Chapter 6 Macro

Modern economic growth is best measured as an increase in ______. A. Output per person B. Household consumption C. Nominal GDP D. Investment

A. Output per person

One way that the government can encourage economic growth is by encouraging: A. Savings and investment B. Imports over exports C. Debt reduction D. Population growth

A. Savings and investment

What is savings? A. Income minus taxes B. Income minus consumption C. Wealth plus government transfer payments D. Wealth

B. Income minus consumption

Select all that apply Which of the following will lead to better living standards and economic growth? A. Hyperinflation B. Savings C. Economic investment D. Deflation

B. Savings C. Economic investment

Business cycle fluctuations typically arise because: A. the production process takes longer than expected B. actual demand ends up being lower or higher than expected C. the movement in stock prices is less than expected D. actual supply ends up being lower or higher than expected

B. actual demand ends up being lower or higher than expected

The principal source of savings is: A. Firms B. investors C. Households D. Government

C. Households

Which one of the following is the best reason real GDP is an important measurement for an economy? A. It is a measure of changes in the level of prices in a country over time. B. It measures the quality of products over time. C. It is a monetary measure that allows for comparison of a nation's output across time. D. It measures all economic activity, both market and non-market transactions.

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

If demand is unexpectedly high for a prolonged period of time, what will happen to unemployment? A. It will stay the same. B. It will rise. C. It will fall.

C. It will fall

Economic investment represents spending on ______. A. Shares of stocks B. Mutual funds C. Newly created capital goods D. Corporate and municipal bonds

C. Newly created capital goods

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 or sticky

Output that has been produced but not yet sold is called________________

inventory, investment, or stock

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

pessimism or uncertainty

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

prices or price

In simple terms, any income that is not consumed is

savings

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

shock

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

sticky

A _____________shock refers to unexpected changes in the supply of goods and services. (Use one word for the blank)

supply

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

unemployed

Select all that apply Which factors associated with the Industrial Revolution supported a new period of rapid and sustained economic growth? A. An emphasis on research and development B. The use of automation C. Constantly improving technologies D. The introduction of guilds of craftsmen

A. An emphasis on research and development B. The use of automation C. Constantly improving technologies

The term "economic investment" refers to ______. A. Creating capital goods that have costs today but provide benefits in the future B. Buying a new or old building that provides benefits today while postponing actual costs C. Purchasing stocks, bonds, and other assets that have future returns D. Spending by the government on discretionary items, such meals for members of the military

A. Creating capital goods that have costs today but provide benefits in the future

Most short-run fluctuations are the result of what type of shocks? A. Demand B. Supply C. Business

A. Demand

______ are the principal source of savings. A. Households B. Businesses C. Government D. Nations

A. Households

What event began the rapid and sustained economic growth that continues as a modern phenomenon? A. Industrial Revolution B. The introduction of the mass assembly line C. Spanish American War D. World War I

A. Industrial Revolution

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 ______. A. Inflation B. Taxes C. Deflation D. Interest rates E. Poverty

A. Inflation

Select all that apply Which of the following are the main statistics used by economists to assess the health of the economy? Multiple select question. A. Inflation B. Real gross domestic product C. Nominal gross domestic product D. Unemployment

A. Inflation B. Real gross domestic product D. Unemployment

One of the ways that government can raise living standards over time is by encouraging ______. A. Savings and investment B. Government transfer payments C. Population growth D. Consumption

A. Savings and investment

Because companies make major efforts to predict trends to decide how to invest in their business, macroeconomics ______. A. takes into account expectations about the future B. discounts the effects of current debt structures C. tracks historical records of stock market indices D. assumes that business competition levels are constant

A. Takes into account expectations about the future

Select all that apply What are the reasons that the Industrial Revolution is important to modern economic growth---that is, an increase in output per person? A. The introduction of automation B. The growth of factory production C. The increase in population at the same rate as output D. The emphasis on research and development

A. The introduction of automation B. The growth of factory production D. The emphasis on research and development

Suppose that demand for hot dogs decreases and prices are flexible. Firms that produce hot dogs will experience A. a fall in prices, which will induce them to decrease production and reduce the number of workers. B. a rise in prices, which will induce them to decrease production and reduce the number of workers. C. a rise in prices, which will induce them to increase production and increase the number of workers. D. a fall in prices, which will induce them to increase production and reduce the number of workers.

