Chapter 1 Multiple Choice

A period of falling prices is called: a. deflation. b. inflation. c. a depression. d. a recession.

a

A severe recession is called a(n): a. depression. b. deflation. c. exogenous event. d. market-clearing assumption.

a

All of the following are types of macroeconomics data except the: a. price of an IBM computer. b. growth rate of real GDP. c. inflation rate. d. unemployment rate.

a

Exogenous variables are: a. fixed at the moment they enter the model. b. determined within the model. c. the outputs of the model. d. explained by the model.

a

In a simple graphical model of the supply and demand for pizza with the price of pizza measured vertically and the quantity of pizza measured horizontally: a. the supply curve slopes upward and to the right. b. the demand curve slopes upward and to the right. c. the supply curve slopes downward and to the right. d. at the equilibrium price, the supply of pizza exceeds the demand for pizza.

a

Real GDP ______ over time and the growth rate of real GDP ______. a. grows; fluctuates b. is steady; is steady c. grows; is steady d. is steady; fluctuates

a

The ability of macroeconomists to predict the future course of economic events: a. is no better than the meteorologist's ability to predict the next month's weather. b. is much better than the meteorologist's ability to predict the next month's weather. c. has gotten worse over time. d. is less precise than it was in the 1920s.

a

The inflation rate in the United States averaged about: a. zero between 1900 and 1950. b. zero between 1950 and 2000. c. 10 percent between 1900 and 1950. d. 10 percent between 1950 and 2000.

a

Two striking features of a graph of U.S. real GDP per capita over the twentieth century are the: a. overall upward trend interrupted by a large downturn in the 1930s. b. nearly constant level with a large downturn in the 1930s. c. downward trend in the first half of the century followed by the upward trend in the second half. d. constant level in the first half of the century followed by the upward trend in the second half.

a

Variables that a model tries to explain are called: a. endogenous. b. exogenous. c. market clearing. d. fixed.

a

1. Macroeconomics does not try to answer the question of: a. why do some countries experience rapid growth. b. what is the rate of return on education. c. why do some countries have high rates of inflation. d. what causes recessions and depressions.

b

30. Variables that a model takes as given are called: a. endogenous. b. exogenous. c. market clearing. d. macroeconomic.

b

A graph of the rate of inflation in the United States over the twentieth century shows: a. an overall upward trend interrupted by a large downturn in the 1930s. b. some periods of deflation in the first half of the century, but only positive rates of inflation in the second half of the century. c. a relatively steady, positive level throughout the century except for deflation in the 1930s. d. a constant rate of inflation in the first half of the century followed by an upward trend in the second half.

b

A measure of how fast prices are rising is called the: a. growth rate of real GDP. b. inflation rate. c. unemployment rate. d. market-clearing rate.

b

All of the following statements about sticky prices are true except: a. in the short run, some wages and prices are sticky. b. the sticky-price model describes the equilibrium toward which the economy slowly gravitates. c. for studying year-to-year fluctuations, most macroeconomists believe that price stickiness is a better assumption than is price flexibility. d. magazine publishers tend to change their newsstand prices only every three or four years.

b

During the period between 1900 and 2000, the unemployment rate in the United States was highest in the: a. 1920s. b. 1930s. c. 1970s. d. 1980s.

b

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

b

10. The total income of everyone in the economy adjusted for the level of prices is called: a. a recession. b. an inflation. c. real GDP. d. a business fluctuation.

c

20. Deflation occurs when: a. real GDP decreases. b. the unemployment rate decreases. c. prices fall. d. prices increase, but at a slower rate.

c

A graph of the U.S. unemployment rate over the twentieth century shows: a. an overall upward trend in the unemployment rate interrupted by a large upturn in the 1930s. b. an overall downward trend in the unemployment rate interrupted by a large upturn in the 1930s. c. rates of unemployment always greater than zero with substantial variations from year to year. d. alternating periods of positive and negative rates of unemployment.

c

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

c

All of the following are important macroeconomic variables except: a. real GDP. b. the unemployment rate. c. the marginal rate of substitution. d. the inflation rate.

