Deck 6: Introduction to Macroeconomics

Question 1

The ultimate objective of macroeconomics is to

A)reduce the unemployment rate
B)stabilize the economy's growth rate
C)develop and test theories about how the overall economy works
D)improve the international competitiveness of the U.S. financial markets
E)maximize the efficiency of government intervention in the marketplace

Answer 1

C

Question 2

Which of the following is not the proper subject matter for macroeconomics?

A)unemployment levels
B)inflation rates
C)levels of national output
D)the price of corn
E)the role of government

Answer 2

D

Question 3

Gross Domestic Product measures the value of all final goods and services produced within a nation's borders.

Answer 3

True

Question 4

Which of the following is a flow variable?

A)U.S. plant and equipment
B)the U.S. population
C)money supply
D)investment spending
E)household debt

Question 5

Since the Great Depression, business fluctuations have become more severe and longer in duration.

Question 6

During the Great Depression, President Hoover

A)correctly called for an increase in taxes
B)incorrectly called for an increase in taxes
C)incorrectly called for a decrease in taxes
D)correctly called for a decrease in government spending
E)incorrectly called for an increase in government spending

Question 7

Which of the following best describes a stock (rather than a flow)?

A)each week you save $100
B)each week you buy $10 worth of gasoline
C)each week you buy $50 worth of groceries
D)you earn $500 per week at your job
E)you own $5,000 worth of government bonds

Question 8

Which of the following statements regarding Gross Domestic Product is not true?

A)It is a stock variable.
B)It is measured for a particular time period, usually one year.
C)It is perhaps the most effective means of viewing the same economy over time.
D)It is a measure of the economy's performance.
E)It is a flow variable, not a stock variable.

Question 9

Which of the following is a stock variable?

A)business spending on capital equipment
B)consumer income
C)the federal government's debt
D)the federal government's budget deficit
E)total expenditure

Question 10

If business leaders become pessimistic about future sales and profits, they will __________ spending on plant and equipment, which __________ employment and income and, therefore, their expectations are __________.

A)reduce; reduces; fulfilled
B)reduce; increases; fulfilled
C)reduce; increases; not met
D)increase; increases; not met
E)increase; reduces; fulfilled

Question 11

If all firms expect greater demand for their products or services, they will hire __________ resources (e.g., labor and capital) and the economy will experience __________.

A)fewer; recession
B)fewer; growth
C)more; federal budget deficits
D)more; recession
E)more; growth

Question 12

Economic fluctuations (or business cycles)

A)are changes in the number of businesses started
B)are fluctuations in the Dow Jones industrial average relative to a long-term growth trend
C)look at the role of business in the hiring resources
D)are fluctuations in the level of economic activity, relative to a long-term growth trend
E)are changes in government spending that occur over a period of years

Question 13

If firms expect greater demand for their products, invest in more capital and hire more labor,

A)there will likely be an increase in inflation and a rise in taxation
B)the business cycle is likely to be moving from peak to trough
C)their behavior may encourage the very prosperity that they expect
D)government will probably have to spend more and tax less to offset the economic impacts of these business decisions
E)consumers will probably spend less in anticipation of a decline in economic activity

Question 14

Capital is a stock variable.

Question 15

An economic variable that is measured per unit of time, such as spending per year, is known as a(n)

A)stock variable
B)periodic variable
C)expectations variable
D)flow variable
E)constant variable

Question 16

Which of the following is a stock variable?

A)Gross Domestic Product
B)consumption spending
C)the federal government's spending on Social Security
D)the money supply
E)Federal income tax revenue

Question 17

Which of the following is not a flow variable?

A)the amount of spending by consumers this holiday season
B)the number of times a dollar bill is spent in a day
C)the amount of sales taxes collected in a state per year
D)the number of shares of stock traded on Wall Street per week
E)the $100 Susan keeps in her purse, in case an emergency arises

Question 18

Which of the following is a stock variable?

A)U.S. exports
B)sales by corporations
C)borrowing by the federal government
D)household wealth
E)net exports

Question 19

Which of the following best describes a flow (rather than a stock)?

