Deck 1: Introduction

Question 1

What characterizes a competitive equilibrium?

A) Markets are rationed.
B) Governments stay out of the market.
C) Economic agents are price-takers.
D) It is costly to experiment with policies.

Answer 1

Economic agents are price-takers.

Question 2

For the study of economic growth,it is most helpful to examine movements in ________; for the study of business cycles,it is most helpful to examine movements in ________.

A) trend GNP; trend GNP
B) trend GNP; deviations from trend in GNP
C) deviations from trend in GNP; trend GNP
D) deviations from trend in GNP; deviations from trend in GNP

Answer 2

trend GNP; deviations from trend in GNP

Question 3

Over the twentieth century,growth in per-capita GNP was highest

A) immediately prior to the Great Depression.
B) during World War II.
C) during the 1960s.
D) during the 1980s.

Answer 3

during World War II.

Question 4

The relationship between the growth rate of an economic variable,gt,and its level,yt,can be approximated by

A) gt = yt - yt - 1.
B) gt = logt - log yt - 1.
C) yt = log gt - log gt - 1.
D) log gt = yt - yt - 1.

Question 5

Which is a question of interest in this book?

A) What causes illegal immigration?
B) What mechanism could force people to pollute less?
C) What causes economic fluctuations?
D) What is the effect of penalties on crime?

Question 6

Which of the following assertions is false?

A) The Great Depression was a typical business cycle.
B) Very rapid growth occurred during World War II.
C) Real GDP per capita dipped about 30% during the Great Depression.
D) On average, the U.S. economy grows at a rate of 2.1%.

Question 7

A useful macroeconomic model

A) is extremely realistic.
B) is simple.
C) never generates testable hypotheses.
D) provides a lot of intricate details.

Question 8

When we say the U.S. economy has grown on average at 2.1%,we mean

A) the inflation rate.
B) the growth rate of nominal GDP.
C) the growth rate of per-capita nominal GDP.
D) the growth rate of per-capita real GDP.

Question 9

Primarily,macroeconomists use microeconomic principles to study

A) business cycles and trends in the stock market.
B) long-run economic growth and antitrust policies.
C) trends in the stock market and long-term economic growth.
D) long-run economic growth and business cycles.

Question 10

The structure of a macroeconomic model involves all of the following except

A) the available technology.
B) the behavior of consumers and firms.
C) the preferences of consumers.
D) the available resources.

Question 11

Over the course of the twentieth century,the typical American

A) remained equally as rich.
B) became twice as rich.
C) became five times as rich
D) became eight times as rich.

Question 12

Which is a question of interest in this book?

A) Where is the stock market heading?
B) What is the optimal inflation rate?
C) How are stock options priced?
D) What are commodity futures?

Question 13

What do we assume about households and firms?

A) They act irrationally.
B) They do what the government tells them to do.
C) They look after each other.
D) They optimize.

Question 14

Macroeconomic models are

A) never wrong.
B) accurate descriptions of the economy.
C) simple abstractions of reality.
D) consistent with all economic data.

Question 15

The two most important American business cycle events of the twentieth century were

A) the Great Depression and stagflation.
B) World War II and the Great Depression.
C) the productivity slowdown and the Great Depression.
D) government budget deficits and World War II.

Question 16

Which is a question of interest in this book?

A) What causes growth in the long term?
B) How should a labor contract be structured?
C) How should a government be elected?
D) What is the impact of government provided health care?

Question 17

The business cycle component of the log of real per-capita GNP is equal to

A) log of actual real GNP - log of trend GNP.
B) log of trend GNP ÷ log of actual real GNP.
C) log of trend GNP - log of actual real GNP.
D) log of actual real GNP ÷ log of trend GNP.

Question 18

Which of the following questions is of most interest for MACROECONOMISTS?

A) Why is there inflation?
B) Why does the steel industry want tariffs?
C) What is the appropriate stance of antitrust policy?
D) Why do foreigners immigrate to the United States?

Question 19

Which of the following topics is NOT a primary concern of macroeconomists?

A) fluctuations in the level of economic activity
B) differences in standards of living across countries
C) relative wages of skilled and unskilled workers
D) unemployment

Question 20

In 2011,the per-capita GDP in the United States,in 2005 dollars,was about

A) $17,500.
B) $27,500.
C) $43,000.
D) $47,500.

Question 21

Improvements in a country's standard of living are brought about in the long run by

A) technological progress.
B) growth in the population.
C) constructing more machines and buildings.
D) immigration policy.

Question 22

Current macroeconomic models use microeconomic principles because

A) they use the same language for all economists.
B) they highlight the sociological aspects of production.
C) the behavior of economic agents changes with policy.
D) we live in a democratic society and everybody has a say.

Question 23

What is produced and consumed in the economy is determined jointly by

A) government policies and the economy's productive capacity.
B) the economy's productive capacity and the preferences of consumers.
C) the preferences of consumers and the behavior of business managers.
D) the behavior of business managers and government policies.

