Macro Test 1

An economic expansion in the United States is typically associated with a(n):

falling unemployment rate

After completing a complex programming project, Melanie is laid off. Her prospects for a new job requiring similar skills are good, and she has signed up with a programmer placement service. She has passed up low-paying job offers. Melanie is experiencing ____ unemployment

frictional

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

affects its trade balances

Long-run growth is the sustained upward trend in:

aggregate output per person over several decades.

Anna recently moved to Boston, as her husband, Joe, has a new job as an economics professor at Harvard. Anna is an experienced surgeon who is interviewing with several hospitals in Boston. Anna is:

frictionally unemployed.

The rule of 70 is most useful in:

estimating the doubling time of real GDP for a given growth rate

Disposable income is

income received by households + government transfers - taxes

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:

increase over time.

Which of the following contributes to economic development?

investment in infrastructure

Long-run economic growth requires:

political stability and some respect for property rights.

Productivity is declining when

population growth exceeds real GDP growth.

According to the text, a government can encourage savings and investment by:

refusing to regulate the financial system.

When long-run growth occurs, GDP [gross domestic product] per capita increases if the population:

remains constant.

According to the text, the "new growth theory" recognizes:

the importance of innovators' ability to establish monopolies if there is to be an incentive for engaging in research and development.

Keynesian economics stressed:

the importance of total spending.

Are discouraged workers counted in the labor force?

no

U.S. real GDP per capita in 2010 was _____ as much per person as in 1900

758%

During recessions, inflation usually:

decreases.

Macroeconomics, unlike microeconomics:

tries to explain increases in economic living standards over time.

Starting from point A, over a period of 70 years, the amount of physical capital per worker in Androde rises to 400. Assuming Androde still uses Method 1, in your diagram, label the resulting point of production B. Using the Rule of 70 for the calculation, output per worker has grown by ____% per year.

1 percent per year 70/ percentage = 70 so its 1 percent

If the U.S. real GDP per capita is now $50,000 and is growing at 2 percent annually, GDP per capita be in 35 years will be:

100,000 70 / 2 percent is 35 so it will double in 35 years aka 100,000

The economy of Tartarus initially has 100 units of physical capital per worker. Each year it increases the amount of physical capital by 5 percent. According to the aggregate production function for this economy, each 1 percent increase in physical capital per worker, holding human capital and technology constant, increases output per worker by 1/5th of 1 percent, or 0.20 percent. If output per worker is initially $1,000, after one year, which is the estimated output per worker?

1010

If the economy of the United States grows at 5 percent per year, the size of the economy will quadruple in about _____ years.

28

Which is true regarding efficiency wages?

An employer can encourage workers to work hard by paying an efficiency wage.

Which demographic group in the United States typically has the highest unemployment rate?

African-American teenagers

In the relationship depicted by the curve Productivity1, what factors are held fixed? Do these countries experience diminishing returns to physical capital per worker?

Both human capital per worker and technology are held fixed. Yes, there are diminishing returns. because there is movement along the curve and the increases get smaller and smaller

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

How does the aggregate price level affect overall consumer spending?

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

Inflation increases during expansions Inflation decreases during contractions

Why would you expect real GDP per capita in California and Pennsylvania to exhibit convergence but not in California and Baja California, a state of Mexico that borders the United States? Consider what changes would allow California and Baja California to converge, then determine which of the following best describes the correct answer.

It is more likely that the factors that affect growth will be equal in California and Pennsylvania but not equal between California and Baja California

An economy initially has 200 units of physical capital per worker. Each year it increases the amount of physical capital by 10%. According to the aggregate production function for this economy, each 1% increase in physical capital per worker, holding human capital and technology constant, increases output per worker by 0.25%.

Look at the scenario Capital. In three years' time, what is the level of physical capital per worker in this economy? 266.2 Take 200 x 10 % is year 1 then take that number and x 10% for year 2 then take that number and x 10 % for 266.2

Real GDP per capita of China is $4,000, and its annual growth rate is 7%.