A)you own $5,000 worth of government bonds
B)you own a $100,000 house
C)you own a coin collection valued at $10,000
D)you earn $500 per week
E)you own a $45,000 automobile

Question 20

If business leaders become optimistic about future sales and profits, they will __________ spending on plant and equipment, which __________ employment and income and, therefore, their expectations are __________.

A)increase; increases; fulfilled
B)increase; increases; not met
C)increase; decreases; fulfilled
D)decrease; decreases; fulfilled
E)decrease; increases; not met

Question 21

Long-term growth in production can be partially explained by

A)increases in government spending
B)increases in availability of resources
C)reductions in federal taxes
D)a gradual but consistent increase in the price level
E)general optimism about the future and the pioneering spirit of America

Question 22

Which of the following statements about leading economic indicators is true?

A)Most people refer to them before making any important spending decision.
B)They are the only economic indicators available to economists.
C)They indicate when the economy is in a recession or an expansion.
D)They foreshadow turning points in the business cycle.
E)They can predict precisely when turning points in the economy will occur.

Question 23

While economic expansions average about three and one half years in duration, economic contractions average about

A)one year in duration
B)two years in duration
C)three years in duration
D)four years in duration
E)five years in duration

Question 24

A recession is a period during which

A)employment, production, and income decrease
B)the price level is increasing
C)inventories are falling dramatically
D)the unemployment rate is falling while the price level is rising
E)the government attempts to reduce a budget deficit by reducing taxes and increasing government spending

Question 25

Economic fluctuations

A)in one nation are usually independent of economic fluctuations in its major trading partner nations
B)in one nation are usually independent of economic fluctuations in bordering nations
C)in one developed nation are often linked to economic fluctuations in other developed economies
D)are linked internationally so that a recession in one nation means an expansion in the economy of its major trading partner
E)are linked internationally so that an economic expansion in one nation means a recession in the economy of its major trading partner

Question 26

Economic fluctuations

A)can be experienced by the world economy as well as by a single nation
B)tend to be equal in length and intensity
C)refer to a declining economy
D)have become more severe since the government has attempted to stabilize the economy
E)have been completely offset by appropriate government policy during the last 40 years

Question 27

A depression can be defined as

A)a mild reduction in total production coupled with a rising unemployment rate that lasts for several years
B)a decline in total production that lasts less than six months
C)a severe fall in stock prices that causes financial panic and lasts several years
D)a severe reduction in total production coupled with high unemployment that lasts several years
E)a decline in government spending and taxes that lasts for several months

Question 28

A period of sustained decline of output in the economy is known as a(n)

A)expansion
B)growth phase
C)peak
D)trough
E)contraction

Question 29

By a leading economic indicator, economists mean

A)an indicator of future economic activity
B)an indicator that measures current economic activity
C)a highly accurate indicator that is easily measured
D)an indicator that is accurate most of the time
E)any variable that can measure either past or present economic activity

Question 30

Long-term growth in production can be partially explained by

A)trade surpluses that lead to accumulations of precious metals
B)a gradual but consistent increase in the price level
C)general optimism about the future and the pioneering spirit of America
D)improvements in technology
E)federal government budget deficits

Question 31

Which of the following would indicate the beginnings of an expansion of the economy?

A)fewer new firms are started
B)stock market prices decline
C)consumer confidence improves
D)housing construction slows
E)orders for new equipment decrease

Question 32

Long-term growth in production can be partially explained by

A)improvements in the "rules of the game" that facilitate production and exchange
B)the peaks and troughs of the business cycle (or economic fluctuations)
C)trade surpluses that lead to accumulations of precious metals
D)federal government budget deficits
E)a gradual but consistent increase in the price level

Question 33

Which of the following is not true about recessions?

A)They are milder than depressions.
B)They last less than six months on average.
C)They typically are shorter than periods of expansion.
D)They begin after an expansion has peaked.
E)They continue until the economy reaches a trough.

