Macroeconomics

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes CPI to: a) overstate the impact of higher prices on consumers b) consistently underestimate the true inflation rate c) omit the benefits of product quality improvements d) have larger fluctuations than other price indexes

a

Demand-pull inflation is caused by: a) an increase in aggregate demand b) a decrease in aggregate demand c) an increase in aggregate supply d) a decrease in aggregate supply

a

Gross domestic product (GDP) is defined as: a) the market value of all final goods and services produced within the borders of a nation. b) incomes received by all of a nation's households c) the quantity of each good and service produced by U.S. residents. d) none of the above

a

Hyperinflation refers to a situation in which: a) prices are rising extremely rapidly b) prices are falling extremely rapidly c) the price level is extremely high d) the price level is extremely low

a

If the economy is experiencing demand-pull inflation, then the appropriate government policy would be to shift the aggregate demand curve by using a: a) tax increase coupled with spending cuts b) tax increase coupled with more spending c) tax cut coupled with spending cuts d) tax cut coupled with more spending

a

Personal consumption expenditures: a) represent close to two-thirds of GDP b) are equal to personal income minus individual taxes c) include durable good purchases but not nondurable good purchases d) do not include any intangible consumption items

a

The aggregate demand curve slopes downward indicating that: a) an increase in the general price level will reduce the aggregate quantity of goods and services demanded b) an increase in the general price level will increase the aggregate quantity of good and services demanded c) a change in the interest rate will alter the aggregate quantity of goods and services demanded d) consumers substitute between domestic-made and foreign-made goods as their relative prices change

a

The change in consumption divided by a change in income is defined as: a) the marginal propensity to consume b) autonomous consumption c) the consumption function d) transitory consumption

a

Using the expenditure approach, GDP equals: a) C+I+G+(X-M) b) C+I+G+(X+M) c) C+I-G+(X-M) d) C+I+G-(X-M)

a

Which one of the following would count as investment in the GDP accounts? a) Purchase of a new airplane by an airline. b) Purchase of a U.S. government bond. c) Purchase of 100 shares of Wal-Mart stock. d) Purchase of an existing house.

a

For an economy, aggregate demand equals: a) consumption plus investment plus government spending plus exports b) consumption plus investment plus government spending plus (exports minus imports) c) consumption plus investment plus (taxes minus transfers) plus (exports minus imports) d) consumption plus investment plus government plus net exports (imports minus exports)

b

A balanced budget is present when: a) the economy is at full employment b) the actual level of aggregate spending equals the planned level of spending c) public sector spending equal private sector spending d) government revenues equal government expenditures

d

A decrease in aggregate supply can result in: a) unemployment b) demand-pull inflation c) prosperity d) cost-push inflation

d

Contractionary fiscal policy is deliberate government action to influence aggregate demand and the level of real GDP through: a) expanding and contracting the money supply b) encouraging business to expand or contract investment c) regulate net exports d) decreasing government spending or increasing taxes

d

Gross Domestic Product includes: a) intermediate as well as final goods b) foreign goods as well as domestically produced goods c) used goods sold in the current tie period d) only final goods and services

d

Gross domestic product (GDP) does not include: a) used goods sold in the current tie period b) foreign produced goods c) intermediate as well as final goods d) none of the above would be included

d

The aggregate demand curve indicates the relationship between: a) the real wage rate and the quality of resources demanded by producers of goods and services b) the interest rate and the amount of loanable funds demanded by borrowers c) the natural rate of unemployment and the demand for goods and services when the economy is in long-run equilibrium d) the general price level and the aggregate quantity of goods and services demanded

d

The marginal propensity to consume measures the ratio of the: a) average amount of our income that we spend b) average amount of our savings that we spend c) change in consumer spending to a change in interest rates d) change in consumer spending to a change in income

d

The real balance effect (wealth effect), the interest rate effect, and the net exports effect all help to explain the: a) decrease in supply in the loanable funds market b) large federal budget deficit c) increase in the short-run aggregate supply d) downward-sloping aggregate demand curve

d

The type of unemployment that occurs because of a recession is called: a) frictional unemployment b) seasonal unemployment c) natural unemployment d) cyclical unemployment

d

When the economy is experiencing high inflation and high unemployment at the same time, then it is experiencing: a) stagnation b) deflation c) reflation d) stagflation

d

How do the Bureau of Labor Statistics and the Census Bureau estimate U.S. unemployment each month? a) they contact each state's unemployment office and gather data on new claims for unemployment b) they randomly survey 60,000 U.S. households to determine how many people are in the labor force, and what proportion of them are unemployed c) They track released prisoners. These agencies adjust released prisoners employment unemployment rate proxy (PURP) d) None of the above

