Question 1

Nominal GDP is correctly defined as
A)the monetary value of all goods and services, final and intermediate, produced in a given year
B)the monetary value of all wealth that is accumulated in a given year
C)the national income minus all non-income charges against output
D)the monetary value of all final goods and services currently produced in our economy in a given year
E)the market value of all goods produced by domestically-owned resources in a given year

Accepted Answer

Nominal GDP is the total monetary value of all final goods and services produced within a country's borders in a given year, without adjusting for inflation. Final goods and services are those that are sold to consumers or used for investment purposes and are not intended for further production. So, option D is the correct definition of nominal GDP, while the other options do not accurately describe its concept.

Question 2

Which of the following is FALSE in the medium run?
A)a change in monetary policy can shift the AD-curve
B)a change in fiscal policy can shift the AD-curve
C)a change in fiscal policy can change output and prices
D)a change in monetary policy can change prices but not output
E)a change in labor productivity can shift the AS-curve

Accepted Answer

A change in monetary policy can affect both output and prices in the short run, but in the medium run, output will return to its natural level, and the price level will increase. Therefore, only prices are affected in the medium run.

Question 3

Which of the following is a FALSE statement?
A)the very long run focuses on the growth of productive capacity
B)in the very long run, the productive capacity is assumed to be given
C)in the very short run, shifts in aggregate demand determine how much output is produced
D)fluctuations in the rates of inflation and unemployment are important long-run issues
E)at the full-employment level of output, capital is not used 100 percent

Accepted Answer

D

Question 4

If a shift in the AD-curve has no impact on the price level, then
A)the unemployment rate must be extremely low
B)the AD-curve must be vertical
C)the AS-curve must be horizontal
D)the AS-curve must be vertical
E)both A and D

Accepted Answer

The AS-curve must be horizontal for a shift in the AD-curve to have no impact on the price level, indicating a situation of perfect elasticity where output can change without affecting prices.

Question 5

In the very short run, the level of
A)output is determined by both aggregate demand and aggregate supply
B)output is determined by aggregate demand alone
C)prices will change if aggregate demand shifts
D)prices is determined by aggregate demand alone
E)both A and C

Accepted Answer

In the very short run, prices are fixed and cannot adjust to changes in demand or supply. Therefore, output is determined solely by the level of aggregate demand. This is known as the Keynesian short-run model. In the medium and long run, prices are more flexible and can adjust to changes in aggregate demand and supply, which allows for both to influence the level of output.

Question 6

In the very long-run AD-AS model, if the AD-curve shifts to the left, then
A)prices and output will both decrease
B)prices and output will both increase
C)prices will decrease but output will remain the same
D)output will decrease but prices will remain the same
E)output will increase but prices will decrease

Accepted Answer

In the very long-run AD-AS model, a leftward shift in the AD curve indicates a decrease in aggregate demand. This typically leads to a decrease in the price level as the economy adjusts. However, in the very long run, output is determined by factors such as technology, resources, and labor, which are not affected by changes in the AD curve. Therefore, while prices decrease, output remains at its natural level, unaffected by the shift in AD.

Question 7

The position of the AS-curve depends on
A)fiscal policy
B)monetary policy
C)consumer confidence
D)the productive capacity of the economy
E)all of the above

Accepted Answer

The position of the Aggregate Supply (AS) curve primarily depends on the productive capacity of the economy, which includes factors like technology, labor force, and capital stock.

Question 8

Which of the following transactions will have a direct and immediate effect on GDP?
A)an unemployed worker gets unemployment compensation
B)you sell your used car to a friend
C)you buy some IBM stock
D)a German tourist drinks Canadian beer in a New York City restaurant
E)the value of your Google stock holdings drops drastically

Accepted Answer

D) A German tourist drinking Canadian beer in a New York City restaurant directly contributes to the U.S. GDP because it is a consumption expenditure made within the U.S. economy. The other options do not directly and immediately affect GDP: unemployment compensation (A) is a transfer payment; selling a used car (B) does not contribute to GDP as it is not a new production; buying stock (C) is a financial transaction without immediate impact on GDP; and a change in stock value (E) does not directly affect GDP as it is a change in financial asset value, not a production activity.

Question 9

Which of the following is NOT a central issue in macroeconomics?
A)How should the central bank of a country fight inflation?
B)What is responsible for high and persistent unemployment?
C)How do tax changes influence consumers' choices of what to buy?
D)What factors determine economic growth?
E)What can or should the government do to stabilize the economy?

Accepted Answer

Tax changes and consumers' choices are more of a microeconomic issue, rather than a central issue in macroeconomics. The central issues in macroeconomics include inflation, unemployment, economic growth, and stabilization policies by the government and central banks.

Question 10

Government intervention into economic activity will NOT lead to a change in the price level
A)in the very short-run model
B)in the medium-run model
C)in the very long-run model
D)in the classical model
E)assuming a macro-model that focuses on the growth of productive capacity

Accepted Answer

The answer of Government intervention into economic activity will NOT...

Question 11

In the simple macro model of this chapter, the long-run AS-curve is
A)horizontal
B)vertical
C)upward-sloping
D)assumed to be completely price elastic
E)either B or C, depending on how fast prices adjust

Accepted Answer

The long-run AS-curve is vertical because in the long run, all input prices (such as wages) are flexible and adjust to changes in the price level. This means that changes in the price level do not affect real GDP in the long run, and the only effect is a change in the overall price level. Therefore, the long-run AS-curve is vertical at the full-employment level of output.