Question 34

A recession is best defined as a period during which

A)the percentage of the population employed is declining
B)employment, output, and income decline
C)the price level is declining
D)more resources are used
E)the budget deficit and trade deficit are both growing

Question 35

Economic fluctuations

A)are linked, but not perfectly synchronized, across countries
B)are perfectly synchronized across countries
C)in one country are independent of fluctuations in other countries
D)in the United States always lag behind fluctuations in other developed economies
E)in the United States usually occur before fluctuations in other developed economies

Question 36

The distinction between recessions and depressions is that recessions are

A)longer than depressions
B)more severe than depressions
C)accompanied by price increases, depressions by price decreases
D)shorter and less severe than depressions
E)accompanied by price decreases, depressions by price increases

Question 37

Which of the following is true about U.S. business cycle activity since 1933?

A)There has been only one business cycle in the last 30 years.
B)There have been only two or three complete cycles.
C)There have been no recessions since 1979.
D)Expansions have generally lasted longer than contractions.
E)Each cycle has lasted longer than the previous one.

Question 38

A period of sustained growth of output in the economy is referred to as a(n)

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

Question 39

In U.S. history, recessions have usually lasted longer than expansion periods.

Question 40

The U.S. economy has experienced alternating periods of expansion and contraction in economic activity relative to its long-term growth trend in the economy. These are called economic fluctuations or business cycles.

Question 41

The aggregate supply curve reflects the direct relationship between the price level and the quantity of aggregate output supplied.

Question 42

As the price level rises, individuals feel richer. Therefore, they will spend more.

Question 43

An increase in wage rates, other things constant, would shift the aggregate supply curve upward.

Question 44

The aggregate demand curve reflects the direct relationship between the price level and the quantity of aggregate output demanded.

Question 45

As the price level increases, the amount of goods and services that consumers, businesses, and governments desire to purchase will change. How will this be illustrated?

A)a leftward movement of the aggregate demand curve
B)a rightward movement of the aggregate demand curve
C)a movement upward along the aggregate demand curve
D)a movement downward along the aggregate demand curve
E)the price level change causes the aggregate supply curve to shift, bringing the economy back into equilibrium

Question 46

One explanation of why the aggregate demand curve is downward sloping is that

A)as prices fall, nominal income rises and so does the demand for real goods and services
B)rising prices reduce people's wealth and thereby reduce spending
C)with falling prices, government decides to spend less to increase the price level
D)businesses increase investment spending in response to higher interest rates caused by inflation
E)as prices fall, domestically produced goods become more expensive relative to foreign-produced products, which increases production

Question 47

A rise in the price level

A)moves the economy rightward along the aggregate demand curve
B)moves the economy leftward along the aggregate demand curve
C)shifts the aggregate demand curve to the left
D)shifts the aggregate demand curve to the right
E)is inconsistent with the other-things-constant assumption on which the aggregate demand curve is based

Question 48

Certain economic activities signal forthcoming changes in the economy. These are known as the

A)coincidental economic indicators
B)GDP implicit price deflator
C)lagging economic indicators
D)composite of economic activities
E)leading economic indicators

Question 49

The aggregate demand curve slopes downward because households feel poorer after a decrease in the price level.

Question 50

When economists refer to the economy's price level, they mean

A)the rate of inflation
B)the price of goods and services relative to consumers' incomes
C)a general measure of prices of all goods and services
D)a period of level, or steady, prices
E)the prices of a specific consumer good

Question 51

If the wealth of consumers increases substantially, this would shift

A)the aggregate supply curve outward
B)the aggregate demand curve outward
C)the aggregate demand curve inward
D)the aggregate supply curve inward
E)both the aggregate demand and supply curves inward

Question 52

Which of the following explains why the aggregate demand curve slopes downward?

A)If the price level increases, we feel poorer and therefore buy less.
B)If the price level increases, we feel richer and therefore buy more.
C)If domestic prices increase, we substitute domestic goods for imported ones.
D)If the price of a particular good increases, we substitute away from that good.
E)A decrease in the price of a particular good is like an increase in income and therefore we buy more.

Question 53

A fall in the price level

A)moves the economy rightward along the aggregate demand curve
B)moves the economy leftward along the aggregate demand curve
C)shifts the aggregate demand curve to the left
D)shifts the aggregate demand curve to the right
E)is inconsistent with the other-things-constant assumption on which the aggregate demand curve is based

Question 54

Suppliers have an incentive to increase aggregate output whenever the price level rises faster than the cost of production.

