Ch 1 End of Chapter Questions

Prior to the Covid-19 pandemic, the United States experienced its longest expansion in history with the unemployment rate in February 2020 falling to: 0 percent. 3.5 percent. 5 percent. 7.5 percent.

3.5 percent.

The inflation rate is a measure of how fast: the total income of the economy is growing. unemployment in the economy is increasing. the general level of prices in the economy is rising. the number of jobs in the economy is expanding.

the general level of prices in the economy is rising.

Using a market-clearing model to analyze the labor market is _____ because wages usually change _____. realistic; frequently realistic; infrequently unrealistic; frequently unrealistic; infrequently

unrealistic; infrequently

Microeconomics is useful for understanding the decisions behind macroeconomic relationships. a misspelling of the word macroeconomics. a separate field unrelated to macroeconomics. the study of how macroeconomic data are constructed from individual observations.

useful for understanding the decisions behind macroeconomic relationships.

Which of these combinations is NOT a U.S. president and an important economic issue of his administration? President Carter; inflation President Reagan; budget deficits President G. H. W. Bush; budget deficits President Clinton; inflation

President Clinton; inflation

Economists use models because they are fun. clarify our thinking. show how exogenous variables influence endogenous variables.

are fun. clarify our thinking. show how exogenous variables influence endogenous variables.

Endogenous variables are: fixed at the moment they enter the model. determined within the model. the inputs of the model. from outside the model.

determined within the model.

How often does the price you pay for a haircut change? What does your answer imply about the usefulness of market-clearing models for analyzing the market for haircuts? even though haircut prices are slow to change, they consistently adjust toward the market‐clearing equilibrium price over time. haircut prices are slow to adjust in response to changes in production costs and shifting consumer demand, leading to "sticky prices." haircut prices adjust almost instantly in response to changes in production costs and shifts in consumer demand. haircut prices adjust almost instantly, and they move in an unpredictable manner that minimizes profits in the market.

even though haircut prices are slow to change, they consistently adjust toward the market‐clearing equilibrium price over time.

In an economic model: exogenous variables and endogenous variables are both determined outside the model. endogenous variables and exogenous variables are both determined within the model. endogenous variables affect exogenous variables. exogenous variables affect endogenous variables.

exogenous variables affect endogenous variables.

Recessions are periods of rising incomes. falling incomes. rising prices. falling prices.

falling incomes.

Market-clearing models assume that prices are ___________ and are best applied to understand the economy in the ______________

flexible long run

Important characteristics of macroeconomic models include all of these EXCEPT: simplifying assumptions. functional relationships based on randomized control trials. endogenous and exogenous variables. implicit or explicit consistency with microeconomic foundations.

functional relationships based on randomized control trials.

A typical trend during a recession is that: the unemployment rate falls. the popularity of the incumbent president rises. incomes fall. the inflation rate rises.

incomes fall.

In U.S. history, deflation is about as common as inflation. is rare now but has occurred at times in the past. has never occurred. is the norm.

is rare now but has occurred at times in the past.

The unemployment rate measures the fraction of the adult population that has stopped looking for work. labor force that has stopped looking for work. adult population that is not working. labor force that is not working.

labor force that is not working.

Macroeconomic models: assume that all wages and prices are sticky. assume that all wages and prices are flexible. make different assumptions to explain different aspects of the macroeconomy. focus primarily on the optimizing behavior of households and firms.

make different assumptions to explain different aspects of the macroeconomy.

An assumption of _____ is more plausible for studying the short-run behavior of the economy, while an assumption of _____ is more plausible for studying the long-run, equilibrium behavior of the economy. deflation; inflation inflation; deflation flexible prices; sticky prices sticky prices; flexible prices

sticky prices; flexible prices