Question 12

In the medium run, if GDP goes down but the price level goes up,
A)the AD-curve must have shifted to the right
B)the AD-curve must have shifted to the left
C)the AS-curve must have shifted to the right
D)the AS-curve must have shifted to the left
E)the AD-curve and the AS-curve must have both shifted to the right

Accepted Answer

If GDP goes down but the price level goes up, it indicates an increase in inflation with a decrease in output. This suggests a leftward shift in the aggregate supply (AS) curve, which means the cost of production has gone up, resulting in a lower level of output at every price level. The leftward shift in AS curve causes a decrease in equilibrium GDP and an increase in the price level, leading to stagflation. The aggregate demand (AD) curve is unchanged in this scenario because AD curves show the relationship between output and the price level in the short run, whereas this question refers to the medium run.

Question 13

Which of the following factors does NOT contribute to economic growth?
A)the availability of resources such as labor and capital
B)increases in the size of the population
C)the availability of new and better technology
D)increased knowledge gained through education or work experience
E)all of the above can increase economic growth

Accepted Answer

All the options listed (availability of resources such as labor and capital, increases in the size of the population, the availability of new and better technology, and increased knowledge gained through education or work experience) are factors that can contribute to economic growth.

Question 14

In studying growth theory, we
A)assume that labor, capital, and raw materials are all used efficiently
B)assume that increased use of inputs cannot lead to a higher living standard
C)assume that technological advances cannot affect living standards
D)try to explain the reasons for recessions and booms
E)all of the above

Accepted Answer

In growth theory, it is assumed that labor, capital, and raw materials are all used efficiently to explain economic growth. This is based on the idea of increasing productivity and output. B, C, and D are all incorrect as they go against the basic assumptions and objectives of growth theory.

Question 15

In the very long-run AD-AS model,
A)only fiscal policy can affect both output and prices
B)only monetary policy can affect both output and prices
C)monetary policy can affect output but not prices
D)active stabilization policy is ineffective in changing output
E)the unemployment rate is always assumed to be zero

Accepted Answer

In the very long-run, the economy is at full employment, and output is determined by factors like technology and resources, making active stabilization policy ineffective in changing output.

Question 16

If an increase in aggregate demand causes prices to increase slightly but output to increase significantly, then
A)the AS-curve must be very flat
B)the AD-curve must be very steep
C)the AD- and AS-curves must both be very steep
D)we must be looking at the very long-run AD-AS model
E)we must be looking at the very short-run AD-AS model

Accepted Answer

If output is increasing significantly, it means that the economy has spare capacity, and therefore the AS curve must be very flat or horizontal. This means that a small increase in aggregate demand will lead to a large increase in output, but only a slight increase in prices. Therefore, A is the correct choice as it assumes a very flat AS-curve.

Question 17

A change in which of the following will shift the AD-curve?
A)monetary or fiscal policy
B)the level of consumer confidence
C)the productive capacity of our economy
D)all of the above
E)only A and B

Accepted Answer

Only monetary or fiscal policy and the level of consumer confidence can shift the AD-curve. The productive capacity of our economy will shift the long-run aggregate supply (LRAS) curve instead.

Question 18

Macroeconomics does NOT focus on
A)policies that affect consumption and saving
B)policies that affect the performance of health care providers
C)the determination of changes in wages and prices
D)the determination of interest rates
E)none of the above, all of them are macroeconomic issues

Accepted Answer

Macroeconomics focuses on policies that affect the overall economy and its performance, such as inflation, unemployment, and economic growth. The performance of healthcare providers falls under the category of microeconomics, which focuses on individual businesses and industries within the economy. Therefore, choice B is the correct answer, as it does not fall under the scope of macroeconomics.

Question 19

Which of the economists below most likely advocated activist government policies?
A)Milton Friedman
B)John Maynard Keynes
C)Robert Lucas
D)Thomas Sargent
E)Adam Smith

Accepted Answer

John Maynard Keynes is known for advocating for activist government policies, particularly during times of economic downturns or recessions. He believed that government intervention, through fiscal policy measures such as increased government spending or tax cuts, could help stabilize the economy and reduce unemployment.

Question 20

Which of the following is NOT dealt with in microeconomics?
A)the effect of agricultural subsidies on the price of milk
B)differences between the market for skilled labor versus the market for unskilled labor
C)issues related to the structure and performance of the health care sector
D)policies that affect the level of aggregate consumption
E)issues related to the deregulation of the telecommunications industry

Accepted Answer

Microeconomics focuses on individual decision-making units such as consumers, firms, and industries. Aggregate consumption, which would involve the entire economy, is a macroeconomic concern.

Quiz 1: Introduction

Nominal GDP is correctly defined as

Which of the following is FALSE in the medium run?

Which of the following is a FALSE statement?

If a shift in the AD-curve has no impact on the price level, then

In the very short run, the level of

In the very long-run AD-AS model, if the AD-curve shifts to the left, then

The position of the AS-curve depends on

Which of the following transactions will have a direct and immediate effect on GDP?

Which of the following is NOT a central issue in macroeconomics?

Government intervention into economic activity will NOT lead to a change in the price level

In the simple macro model of this chapter, the long-run AS-curve is

In the medium run, if GDP goes down but the price level goes up,

Which of the following factors does NOT contribute to economic growth?

In studying growth theory, we

In the very long-run AD-AS model,

If an increase in aggregate demand causes prices to increase slightly but output to increase significantly, then

A change in which of the following will shift the AD-curve?

Macroeconomics does NOT focus on

Which of the economists below most likely advocated activist government policies?

Which of the following is NOT dealt with in microeconomics?