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

Accepted Answer

When the level of output in an economy is high, it typically means that more goods and services are being produced and consumed. This increased economic activity usually leads to lower unemployment, as more workers are needed to produce the higher level of goods and services. However, a high level of output can also lead to higher inflation rates, as increased demand for goods and services can drive up prices.

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.

Accepted Answer

B

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

Accepted Answer

In the given passage, Gordon mentions that "when people are asked what they consider the single most important macroeconomic issue facing the country today, the most common answer is "jobs"." This refers to the issue of unemployment, making it the best choice. While the other options (inflation, poverty, and low productivity) may also be important macroeconomic concerns, the passage specifically highlights unemployment as the most commonly cited issue.

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.

Accepted Answer

Inflation rate refers to the percentage increase in the average level of prices, and is typically measured by the Consumer Price Index (CPI). It is not directly related to the cost of borrowing or 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.

Accepted Answer

Macroeconomics deals with the overall performance of an economy, and thus, it covers topics such as the unemployment rate for the entire labor force and the causes of the increase in the overall price level. The increase in the price of oil relative to other commodities is a microeconomic issue as it deals with the relative prices of specific products.

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.

Accepted Answer

The 1981-83 recession had a peak unemployment rate higher than earlier post-WWII recessions. When output is below the natural level, unemployment is typically above the natural rate.

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.

Accepted Answer

A low unemployment rate means that there are fewer people without jobs, and therefore job offers are more plentiful. This can lead to higher wages, as employers may need to compete for workers.

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

Accepted Answer

While the state of the economy is important in elections, Al Gore lost the 2000 presidential election even though the economy was strong at the time. Other factors such as the controversy surrounding the Florida recount and perceptions of Gore's personality may have played a larger role in his defeat.

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.

Accepted Answer

The natural level of real GDP is the level of real GDP at which there is no tendency for inflation to accelerate or decelerate. This is because at the natural level of real GDP, the aggregate demand for goods and services is equal to the aggregate supply of goods and services.

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.

Accepted Answer

The answer of The unemployment rate is the number of
A)...

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.

Accepted Answer

Macroeconomics deals with the larger economic factors that affect the economy as a whole, such as national income, employment levels, and overall output. It is different from microeconomics, which focuses on individual economic agents such as consumers, firms, and markets.

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.

Accepted Answer

Homeowners with mortgages benefit from rising inflation because the value of their homes and their wages tend to increase. Additionally, students with loans benefit because their debt is fixed and becomes easier to pay off with cheaper dollars. The other options do not necessarily benefit from rising inflation.

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.

Accepted Answer

When actual real GDP exceeds natural real GDP, the economy is operating above its potential, leading to lower unemployment and higher inflation due to increased demand pressures.

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.

Accepted Answer

The output gap is the difference between actual real GDP and potential (or natural) real GDP. Therefore, when actual real GDP is equal to potential (or natural) real GDP, the output gap is zero.

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.

Accepted Answer

Retirees and students with savings accounts are hurt by inflation because their fixed income or savings lose value as the purchasing power of money decreases. Borrowers and homeowners may actually benefit from inflation as the value of their assets (such as homes) appreciate, and the real value of their debt decreases. Homeowners with mortgages and students with student loans are in a similar situation, where the real value of their debt decreases with inflation. Landowners and borrowers may be impacted by inflation, but not necessarily in a negative way, as it can depend on the specific circumstances.

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.

Accepted Answer

When the actual unemployment rate exceeds the natural rate, it indicates a recessionary gap where the economy is underperforming. This typically leads to slowing inflation and real GDP falling below potential 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.

Accepted Answer

Inflation tends to benefit borrowers by reducing the real value of their debts, while it hurts savers by reducing the purchasing power of their savings. As a result, inflation redistributes income from savers to borrowers.

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.

Accepted Answer

High inflation makes the purchasing power of money weaker. This means that those who have saved money lose their purchasing power, while those who have borrowed will pay back less in real terms (since the value of the money they have borrowed is worth less due to inflation). Therefore, a high inflation rate harms those who have saved while helping 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.

Accepted Answer

All three options are criteria by which Gordon judges the desirability of any given level of actual real GDP. Gordon believes that actual real GDP is too low if it causes the unemployment rate to be higher than necessary, and too high if it strains a nation's ability to produce and puts upward pressure on the inflation rate. He also believes that actual real GDP is at a desirable level if there is no tendency for inflation to accelerate or decelerate. Therefore, the correct answer is (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.

Accepted Answer

Positive economics involves the development of economic theory, models and explanations to explain the behavior of economic variables. Normative economics involves making value judgments about how the economy should operate, while aggregate economics involves the study of the economy as a whole.

Quiz 1: What Is Macroeconomics

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

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

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

The inflation rate is the

Among the subjects covered in macroeconomics are the

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

A low unemployment rate implies that

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?

The natural level of real GDP is that level of

The unemployment rate is the number of

Macroeconomics is the study of

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

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

The output gap is zero when

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

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

Inflation tends to redistribute income from

A high inflation rate will

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

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