Question 55

One explanation for the negative slope of the aggregate demand curve is that

A)as prices rise, nominal income falls and so does the demand for real goods and services
B)falling prices make people feel poorer and reduce spending
C)as prices rise, government spends less to drive the price level back down
D)businesses increase spending when inflation is high and rising
E)as prices rise, domestic goods become more expensive relative to foreign goods, which reduces exports

Question 56

Which of the following is a reason why the aggregate demand curve slopes downward?

A)At a higher price level, fewer goods and services are available.
B)Periods when the price level is rising are usually times of swift declines in economic activity.
C)Households feel poorer with an increase in average prices.
D)If the U.S. price level rises, foreigners will buy more U.S. goods, leaving fewer U.S. goods for domestic consumers.
E)As the price level rises, business leaders become pessimistic about the future and reduce production.

Question 57

The aggregate demand curve is best defined as depicting the

A)quantity of goods and services demanded during a given time period at different interest rates
B)quantity of goods and services demanded at different price levels during different time periods
C)quantity of goods and services demanded at different price levels during a given time period, other things held constant
D)quantity of goods and services that the economy is capable of producing during a given time period
E)final quantity of goods and services actually produced by the economy during a given time period

Question 58

The aggregate demand curve slopes downward because

A)a decrease in the price level decreases the real value of household wealth
B)a decrease in the domestic price level increases imports
C)an increase in the price level leads to a decrease in demand for money, which decreases interest rates
D)a decrease in the domestic price level increases exports
E)none of the above

Question 59

If the U.S. price level decreases, the aggregate quantity of U.S. output demanded

A)decreases because U.S. products become cheaper relative to foreign products
B)decreases because U.S. products become more expensive relative to foreign products
C)increases because U.S. products become cheaper relative to foreign products
D)increases because U.S. products become more expensive relative to foreign products
E)decreases because household wealth and spending decrease

Question 60

If the U.S. price level increases, the aggregate quantity of U.S. output demanded

A)decreases because U.S. products become cheaper relative to foreign products
B)decreases because U.S. products become more expensive relative to foreign products
C)increases because U.S. products become cheaper relative to foreign products
D)increases because U.S. products become more expensive relative to foreign products

Question 61

According to John Maynard Keynes' General Theory of Employment, Interest and Money, in order to get an economy out of a depression, the government should

A)increase spending
B)decrease spending
C)reduce taxes
D)increase taxes
E)allow the economy to correct itself

Question 62

Which of the following is true of the aggregate supply curve?

A)It portrays an inverse relationship between the price level and quantity of aggregate output.
B)Resource utilization is constant along the curve.
C)A decrease in the price level encourages firms to expand production because the cost of production decreases.
D)The curve is upward-sloping.
E)As average prices in the United States rise relative to average prices in other countries, U.S. producers find export markets more attractive than domestic markets.

Question 63

Given the following aggregate demand and aggregate supply schedules, determine the equilibrium level of prices and output.

A)equilibrium output $1,000 and equilibrium price level 25
B)equilibrium output $800 and equilibrium price level 50
C)equilibrium output $200 and equilibrium price level 125
D)equilibrium output $400 and equilibrium price level 25
E)equilibrium output $600 and equilibrium price level 75

Question 64

The aggregate supply curve has

A)a negative slope
B)a positive slope
C)a zero slope (a horizontal line)
D)an infinite slope (a vertical line)
E)a negative slope like the aggregate demand curve, only steeper

Question 65

For a fixed aggregate supply curve, decreases in aggregate demand increase real GDP.

Question 66

A decrease in the price level will cause

A)an increase in the quantity of aggregate output supplied
B)a decrease in the quantity of aggregate output supplied
C)a leftward shift of the aggregate supply curve
D)a rightward shift of the aggregate supply curve
E)a leftward or rightward shift of the aggregate supply curve, depending on the reason for the price change

Question 67

If the U.S. price level increased relative to price levels in foreign countries, what would be the impact on domestic aggregate supply and aggregate demand curves?

