Deck 1: What Is Macroeconomics

Question 1

Generally, the higher the level of output in an economy is the ________ will be.

A) lower the unemployment rate and inflation rate
B) higher the unemployment rate and inflation rate
C) higher the unemployment rate and the lower inflation rate
D) lower the unemployment rate and the higher inflation rate

Answer 1

lower the unemployment rate and the higher inflation rate

Question 2

Which of the following statements about the behavior of the unemployment rate in the United States is true?

A) Between 1960 and 2004, the unemployment rate has fluctuated between 3.4% and 6%.
B) The unemployment rate in the most recent recession involved a peak rate of unemployment lower than the peak rate of the recession before it.
C) Generally, when the natural level of output is above the actual level of output, the actual level of unemployment tends to be below the natural level of unemployment.
D) Generally, when the actual level of output is above the natural level of output, the actual level of unemployment tends to be above the natural level of unemployment.

Answer 2

The unemployment rate in the most recent recession involved a peak rate of unemployment lower than the peak rate of the recession before it.

Question 3

Which of the following does Gordon believe people consider the single most important macroeconomic issue today?

A) inflation
B) poverty
C) unemployment
D) low productivity

Answer 3

unemployment

Question 4

The inflation rate is the

A) measure used to calculate the price level.
B) measure used to calculate the cost of borrowing money.
C) percentage increase in the average level of prices.
D) percentage increase in the average level of wages.

Question 5

Among the subjects covered in macroeconomics are the

A) unemployment rate for the entire labor force.
B) causes of the increase in the price of oil relative to other commodities.
C) causes of the increase in the overall price level.
D) Both A and C.

Question 6

Which of the following statements about the behavior of the unemployment rate in the United States is true?

A) The unemployment rate in the 1981-83 recession involved a peak rate of unemployment higher than the peak rate in earlier post-World War II recessions.
B) Generally speaking, when the actual level of output is below the natural level of output, the actual level of unemployment tends to be above the natural level of unemployment.
C) Generally speaking, when the actual level of output is above the natural level of output, the actual level of unemployment tends to be above the natural level of unemployment.
D) Both A and B.

Question 7

A low unemployment rate implies that

A) job offers are scarce and inflation is high.
B) job offers are plentiful and wages are high.
C) jobs are permanent and job offers are plentiful.
D) jobs are difficult to find, and wages are low.

Question 8

Political incumbents often gain or lose re-election because of a strong or weak economy. Which of the following is an exception to that rule?

A) Al Gore
B) George H.W. Bush
C) Jimmy Carter
D) Herbert Hoover

Question 9

The natural level of real GDP is that level of

A) real GDP at which the price level will remain constant.
B) nominal GDP at which the price level will remain constant.
C) real GDP at which there is no tendency for inflation to accelerate or decelerate.
D) Both A and C are correct.

Question 10

The unemployment rate is the number of

A) people looking for work divided by the population.
B) jobless individuals divided by the total labor force.
C) jobless people looking for work divided by the population.
D) jobless individuals looking for work divided by those employed and unemployed but actively looking.

Question 11

Macroeconomics is the study of

A) the economic issues which affect individual well being and individual firms' profit levels.
B) the economic issues which affect foreign and domestic prices of related goods and services.
C) inflation and poverty at the level of the household.
D) the economic issues which affect the nation's total income, employment, and output.

Question 12

A rising inflation rate tends to help the following types of people:

A) retirees and students with savings accounts.
B) borrowers and homeowners without mortgages.
C) homeowners with mortgages and students with loans.
D) landowners and borrowers.

Question 13

Figure 1-2
When the actual real GDP exceeds the natural real GDP as in the figure above, we expect to find that unemployment is

A) high and inflation is high.
B) low and inflation is high.
C) low and inflation is low.
D) high and inflation is low.

Question 14

The output gap is zero when

A) Actual real GDP > Natural real GDP
B) Actual real GDP = Natural real GDP
C) Actual real GDP < Natural real GDP
D) Natural real GDP = 0.

Question 15

A rising inflation rate tends to injure the following types of people:

A) retirees and students with savings accounts.
B) borrowers and homeowners.
C) homeowners with mortgages and students with student loans.
D) landowners and borrowers.

