Question 1

Suppose that an economy's output does not change from one year to the next, but the price level doubles.What happens to nominal GDP?
A)Nominal GDP doubles.
B)Nominal GDP is halved.
C)Nominal GDP doesn't change.
D)There is not enough information to determine what happens to nominal GDP.

Accepted Answer

Nominal GDP is calculated by multiplying the quantity of output produced by the current market price of that output. If the price level doubles, then the market price of each output also doubles. Since the quantity of output produced remains unchanged, multiplying the same quantity of output by double the market price leads to a doubling of nominal GDP.

Question 2

(Consider This) If Ford Motor Company purchases factory equipment previously used by General Motors, this would be considered an economic investment.

Accepted Answer

The answer of (Consider This) If Ford Motor Company purchases...

Question 3

An increase in the overall level of prices in an economy is called
A)growth.
B)expansion.
C)inflation.
D)nominal GDP growth.

Accepted Answer

Inflation is an increase in the overall level of prices in an economy.

Question 4

(Consider This) If a farmer purchases 10 acres of farmland from a neighboring farmer, this would be considered an economic investment.

Accepted Answer

The answer of (Consider This) If a farmer purchases 10...

Question 5

Economists and policymakers are committed to encouraging a high and growing level of real GDP because
A)this implies a lower price level.
B)this means a higher level of unemployment.
C)this implies an increase in investment.
D)this means greater consumption opportunities.

Accepted Answer

A high and growing level of real GDP means that there is an increase in economic activity, which provides individuals with greater consumption opportunities. As the economy grows, individuals are able to afford and enjoy more goods and services.

Question 6

Real gross domestic product
A)is a measure of inflation.
B)will increase if the price level increases.
C)will increase if the level of output increases.
D)can change from one year to the next even if there is no change in output.

Accepted Answer

Real GDP measures the value of economic output adjusted for price changes (inflation or deflation). It increases when the actual level of output (goods and services produced) increases.

Question 7

The period when output and living standards decline is referred to as
A)inflation.
B)economic decline.
C)an inventory downturn.
D)a recession.

Accepted Answer

A recession is a period when output and living standards decline, characterized by a decrease in economic activity and GDP.

Question 8

Suppose a small economy produces only MP3 players.In year one, 10,000 MP3 players are produce and sold at a price of $100 each.In year two, 12,000 MP3 players are produced and sold at a price of $80 each.Which of the following statements is true?
A)Real GDP and nominal GDP both increase.
B)Real GDP increases, while nominal GDP remains constant.
C)Real GDP decreases, while nominal GDP increases.
D)Real GDP increases, while nominal GDP decreases.

Accepted Answer

Real GDP increases because more MP3 players are produced in year two. Nominal GDP decreases because the total revenue from sales (price times quantity) is lower in year two due to the price drop.

Question 9

The "sticky price" model is the only one used by macroeconomists.

Accepted Answer

The "sticky price" model is one of several models used by macroeconomists to understand different aspects of the economy. Other models include the "liquidity trap" model, the "real business cycle" model, and the "new Keynesian" model, among others.

Question 10

Suppose a small economy produces only HDTV sets.In year one, 100,000 sets are produced and sold at a price of $1,200 each.In year two, 100,000 sets are produced and sold at a price of $1,000 each.As a result,
A)nominal GDP stays constant, while real GDP decreases.
B)nominal GDP decreases, while real GDP stays constant.
C)nominal GDP and real GDP both decrease.
D)nominal GDP decreases, and real GDP decreases even more.

Accepted Answer

Nominal GDP decreases because the price per set has decreased from $1,200 to $1,000, while the quantity remains the same. Real GDP stays constant because the quantity of HDTV sets produced and sold remains the same, assuming year one is the base year.

Question 11

Suppose that an economy's output does not change from one year to the next, but the price level doubles.What happens to real GDP?
A)Real GDP doubles.
B)Real GDP is halved.
C)Real GDP doesn't change.
D)There is not enough information to determine what happens to real GDP.

Accepted Answer

Real GDP measures the economy's output adjusted for changes in the price level. If the output does not change but the price level doubles, the nominal GDP (measured in current dollars) will double, but the real GDP (measured in constant dollars) will remain the same. Therefore, the answer is C, real GDP doesn't change.

Question 12

Real gross domestic product is a measure of the
A)average price level in the economy.
B)value of final output produced within a country in one year, using current prices.
C)value of final output produced within a country in one year, adjusted for changing prices.
D)total value of available resources in a nation.

Accepted Answer

Real GDP measures the value of final output produced within a country in one year, adjusted for inflation or deflation, reflecting the actual economic output.