c

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

c

Macroeconomics is the study of the: a. activities of individual units of the economy. b. decision making by households and firms. c. economy as a whole. d. interaction of firms and households in the marketplace.

c

Macroeconomists cannot conduct controlled experiments, such as testing various tax and expenditure policies, because: a. it is against the law. b. they tried it once and it did not work. c. they must make use of the data history gives them. d. economists already know the answers that would come out of the experiments.

c

Recessions are periods when real GDP: a. increases slowly. b. increases rapidly. c. decreases mildly. d. decreases severely.

c

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur: a. from minute to minute. b. from year to year. c. in the long run. d. in the short run.

c

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

c

The unemployment rate: a. was zero during the 1990s in the United States. b. was zero on average between 1900 and 1950 in the United States. c. has never been zero in the United States. d. is usually zero when the economy is not in a recession or depression.

c

Which statement below best illustrates the "art," rather than the "science" of macroeconomics? a. Macroeconomic data provides the motivation for new macroeconomic theory. b. Macroeconomic relationships can be expressed using symbols and equations. c. Macroeconomists must determine which simplifying assumptions give misleading results. d. Graphs and charts can be used to illustrate the history of macroeconomic variables.

c

41. The assumption of continuous market clearing means that: a. sellers can sell all that they want at the going price. b. buyers can buy all that they want at the going price. c. in any given month, buyers can buy all that they want and sellers can sell all that they want at the going price. d. at any given instant, buyers can buy all that they want and sellers can sell all that they want at the going price.

d

Compared with a recession, real GDP during a depression: a. increases more rapidly. b. increases at approximately the same rate. c. decreases at approximately the same rate. d. decreases more severely.

d

In a simple model of the supply and demand for pizza, the endogenous variables are: a. the price of pizza and the price of cheese. b. aggregate income and the quantity of pizza sold. c. aggregate income and the price of cheese. d. the price of pizza and the quantity of pizza sold.

d

In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza ______ and the quantity purchased ______. a. increases; increases b. decreases; increases c. decreases; decreases d. increases; decreases

d

In an economic model: a. exogenous variables and endogenous variables are both fixed when they enter the model. b. endogenous variables and exogenous variables are both determined within the model. c. endogenous variables affect exogenous variables. d. exogenous variables affect endogenous variables.

d

In the U.S. economy today, real GDP per person, compared with its level in 1900, is about: a. 50 percent higher. b. twice as high. c. three times as high. d. eight times as high.

d

In the relationship expressed in functional form, Y = G(K, L), Y stands for real GDP, K stands for the amount of capital in the economy, and L stands for the amount of labor in the economy. In this case G( ): a. is the growth rate of real GDP when the amount of capital and labor in the economy is fixed. b. indicates that the variables inside the parentheses are endogenous variables in the model. c. is the symbol that stands for government input into the production process. d. is the function telling how the variables in the parentheses determine real GDP.

d

The study of the economy as a whole is called: a. household economics. b. business economics. c. microeconomics. d. macroeconomics.

d

Which of the combinations listed is not a U.S. president and an important economic issue of his administration?a. President Carter, inflation b. President Reagan, budget deficits c. President G.H.W. Bush, budget deficits d. President Clinton, inflation

d

Which of the following statements about economic models is true? a. There is only one correct economic model. b. All economic models are based on the same assumptions. c. The purpose of economic models is to show how endogenous variables affect exogenous variables. d. Economists use different models to address different questions.

d

Important characteristics of macroeconomic models include all of the following except: a. simplifying assumptions. b. functional relationships based on controlled experiments. c. endogenous and exogenous variables. d. implicit or explicit consistency with microeconomic foundations.

b

In a simple model of the supply and demand for pizza, when aggregate income increases, the price of pizza ______ and the quantity purchased ______. a. increases; decreases b. increases; increases c. decreases; increases d. decreases; decreases

b

Macroeconomic models are used to explain how ______ variables influence ______ variables. a. endogenous; exogenous b. exogenous; endogenous c. microeconomic; macroeconomic d. macroeconomic; microeconomic

b