b

In periods of high inflation, a) people want to hold on to as much money as possible b) the purchasing power of money is deceasing c) nobody wants to work and earn income d) low nominal interest rates are likely to result

b

People who are not currently employed, but say they want a job, are counted as unemployed only if they: a) have previously held a job b) are actively seeking employment c) are willing to accept a reasonable offer d) are between the ages of 16 and 65

b

Refer to exhibit 11-1. What is this country's net exports? a) 35 b) -35 c) 379 d) -379

b

Since World War II, the average length of recessions in the Untied States has been: a) 2 months b) 11 months c) 2 years d) 3 1/2 years

b

The unreported or illegal production of goods and services in the economy that is not counted in GDP is termed: a) money laudering b) the underground economy c) disposable personal income d) unreported capital

b

To combat a recession, Keynesian fiscal policy recommends: a) An increase in taxes b) An increase in government spending c) An increase in taxes and a decrease in government purchases to balance a budget d) A reduction in both taxes and government spending

b

Unemployment that is caused by a mismatch of the demand for workers with certain skills of unemployed workers is: a) frictional unemployment b) structural unemployment c) cyclical unemployment d) mismatch unemployment

b

When OPEC raised the price of oil, it created a: a) demand-pull inflation b) cost-push inflation c) demand-push inflation d) cost-pull inflation

b

When the federal government is running a budget deficit: a) government tax revenues exceed government expenditures b) government expenditures exceed government tax revenues c) the economy must be in an economic recession d) the size of national debt will decline

b

Which of the following correctly defines inflation? a) An increase in the price of a particular good or service b) An increase in the general (average) price level of goods and services in the economy c) the growth rate in real GDP d) All the above

b

Which of the following statements is true? a) fiscal policy is the manipulation of the nation's money supply to influence the nation's output, employment and price level. b) discretionary fiscal policy is the deliberate use of changes in government spending and taxes to stabilize the economy c) the tax multiplier is the change in aggregate demand resulting from an initial change in government spending d) A budget deficit exists when government tax revenues exceed government spending

b

Which of the following will most likely increase aggregate demand? a) A decrease in stock market prices b) An increase in business investment spending c) A decrease in the expected inflation rate d) A decrease in real GDP

b

Economists usually use the term "recession" to refer to: a) any slowdown in the growth of real GDP b) zero real GDP growth c) two or more consecutive quarters of declining real GDP d) a reduction in nominal GDP lasting more than six months

c

If an inflationary boom exists, the appropriate fiscal policy is to: a) increase the budget deficit b) increase government spending and hold taxes constant c) decrease government spending and/or raise taxes d) hold government spending constant and decrease taxes

c

In which of the following years was inflation in the U.S. the highest? a) 1960 b) 1970 c) 1980 d) 1990

c

Refer to exhibit 11-1. What is this country's gross domestic product? a) 1225 b) 1305 c) 1365 d) 1440

c

Since 1929, real GDP in the United States has grown at an average annual rate of about: a) .5 percent b) 1 percent c) 3 percent d) 7.5 percent

c

The consumer price index (CPI): a) adjust for changes in product quality b) includes separate market baskets of goods and services for both base and current years c) includes only goods and services bought by typical urban consumer d) uses current year quantities of goods and services

c

The real interest rate is defined as the: a) actual interest rate b) fixed-rate on consumer loans c) nominal interest rate minus the inflation rate d) expected interest rate minus the inflation rate

c

Unemployment that is of a short duration to allow time to find a new job is: a) structural unemployment b) cyclical unemployment c) frictional unemployment d) durational unemployment

c

Which of the following characterizes the classical view of the economy? a) the economy is inherently unstable b) prices and wages are not flexible c) the economy will "self-adjust" to full employment d) None of the above

c

Which of the following is a leading business cycle indicator? a) The unemployment rate b) The volume of outstanding commercial loans c) New building permits d) personal income

c

Which of the following is an example of expansionary fiscal policy? a) increase taxes b) decrease government spending c) increase government spending d) increase taxes and decrease government spending

c

Which of the following items is included in the calculation of GDP? a) Purchase of 100 shares of General Motors stock. b) Purchase of a used car. c) The value of a homemaker's services. d) None of the above

c

A reduction in the rate of inflation is called: a) deflation b) disinflation c) hyperinflation d) cost-push inflation

b

Advances in technology will shift the aggregate: a) demand curve rightward b) supply curve rightward c) demand curve leftward d) supply curve leftward

b

Demand-pull inflation is associated with: a) decreasing total spending (demand) b) increasing total spending (demand) c) decreasing costs of production (supply) d) increasing costs of production (supply)

b

Economic growth is measured by the annual percentage increase in a nation's level of: a) nominal GDP b) real GDP c) real GDP deflator d) economic indicators

b