A)the aggregate supply curve would shift outward and the aggregate demand curve would remain unchanged
B)the aggregate supply curve would shift inward and the aggregate demand curve would remain unchanged
C)the aggregate demand curve would shift outward and the aggregate supply curve would remain unchanged
D)the aggregate demand curve would shift inward and the aggregate supply curve would remain unchanged
E)the domestic aggregate demand and supply curves would remain unchanged

Question 68

In terms of the aggregate demand and supply framework, the Great Depression can be viewed in terms of a

A)rightward shift of the aggregate demand curve
B)rightward shift of the aggregate supply curve
C)movement downward along the aggregate demand curve
D)a leftward shift of the aggregate demand curve
E)a leftward shift of the aggregate supply curve

Question 69

An increase in the price level will cause

A)an increase in the quantity of aggregate output supplied
B)a decrease in the quantity of aggregate output supplied
C)a leftward shift of the aggregate supply curve
D)a rightward shift of the aggregate supply curve
E)a leftward or rightward shift of the aggregate supply curve, depending on the reason for the price change

Question 70

The laissez-faire approach popular before the Great Depression influenced the U.S. government to see business downturns as

A)natural phases in an otherwise healthy system, and therefore to take short-term deficit spending measures to help recovery
B)natural phases in an otherwise healthy system, and therefore to wait for recovery to occur naturally
C)serious maladies in an otherwise healthy system, and therefore to work to redesign the system to avoid such failure in the future
D)failures of the type of system Adam Smith envisaged, and therefore to work to move toward a modern, more managed economy
E)failures of the system to achieve the form that Adam Smith envisaged, and therefore to work to decrease government interference at the micro level

Question 71

The aggregate supply curve indicates

A)the quantity of aggregate output that producers are willing and able to supply at each possible price level
B)the total quantity of a particular good that all producers are willing to supply at each possible price level
C)the total quantity of a particular good that all producers are willing to supply at the equilibrium price level
D)the quantity of aggregate output that producers are willing and able to supply at the equilibrium price level
E)the quantity of aggregate output that producers are willing and able to supply at the equilibrium level of GDP

Question 72

For a given aggregate supply curve, the price level and output both rise when aggregate demand decreases.

Question 73

When output __________, employment is expected to __________.

A)rises; rise
B)rises; fall
C)falls; rise
D)falls; remain constant
E)remains constant; fall

Question 74

Equilibrium of aggregate supply and aggregate demand is best described as a situation in which

A)the slope of aggregate demand equals the slope of aggregate supply
B)quantity demanded exceeds quantity supplied
C)quantity demanded equals quantity supplied at a unique price level
D)quantity supplied exceeds quantity demanded at a unique price level
E)quantity supplied equals quantity demanded at all price levels

Question 75

During the Great Depression,

A)unemployment and prices increased while output decreased
B)unemployment increased while output and prices decreased
C)unemployment and prices decreased while output increased
D)unemployment and output decreased while prices increased
E)unemployment and output increased while prices decreased

Question 76

If the economy were initially in equilibrium and the aggregate demand curve shifted to the left,

A)employment would fall
B)the price level would rise
C)the aggregate supply curve would shift rightward
D)the aggregate supply curve would shift leftward
E)the economy would experience an expansion period

Question 77

Given an aggregate supply curve that slopes upward, an increase in aggregate demand would decrease real GDP.

Question 78

Exhibit 5-1

Exhibit 5-1 shows that from the beginning of period 1 to the end of period 2,

A)real GDP decreased and then increased
B)real GDP increased and then decreased
C)real GDP fell from $10,000 to $6,000
D)real GDP rose from $6,000 to $10,000
E)the inflation rate fell from 4 to 1

Question 79

Adam Smith's "invisible hand" explains

A)why people act in their own best interests
B)why the government intervenes to overcome failures in private markets.
C)how people, acting out of self-interest, unintentionally promote the general good
D)how comparative advantage and specialization promote international trade
E)how the creation of goods and services (supply) generates its own demand by creating employment and income

Question 80

On an aggregate demand and aggregate supply graph, the Great Depression can be pictured as

A)a leftward shift of the aggregate supply curve
B)a rightward shift of the aggregate supply curve
C)a leftward shift of the aggregate demand curve
D)an increase in the price level caused by a movement along the aggregate demand curve
E)a decrease in the price level caused by a movement along the aggregate supply curve