Look at the scenario Growth Rates. According to the rule of 70, how large will China's real GDP per capita be in 20 years? it doubles in 10 years to 8000 then doubles again in 10 years to total to 16000 in 20 years

Due to the current slump in investment spending, Melanie has been laid off from her programming job. Her employer promises to re-hire her when business picks up. Melanie is experiencing ____ unemployment.

Melanie is cyclically unemployed because her bout of unemployment is tied to the business cycle. It is likely she will be reemployed once the economy picks up

What are some important assumptions implicit in your calculations that reflect the Malthusian view on this issue?

The calculation assumes that the reserves of oil cannot increase, that the search for alternative fuels would not affect the annual production of oil, and that the possibility of rising oil prices as reserves drain out will neither create incentives for alternative fuels nor affect total consumption.

Given the expected relationship between average inflation and menu costs, rank the countries in descending order of menu costs using average inflation over the period 2001-2010. Which country has the highest menu costs?

The countries with the highest average inflation rates should have the highest menu costs

Which of the following U.S. policies and institutions may negatively influence U.S. long-run economic growth?

The government's persistently large borrowing may make financing additional improvements in infrastructure and education (a phenomenon known as "crowding out"), consequently slowing economic growth.

After several months of a severe recession, some workers stop looking for jobs. This will _______ the official unemployment rate

These unemployed people become discouraged workers, dropping out of the labor force. The result is that the unemployment rate actually falls because it appears as though the labor force decreased

Hector Homeowner has a mortgage with a fixed nominal 6% interest rate that he took out five years ago. Over the years, the inflation rate has crept up unexpectedly to its present level of 7%.

This is an example of inflation creating winners and losers, but there is no net cost to the economy

Which would NOT be classified as a MACROECONOMIC question?

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

Indicate whether efficiency wages are likely to exist in the following case Jane speaks Korean and sells ice cream in a neighborhood in which Korean is the primary language. Is it difficult to find another worker who speaks Korean.

Yes

Economists mostly agree that the problem of climate change necessitates government action in the form of market-based incentives such as:

a carbon tax or a cap and trade system

The central mission of modern macroeconomics is to prevent:

a deep recession like the Great Depression.

Job creation and job destruction are:

a primary reason for unemployment even when the economy is at full employment.

Diminishing returns to physical capital means that when the amount of human capital per worker and the state of technology are held fixed, each increase in the amount of physical capital per worker leads to:

a smaller increase in the marginal product of labor.

Long-run economic growth is best measured by:

a sustained rise in the production of goods and services.

A country's investment spending during the current year is equal to $400 million, while its level of saving for the current year is $350 million. According to the text, this country will MOST likely run:

a trade deficit.

A nation whose value of imports exceeds its value of exports is said to have:

a trade deficit.

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:

a trade surplus.

The paradox of thrift illustrates that:

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

Borrowers can lose in a loan contract if:

actual inflation turns out to be lower than expected inflation.

The government finances its spending through tax revenue and _____ in financial markets.

borrowing

Government intervention in the economy is:

called fiscal policy if it involves changing government spending or taxing in order to offset the economic effects of short-run fluctuations in the larger economy.

An increase in capital stock would:

cause a movement to the right along a stationary production function

From the standpoint of economic growth, banks are important to:

channel savings into investment

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

decisions about saving and investment spending in the country.

As the accompanying diagram shows, the rate of growth of real GDP has picked up in Japan since 2001. The likely effect of this increase in GDP growth will be a(n) ______ in the unemployment rate. Is the likely cause of the change in the unemployment rate during this period a change in the natural rate of unemployment or a change in the cyclical unemployment rate?

decrease; a change in the cyclical unemployment rate

Long-run economic growth is:

higher in countries with a strong rule of law and political stability.