Question 16

Figure 1-1
When the actual unemployment rate is likely to exceed the natural rate of unemployment, as in the time intervals between t1 and t2 and t3 and t4 in the figure above, we can expect that

A) inflation is speeding up and real GDP is likely to exceed natural GDP.
B) inflation is slowing down and real GDP is likely to fall below natural GDP.
C) inflation is speeding up and natural GDP is likely to exceed real GDP.
D) inflation is slowing down and real GDP is likely to exceed natural GDP.

Question 17

Inflation tends to redistribute income from

A) savers to borrowers.
B) borrowers to savers.
C) homeowners to landowners.
D) parents to students.

Question 18

A high inflation rate will

A) harm those who have saved while helping those who have borrowed.
B) harm those who have borrowed while helping those who have saved.
C) harm those who have saved and those who have borrowed.
D) benefit those who have saved and those who have borrowed.

Question 19

Which of the following is a criterion by which Gordon judges the desirability of any given level of actual real GDP?

A) Actual real GDP is too low if it causes the unemployment rate to be higher than necessary
B) Actual real GDP is too high if it strains a nation's ability to produce and puts upward pressure on the inflation rate.
C) Actual real GDP is at a desirable level if there is no tendency for inflation to accelerate or decelerate.
D) All of the above.

Question 20

The development of economic theory to explain the behavior of important economic variables is called

A) normative economics.
B) positive economics.
C) aggregate economics.
D) None of the above.

Question 21

"Natural" real GDP is defined as the total output

A) at business cycle peaks.
B) at business cycle troughs.
C) that causes an inflation rate of zero.
D) that causes the inflation rate to remain constant.
E) produced when all of our resources are being used to their maximum capacity.

Question 22

The average output produced per worker is one way of measuring

A) inflation.
B) the interest rate.
C) employment.
D) productivity.

Question 23

Do macroeconomic issues concern the well-being of the typical individual member of an economy?

A) No, since we are focusing on the behavior of aggregate quantities.
B) No, since most individuals have little contact with other economies in the world.
C) Yes, since macroeconomic events have widespread effects on everyday lives.
D) Yes, since macroeconomics focuses on the decisions constantly being made by the average individual.

Question 24

The period of the business cycle which follows the trough is the

A) recession
B) expansion
C) peak
D) All of the above may follow the trough.

Question 25

A high current rate of inflation ________ those who have saved and ________ those who have borrowed.

A) harms, helps
B) harms, has no effect on
C) helps, helps
D) helps, has no effect on
E) helps, harms

Question 26

Are government activities of any concern to macroeconomists?

A) Yes, since government actions and policies can affect an economy's overall performance.
B) Yes, since macroeconomics is defined as the study of the role that government plays in the economy.
C) No, since the government cannot affect the functioning of the private economy.
D) No, since macroeconomists study hypothetical economies that have no government involvement at all.

Question 27

Hyperinflation can be defined as an inflation rate of

A) 50% or more per month.
B) 50% or more per year.
C) 50% or more decade.
D) All of the above are appropriately defined as hyperinflations.

Question 28

As an example of the simplifications that make economic theorizing possible, the major economic "totals" are assumed to be constant in the study of

A) government budget deficits.
B) macroeconomics.
C) economic aggregates.
D) microeconomics.
E) unemployment and inflation.

Question 29

To avoid the conflicts and suffering of a "zero-sum society," an economy must maintain a

A) positive rate of productivity growth.
B) positive rate of inflation.
C) foreign trade surplus
D) government budget deficit.

Question 30

At a business cycle peak, we usually have ________ real Gross Domestic Product.

A) an all-time high level of
B) an all-time low level of
C) an historically average level of
D) accelerating growth of
E) the maximum growth rate of

Question 31

Immediately following a business cycle "peak" comes a

A) "trough."
B) "recession."
C) "expansion."
D) "recurrence."

Question 32

Business cycles in the United States

A) tend to occur at regular intervals and are periodic.
B) tend to recur at irregular intervals, but are usually of the same length.
C) were quite common before World War II but have not occurred in the postwar period.
D) tend to have expansions that last longer than the recessions.

Question 33

From 1992 to 2004, the unemployment rate fell as low as ________ but never exceeded ________.

A) 2%, 4%
B) 4%, 6%
C) 7%, 9%
D) 9%, 10.5%

Question 34

Macroeconomics focuses on a certain set of variables called

A) micros.
B) marginals.
C) partials.
D) balances.
E) aggregates.