Question 24

Credit markets are

A) bad, as they cause people to accumulate debt.
B) not important for the financial crisis.
C) important, but given too little attention in the past by macroeconomists.
D) markets that work perfectly.

Question 25

For macroeconomics,banks

A) are similar to other firms.
B) can be abstracted away.
C) play a key role.
D) are similar to households.

Question 26

In the long run,the quantity of money

A) does not matter.
B) influences GDP.
C) influences unemployment.
D) influences the business cycle.

Question 27

The quantity of money in circulation in the United States is managed by

A) The Securities Exchange Commission.
B) The United States Treasury.
C) The Federal Reserve System.
D) Wall Street.

Question 28

What is the key feature that differentiates business cycle theories?

A) whether the theory was developed before or after the Great Depression.
B) whether the theory is Keynesian or non-Keynesian.
C) whether the theory also explains economic growth.
D) whether the theory explains how monetary policy works.

Question 29

Considering the future

A) is irrelevant to macroeconomics.
B) is key to macroeconomic modelling.
C) has a limited impact on macroeconomic analysis.
D) matters only under special circumstances.

Question 30

The macroeconomic models that are most supportive of the role of government policy aimed at smoothing business cycles are

A) real business cycle models.
B) endogenous growth models.
C) Keynesian models.
D) Solow growth models.

Question 31

Which aspect of macroeconomics generates the most controversy?

A) economic growth
B) the causes of business cycles
C) supply and demand
D) competitive equilibrium

Question 32

The development most responsible for the wide-spread introduction of macroeconomic models built upon solid microeconomic foundations was the

A) work of John Maynard Keynes.
B) rational expectations revolution.
C) popularization of supply-side economics.
D) development of the Keynesian coordination failure model.

Question 33

International trade between two countries

A) benefits only the receiving country.
B) benefits only the sending country.
C) benefits both countries.
D) benefits neither country.

Question 34

According to the Lucas critique,changes in economic policy are likely to have important effects on

A) the available amounts of natural resources.
B) the behavior of consumers and firms.
C) the preferences of consumers.
D) none of the above

Question 35

In the long run,inflation is caused by

A) aggressive labor unions.
B) greedy monopolists.
C) growth in the money supply.
D) global warming.

Question 36

Two important theories of unemployment are

A) game theory and search theory.
B) search theory and the efficiency wage theory.
C) the efficiency wage theory and the quantity theory.
D) the quantity theory and game theory.

Question 37

According to Keynesian coordination failure theory,the primary causes of business cycles are

A) shocks to aggregate demand.
B) monetary factors.
C) technology shocks.
D) waves of self-fulfilling optimism and pessimism.

Question 38

According to real business cycle theory,the primary causes of business cycles are

A) shocks to aggregate demand.
B) monetary factors.
C) technology shocks.
D) waves of self-fulfilling optimism and pessimism.

Question 39

Regarding money,what matters most?

A) that is exists.
B) that its quantity is known.
C) that coins are available.
D) that its quantity is stable.

Question 40

Business cycles are

A) each unique, but all have a single cause.
B) each unique and they can have many causes.
C) similar, and they all have a single cause.
D) similar, but they can have many causes.

Question 41

A government deficit occurs when

A) the government spends more than what it gets in taxes.
B) public goods are worth less than what was paid for them.
C) a government loses an election.
D) the government still has Treasury bonds to reimburse.

Question 42

The Beveridge curve shifted outward during what period?

A) during the Great Depression.
B) during the Great Moderation.
C) after January 2008.
D) between January 2000 and December 2007.

Question 43

The real interest rate is

A) always equal to the pure rate of time preference.
B) equal to the rate of inflation minus the nominal rate of interest.
C) equal to the nominal rate of interest minus the rate of inflation.
D) less important for decision making than the nominal rate of interest.

Question 44

Which is not a cause for business cycles considered by macroeconomists?

A) shocks to money supply
B) greed
C) shocks to technological ability
D) variations in optimism

Question 45

Government debt is different from individual debt because

A) the government can always tax to reduce it.
B) the government cannot declare bankruptcy.
C) the government does not need to pay interest.
D) the government can decide the interest rate.

Question 46

In the second half of the twentieth century,the U.S. inflation rate was at its highest in the period from

A) 1960 to the early 1970s.
B) the mid-1970s to the early 1980s.
C) the mid-1980s to the early 1990s.
D) 1990-2000.

Question 47

A productivity slowdown was observed from the

A) early 1950s to the late 1960s.
B) early 1960s to the early 1970s.
C) late 1960s to the early 1980s.
D) mid-1980s to the late 1990s.

Question 48

A government surplus is

A) when it spends more than its income.
B) when it owes more than what it is owed.
C) when its income is higher than its spending.
D) when it is owed more than what it owes.