If real GDP is increasing and the population is increasing, real GDP per capita will

increase, decrease, or remain the same

Indicate whether the following change will raise or lower the natural rate of unemployment More teenagers focus on their studies and do not look for jobs until after college

lower

In response to unexpectedly high inflation, the manager of Cozy Cottages of Cape Cod must reprint and resend expensive color brochures correcting the price of rentals this season.

menu costs

Look at the figure Technological Progress and Productivity Growth. Which of the following changes in real GDP is most likely to have resulted from an increase in domestic savings?

movement across the bottom curve

The key measure used to track economic growth is:

real GDP per capita.

According to the text, which has been most important in driving long-run economic growth?

rising labor productivity or output per worker

The source of money for investment is:

savings

All else equal, a nation that has a high rate of _____ will have a high rate of _____ and therefore a high growth rate of _____ capital

savings; investment; physical All else equal, a nation that has a high rate of _____ will have a high rate of _____ and therefore a high growth rate of _____ capital

Look at the figure Productivity. An improvement in technology with everything else remaining unchanged is shown on the diagram as a movement from:

shift the entire curve up

In the economy of Rominten, the amount of human capital per worker and the state of the technical means of the production of goods and services are held constant. As physical capital per worker increases in Rominten, each additional increase in physical capital per worker leads to _____ in output per worker

smaller increases

Which of the following is the most important driver of productivity growth, and therefore an important influence on long-run economic growth of output per capita?

technological progress

According to the text, natural resources in the twenty-first century are less important in determining productivity than human or physical capital for:

the majority of countries in the twenty-first century

How will wages at a manufacturing plant change when its workforce is unionized?

the study of microeconomics

The natural rate of unemployment equals:

the sum of frictional and structural unemployment.

In a recessionary trend

the unemployment rate is increasing

Ms. Moneybags buys an existing share of Disney stock.

when an individual buys an existing share of stock, the transaction is not included in GDP because there is no production

Diminishing returns to physical capital suggests that:

when the amount of human capital per worker and the state of technology are fixed, successive increases in the amount of physical capital per worker lead to smaller increases in productivity

Given this information, one-year loans in the years _____ would have been especially attractive.

when the interest rate is lower than the inflation rate

Indicate whether the following transaction will be included in GDP for the United States A book publisher produces too many copies of a new book; the books don't sell this year, so the publisher adds the surplus books to inventories

yes the publisher adds the surplus books to inventories. These books are considered investment spending and added to GDP. It is as if the publisher bought the books itself

Indicate whether the following transaction will be included in GDP for the United States Coca-Cola builds a new bottling plant in the United States.

yes because it is investment spending that is included in GDP

Would you infer from your results that CO2 emissions are linked to growth in output per capita? Do high growth rates necessarily lead to high CO2 emissions?

yes there is a direction relationship but it does not necessarily mean it has to lead to it

Malthus was saying that the growth of the population is limited by the amount of food available to eat; people will live at the subsistence level forever. Malthus's description did not apply to the world after 1800 because:

he didn't account for advances in technology that would increase productivity.

When the demand for labor is falling and employers have committed to high wages, _____ unemployment will result

structural

According to the text, a binding minimum wage generally leads to

structural unemployment, because more people want to work than can find jobs at the minimum wage.

The government of Micronia finances its purchases of goods and services with what type of revenue?

tax revenue

The view that the government should take an active role in the macroeconomy dates to

the Great Depression

In the United States, economists assign the task of identifying recessions to:

the National Bureau of Economic Research (NBER)

Price stability occurs when:

the overall cost of living is changing very slowly.

If everyone has more cash, then in the long-run:

the overall level of prices will increase.

If an economy is open:

trading with other countries makes up a portion of its economy.

Which is true regarding inflation and interest rates?

Anticipated inflation can inflict real costs on the economy.

Which statement is true regarding microeconomics and macroeconomics?

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

Which statement is true regarding the business cycle?

