Deck 25: An Introduction to Macroeconomics

Question 1

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each.This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas)but sold them for $12 each.Based on this information we can conclude that Harry's production of large pepperoni pizzas this year:

A) increased nominal GDP by $20,000 but left real GDP unchanged.
B) increased nominal GDP by $120,000 and increased real GDP by $100,000.
C) left nominal GDP unchanged but increased real GDP by $20,000.
D) increased nominal GDP by $120,000 but left real GDP unchanged.

Answer 1

A

Question 2

Unemployment describes the condition where:

A) equipment and machinery are going unused.
B) a person cannot get a job but is willing to work and is actively seeking work.
C) a person does not have a job,regardless of whether or not he or she wants one.
D) any resource sits idle.

Answer 2

B

Question 3

In making international comparisons of living standards using GDP,which of the following is not adjusted for in the calculation?

A) Purchasing power parity.
B) The quantity of resources available to the economy.
C) Population size.
D) Different currency values.

Answer 3

B

Question 4

The term "recession" describes a situation where:

A) inflation rates exceed normal levels.
B) output and living standards decline.
C) an economy's ability to produce is destroyed.
D) government takes a less active role in economic matters.

Question 5

Before the period of modern economic growth:

A) only civilizations such as the Roman Empire experienced economic growth.
B) rates of population growth virtually matched rates of output growth.
C) most economies realized high rates of growth in output per person.
D) output and population growth were stagnant.

Question 6

Which of the following is most closely related to recessions?

A) Positive long-run economic growth.
B) Rapid growth in the price level.
C) Falling rates of unemployment.
D) Negative real growth in output.

Question 7

Real GDP measures the:

A) total dollar value of all goods and services produced within the borders of a country using current prices.
B) value of final goods and services produced within the borders of a country,corrected for price changes.
C) total dollar value of all goods and services consumed within the borders of a country,adjusted for price changes.
D) value of all goods and services produced in the world,using current prices.

Question 8

Real GDP is preferred to nominal GDP as a measure of economic performance because:

A) nominal GDP uses current prices and thus may over- or understate true changes in output.
B) nominal GDP only includes goods and excludes services.
C) nominal GDP is not adjusted for population changes.
D) real GDP accounts for changes in the quality of goods and services produced.

Question 9

If the prices of all goods and services rose,but the quantity produced remained unchanged,what would happen to nominal and real GDP?

A) Nominal and real GDP would both rise.
B) Nominal and real GDP would both be unchanged.
C) Real GDP would rise,but nominal GDP would be unchanged.
D) Nominal GDP would rise,but real GDP would be unchanged.

Question 10

The three statistics that are the main focus for those measuring macroeconomic health are:

A) real GDP,inflation,and unemployment.
B) real GDP,nominal GDP,and inflation.
C) nominal GDP,unemployment,and inflation.
D) real GDP,nominal GDP,and unemployment.

Question 11

Inflation is defined as:

A) an increase in the overall level of prices.
B) the rate of growth in nominal GDP.
C) a situation where all prices in the economy rise simultaneously.
D) the growth phase of the business cycle.

Question 12

Why are high rates of unemployment of concern to economists?

A) Higher rates of unemployment generally lead to higher inflation rates.
B) Environmental destruction is more prevalent when unemployment rates are high.
C) There is lost output that could have been produced if the unemployed had been working.
D) All of these options are reasons why economists are concerned about high unemployment rates.

Question 13

The business cycle depicts:

A) fluctuations in the general price level.
B) the phases a business goes through from when it first opens to when it finally closes.
C) the evolution of technology over time.
D) short-run fluctuations in output and employment.

Question 14

Which of the following statements is most accurate about advanced economies?

A) Economies experience a positive growth trend over the short run but experience significant variability in the long run.
B) Economies experience a positive growth trend over the long run but experience significant variability in the short run.
C) Economies experience positive and stable growth over both the long run and short run.
D) Economies experience little long-run growth in output but can experience significant growth in the short run.

Question 15

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each.This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas)but sold them for $12 each.Based on this information we can conclude that Harry's production of large pepperoni pizzas:

A) increased both nominal and real GDP from last year.
B) increased nominal GDP from last year,but real GDP was unaffected.
C) increased real GDP from last year,but nominal GDP was unaffected.
D) did not change either nominal or real GDP from last year.

Question 16

Why are economists concerned about inflation?