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

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 ______. A. grow; fall; rise B. decline; increase; rise C. grow; fall; decline D. decline; fall; rise

A. grow; fall; rise

If the demand for a good becomes unexpectedly low, the _____ of the good will increase. A. inventory B. price C. output

A. inventory

Suppose the demand for cars rises and prices are flexible. Firms that produce cars will experience: Multiple choice question. A. rising prices, an increase in production, and an increase in employment B. declining prices, an increase in production, and a decrease in employment C. rising prices, a decrease in production, and an increase in employment D. declining prices, an increase in production, and an increase in employment

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

Which of the following helps to explain how unexpected changes in demand lead to fluctuations in GDP and employment? A. sticky prices B. consumer prices C. input prices D. future prices E. flexible prices

A. sticky prices

Unexpected changes that affect the production of goods and services are called A. supply shocks B. Unanticipated inflation C. demand shocks D. Investment shocks

A. supply shocks

A supply shock is an: A. unexpected change in the production of goods and services. B. unexpected increase in government spending. C. unexpected increase in the price level. D. unexpected increase of the money supply.

A. unexpected change in the production of goods and services.

Who are the main economic investors? A. Households B. Businesses C. Stockbrokers D. Government

B. Businesses

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. A. True B. False

B. False

Select all that apply Which are characteristics of a well-functioning financial system? A. It flattens the business cycle. B. It makes the most productive possible investments. C. It lowers the rate of inflation. D. It encourages saving.

B. It makes the most productive possible investments D. It encourages saving

Select all that apply What are the two primary topics studied by macroeconomics? A. Pure competition in the short run B. Long-run economic growth C. The forces of supply and demand D. Short-run fluctuations in output and employment

B. Long-run economic growth D. Short-run fluctuations in output and employment

The distinction between an increase in output versus an increase in output per person can be made when discussing ______. A. Purchasing power parity B. Modern economic growth C. Real GDP D. Nominal GDP

B. Modern economic growth

The biggest problem with inflation is that ______. A. Nominal wages fall B. Real income may fall as nominal wages do not keep up with price changes C. Prices fall D. Interest rates rise and using a credit card is more expensive

B. Real income may fall as nominal wages do not keep up with price changes

Price stickiness moderates over time because: A. if unexpected changes in demand look permanent, businesses will maintain constant prices B. firms that choose a fixed-price policy in the short run do not have to stick with that policy in the long run C. firms that choose a fixed-price policy in the short run have to stick with that policy in the long run

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

If prices are fully flexible, there will be no short-run fluctuations, which means output will ______ and unemployment will ______ because quantity demanded will always equal quantity supplied. A. increase; not change B. remain constant; not change C. decrease; not change

B. remain constant; not change

A situation in which firms expect one thing to happen, but then something else happens is commonly referred to in economics as a ______. A. surprise B. shock C. recession D. surplus

B. shock

Prices that do not adjust rapidly to maintain equality between quantity supplied and quantity demanded are known as _______. A. market prices B. sticky prices C. flexible prices D. regulatory prices

B. sticky prices

Flexible prices are prices: A. that are prevalent and widespread in all cases of economic downturns or recessions B. that adjust freely through the forces of supply and demand C. for the inputs of production that, in the short-run, are favorable for low-cost production of output D. that require some stimulus through fiscal or monetary policy in order to cause changes in supply and demand

B. that adjust freely through the forces of supply and demand

The effect of inflexible prices is: A. the economy is forced to respond in the long run through changes in output and employment rather than changes in prices B. the economy is forced to respond in the short run through changes in output and employment rather than changes in prices C. the economy is forced to respond in the short run through changes in prices rather than changes in output and employment

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

Rising inventories usually indicate an ______. A. inflationary cycle B. unexpectedly slowing economy C. unexpected spurt in sales D. unexpectedly growing economy

B. unexpectedly slowing economy

Savings is important for economic growth because it _____. A. Reduces the purchase of stocks and bonds B. Helps keep inflation down C. Can be used to increase investment activities D. Increases current consumption