Question 13

Macroeconomics is primarily concerned with studying two broad topics:
A)long-run economic growth and short-run business cycles.
B)the price of oil and gas abroad and prices of energy in the domestic market.
C)the stock market and the housing market.
D)household incomes and firms' profits.

Accepted Answer

Macroeconomics focuses on the overall economy, including long-term growth trends and short-term fluctuations, known as business cycles.

Question 14

The major statistics that provide macroeconomists a picture of the health of an economy include the following, except
A)real gross domestic product.
B)inflation statistics.
C)prices of oil and gasoline.
D)unemployment data.

Accepted Answer

Prices of oil and gasoline are specific commodity prices and do not provide a comprehensive picture of the overall health of an economy like GDP, inflation, and unemployment data do.

Question 15

Nominal gross domestic product
A)is not affected by the level of inflation.
B)changes only when there is a change in output.
C)changes only when there is a change in the price level.
D)can change when there is a change in either output or the price level.

Accepted Answer

Nominal GDP can change due to variations in both the quantity of goods and services produced (output) and the prices at which they are sold (price level).

Question 16

Which of the following is not an effect of inflation that is troublesome to consumers?
A)Household incomes may be rising slower than the overall prices.
B)The purchasing power of people's savings would decrease.
C)Workers' wages may be rising faster than the overall price level.
D)Their standard of living would fall if their household has a fixed nominal income.

Accepted Answer

If workers' wages are rising faster than the overall price level, it means their real income is increasing, which is beneficial to consumers, not troublesome.

Question 17

High rates of unemployment are undesirable because they
A)always lead to a decline in nominal GDP.
B)are associated with higher levels of crime and illness.
C)cannot be reduced through government policy.
D)are associated with increases in the price level.

Accepted Answer

High rates of unemployment are associated with higher levels of crime and illness. Unemployed individuals may resort to criminal activities to make ends meet, and they may also experience stress and health issues due to financial worries and lack of healthcare benefits.

Question 18

High rates of unemployment
A)indicate that society is not using a large portion of the talent and skills of its people.
B)are associated with higher price levels.
C)always correspond to a decrease in nominal GDP.
D)do not affect an economy's output of goods and services.

Accepted Answer

High rates of unemployment indicate that there are a large number of people willing and able to work but are unable to find employment. This means that society is not utilizing the full potential of its workforce and not producing goods and services at its maximum capacity. Therefore, it is inferred that option A is the best choice. The other options are not correct as high unemployment is not always associated with higher price levels or a decrease in nominal GDP, and it does affect an economy's output of goods and services.

Question 19

Short-run fluctuations in output and employment are referred to as
A)economic growth.
B)business cycles.
C)inventory cycles.
D)recession and inflation.

Accepted Answer

Short-run fluctuations in output and employment are referred to as business cycles.

Question 20

(Consider This) The term "economic investment" refers only to money spent purchasing newly created capital goods such as factories, tools, and warehouses.

Accepted Answer

Economic investment specifically refers to the purchase of new capital goods that are used to produce goods and services, distinguishing it from financial investments like stocks or bonds.

Quiz 26: An Introduction to Macroeconomics

Suppose that an economy's output does not change from one year to the next, but the price level doubles.What happens to nominal GDP?

(Consider This) If Ford Motor Company purchases factory equipment previously used by General Motors, this would be considered an economic investment.

An increase in the overall level of prices in an economy is called

(Consider This) If a farmer purchases 10 acres of farmland from a neighboring farmer, this would be considered an economic investment.

Economists and policymakers are committed to encouraging a high and growing level of real GDP because

Real gross domestic product

The period when output and living standards decline is referred to as

Suppose a small economy produces only MP3 players.In year one, 10,000 MP3 players are produce and sold at a price of $100 each.In year two, 12,000 MP3 players are produced and sold at a price of $80 each.Which of the following statements is true?

The "sticky price" model is the only one used by macroeconomists.

Suppose a small economy produces only HDTV sets.In year one, 100,000 sets are produced and sold at a price of $1,200 each.In year two, 100,000 sets are produced and sold at a price of $1,000 each.As a result,

Suppose that an economy's output does not change from one year to the next, but the price level doubles.What happens to real GDP?

Real gross domestic product is a measure of the

Macroeconomics is primarily concerned with studying two broad topics:

The major statistics that provide macroeconomists a picture of the health of an economy include the following, except

Nominal gross domestic product

Which of the following is not an effect of inflation that is troublesome to consumers?

High rates of unemployment are undesirable because they

High rates of unemployment

Short-run fluctuations in output and employment are referred to as

(Consider This) The term "economic investment" refers only to money spent purchasing newly created capital goods such as factories, tools, and warehouses.