A) Inflation generally causes unemployment rates to rise.
B) Real GDP is necessarily falling when there is inflation.
C) Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
D) Inflation increases the value of peoples' saving and encourages overspending on goods and services.

Question 17

Higher rates of unemployment are linked with:

A) greater political stability because the employed tend to be more politically active.
B) higher crime rates as the unemployed seek to replace lost income.
C) lower rates of heart disease as the unemployed have eliminated job stress.
D) improvements in overall health as the unemployed have more leisure time to be physically active.

Question 18

The two topics of primary concern in macroeconomics are:

A) short-run fluctuations in output and employment and long-run economic growth.
B) unemployment and wage rates in labor markets.
C) monopoly power of corporations and small business profitability.
D) oil prices and housing markets.

Question 19

Modern economic growth refers to countries that have experienced an increase in:

A) real GDP over time.
B) nominal GDP over time.
C) real output spread evenly across all sectors of the economy.
D) real output per person.

Question 20

Macroeconomics is mostly focused on:

A) the individual markets within an economy.
B) only the largest industries in the economy.
C) the economy as a whole.
D) why specific businesses fail.

Question 21

Suppose that Techno TV produces LCD televisions.At a price of $2,000 per television,Techno determines that its optimal output is 3,000 television sets per week.If prices are sticky and fears of a recession reduce demand for LCD televisions,we would expect Techno to:

A) reduce output in the long run.
B) reduce output in the short run.
C) raise prices in the short run to compensate for lost revenue.
D) lower prices in the short run to offset the reduced demand.

Question 22

When economists refer to "investment," they are describing a situation where:

A) people are buying shares of corporate stock.
B) resources are devoted to increasing future output.
C) money is saved in a bank account.
D) financial assets are purchased in the hope of a monetary gain.

Question 23

Increased present saving:

A) comes at the expense of reduced current investment.
B) comes at the expense of reduced current consumption.
C) can only occur if the government increases the amount of money in circulation.
D) is only possible if the economy is experiencing positive growth in real GDP.

Question 24

Which of the following is an example of a supply shock?

A) A surge in consumer optimism prompts increased buying of goods and services.
B) A surprise tax rebate from the government gives people more money to spend.
C) A dramatic increase in energy prices increases production costs for firms in the economy.
D) Government increases spending on education.

Question 25

Which of the following is used to measure directly the average standard of living across countries?

A) Real GDP.
B) Nominal GDP.
C) Purchasing power parity.
D) GDP per person.

Question 26

Supply shocks:

A) occur more frequently than demand shocks.
B) usually result from fiscal and monetary policy changes.
C) occur when sellers face unexpected changes in the availability and/or prices of key inputs.
D) have been responsible for most of the recessions in the United States since World War II.

Question 27

Which of the following would an economist consider to be investment?

A) Boeing building a new factory.
B) Oprah buying a $10 million home from a fellow celebrity.
C) A stockbroker buying 10,000 shares of Starbucks stock.
D) All of these.

Question 28

When demand shocks lead to recessions,it is mainly due to:

A) price inflexibility.
B) the inability of government policy to affect demand.
C) unexpected changes in the supply of goods and services.
D) government regulations that prevent firms from adjusting output in response to the shocks.

Question 29

Demand shocks:

A) refer to unexpected changes in the desires of households and businesses to buy goods and services.
B) refer to unexpected changes in the ability of firms to produce and sell goods and services.
C) always have a negative impact on the economy.
D) cause fewer short-run fluctuations than supply shocks.

Question 30

Which of the following results from firms holding inventories?

A) The economy is much more susceptible to business cycle fluctuations.
B) Demand shocks occur with greater frequency.
C) Demand shocks occur less frequently.
D) Firms can maintain production levels and adjust inventories in response to demand shocks.

Question 31

If an economy wants to increase its current level of investment,it must:

A) sacrifice future consumption.
B) print more money.
C) offer more stocks and bonds to financial investors.
D) sacrifice current consumption.

Question 32

Shocks to the economy occur:

A) when expectations are unmet.
B) whenever the price level changes.
C) whenever government implements fiscal or monetary policy.
D) because most economic behavior is unpredictable.

Question 33

Shocks to the economy occur when:

A) stock prices rise by more than 10 percent per year.
B) government takes a more active role in the economy.
C) prices are flexible.
D) actual economic events do not match what people expected.

Question 34

Which of the following countries would economists say definitively is achieving modern economic growth?