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

The way that the United States assigns the task of identifying recessions is ____ the approach used in many other countries

In the United States, the National Bureau of Economic Research uses a variety of data to determine start and end dates, while in many other countries, they use a simple rule of two consecutive quarters of negative GDP growth to determine a recession answer is different from

Mary expects the inflation rate to be 5 percent, and she is willing to pay a real interest rate of 3 percent. Joe expects the inflation rate to be 5 percent, and he is willing to lend money if he receives a real interest rate of 3 percent. If the actual inflation rate is 6 percent and the loan contract specifies a nominal interest rate of 8 percent, then:

Mary is glad she borrowed the funds because her real interest rate has fallen.

When Melanie and her co-workers refused to accept pay cuts, her employer outsourced her programming tasks for workers in another country. This phenomenon is occurring throughout the programming industry. Melanie is experiencing ____ unemployment

Melanie is structurally unemployed because she is demanding a higher wage than the current equilibrium wage in her industry. In this case, the equilibrium wage has been lowered by the outsourcing of work to other countries

Based on the graph, what explains why the 1990s came to be known as the Asian financial crisis, while the events a decade later came to be known as the global financial crisis?

Output growth was less in Japan than the United States in the 1990s, but growth was similar in the 2000s.

Which of the following statements is correct?

Real gross domestic product, employment, and inflation change during a business cycle. All three tend to rise during an upturn and fall during a downturn.

The wages of the average Chinese worker are far lower than the wages of the average American worker.

That is incorrect. Low Chinese wages could possibly explain why some goods are produced in China instead of the United States, but this is a microeconomic question. Macroeconomics, not microeconomics, determines whether a country runs a trade deficit or surplus

Many products, such as televisions, that were formerly manufactured in the United States are now manufactured in China

That is incorrect. The determination of where goods are produced around the world is a microeconomic phenomenon, based on comparative advantage. Macroeconomics, not microeconomics, determines whether a country runs a trade deficit or surplus so the answer is no

Which statement is FALSE regarding long-run economic growth?

The key to higher wages and a rising economic standard of living is avoiding economic troughs.

Which of the following statements is TRUE?

The level of saving is important for long-run growth.

Investment spending in the United States is high relative to its level of savings, but the level of savings in China is high relative to its investment spending.

This is a valid explanation. A country's levels of saving and investment are macroeconomic phenomena that determine whether it runs a trade surplus or deficit

One normally expects that unemployment increases while aggregate output and aggregate incomes decrease during

a recession

With its tradition of a job for life for most citizens, Japan once had a much lower unemployment rate than that of the United States; from 1960 to 1995, the unemployment rate in Japan exceeded 3% only once. However, since the crash of its stock market in 1989 and slow economic growth in the 1990s, the job-for-life system has broken down and unemployment has risen to more than 5% in 2003. One effect of these recent changes in Japan is ________ in the Japanese natural rate of unemployment

an increase

(Problem 2) Suppose that after several quarters of a strong expansion, people who did not think they could find a job now start looking for a job. If this occurs, we would see ____ in the official unemployment rate.

an increase because they are now counted as unemployed

When the actual unemployment rate is low, most unemployment is:

frictional

Twenty-first-century macroeconomics studies ways to:

smooth out the business cycle.

Unanticipated inflation does all of the following EXCEPT:

cause disinflation.

