The actual supply of goods and services ends up being more or less than what consumers were expecting
B) The actual demand for goods and services ends up being more or less than the expected supply of goods and services
C) The actual demand for goods and services ends up being more or less than what firms were expecting
D) Prices tend to be flexible in the short run

Question 70

Refer to the graphs above. Which of the following best represents a positive demand shock when prices are flexible?

A) The shift from D₂ to D₃ in graph B
B) The shift from D₂ to D₃ in graph A
C) The shift from D₂ to D₁ in graph B
D) The shift from D₂ to D₁ in graph A

Question 71

Because prices are sticky, positive demand shock will lead to:

A) No change in unemployment
B) An increase in unemployment
C) A decrease in unemployment
D) An unpredictable change in unemployment

Question 72

If prices of goods and services quickly adjust to demand shocks, then:

A) Firms would find it difficult to produce at their optimal output rates
B) Output rates would quickly adjust to changes in demand
C) Firms would find it easier to produce at their optimal output rates
D) The economy would experience severe short-run fluctuation

Question 73

If prices of goods and services are inflexible, then:

A) A negative demand shock would lead to increased real GDP in the short run
B) A positive demand shock would lead to increased real GDP in the short run
C) A negative demand shock would have no short-run effect on real GDP
D) There would be no short-run demand shocks

Question 74

Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. How will the firm respond to a positive demand shock if prices are inflexible?

A) The firm will increase production to 650 computers per week and charge a price of $1000
B) The firm will continue to produce 500 computers per week and charge a price of $1000
C) The firm will cut production to 300 computers per week and charge a price of $1000
D) The firm will cut production to 300 computers per week and charge a price of $600

Question 75

Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. What happens to the firm's inventory of computers if there is a negative demand shock and prices are inflexible?

A) The firm's inventories will not change
B) The firm's inventories will increase by 200 computers per week
C) The firm's inventories will decrease by 150 computers per week
D) The firm's inventories will increase by 350 computers per week

Question 76

Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. How will the firm respond to a negative demand shock if prices are flexible?

A) The firm will continue to produce 500 computers per week and charge a price of $600
B) The firm will continue to produce 500 computers per week and charge a price of $1200
C) The firm will cut production to 300 computers per week and charge a price of $1000
D) The firm will cut production to 300 computers per week and charge a price of $600

Question 77

Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. What happens to the firm's inventory of computers if there is a negative demand shock and prices are flexible?

A) The firm's inventories will not change
B) The firm's inventories will increase by 200 computers per week
C) The firm's inventories will decrease by 150 computers per week
D) The firm's inventories will increase by 350 computers per week

Question 78

Which of the following statements is true?

A) Short-run economic fluctuations are made worse because prices are flexible
B) Short-run economic fluctuations would be less severe if prices were inflexible
C) If prices were fully inflexible, there would be no short-run economic fluctuations
D) If prices were fully flexible, there would be no short-run economic fluctuations

Question 79

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a negative demand shock?

A) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase.
B) Firms' inventories will decrease, causing them to increase production. Ultimately, real GDP will increase and unemployment will decrease.
C) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will increase and unemployment will increase.
D) Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will decrease.

Question 80

Suppose that inventories are falling. We could expect that, in the future:

A) Unemployment will likely increase
B) Unemployment will likely decrease
C) We can't predict what will happen to unemployment
D) Real GDP will likely decrease