Deck 5: Introduction to Macroeconomics

Question 1

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.

Answer 1

C

Question 2

Which of the following would be an example of a nonmarket activity?

A) working a part-time job on weekends to supplement one's income
B) taking care of one's elderly parents in one's own home
C) searching for lost golf balls on a golf course and selling them on eBay
D) opening up a food stand at the local farmer's market

Answer 2

B

Question 3

Which of the following components is not used to measure GDP using the income approach?

A) corporate profits
B) rental income
C) net interest
D) net exports

Answer 3

D

Question 4

What information does the National Bureau of Economic Research use to declare that a recession has begun?

A) It focuses on increases in the unemployment rate.
B) It focuses on changes in major stock market indices.
C) It focuses on turning points in key economic indicators.
D) It focuses on devaluations in the national currency relative to other countries.

Question 5

If a country experiences a rise in prices but produces the same quantity of output as in the previous year, its nominal GDP will _____ and its real GDP will _____.

A) increase; also increase
B) decrease; increase
C) increase; be unchanged
D) decrease; be unchanged

Question 6

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

A) the Great Depression
B) 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

Question 7

If a country's GDP is $200 million, and its total population is 10,000, but only 8,000 of these people work, the country's per capita income is:

A) $20,000.
B) $25,000.
C) $11,111.
D) $100,000.

Question 8

IKEA (a Swedish home furnishings company) produces desks that are made in Poland. The value of these imported desks sold at an IKEA store in the United States counts toward:

A) U.S. GDP.
B) U.S. GNP.
C) both GDP and GNP.
D) neither GDP nor GNP.

Question 9

Which of the following is not true regarding the informal economy?

A) Informal market activities tend to be paid under the table.
B) Informal market activities are not reported to the government for tax purposes.
C) Informal market activities do not contribute to the standard of living of citizens.
D) Countries with large informal economies have total output that is less than their official GDP statistics.

Question 10

For which of the following situations would the yield curve most likely predict that a recession will occur?

A) short-term interest rate = 2%; long-term interest rate = 4%
B) short-term interest rate = 0%; long-term interest rate = 5%
C) short-term interest rate = 3%; long-term interest rate = 3%
D) short-term interest rate = 4%; long-term interest rate = 3%

Question 11

A guitar is produced in California using $100 in raw materials and sells for $300 in a guitar shop. Each guitar that is produced contributes _____ to U.S. GDP.

A) $100
B) $200
C) $300
D) $400

Question 12

Macroeconomics was developed to explain:

A) the Great Depression.
B) jobless recoveries.
C) the Industrial Revolution.
D) the Internet boom.

Question 13

Which of the following would not be included in official GDP measures?

A) the value of a country's exports
B) the cost of installing environmentally friendly solar panels
C) the purchase of books on how to live a healthier life
D) the lost wages from taking time off work due to bad air pollution

Question 14

Which of the following items would NOT be included in "Investment" in the GDP calculation?

A) a new home purchase
B) equipment for a factory
C) a company's unsold inventory
D) 100 shares of a company stock

Question 15

Whose analysis serves as the foundation of modern macroeconomics?

A) Milton Friedman
B) John Maynard Keynes
C) Adam Smith
D) Joseph Schumpeter

Question 16

When the economy hits the bottom of the business cycle, this is called a:

A) downturn.
B) trough.
C) recession.
D) base.

Question 17

The study of macroeconomics as a specific discipline can be attributed to:

A) Adam Smith.
B) John Maynard Keynes.
C) Milton Friedman.
D) Joseph Schumpeter.

Question 18

Which of the following sequences is in the correct order according to the business cycle?

A) peak; trough; recovery; recession
B) peak; recession; trough; recovery
C) peak; recession; recovery; trough
D) peak; trough; recession; recovery

Question 19

To avoid double-counting output in GDP measures, _____ are excluded in GDP.