A) Zimbabwe experiences a 5.6 percent increase in nominal GDP.
B) South Africa experiences a 4.2 percent increase in real GDP.
C) Ghana experiences a 3.6 percent increase in nominal GDP per person.
D) Nigeria experiences a 2.7 percent increase in real GDP per person.

Question 35

For an economy to increase investment,it must:

A) increase saving.
B) increase present consumption.
C) buy more stocks and bonds.
D) increase nominal GDP.

Question 36

Savings are generated whenever:

A) prices are rising.
B) current spending exceeds current income.
C) current income exceeds current spending.
D) real GDP exceeds nominal GDP.

Question 37

Kara's Kittens typically produces and sells at its optimal (lowest per-unit cost)level of 30 scratching posts per week.Kara's also maintains an inventory of 20 scratching posts.If prices are sticky and there is a positive demand shock this week resulting in demand for 40 scratching posts,we would expect Kara's to:

A) sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs.
B) permanently expand production to 40 scratching posts per week.
C) raise prices on scratching posts.
D) introduce a new line of scratching posts.

Question 38

Banks and other financial institutions:

A) are the primary investors in equipment,factories,and other capital goods.
B) lack relevance in the modern economy because they focus primarily on financial assets and generally do not engage in real investment activity.
C) promote economic growth by helping to direct household saving to businesses that want to invest.
D) often hinder economic activity by creating barriers between household savers and firms wanting to invest in capital goods.

Question 39

Which of the following is an example of a demand shock?

A) Hurricane Harry knocks out oil drilling platforms in the Gulf of Mexico.
B) Consumers become worried about job loss and buy fewer goods and services than expected.
C) Floods in the Midwest destroy crops.
D) The federal government unexpectedly requires automobile producers to raise fuel efficiency standards.

Question 40

In situations of sticky prices and negative demand shocks,we would expect firms to:

A) deplete inventories before increasing production.
B) reduce production before building up inventories.
C) build up inventories before reducing production.
D) lower prices before reducing production or building up inventories.

Question 41

Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?

A) Firms respond to shorter-term demand shocks by adjusting production levels;more persistent changes in demand result in changes in inventories.
B) Firms respond to shorter-term demand shocks by adjusting inventories;more persistent changes in demand result in changes in production levels.
C) Firms are reluctant to adjust inventory levels because the costs are higher than changing the quantity of output produced.
D) Firms are quick to let go of workers when negative demand shocks occur.

Question 42

The business cycle is primarily concerned with changes in the level of overall prices over time.

Question 43

Which of the following statements best describes price flexibility in the economy?

A) Prices tend to be sticky in the short run and stuck in the long run.
B) Prices tend to be just as sticky in the short run as in the long run.
C) Prices tend to be sticky in the short run but become more flexible over time.
D) Prices tend to be flexible in the short run but become more sticky over time.

Question 44

For which of the following goods and services are prices most sticky?

A) Taxi fares.
B) Beer.
C) Coin-operated laundry machines.
D) Airline tickets.

Question 45

(Consider This)In 2008 and 2009,the United States experienced what has come to be known as the:

A) Great Depression.
B) Great Recession.
C) Great Expansion.
D) Great Stagnation.

Question 46

Prices for airline tickets change on average about once per month.This would suggest that airline ticket prices are:

A) stuck.
B) determined in a highly competitive market.
C) relatively sticky.
D) relatively flexible.

Question 47

(Consider This)Which of the following is an example of economic investment?

A) Volvo buys an old factory building from General Motors.
B) Nike buys a new machine that increases shoe production.
C) Bill Gates buys shares of stock in IBM.
D) Warren Buffet buys U.S.savings bonds.

Question 48

Which of the following best explains why prices tend to be inflexible even when demand changes?

A) Government regulations limit the number of times a firm can change prices in a year.
B) In most industries the profit-maximizing price does not change even when demand changes.
C) Production costs do not tend to change when a firm varies its level of output.
D) Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

Question 49

For which of the following goods are services are prices least sticky?

A) Taxi fares.
B) Haircuts.
C) Microwave ovens.
D) Airline tickets.

Question 50

Prices are particularly sticky:

A) when there are widespread macroeconomic and monetary disturbances in the economy.
B) in the long run.
C) when markets are highly competitive.
D) when the economy is at full employment and positive demand shocks are occurring.