The total flow of money out of households or the sum of taxes paid, _____ spending, and private savings equals the total flow of money into households.

consumer

We can measure GDP in Macronia as the sum of

consumer spending + investment spending + government spending + exports - imports

As the average age of the labor force increased from the end of the 1970s to the end of the 1990s, the natural rate of unemployment:

decreased

If the real interest rate is 6 percent and the nominal interest rate is 5 percent, then this economy is experiencing:

deflation

The response of policy makers during the 2007-09 recession was _____ the actions of policy makers during the Great Depression.

different from

At the equilibrium wage rate in Profunctia, the level of employment is ______ the size of the labor force, and the unemployment rate is ______%.

equal to the size of the labor force unemployment rate is 0%

If during several months the economy is simultaneously increasing its levels of output and employment, then the economy is in a(n):

expansion.

net exports =

exports - imports

If the growth rate of GDP is above its historical average, then there is a tendency for the unemployment rate to:

fall

When everyone in the economy saves, everyone's income _____, meaning that everyone must consume less today

falls

Setting government spending and taxes in an effort to change overall spending in an economy is use of:

fiscal policy

If inflation is 4 percent and wages increase by 5 percent, then the purchasing power of workers has:

increased

When one person saves, that person's wealth is _____, meaning that he or she can consume more in the future

increased

If workers' nominal wages have risen by 50% over a 10 years and prices have increased by 40% in that same period, then we can safely conclude that the amount of goods and services workers can buy has:

increased.

In general, the unemployment rate varies ____ with changes in real GDP

inversely

Which pair of policies is likely to reduce the natural rate of unemployment?

job training and employment subsidies

The percent change in real GDP is always _____ the percent change in real GDP per capita (assuming that the population is growing)

larger than

nominal GDP was equal to the growth in real GDP between what years?

look for the years that have the same price per unit

Real GDP did not change between which years?

look for the years where output stays the same number

Indicate whether the following change will raise or lower the natural rate of unemployment

lower

Indicate whether the following change will raise or lower the natural rate of unemployment Greater access to the Internet leads both potential employers and potential employees to use the Internet to list and find jobs

lower

Indicate whether the following change will raise or lower the natural rate of unemployment The government reduces the time during which an unemployed worker can receive benefits.

lower

The natural rate of unemployment:

may change because of changes in labor market institutions such as the existence of unions, temporary employment agencies, and technological change.

Delta sells one of the planes it's been using for the past year and a half to Korean Air.

no not included in GDP because it does not represent production during the current time period. The airplane would have been included in GDP when it was produced; now it is just a sale of a used item

Policy makers in the United Kingdom react forcefully when the inflation rate rises above a target rate of 2%. Would it be harmful if inflation rose from 3.4% (the level in 2013) to, say, a level of 5%?

not much evidence that 5% inflation does harm but they ideally like 2% because disinflation is difficult to achieve

To avoid double counting when computing gross domestic product (GDP) for an economy, it is important to:

only count each producer's value added in the calculation.

According to the text, disinflation in an economy which has grown to expect inflation is:

possible only if policymakers are willing to accept higher rates of unemployment and a lower level of aggregate output.

The work by Milton Friedman altered the consensus that had developed in the aftermath of the Great Depression on how the economy should be managed. As a result, the current goal of economic policymakers is to:

reduce the magnitude of both downturns and upturns.

According to the text, a binding minimum wage must be:

set so that there is a persistent surplus in the labor market.

The effect of the Great Depression on conventional wisdom was to:

shift thoughts and opinions to the Keynesian view.

When inflation is expected to be high, workers get paid more frequently and make more trips to the bank.

shoe-leather costs

Economic recessions and economic expansions are:

short-run in nature.

Is the following statement true or false?: A business-cycle expansion is different from economic growth.

true Long-run growth is the sustained upward trend in the economy's output over long periods of time, while business-cycle expansion only increases growth for months or a few years

The rule that is used most often in many countries to define a recession is:

two consecutive quarters of decreasing output.

One of the issues of importance to macroeconomists is:

understanding how living standards change over time.

In a recession:

unemployment increases, while aggregate output and aggregate income decrease.

Based on the graph, you would predict that unemployment ______ between 1980 and 1985.

unemployment probably rose because we can see there was an increase in inflation

Lanwei is reimbursed by her company for her work-related travel expenses. Sometimes, however, the company takes a long time to reimburse her. So when inflation is high, she is less willing to travel for her job.

unit-of-account costs