A) services such as haircuts
B) exports
C) government spending
D) raw materials

Question 20

A business cycle recovery that doesn't reach its long-term trend can lead to:

A) hyperinflation.
B) lower cyclical unemployment.
C) its natural unemployment rate.
D) a double-dip recession.

Question 21

The National Bureau of Economic Research:

A) is a government agency that dates business cycles in the United States.
B) is a nonprofit research organization that dates business cycles in the United States.
C) consists of elected officials from the U.S. Senate.
D) is a nonprofit research organization that only determines when recessions begin.

Question 22

Suppose the National Activity Index of the Federal Reserve Bank of Chicago 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.

Question 23

During a typical economic recovery:

A) inflation declines.
B) people become pessimistic.
C) unemployment decreases.
D) incomes fall.

Question 24

The high point of a business cycle is called the:

A) trough.
B) expansion.
C) recession.
D) peak.

Question 25

Alternating periods of macroeconomic expansion and contraction are known as:

A) hyperinflations.
B) business cycles.
C) budget surpluses and deficits.
D) trade surpluses and deficits.

Question 26

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.

Question 27

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

A) 6 and 18 months.
B) two and four years.
C) 1 year and 11 years.
D) two and three months.

Question 28

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 increase interest rates to fight the recession.
B) Employers will 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.

Question 29

Suppose the National Activity Index of the Federal Reserve Bank of Chicago hovered around +0.25 for a few months but 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.

Question 30

Which phase of the business cycle occurs immediately after a recovery?

A) peak
B) trough
C) boom
D) recession

Question 31

Which of the following is NOT a criticism of the dating of business cycles by the National Bureau of Economic Research (NBER)?

A) Economists use different methodologies to measure business cycles.
B) NBER dates peaks and troughs only after they occur.
C) The NBER deliberations are not public.
D) The NBER is sometimes manipulated by the federal government.

Question 32

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.

Question 33

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 50 years
D) 50 years

Question 34

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.

Question 35

Suppose 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, but 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

Question 36

Suppose an economy has historically grown at a rate of 2.25%. The 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, but 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

Question 37

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

Question 38

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.

Question 39

Suppose the National Activity Index of the Federal Reserve Bank of Chicago increased from -0.29 in May to -0.13 in June. 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.

Question 40

Which phase of the business cycle occurs immediately before a trough?

A) peak
B) recession
C) boom
D) recovery

Question 41

The National Bureau of Economic Research determines that a recession is over:

A) after one year of economic growth.
B) when the economy is in a trough.
C) when the unemployment rate falls below 5%.
D) when the stock market reaches its prerecession level.

Question 42

A criticism of the National Bureau of Economic Research's business cycle dating committee is that it:

A) makes premature judgments as to the turning points of the business cycle.
B) makes little use of the national income and product accounts.
C) dates peaks and troughs only after they occur.
D) does not update or revise data.

Question 43

The _____ is a weighted average of 85 indicators of aggregate economic performance, designed to pinpoint signs of a recession in a reasonable time frame.

A) consumer price index
B) National Activity Index
C) producer price index
D) Dow Jones Industrial Index

Question 44

The National Activity Index was developed by:

A) the National Bureau of Economic Research.
B) the Federal Reserve Bank of Chicago.
C) the U.S. Treasury.
D) the Conference Board.

Question 45

The "business cycle" refers to:

A) short-run fluctuations in macroeconomic activity.
B) a long-run increase in GDP.
C) changes in the economy over the course of the four seasons.
D) changes in the economy between winter and summer.

Question 46

We are most likely to see a recession if interest rates on long-term bonds are:

A) higher than interest rates on short-term bonds.
B) the same as interest rates on short-term bonds.
C) rising.
D) lower than interest rates on short-term bonds.

Question 47

The Leading Economic Index is produced by:

A) the National Bureau of Economic Research.
B) the Federal Reserve Bank of Chicago.
C) the U.S. Treasury.
D) the Conference Board.