Question 49

A trade-off between aggregate output and inflation

A) is theoretically possible, but has never been observed in practice.
B) may exist in the short run, but not in the long run.
C) may exist in the long run, but not in the short run.
D) exists in both the short run and the long run.

Question 50

The major contributor to the long-run improvement of a country's standard of living is

A) low inflation.
B) growth in government.
C) population growth.
D) technological progress.

Question 51

Unemployment,at the aggregate level.,

A) is avoidable.
B) is part of a well-functioning economy.
C) is always a sign of market failure.
D) would not happen with good policy.

Question 52

In the 2008-09 recession,the government deficit

A) stayed roughly constant.
B) decreased.
C) increased.
D) would have increased if the government had intervened.

Question 53

Over the long run,taxes and government expenses have

A) remained relatively stable.
B) decreased.
C) increased.
D) drifted apart.

Question 54

Two plausible hypotheses to explain the productivity slowdown are

A) measurement problems and adjustments to new technologies.
B) large government budget deficits and large balance of trade deficits.
C) globalization of capital markets and reductions in tariffs.
D) adjustments to new technologies and failures in the educational system.

Question 55

Unemployment is good from a social point of view because

A) it keeps wages in check.
B) it allows for better matches between workers and firms.
C) it provides free time.
D) it keeps the least efficient workers out.

Question 56

The Beveridge curve is

A) a positive relationship between unemployment and the inflation rate.
B) a positive relationship between the government deficit and aggregate output.
C) a negative relationship between the vacancy rate and the unemployment rate.
D) a positive relationship between the inflation rate and the nominal interest rate.

Question 57

Average labor productivity is defined as

A) per-capital real GDP divided by employment.
B) nominal GDP divided by employment.
C) per-capita nominal GDP divided by employment.
D) real GDP divided by employment.

Question 58

A good measure of productivity is

A) the interest rate.
B) the inflation rate.
C) aggregate output divided by employment.
D) the growth rate of aggregate output.

Question 59

The U.S. government budget was

A) continuously in surplus from 1959 to the late 1990s.
B) in surplus for most of the period from 1959-1970, but was in deficit for most of the period from 1970 to the late 1990s.
C) in deficit for most of the period from 1959-1970, but was in surplus for most of the period from 1970 to the late 1990s.
D) continuously in deficit from 1959 to the late 1990s.

Question 60

The idea that government budget deficits do not matter under certain circumstances is

A) called the Friedman-Lucas theory.
B) called the Ricardian equivalence theorem.
C) attributed to Edward Prescott and Finn Kydland.
D) preposterous.

Question 61

An increase in energy prices is a likely cause of

A) Great Depression.
B) Korean War inflation.
C) the recession in 1973-1975.
D) the Great Moderation.

Question 62

Real interest rates were negative during most of the

A) 1960s.
B) 1970s.
C) 1980s.
D) 1990s.

Question 63

The real interest rate is

A) always positive.
B) always negative.
C) variable.
D) zero.

Question 64

The most likely explanation of the recession of 1981-1982 was

A) an increase in energy prices.
B) a collapse in investment spending.
C) that it was an unfortunate byproduct of a decrease in inflation.
D) a dramatic decrease in stock prices.

Question 65

Which period was not a recession in the United States?

A) 1974-1975
B) 1990-1991
C) 1984-1985
D) 2001

Question 66

When there is positive inflation

A) the nominal interest rate is approximately equal to the real interest rate.
B) the real interest rate is greater than the nominal interest rate.
C) the nominal interest rate is greater than the real interest rate.
D) the real interest rate is negative.

Question 67

Inflation is defined as

A) the rate of increase in the government budget deficit.
B) the increase in the money supply.
C) the rate of change in the average level of prices.
D) the nominal interest rate minus the price level.

Question 68

Asymmetric information is:

A) information revealed by economic agents turns out to be wrong.
B) inflation forecasts are systematically to high or too low.
C) some economic agents have more information than others.
D) the government knows less about the economy than households and firms.

Question 69

Limit commitment occurs when

A) collateral is required to get a loan.
B) one cannot borrow as much as necessary to conduct business.
C) one cannot be forced to repay a loan.
D) the bank can sell your loan to another bank.

Question 70

When a country has a current account deficit,the country

A) is borrowing from abroad.
B) is lending abroad.
C) must have a government budget surplus.
D) must have a government budget deficit.

Question 71

Which was the deepest recession in the United States before the recession of 2008-09?

A) 1978-1979
B) 1981-1982
C) 1990-1991
D) 2001

Question 72

A likely explanation for the 2008-2009 recession is

A) an increase in energy prices.
B) financial market problems.
C) a drastic reduction in government expenses.
D) an increase in taxes.

Question 73

Between 1947 and 2011,

A) Exports decreased and imports decreased.
B) Exports and imports increased.
C) The current account surplus rose.
D) The current account deficit fell.