Chapter 21: Macroeconomics: The Big Picture

expansion

In the last three quarters of the year, a country's GDP (gross domestic product) level is measured at $12 trillion, $12.5 trillion, and $13.2 trillion. Based on this data, the economy is in the _____ phase of the business cycle.

increases; decreases

In the short run, inflation _____ during expansions in the business cycle and inflation _____ during contractions in the business cycle.

A general and ongoing rise in the average level of prices in an economy.

Select the correct definition of inflation.

L to R 1st point - expansion 2nd point - peak 3rd point- contraction 4th point- trough 5th point - expansion 6th point - peak

The graph charts the business cycle for a hypothetical economy over time. Use the terms to label all six points on the graph.

Fiscal and monetary policy may be helpful in reducing short term economic fluctuations in the economy caused by adverse economic events.

Below are four statements about microeconomics and macroeconomics. Which one is true? Please choose the correct answer from the following choices, and then select the submit answer button.

decreases.

During recessions, inflation usually:

short run in nature.

Economic recessions and economic expansions are:

Growth of the economy over several decades.

Economists use the term long-term growth to indicate:

Taxes and spending

Fiscal policy attempts to affect the level of overall spending by making changes in:

Is an increase in the overall level of prices.

Inflation:

Decrease in the percentage of Americans with health insurance.

In the United States, recessions are typically associated with a :

Limit the volatility of the business cycle by reducing the size of both recessions and booms

What is the main goal of policymakers in regard to the business cycle?

Real GDP.

When economists measure economic growth, they often use:

Sustained upward trend in the economy's overall output per person, which generates higher incomes and higher standard of living for its members

Long-run growth is a :

tries to explain increases in economic living standards over time.

Macroeconomics, unlike microeconomics:

What determines the level of pay received by the average high school biology teacher?

Which is NOT a question of macroeconomics?

How does the aggregate price level affect overall consumer spending?

Which question is the MOST appropriate to the study of MACROECONOMICS?

-Workers who lose their jobs, along with their families -Workers who keep their jobs but experience lower or stagnant wages -Corporations that see lower profits

Who in the economy is hurt during a recession? How?

a.) Inflation b.) Price stability c.) Deflation d.) Linda's money gained the most value.

a.) Peter is a compulsive gamer. b.) Melissa decides to start her own personal library c.) Linda postpones her wedding d.) Out of these individuals, whose money gained the most value during their time period?

a.) firms and individuals b.) unemployment rate. c.) An increase in real GDP per capita

a.) Recessions typically hurt___. b.) The most common indicator in the labor market is___. c.) Since 1900, what has been the long term pattern of growth in the United States?

a.) Industrial output, Employment, Inflation b.) They rise. c.) They fall.

a.) What three measures of the economy tend to move together during the business cycle? b.) Which way do they move during an upturn? c.) During a downturn?

a.) Fiscal policy. b.) Monetary policy

a.) When the government changes either its spending or tax policy to pursue economic objectives, it has changed its____. b.) Changing the amount of money in circulation to pursue economic objectives changes the___.

Setting levels of taxation and/or government spending.

Fiscal policy entails:

Peak

For the past several months, per capita output has increased at a slower rate and slower rate. Over the same period, the unemployment rate has been failing, but it appears that both have leveled off. Where in the business cycle is the economy?

Yes because the income did not increase as much as tuition at either private or public colleges and universities

Have these tuition increases made it more difficult for the average student to afford college tuition?

Faster than

If an economy's ability to produce goods and services grows _____ the population, then this economy's standard of living will increase over time

TRUE

The additional profit earned by Microsoft Corporation by marketing and using proprietary method of coding software is a microeconomic issue.

Deflation

The annual percentage change in the aggregate price level is negative when there is:

a trade surplus.

A country's investment spending during the current year is equal to $120 million, while its level of saving for the current year is $150 million. Given this information, this country will MOST likely have:

Inflation

A rising overall level of prices is called:

increase over time.

If an economy's ability to produce goods and services grows faster than its population, then this economy's standard of living will MOST likely:

unemployment increases, while aggregate output and aggregate income decrease.

In a recession:

The government can help a depressed economy via fiscal and monetary policies.

Keynesian economics promotes ideas that:

Output

Long-run economic growth is the sustained upward trend in the economy's _____ over time.

Was self-regulating; Decreased taxes and/or supported decreased interest rates.

Prior to The Great Depression, most economists believed that the economy____. Had we known at time of the event above what we know now about the macroeconomy, what course of action might the federal government have taken?

The whole is greater than the sum of its parts.

The actions of individuals in an economy can compound upon one another, leading to outcomes that magnify the actions of individuals. This can be summarized using which phrase?

Affects its trade balances.

The relation between a country's level of saving and investment:

Fall ; Rise

When an economy is expanding, unemployment tends to ___ and overall prices tend to ___.

An increase in economic growth

Which of the events is likely to occur when the business cycle is in a period of expansion?

An increase in unemployment

Which of the events is likely to occur when the business cycle is in a period of recession (contraction)?

comparative advantage

Which of the four options best represents specialization and its relationship with trade?

Inadequate spending.

According to Keynesian economics, economic downturns are caused by

decisions about saving and investment spending in the country.