Question 48

Which of the following is true about business cycles?

A) They all have the same approximate length.
B) Every cycle is unique.
C) Each recession causes the same amount of unemployment.
D) The intensity tends to be constant from recession to recession, but the duration differs.

Question 49

Which organization determines the beginning and end dates of a recession?

A) the Council of Economic Advisers
B) the National Bureau of Economic Research
C) the U.S. Treasury Department
D) the Federal Reserve Board of Governors

Question 50

The National Activity Index:

A) is a weighted average of 85 indicators of national economic activity.
B) is a weighted average of estimates of economic activity by the National Bureau of Economic Research (NBER) and the Bureau of Economic Activity (BEA).
C) is produced by the NBER.
D) is a measure of unemployment and participation in the labor force.

Question 51

When a recession gets under way:

A) firms start to lay off workers to reduce costs.
B) consumer confidence rises because people expect an eventual recovery.
C) inflation always rises because the government prints more money.
D) inflation falls because the government reduces its budget deficit.

Question 52

When the National Activity Index is at zero, the economy is growing at _____ rates. Negative values imply _____ trends. Positive values imply that growth is _____ the long-term trend.

A) rapid; slowing; equal to
B) slow; accelerating; equal to
C) historical; slowing; faster than
D) historical; accelerating; slower than

Question 53

Which is NOT a criticism of the National Bureau of Economic Research's recession dating?

A) Dates are announced long after the economy turned.
B) Deliberations are not made public.
C) Its use of revised data introduces errors in dating.
D) There is no single consistent methodology used in dating.

Question 54

A(n) _____ in the business cycle usually means the economy is operating at its capacity.

A) upward trend
B) peak
C) recession
D) recovery

Question 55

We are most likely to see a recession if interest rates on long-term bonds are _____ and interest rates on short-term bonds are _____.

A) 8%; 6%
B) 5%; 5%
C) 7%; 7%
D) 2%; 4%

Question 56

We should most likely expect a recession if the Leading Economic Index:

A) falls for three months in a row.
B) rises for three months in a row.
C) rises for six months in a row.
D) falls for six months in a row.

Question 57

Which of the following statements is true about the National Activity Index?

A) When the index has a zero value, the economy has reached a trough.
B) Negative values always mean the economy is in a recession.
C) Positive values indicate the economy may face a period of increasing inflation.
D) Negative values mean the economy is growing more slowly than its long-term trend.

Question 58

A change in the Leading Economic Index is supposed to reflect:

A) how the economy behaved recently.
B) how the economy is behaving.
C) how the economy will behave in the near future.
D) an average of how the economy has behaved over the most recent business cycle.

Question 59

The economy is least likely to be heading into a recession when the National Activity Index equals:

A) -0.33.
B) 0.55.
C) -0.98.
D) 0.81.

Question 60

Which of the following correctly lists the sequence of stages in the business cycle?

A) recession, peak, expansion, trough
B) recession, expansion, peak, trough
C) recession, trough, expansion, peak
D) recession, trough, peak, expansion

Question 61

The national income and product accounts provide:

A) the ability to track business cycles.
B) the ability to account for nonmarket activities, such as car maintenance.
C) a comprehensive measure of domestic unemployment.
D) a comprehensive measure of domestic inflation.

Question 62

Which is NOT a main use of the national income and product accounts?

A) comparing U.S. economic performance with that of other countries
B) supporting the macroeconomic theory of the political party in power
C) tracking the success of macroeconomic policy
D) gauging the economy's position in the business cycle

Question 63

The event that stimulated the U.S. government's commitment to tracking the economy's health through a national income accounting system was the:

A) Civil War and Reconstruction Era.
B) panic of 1907.
C) Great Depression.
D) oil embargo of 1973.

Question 64

Simon Kuznets:

A) devised the gross national product as a way of measuring a nation's economic output.
B) set up the National Bureau of Economic Research.
C) was the Secretary of Treasury during World War II.
D) invented the hair net.

