Question 1

Whose analysis serves as the foundation of modern macroeconomics?
A) Milton Friedman
B) John Maynard Keynes
C) Adam Smith
D) Joseph Schumpeter

Accepted Answer

John Maynard Keynes is widely regarded as the founder of modern macroeconomics. His ideas regarding government intervention in the economy during times of depression and unemployment were groundbreaking and have become the basis for many economic policies around the world.

Question 2

The high point of a business cycle is called the:
A) trough.
B) expansion.
C) recession.
D) peak.

Accepted Answer

The high point of a business cycle is called the peak.

Question 3

Business cycles:
A) are always the same duration.
B) are always the same magnitude.
C) are always the same duration and magnitude.
D) vary in duration and magnitude.

Accepted Answer

Business cycles vary in duration and magnitude, meaning that there is no fixed pattern or timeline for economic expansions and contractions. The length of a cycle can range from a few months to several years, and the severity can differ greatly depending on a variety of factors such as economic policies, global events, and technological advancements.

Question 4

Over the past 150 years,the U.S.economy has endured a recession on average about every:
A) one to two years.
B) four to five years.
C) 10 to 15 years
D) 50 years

Accepted Answer

The correct answer is B) four to five years. According to the National Bureau of Economic Research (NBER), the U.S. economy has experienced 33 recessions between 1854 and 2020. This equates to a recession on average every four to five years. However, the length and severity of each recession vary.

Question 5

Suppose the Federal Reserve Bank of Chicago's National Activity Index increased to -0.13 in June from -0.29 in May.Which of the following is the best interpretation of this finding?
A) Economic activity improved slightly from May to June,but the economy is in a recession.
B) Economic activity improved slightly from May to June,but the rate of economic growth is below its historical trend.
C) The rate of economic growth declined in May and June.
D) Economic activity declined from May to June,and the rate of economic growth is below its historical trend.

Accepted Answer

The increase in the index from May to June indicates a slight improvement in economic activity. However, the negative value (-0.13) suggests that the rate of economic growth is below its historical trend. Therefore, option B is the best interpretation of this finding.

Question 6

Which of the following events has significantly influenced the development of macroeconomic ideas?
A) World War II
B) the development of the modern corporation
C) the Industrial Revolution
D) the Great Depression

Accepted Answer

The Great Depression had a significant impact on the development of macroeconomic ideas as it brought to light the limitations of classical economic theories and led to the emergence of Keynesian economics, which emphasized the role of government intervention in managing the economy.

Question 7

An economy has historically grown at a rate of 2.25%.Currently,this economy is growing at a rate of 3%,and the unemployment rate is low by historical standards.The economy is expected to continue to grow in the near future,and the monetary authorities are concerned that inflation may increase.This economy is probably in the _____________ stage of the business cycle.
A) expansion
B) recovery
C) contraction
D) trough

Accepted Answer

The economy is currently growing at a rate of 3% which is higher than its historical growth rate of 2.25%. Additionally, the unemployment rate is low by historical standards, indicating a healthy job market. These factors suggest that the economy is in an expansionary phase of the business cycle. However, the concern for inflation suggests that the economy may be approaching its peak and may enter a contractionary phase in the future.

Question 8

The study of macroeconomics as a specific discipline is due primarily to:
A) Adam Smith.
B) John Maynard Keynes.
C) Milton Friedman.
D) Joseph Schumpeter.

Accepted Answer

While Adam Smith is considered the founder of economics, macroeconomics as a specific discipline developed in response to the Great Depression. John Maynard Keynes was one of the most influential figures in shaping macroeconomic theory and policy during this time. He developed the concept of aggregate demand and argued that government intervention could stabilize the economy during periods of recession. Friedman and Schumpeter were also influential economists, but their work focused more on microeconomics and economic growth, respectively.

Question 9

Suppose the National Bureau of Economic Research announces that the economy has been in a recession for the past year.What effect might this announcement have on the economy?
A) The Federal Reserve will probably increase interest rates to fight the recession.
B) Employers will probably trim payrolls in an effort to cut costs in the face of decreased demand for their products.
C) Businesses will invest heavily in plant and equipment.
D) Businesses will add shifts to prepare for the upcoming recovery.

Accepted Answer

If the NBER announces that the economy has been in a recession for the past year, employers may react by trimming payrolls in an effort to cut costs since demand for their products has decreased. This could lead to job losses and a worsening of economic conditions.

Question 10

An economy has historically grown at a rate of 1.25%.Economic activity decreased every quarter over the past year,but the decline stopped this quarter.The economy is expected to grow at a rate of 1.4% in the near future,and the monetary authorities are concerned that inflation may increase.This economy is probably in the _____________ stage of the business cycle.
A) expansion
B) recovery
C) contraction
D) trough

Accepted Answer

The economy is expected to grow at a rate of 1.4% in the near future, and the monetary authorities are concerned that inflation may increase. This suggests that the economy is probably in the trough stage of the business cycle, as it is transitioning from a period of contraction to a period of expansion.

Question 11

Suppose the Federal Reserve Bank of Chicago's National Activity Index drops to -0.83 this month after being above +0.36 for the previous three months.This movement in the index indicates that:
A) the economy has probably moved into a recession.
B) the rate of economic growth has slowed,but not enough to suggest that a recession is imminent.
C) the rate of economic growth has dropped below the historical trend rate of growth,and the economy has reached a trough.
D) the economy is at its peak this month but will move into the recession stage in the near future.

