Chapter 6 An Introduction to Macroeconomics A

Refer to the figure above. Assuming this market is representative of the economy as a whole, a negative demand shock will most likely:

increase unemployment.

The figure above depicts a situation where:

prices are flexible, but output is constant.

The figure above depicts a situation where:

prices are sticky, but output is flexible.

Banks and other financial institutions:

promote economic growth by helping to direct household saving to businesses that want to invest.

Refer to the figure above. Assuming this market is representative of the economy as a whole, a positive demand shock will:

raise the price level, but leave output unchanged.

Before the period of modern economic growth:

rates of population growth virtually matched rates of output growth.

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

real GDP, inflation, and unemployment.

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

real output per person.

Suppose that Techno TV produces LCD televisions. At a price of $2,000 per television, Techno determines that its optimal output is 3000 television sets per week. If prices are sticky and fears of a recession reduce demand for LCD televisions, we would expect Techno to:

reduce output in the short run.

Demand shocks:

refer to unexpected changes in the desires of households and businesses to buy goods and services.

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

resources are devoted to increasing future output.

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

sacrifice current consumption.

The two topics of primary concern in macroeconomics are:

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

Real GDP measures the:

value of final goods and services produced within the borders of a country, corrected for price changes.

Shocks to the economy occur:

when expectations are unmet.

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

A dramatic increase in energy prices increases production costs for firms in the economy.

Refer to the above figures. Which figure(s) represent a situation where prices are flexible?

A only.

The term "recession" describes a situation where:

output and living standards decline.

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

price inflexibility.

Increased present saving:

comes at the expense of reduced current consumption.

The business cycle depicts:

short-run fluctuations in output and employment.

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

Consumers become worried about job loss and buy fewer goods and services than expected.

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

Economies experience a positive growth trend over the long run, but experience significant variability in the short run.

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

GDP per person

Shocks to the economy occur when:

actual economic events do not match what people expected.

Savings are generated whenever:

current income exceeds current spending.

Refer to the figure above. Assuming this market is representative of the economy as a whole, this economy:

faces fluctuating output levels whenever there is a demand shock.

Higher rates of unemployment are linked with:

higher crime rates as the unemployed seek to replace lost income.

Refer to the figure above. Assuming this market is representative of the economy as a whole, a positive demand shock will:

increase output, but leave prices unchanged.

For an economy to increase investment, it must:

increase saving.

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

Boeing building a new factory

Why are economists concerned about inflation?

Inflation lowers the standard of living for people whose income does not increase as fast as the price level.

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

Nigeria experiences a 2.7 percent increase in real GDP per person.

Why are high rates of unemployment of concern to economists?

There is lost output that could have been produced if the unemployed had been working.

Unemployment describes the condition where:

a person cannot get a job, but is willing to work and is actively seeking work.

Inflation is defined as:

an increase in the overall level of prices.

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:

increased nominal GDP by $20,000, but left real GDP unchanged.

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:

increased nominal GDP from last year, but real GDP was unaffected.

Refer to the figure above. Assuming this market is representative of the economy as a whole, this economy:

is capable of always producing at its optimal capacity.

Refer to the figure above. Assuming this market is representative of the economy as a whole, a negative demand shock will:

lower prices, but leave output unaffected.

Which of the following is most closely related to recessions?

negative growth in output

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

nominal GDP uses current prices and thus may over- or understate true changes in output.

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

nominal GDP would rise, but real GDP would be unchanged.

Supply shocks:

occur when sellers face unexpected changes in the availability and/or prices of key inputs.

Macroeconomics is mostly focused on:

the economy as a whole.

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

the quantity of resources available to the economy