Question 65

National income and product accounts came about in the United States during the 1930s as a result of:

A) the theories of John Maynard Keynes.
B) a lack of reliable economic data.
C) the work of the Council of Economic Advisers.
D) the work of the Federal Reserve.

Question 66

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the:

A) production possibilities frontier.
B) supply and demand model.
C) circular flow diagram.
D) classical model.

Question 67

The national income and product accounts do all of the following EXCEPT:

A) let economists judge our nation's economic performance.
B) compare U.S. income and output to that of other nations.
C) track the economy's condition over the course of the business cycle.
D) track changes in income distribution.

Question 68

According to the circular flow model, the value of the household sector and the value of the business sector will:

A) never be the same.
B) always be equal.
C) differ by the amount of the resource market.
D) differ by the amount of the product market.

Question 69

In a simple circular flow diagram, total spending on goods and services in the product market:

A) is greater than the total income earned in the resource market.
B) is less than the total income earned in the resource market.
C) is done by the government.
D) equals the total income earned in the resource market.

Question 70

Which of the following explains why the size and the direction of the gap between long- and short-term interest rates is a predictor of stages in the business cycle?

A) The time period with higher rates is likely to have higher economic activity than the time period with lower rates.
B) The time period with higher rates is likely to have slower economic activity than the time period with lower rates.
C) When the rates are unequal, the economy is in expansion or contraction; when the rates are equal, the economy is in a peak or trough.
D) When the rates are equal, the economy is in expansion or contraction; when the rates are unequal, the economy is in a peak or trough.

Question 71

The main reason the national income and product accounts were created was to:

A) provide businesses with data on the economy.
B) help governments manage the business cycle.
C) provide employment for statisticians during the Great Depression.
D) test out accounting theory developed during the early 20th century.

Question 72

(Table) Look at the above table (Macroeconomic Data for Econoland); which time period covers one complete business cycle with no duplicate stages? $$\begin{array} { | l | l | l | } \hline \text { Quarter } & \text { GDP } & \begin{array} { l } \text { Unemployment } \\\text { rate }\end{array} \\\hline 1 \text { st 2014 } & \text { S800 billion } & 5 \% \\\hline \text { 2nd 2014 } & \text { s808 billion } & 4 \% \\\hline 3 \text { rd 2014 } & \$ 808 \text { billion } & 4 \% \\\hline \text { 4th 2014 } & 5800 \text { billion } & 5 \% \\\hline 1 \text { st 2015 } & \text { S790 billion } & 6 \% \\\hline \text { 2nd 2015 } & 5790 \text { billion } & 6 \% \\\hline \text { 3rd 2015 } & \text { \$795 billion } & 5.5 \% \\\hline \text { 4th 2015 } & \text { s800 billion } & 5 \% \\\hline 1 \text { st 2016 } & 5800 \text { billion } & 5 \% \\\hline \text { 2nd 2016 } & \text { S785 billion } & 6.5 \% \\\hline \text { 3rd 2016 } & 5780 \text { billion } & 7 \% \\\hline \text { 4th 2016 } & \text { S790 billion } & 6 \% \\\hline\end{array}$$

A) 2nd quarter 2014 through 1st quarter 2015
B) 2nd quarter 2014 through 2nd quarter 2016
C) 4th quarter 2014 through 4th quarter 2016
D) 4th quarter 2014 through 1st quarter 2016

Question 73

One of the key concepts involved in the circular flow diagram is that:

A) households and businesses are in conflict with each other.
B) the national economy is similar to a zero-sum game.
C) one person's spending is another person's income.
D) the sum of the resource and product markets must equal household income.

Question 74

The diagram that illustrates how households and businesses interact through product and resource markets is called the:

A) product-resource diagram.
B) economic agents graph.
C) circular flow diagram.
D) economic interactivity diagram.