Accepted Answer

A drop in the National Activity Index to a negative value suggests that economic activity has decreased significantly. When this happens, it is likely that the economy is entering a recession.

Question 12

At the peak of the business cycle,the economy is typically operating:
A) at its capacity.
B) above capacity.
C) below capacity.
D) at its highest level ever.

Accepted Answer

At the peak of the business cycle, the economy is typically operating at its capacity, meaning that resources are being fully utilized and output is at its maximum sustainable level. While there may be some constraints or bottlenecks in certain sectors, overall the economy is generally experiencing full employment, high levels of production, and low levels of unemployment.

Question 13

Macroeconomics was developed to explain:
A) the Great Depression.
B) jobless recoveries.
C) the Industrial Revolution.
D) the Internet boom.

Accepted Answer

Macroeconomics was first developed in response to the Great Depression, as economists sought to understand and explain the widespread economic downturn and develop policies to prevent future crises.

Question 14

Suppose the Federal Reserve Bank of Chicago's National Activity Index hovered around +0.25 for a few months and then dropped to -1.5 in November.Which of the following is the best interpretation of this finding?
A) The economy grew at a rate of 0.25% for a few months,but economic growth actually decreased by 1.5% in November.
B) The rate of economic growth slowed in November,but the economy did not move into a recession.
C) The economy was in an expansion in October but moved into a recession in November.
D) Economic activity was above the historical trend rate of growth,but it is likely that the economy moved into a recession in November.

Accepted Answer

The National Activity Index above zero indicates above-trend growth, but a significant drop to -1.5 suggests the economy likely moved into a recession.

Question 15

An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n):
A) unemployment trap.
B) recession.
C) jobless recovery.
D) microeconomic problem.

Accepted Answer

A jobless recovery is an economic recovery that does not produce a significant amount of new jobs, thus leaving the unemployment rate relatively unchanged. This often occurs if the recovery is driven by productivity gains or technological advances that do not require a large workforce.

Question 16

During a typical economic recovery:
A) inflation drops.
B) people become pessimistic.
C) unemployment drops.
D) incomes fall.

Accepted Answer

During a typical economic recovery, unemployment usually drops as businesses start hiring again and the economy starts growing. Inflation may rise temporarily during a recovery, but it typically stabilizes as the economy continues to grow. People may become more optimistic during a recovery as their job prospects and incomes improve. Incomes usually rise during a recovery as demand for labor increases, although this may not be uniform across all sectors and may take time to fully recover. Therefore, the best choice is C, as it is the only option that is consistent with a typical economic recovery.

Question 17

What event was a major influence on the development of macroeconomics?
A) the Great Depression
B) the Employment Act of 1946
C) the establishment of the Federal Reserve System in the United States
D) the U.S.entry into World War II

Accepted Answer

The Great Depression was a major economic crisis that affected much of the world and had a profound impact on economic thought. It led to the development of Keynesian economics, which emphasized the role of government intervention in stabilizing the economy and addressing issues such as unemployment and inflation. This was a major influence on the development of macroeconomics as a field of study.

Question 18

Most of the recessions of the past half century have lasted between:
A) 6 and 18 months.
B) two and four years.
C) one year and 11 years.
D) two and three months.

Accepted Answer

According to historical data, most of the recessions of the past half century have lasted between 6 and 18 months, making option A the best choice.

Question 19

A business cycle is:
A) the periodic fluctuation of economic activity.
B) the engine of economic growth.
C) a period lasting about 50 years.
D) identical to the consumption life cycle.

Accepted Answer

A business cycle is the periodic fluctuation of economic activity that occurs over time. It is characterized by alternating periods of economic growth and contraction, which are often referred to as expansions and recessions.

Question 20

U.S.business cycles since 1950 have shown:
A) expansions to be just as lengthy as recessions.
B) expansions to be longer than recessions.
C) expansions to be shorter than recessions.
D) stable unemployment rates.

Accepted Answer

Data shows that expansions in the U.S. have been consistently longer than recessions since 1950. While the length of each cycle can vary, the trend has been for expansions to last longer than recessions. Additionally, the question doesn't mention anything about unemployment rates, so choice D can be ruled out.

Quiz 5: Introduction to Macroeconomics

Whose analysis serves as the foundation of modern macroeconomics?

The high point of a business cycle is called the:

Business cycles:

Over the past 150 years,the U.S.economy has endured a recession on average about every:

Suppose the Federal Reserve Bank of Chicago's National Activity Index increased to -0.13 in June from -0.29 in May.Which of the following is the best interpretation of this finding?

Which of the following events has significantly influenced the development of macroeconomic ideas?

The study of macroeconomics as a specific discipline is due primarily to:

Suppose the National Bureau of Economic Research announces that the economy has been in a recession for the past year.What effect might this announcement have on the economy?

Suppose the Federal Reserve Bank of Chicago's National Activity Index drops to -0.83 this month after being above +0.36 for the previous three months.This movement in the index indicates that:

At the peak of the business cycle,the economy is typically operating:

Macroeconomics was developed to explain:

Suppose the Federal Reserve Bank of Chicago's National Activity Index hovered around +0.25 for a few months and then dropped to -1.5 in November.Which of the following is the best interpretation of this finding?

An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n) :

During a typical economic recovery:

What event was a major influence on the development of macroeconomics?

Most of the recessions of the past half century have lasted between:

A business cycle is:

U.S.business cycles since 1950 have shown: