MACRO: CHAPTER 6- AN INTRODUCTION TO MARCOECONOMICS

Which of the following will lead to better living standards and economic growth?

Savings Economic investment

Goods that are produced in a particular period but not sold in that period:

end up in inventories

Output that has been produced but not yet sold is called ___.

inventory

Before the 1700s, output per person did not increase because the ___ increased at a rate similar to that of the output of goods and services.

population

True or false: A fear of "price wars" is one factor that increases short-run price stickiness.

true

The short run in macroeconomics is the period in which:

input prices do not change at all or very much

Companies are able to keep outputs of a product at an optimal level, even when the level of demand rises and falls, by maintaining a(n) ___ of the product.

inventory

If the demand for a good becomes unexpectedly low, the _____ of the good will increase.

inventory

Firms try to predict future trends so that they can ___.

invest only in projects that are likely to succeed

Actions by businesses today that incur current costs and provide benefits in the future are called:

investment

Decisions about savings and investments are complicated because the amount of economic ______ is ultimately limited by the amount of ______.

investment; savings

If demand is unexpectedly high for a prolonged period of time, what will happen to unemployment?

it will fall

Economic investment represents spending on ___.

newly created capital goods

Financial intermediaries are ___.

organizations that receive funds from savers and then channel those funds to investors

Financial intermediaries are ______.

organizations that receive funds from savers and then channel those funds to investors

In the short run, as a result of inflexible prices, economies are forced to respond to demand shocks primarily through changes in ______ and ______.

output; employment

Expectations have a large effect on economic growth, since increased ___ (one word) leads to less current investment and, subsequently, less future consumption.

pessimism

In the short-run, the ___ of many goods and services are sticky or inflexible and unable to rapidly change.

price

In the short run:

prices are sticky

If prices are fully flexible and can adjust freely to unexpected changes in demand, then the economy will

produce its optimal capacity because the quantity demanded will equal the quantity supplied.

The biggest problem with inflation is that ______.

real income may fall as nominal wages do not keep up with price changes

Suppose the demand for cars rises and prices are flexible. Firms that produce cars will experience:

rising prices, an increase in production, and an increase in employment

In simple terms, any income that is not consumed is ___.

saved

In simple terms, any income that is not consumed is ____.

saved

A well-functioning financial system helps to promote ______.

savings

One of the ways that government can raise living standards over time is by encouraging ______.

savings and investment

A situation in which firms expect one thing to happen, but then something else happens is commonly referred to in economics as a ___.

shock

An unanticipated event that changes the demand or supply of goods and services either positively or negatively is called an economic ___.

shock

After a demand shock, prices are completely inflexible, or stuck, only in the very ___ run.

short

The prices of many goods are ___, or slow to change.

sticky

Prices that do not adjust rapidly to maintain equality between quantity supplied and quantity demanded are known as _______.

sticky prices

Which of the following helps to explain how unexpected changes in demand lead to fluctuations in GDP and employment?

sticky prices

Prices that are inflexible in the very short run are referred to as ______; while prices in the long run are referred to as ______.

sticky; flexible

A ___ shock refers to unexpected changes in the supply of goods and services.

supply

Unexpected changes that affect the production of goods and services are called

supply shocks

___ shocks are unexpected changes in the consumption of goods and services. ___ shocks are unexpected changes in the production of goods and services.

supply; demand

Because companies make major efforts to predict trends to decide how to invest in their business, macroeconomics ___.

takes into account expectations about the future

Flexible prices are prices:

that adjust feely through the forces of supply and demand

The effect of inflexible prices is:

the economy is forced to respond in the short run through changes in output and employment rather than changes in prices

Before the beginning of the Industrial Revolution, total output of the Roman and Chinese economies increased at ___ their population growth.

the same rate as

Decisions about savings and investment are complicated because:

there must be a trade-off between current consumption and future consumption

A person who cannot get a job despite being willing to work and actively seeking work is considered ___.

unemployed

A supply shock is an:

unexpected change in the production of goods and services.

Rising inventories usually indicate an ______.

unexpectedly slowing economy

Which of the following are factors that increase short-run price stickiness?

-Firms' fear of price wars -Consumers preferring stable prices

Which are the characteristics of a well-functioning financial system?

-It encourages saving. -It makes the most productive possible investments.

What are the reasons that the Industrial Revolution is important to modern economic growth---that is, an increase in output per person?

-The emphasis on research and development -The introduction of automation -The growth of factory production

Which factors associated with the Industrial Revolution supported a new period and sustained economic growth?

-The use of automation -An emphasis on research and development -Constantly improving technologies

Which of the following are true of the prices of many goods and services in the short run?

-They are slow to change. -They are inflexible. -They are "sticky."

What are the two primary topics studied by macroeconomics?

-long-run economic growth -short-run fluctuations in output and employment

Why do economists collect and analyze economic data?

-to understand how economies operate -to learn how to improve the performance of economies

Which of the following are the main statistics used by economists to asses the health of the economy?

-unemployment -inflation -real gross domestic product

___ about the future are particularly important for firms to consider.

Expectations

True or false: Flexible prices help to explain how unexpected changes in demand lead to the fluctuations in GDP and employment that occur over the course of the business cycle.

False

___ prices react within seconds to changing supply and demand while sticky prices sometimes take months to change.

Flexible

___ are the principal source of savings

Households

What is savings?

Income minus consumption

The ______ Revolution was important to modern economic growth.

Industrial

What event began the rapid and sustained economic growth that continues as a modern phenomenon?

Industrial Revolution

___ prices are prices and wages that change very little in the short run.

Inflexible

Which one of the following is the best reason real GDP is an important measurement for an economy?

It is a monetary measure that allows for comparison of a nation's output across time.

___ GDP or adjusted GDP is an important measure of output because it allows valid comparisons between different years.

Real

Since the prices of many goods and services take months to change, what type of prices are these?

Sticky prices

Which of the following best defines unemployment?

The state of a person who cannot get a job but is actively seeking work

Suppose that demand for hot dogs decreases and prices are flexible. Firms that produce hot dogs will experience

a fall in prices, which will induce them to decrease production and reduce the number of workers.

If a country has a growth rate of approximately 2% compounded each year, it will take ______ for its output to double.

about 35 years

Business cycle fluctuations typically arise because:

actual demand ends up being lower or higher than expected

Who are the main economic investors?

businesses

The term "economic investment" refers to ___.

creating capital goods that have costs today but provide benefits in the future

Macroeconomics deals with the short-run variations in economic growth that make up the business ___.

cycle

A ___(one word) shock refers to unexpected changes in the demand for goods and services.

demand

Constantly rising inventories occur when _____ is/are unexpectedly low.

demand

Most short-run fluctuations are the result of ___ shocks

demand

Most short-run fluctuations are the result of what type of shocks?

demand

An event that unexpectedly shifts the demand curve is called a(n):

demand curve

To understand how economies operate and how their performance can be improved, economists collect and analyze ___ data.

economic

When demand is unexpectedly high, inventories will _____ as the quantity demanded _______ the factory's optimal output.

fall; exceeds

Price stickiness moderates over time because:

firms that choose a fixed-price policy in the short run do not have to stick with that policy in the long run

If output prices were fully ___, output would remain constant and unemployment levels would not change.

flexible

Prices that adjust very quickly are:

flexible prices

As a result of shocks and things not going to plan there are

fluctuations in output and employment.

If demand falls for many goods for an extended period of time, firms will be forced to cut production as inventories ______; GDP will ______; and unemployment will ______.

grow; fall; rise

Many firms that do not change their prices immediately after a change in demand will eventually do so primarily to ______.

help equalize supply with demand

The savings of ___ make their way into the banking system and become the investment funds of ___.

households; firms

Inventories are useful because they can ______.

increase or decrease in periods when demand is unexpectedly high or low

If a family's income does not increase as fast as the prices of the goods and services that it consumes, its standard of living will decline. This scenario describes the problems with ______.

inflation

Real GDP, unemployment, and ___ are the main statistics used by economists to assess the health of the economy.

inflation

Because output prices are ___, the economy is forced to respond in the short run to demand shocks primarily through changes in output and employment.

inflexible

What is the growth rate that will result in a doubling of the standard of living in 35 years?

2%