According to the text, whether a country runs a trade deficit or a trade surplus depends on:

Begins to decrease

After the trough of the business cycle, the unemployment rate:

Microeconomics

An attempt to understand the reasons that the football coach's salary is greater than the history professor's salary at Western University is an example of a question of:

Trades goods and services with other countries.

An open economy:

a.) It is inconsistent with Keynes's conclusion that government intervention in the economy was necessary to maintain full employment. b.) The enormity of the GP demonstrated that the economy was not necessarily self-regulating and that gov't intervention would at times be necessary. c.) The GR may have approached the severity of the GD.

Before the Great Depression, the conventional wisdom among economists and policy makers was that the economy is largely self-regulating. a. Is this view consistent or inconsistent with Keynesian economics? Explain. b. What effect did the Great Depression have on conventional wisdom? c. Contrast the response of policy makers during the 2007-2009 recession to the actions of policy makers during the Great Depression. What would have been the likely outcome of the 2007-2009 recession if policy makers had responded in the same fashion as policy makers during the Great Depression?

The economy is actually harmed, since there is a sharp decease in consumer spending. The paradox of thrift.

Suppose a report on CNN says that the United States is heading into a recession. As a result, Bert's family, as well as many other like-minded families and individuals, reduces their spending and instead fills up their savings accounts for potential hard times. As a result of this behavior,____. In macroeconomics, this result is known as ___.

acting virtuously at the microeconomics level by spending less may result in an adverse macroeconomic outcome, because this behavior may result in a lower level of aggregate economic production.

The paradox of thrift illustrates that:

The economy is experiencing inflation.

The statement "Gas prices have not changed, food prices are up 5%, and housing prices are up 10%" describes a situation in which:

Business cycle

The switching between recessions and expansions is known as the:

Mexico has a trade surplus, has an open economy Honduras has a trade deficit, has an open economy Belize has a closed economy Panama has an open economy

The table shows hypothetical trade data for four countries. Determine if each nation has an open economy, a closed economy, a trade surplus, a trade deficit, or some combination of these characteristics.

Inflation

The topics studied in macroeconomics include:

Malthus did not know that technological changes would enhance productivity growth beyond any previous levels.

Why didn't Malthus's description apply to the world after 1800?

a.) Japan b.) Argentina c.) Argentina d.) No country experienced deflation

a.) Where was it cheapest to buy a Big Mac in U.S. dollars in 2007? b.) Where was it cheapest to buy a Big Mac in U.S. dollars in 2016? c.) Using the increase in the local currency price of the Big Mac in each country to measure the percent change in the overall price level from 2007 to 2016, which nation experienced the most inflation? d.) Did any of the nations experience deflation?

a.) Business-cycle expansions produce growth of real GDP, while the long-run growth rate determine whether the living standard increases or not. b.) Living standards on average can only rise if GDP grows faster than population.

a.) Why do we consider a business-cycle expansion different from long-run economic growth? b.) Why do we care about the value of the long-run growth rate of real GDP relative to the value of the growth rate of the population?

Micro -How do they choose to market? -How much will they charge for the game? -How much will they pay the developers of the game? -Is the company able to sell all the games it produces or do they need to produce more? Macro -Have the millions of dollars that people have spent on video games worldwide affect the GDP in their respective countries? -Has the country's unemployment rate changed as the company hired a huge team of workers to develop the game? -How much less economic output occurs countrywide because workers call in sick to stay home and play games?

Suppose that the video game company, Ultravision, releases a new game called "Call of Obligation: Modern Combat 3." This can be analyzed using tools from both microeconomics and macroeconomics. Classify the items according to whether they are an application in microeconomics or macroeconomics.

Macroeconomics: -What will happen to spending by consumers when the economy enters a downturn? -What will happen to U.S. exports as the dollar becomes less expensive in terms of other currencies? -What is the relationship between a nation's unemployment rate and its inflation rate? Microeconomics: -How will Ms. Martin's tips change when a larger manufacturing plant near the restaurant where she works closes? -How will the price of oranges change when a late frost damages Florida's orange groves? -How will wages at a manufacturing plant change when its workforce is unionized?

Which of the following questions are relevant to the study of macroeconomics, and which are relevant to the study of microeconomics?

In an economic expansion, the unemployment rate decreases while aggregate output increases.

Which statement is true regarding the business cycle?

What determines a University's cost of offering a new course?

Which would NOT be classified as a MACROECONOMIC question?

a.) A decrease in employment. b.) National Bureau of Economic Research

a.) A graph of data on Based on the graph, a major characteristic of a recession is__. b.) Which of these agencies officially determines when the economy is experiencing a recession?

a.) He observed that booms as well as busts need to be managed to reduce volatile swings in the business cycle. b.) To reduce the magnitudes of booms and busts.

a.) How did Milton Friedman alter the consensus that had developed in the aftermath of the Great Depression on how the economy should be managed? b.) What is the current goal of policy makers in managing the economy?

a.) A panel of experts from the NBER asses several economic indicators. b.) Two consecutive quarters of contractions of GDP indicates a recession, and two consecutive quarters of growth indicates a recovery.

a.) How do economists in the United States determine when a recession begins and when it ends? b.) How do other countries determine whether or not a recession is occurring?