Question 35

The U.S. business cycle record, in common with most, has

A) peaks lasting longer than troughs.
B) troughs lasting longer than peaks.
C) recessions lasting longer than expansions.
D) expansions lasting longer than recessions.

Question 36

Macroeconomics is the study of

A) the role of the individual in an economy.
B) The overall performance of an economy.
C) how a private economy would function in the absence of government involvement.
D) how one economy trades with other economies.
E) the role of government in an economy.

Question 37

The period of the business cycle between the peak and the trough is the

A) recession
B) expansion
C) recovery
D) All of the above may fall between the peak and the trough.

Question 38

Much of macroeconomics is concerned with advising governments on ways to ________ business cycles, since it is desirable to ________.

A) amplify, create the greatest cyclical peaks possible
B) amplify, create deep recessions to cool down the economy
C) dampen, avoid both very low troughs and very high peaks
D) dampen, keep the economy at its maximum productive capacity

Question 39

The "zero sum" society is

A) a society that has reached its limit in population growth and has placed quotas on its birth rate.
B) a society where the rate of growth of GDP minus the inflation rate equals zero.
C) a society in which the fluctuations of GDP around the natural level of output sum to zero.
D) a society with no productivity growth in which any additional good enjoyed by one person requires that something be taken away from someone else.

Question 40

Which of the three central concepts in macroeconomics is cited in the textbook as being linked to crime, mental illness, and suicide?

A) the inflation rate
B) the unemployment rate
C) productivity growth
D) None of the above is cited as being linked to these events.

Question 41

We are told that over the past year actual real GDP has risen by three percent. This fact alone is enough to tell us that

A) the unemployment rate has fallen.
B) the inflation rate has risen.
C) the actual real GDP is above natural real GDP.
D) productivity has grown.
E) none of the above.

Question 42

Approaching a business cycle trough we find actual real GDP ________ natural real GDP, so inflation is ________.

A) below, slowing down
B) below, speeding up
C) above, slowing down
D) above, speeding up

Question 43

In our recessions since 1960, inflation slowed down in

A) all of them.
B) most of them.
C) few of them.
D) none of them.

Question 44

The branch of macroeconomics concerned with changes in the natural real GDP is the theory of

A) business cycles.
B) economic growth.
C) GDP gaps.
D) unemployment.

Question 45

In the United States, the most recent period in which the unemployment rate stayed below the natural unemployment rate for several consecutive years was

A) the early 1930s.
B) the late 1940s.
C) the late 1960s.
D) the mid 1980s.
E) the late 1990s

Question 46

Our business cycle experiences suggest that a macroeconomic policy designed to lower the average rate of inflation will require ________ in actual real GDP and an accompanying ________ in the unemployment rate.

A) an increase, increase
B) an increase, decrease
C) a reduction, increase
D) a reduction, decrease

Question 47

In 1991 the unemployment rate in the United States rose to 7.1 percent. This is ________ the unemployment rate reached in the depths of the Great Depression.

A) about two percentage points more than
B) roughly equal to
C) about three percentage points less than
D) about half of
E) less than one-third of

Question 48

The proper short-run goal of macroeconomic policymakers is to

A) amplify the business cycle.
B) dampen the business cycle.
C) promote high economic growth.
D) maintain low economic growth.

Question 49

Which of the following contributed to the emergence of hyperinflation in Germany in the early 1920s?

A) Payment of massive war reparations required by the Versailles Peace Treaty
B) Huge budget deficits financed by printing paper money
C) Decreased desire to hold money on the part of the German people.
D) All of the above.

Question 50

The recession of 1990-1992 ________ the trend set over 1965-1990 of ________ unemployment rates at each successive cyclical trough.

A) continued, lower
B) continued, higher
C) broke, lower
D) broke, higher

Question 51

In an economy where actual real GDP is always equal to the natural real GDP, inflation

A) settles down to zero percent.
B) is at the same rate as GDP growth.
C) is constant at a rate that can be low or high.
D) fluctuates around an average of zero percent.

Question 52

Over the period between 1960 and 2007, the highest unemployment rates occurred in the

A) early 1960s.
B) late 1960s.
C) mid 1970s.
D) early 1980s.
E) early 1990s.