Question 51

The overall behavior of the economy:

A) is remarkably stable over time.
B) differs over time as prices become increasingly flexible in the months and years following a shock.
C) differs over time as prices become increasingly sticky in the months and years following a shock.
D) is easily controlled and stabilized by government policy.

Question 52

Prices tend to be sticky because:

A) firms are worried that frequent price changes would annoy consumers.
B) most firms have agreements with each other to fix prices at profit-maximizing levels.
C) government controls most prices.
D) foreign competition discourages domestic firms from price changes.

Question 53

(Last Word)Which of the following explanations argues that the Great Recession resulted from asset-price bubbles caused by euphoria and debt-fueled speculation?

A) Minsky explanation.
B) Austrian explanation.
C) Stimulus explanation.
D) Structural explanation.

Question 54

(Last Word)According to the Austrian School,the best explanation for what caused the Great Recession was that:

A) tax rates that were too high discouraged spending.
B) government spending that was too low created insufficient public capital.
C) interest rates that were too low induced excessive borrowing.
D) interest rates that were too high discouraged firm borrowing and investment.

Question 55

The average number of months between price changes for gasoline is:

A) 0.2.
B) 0.6.
C) 1.0.
D) 1.8.

Question 56

(Consider This)The U.S.recession that occurred in 2008 and 2009 represented a case where:

A) government policy intervention effectively offset the negative demand shock and minimized the effects on output and employment.
B) prices were somewhat flexible,so the impact of the demand shock was felt about the same in terms of price and output changes.
C) prices were relatively flexible,minimizing the impact on total output and employment.
D) prices were relatively sticky and most of the impact was on total output.

Question 57

(Consider This)Suppose that Toyota buys a factory previous owned by Chrysler Motors.Economists would:

A) consider this to be an economic investment.
B) not consider this to be an economic investment because Toyota is less efficient than Chrysler.
C) not consider this to be an economic investment because no new capital is created through the purchase.
D) not consider this to be an economic investment because there is no way to know how it will affect stock holdings in the two companies.

Question 58

(Last Word)Advocates for a structural solution to the Great Recession argued that:

A) government should cut taxes across the board to stimulate demand for goods and services.
B) firms should be allowed to go bankrupt,allowing the economy to correct for resource misallocations.
C) firms in financial distress should be taken over by the government and run for the public good.
D) massive public works projects should be implemented to produce public capital,keep people employed,and help workers maintain job skills.

Question 59

(Consider This)What is the difference between financial investment and economic investment?

A) There is no difference between the two.
B) Financial investment refers to the purchase of financial assets only;economic investment refers to the purchase of any new or used capital goods.
C) Economic investment is adjusted for inflation;financial investment is not.
D) Financial investment refers to the purchase of assets for financial gain;economic investment refers to the purchase of newly created capital goods.

Question 60

A sometimes short,sometimes extended period of declining output and living standards is referred to as a recession.

Question 61

Any person without a job is considered to be unemployed.

Question 62

Real GDP measures the change in the price level over time.

Question 63

From 1995 until the start of the recession in 2007,the U.S.economy grew at the same rate as the economy of Japan.

Question 64

Economists refer to purchases of stocks and bonds as "investment."

Question 65

Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.

Question 66

In order to achieve modern economic growth,a nation's output must grow faster than its population.

Question 67

Banks and other financial institutions provide the link between savers and economic investors in the macroeconomy.

Question 68

Modern economic growth refers to any situation where a nation's output increases.

Question 69

A nation that realizes a 3 percent increase in its output per person is experiencing modern economic growth.

Question 70

Increasing investment in the present means forgoing future consumption.

Question 71

The business cycle reflects both short-run fluctuations in output and long-run economic growth.

Question 72

A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption.

Question 73

Nominal GDP measures a nation's output in current year prices.

Question 74

In 2008-2009,the U.S.economy lost 8 million jobs and saw the unemployment rate rise from 4.6 percent to as high as 10.1 percent.

Question 75

Economists and policymakers are generally more concerned about nominal GDP than real GDP.

Question 76

China's GDP per person in 2011 was about one-third of U.S.GDP per person in the same year.

Question 77

Economists believe that expectations have little impact on macroeconomic outcomes.

Question 78

Inflation reduces the purchasing power of a person's income and savings.

Question 79

The amount of investment in an economy is ultimately limited by the amount of savings in that economy.

Question 80

Output per person has grown steadily since the beginning of the Roman Empire.