Question 75

A simple circular flow diagram shows that the factors of production are:

A) owned by the government.
B) purchased by households.
C) purchased by businesses.
D) traded in the market for goods and services.

Question 76

Unemployment tends to be highest during the _____ stage of the business cycle while there is a greater risk of high demand leading to inflation during the _____ stage of the business cycle.

A) recession; expansion
B) trough; peak
C) peak; trough
D) recession; peak

Question 77

(Table) Look at the above table (Macroeconomic Data for Econoland); when is Econoland experiencing a double dip recession? $$\begin{array} { | l | l | l | } \hline \text { Quarter } & \text { GDP } & \begin{array} { l } \text { Unemployment } \\\text { rate }\end{array} \\\hline 1 \text { st 2014 } & \text { S800 billion } & 5 \% \\\hline \text { 2nd 2014 } & \text { s808 billion } & 4 \% \\\hline 3 \text { rd 2014 } & \$ 808 \text { billion } & 4 \% \\\hline \text { 4th 2014 } & 5800 \text { billion } & 5 \% \\\hline 1 \text { st 2015 } & \text { S790 billion } & 6 \% \\\hline \text { 2nd 2015 } & 5790 \text { billion } & 6 \% \\\hline \text { 3rd 2015 } & \text { \$795 billion } & 5.5 \% \\\hline \text { 4th 2015 } & \text { s800 billion } & 5 \% \\\hline 1 \text { st 2016 } & 5800 \text { billion } & 5 \% \\\hline \text { 2nd 2016 } & \text { S785 billion } & 6.5 \% \\\hline \text { 3rd 2016 } & 5780 \text { billion } & 7 \% \\\hline \text { 4th 2016 } & \text { S790 billion } & 6 \% \\\hline\end{array}$$

A) 2nd and 3rd quarters of 2016
B) 4th quarter of 2014 and 1st quarter of 2015
C) 2nd quarter of 2015
D) 1st quarter of 2014

Question 78

(Table) Look at the above table (Macroeconomic Data for Econoland); what stage of the business cycle would the NBER declare Econoland to be in during the 4th quarter of 2014? $$\begin{array} { | l | l | l | } \hline \text { Quarter } & \text { GDP } & \begin{array} { l } \text { Unemployment } \\\text { rate }\end{array} \\\hline 1 \text { st 2014 } & \text { S800 billion } & 5 \% \\\hline \text { 2nd 2014 } & \text { s808 billion } & 4 \% \\\hline 3 \text { rd 2014 } & \$ 808 \text { billion } & 4 \% \\\hline \text { 4th 2014 } & 5800 \text { billion } & 5 \% \\\hline 1 \text { st 2015 } & \text { S790 billion } & 6 \% \\\hline \text { 2nd 2015 } & 5790 \text { billion } & 6 \% \\\hline \text { 3rd 2015 } & \text { \$795 billion } & 5.5 \% \\\hline \text { 4th 2015 } & \text { s800 billion } & 5 \% \\\hline 1 \text { st 2016 } & 5800 \text { billion } & 5 \% \\\hline \text { 2nd 2016 } & \text { S785 billion } & 6.5 \% \\\hline \text { 3rd 2016 } & 5780 \text { billion } & 7 \% \\\hline \text { 4th 2016 } & \text { S790 billion } & 6 \% \\\hline\end{array}$$

A) recession
B) trough
C) expansion
D) peak

Question 79

How do trends in bond interest rates help predict changes in the business cycle?

A) When long-term rates are higher than short-term rates, a recession is likely.
B) When long-term rates are lower than short-term rates, a recession is likely.
C) When long-term rates are higher than short-term rates, a trough is present.
D) When long-term rates are lower than short-term rates, an expansion is likely.

Question 80

In the simple circular flow model:

A) income is equal to spending.
B) saving is equal to consumer spending.
C) factor payments are equal to goods and services.
D) goods and services are equal to consumer spending.