C. Can be used to increase investment activities

Goods that are produced in a particular period but not sold in that period: A. are finally included in depreciation when they are sold B. are classified as intermediate goods C. end up in inventories D. are part of consumption expenditures

C. end up in inventories

When demand is unexpectedly high, inventories will _____ as the quantity demanded _______ the factory's optimal output. A. fall; is less than B. rise; exceeds C. fall; exceeds D. rise; is less than

C. fall; exceeds

As a result of shocks and things not going to plan there are A. rapid fluctuations in prices. B. higher taxes and government spending. C. fluctuations in output and employment. D. interest rates that are higher than expected.

C. fluctuations in output and employment.

Many firms that do not change their prices immediately after a change in demand will eventually do so primarily to ______. A. avoid government regulation B. introduce new products C. help equalize supply with demand D. meet employee expectations

C. help equalize supply with demand

The savings of _____ make their way into the banking system and become the investment funds of ______. A. firms; government B. households; government C. households; firms D. firms; households

C. households; firms

The short run in macroeconomics is the period in which: A. no contracts or agreements exist to fix prices B. demand determines price C. input prices do not change at all or very much D. input prices change freely

C. input prices do not change at all or very much

Actions by businesses today that incur current costs and provide benefits in the future are called: A. savings B. investments C. sunk costs D. revenues

C. investments

Financial intermediaries are ______. A. responsible for regulating the amount of the money supply in the economy B. a type of a financial asset C. organizations that receive funds from savers and then channel those funds to investors D. individuals who play the stock market

C. 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 ______. A. output; investment B. employment; prices C. output; employment D. output; prices

C. output; employment

In the short run: A. prices are flexible B. increases in the money supply have no effect on GDP C. prices are sticky D. the economy is always at full employment

C. prices are sticky

If prices are fully flexible and can adjust freely to unexpected changes in demand, then the economy will A. not produce its optimal capacity because the quantity demanded will be less than the quantity supplied. B. not produce its optimal capacity because the quantity demanded will be greater than the quantity supplied. C. produce its optimal capacity because the quantity demanded will equal the quantity supplied. D. produce its optimal capacity because the quantity demanded will be greater than the quantity supplied.

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

The ______ Revolution was important to modern economic growth. A. Internet B. Manufacturing C. American D. Industrial

D. Industrial

Financial intermediaries are ______. A. Individuals who play the stock market B. Responsible for regulating the amount of the money supply in the economy C. A type of a financial asset D. Organizations that receive funds from savers and then channel those funds to investors

D. Organizations that receive funds from savers and then channel those funds to investors

Since the prices of many goods and services take months to change, what type of prices are these? A. Inelastic B. Flexible prices C. Elastic D. Sticky prices

D. Sticky prices

Which of the following best defines unemployment? A. The state of a person without a job who is willing to work but not looking for a job B. The state of a person who is not working and not actively seeking work. C. The state of a person who does not have a job D. The state of a person who cannot get a job but is actively seeking work

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

Constantly rising inventories occur when _____ is/are unexpectedly low. A. prices B. supply C. costs D. demand

D. demand

An event that unexpectedly shifts the demand curve is called a(n): A. demand expectation B. interest rate effect of an aggregate price level change C. wealth effect of an aggregate price level change D. demand shock

D. demand shock

Prices that adjust very quickly are: A. fixed prices B. sticky prices C. inflationary D. flexible prices

D. flexible prices

Firms try to predict future trends so that they can ______. A. make their prices stickier B. raise prices C. borrow money before the interest rates increase D. invest only in projects that are likely to succeed

D. invest only in projects that are likely to succeed

A well-functioning financial system helps to promote ______. A. positive externalities B. capital account deficits C. current account deficits D. savings

D. savings

_________________about the future are particularly important for firms to consider.

Expectations

___________________about the future are particularly important for firms to consider.

Expectations, Projections, Predictions, or Forecasts

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

Flexible

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

Inflation

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

Real

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

Most short-run fluctuations are the result of ______________shocks

demand

_____________shocks are unexpected changes in the consumption of goods and services. ______________shocks are unexpected changes in the production of goods and services.

demand; supply

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

flexible or adjustable