Question 53

Why would macroeconomists rate economic performance in Speed-Nation superior to that in Stag-Nation? Speed-Nation has

A) milder business cycles.
B) more volatile business cycles.
C) faster economic growth.
D) larger real GDP gaps.
E) smaller real GDP gaps.

Question 54

Approaching a business cycle peak, actual real GDP ________ natural real GDP, which causes inflation to ________.

A) exceeds, remain constant
B) exceeds, accelerate
C) is less than, decelerate
D) equals, accelerate
E) equals, remain constant

Question 55

Suppose that the natural rate of unemployment is 5.7 percent. If unemployment has for some time been varying between 5.1 and 5.3 percent, we should be at an actual real GDP ________ the natural real GDP, and should expect inflation to be ________.

A) below, slowing down
B) below, speeding up
C) above, slowing down
D) above, constant
E) above, speeding up

Question 56

When actual real GDP is equal to the natural real GDP, the unemployment rate is

A) zero.
B) at its "natural" rate.
C) accelerating.
D) decelerating.

Question 57

Over the last thirty years there has been a marked ________ in our unemployment rate, attesting to our ________ business cycles.

A) volatility, success in eliminating
B) volatility, failure to eliminate
C) lack of volatility, success in eliminating
D) lack of volatility, failure to eliminate

Question 58

Gordon states that ________ caused the substantial increase in the standard of living in South Korea relative to that of the Philippines during the period 1960-2008.

A) lower unemployment rates
B) higher inflation rates
C) higher rate of growth in per capita real GDP.
D) All of the above

Question 59

Given the path of natural real GDP growth, economists prefer an economy such as ________, in which the real GDP gaps are ________.

A) Stabilia's, minimized
B) Stabilia's, maximized
C) Volatilia's, minimized
D) Volatilia's, maximized

Question 60

Between 1900 and 2007, the ratio of actual to natural real GDP hit its low point in

A) 1933.
B) 1904.
C) 1944.
D) 1982.

Question 61

International influences have become relatively ________ important for the U.S. economy in recent decades, as we become a more ________ economy.

A) less, "open"
B) less, "closed"
C) more, "open"
D) more, "closed"

Question 62

By participating in international financial markets, a nation can finance its government budget deficit in part by ________, which ________ the link between the nation's deficit and its internal private investment.

A) buying foreign assets, strengthens
B) buying foreign assets, weakens
C) selling assets to foreigners, strengthens
D) selling assets to foreigners, weakens

Question 63

According to Gordon, for which of the following should policymakers set a target rate of zero?

A) productivity growth
B) inflation rate
C) unemployment rate
D) None of the above.

Question 64

After 1997, US growth rate ________ and the European Rate ________

A) slowed down; speeded up
B) speeded up; slowed down
C) slowed down; slowed down
D) speeded up, speeded up

Question 65

Recognizing that choices must constantly be made, because obtaining something always comes at the cost of forgoing something else, is a central concept in

A) microeconomics, not macroeconomics.
B) positive, but not normative, macroeconomics.
C) normative, but not positive, macroeconomics.
D) all branches of economics.

Question 66

The Chairman of the Council of Economic Advisors tells the President, "I recommend raising these taxes, since the resulting half percentage point increase in unemployment is a fair price to pay for a needed two percentage point decrease in inflation." This is an example of

A) "normative" economics.
B) microeconomic reasoning.
C) "comparative" economics.
D) "non-theoretical" economics.

Question 67

The central macroeconomic concept that is most clearly related to changes in the well-being of the average member of the economy is the

A) unemployment rate.
B) inflation rate.
C) productivity growth rate.
D) None of the above is closely related.

Question 68

Going from a closed to an open economy ________ macroeconomic policymaking, especially now that exchange rates are ________.

A) complicates, flexible
B) complicates, fixed
C) simplifies, flexible
D) simplifies, fixed

Question 69

Compared to the US, the unemployment rate in Europe was ________ throughout the 1960s and 1970s and ________ after 1980.

A) higher; lower
B) lower; higher
C) lower; remained lower
D) higher, remained higher

Question 70

Prior to 1997 productivity growth in Europe was ________ in the United States.

A) higher than
B) lower than
C) same as
D) None of the above

Question 71

Fiscal policy tries to influence target variables by manipulating

A) money supply.
B) interest rates.
C) government expenditures.
D) All of the above.