Chapter 24 Quiz

B

For an economy to increase investment, it must: A) increase nominal GDP B) increase saving C) buy more stocks and bonds D) increase present consumption

B

In situations of sticky prices and negative demand shocks, we would expect firms to: A) deplete inventories before increasing production B) build up inventories before reducing production C) reduce production before building up inventories D) lower prices before reducing production or building up inventories

A

Inflation is defined as: A) an increase in the overall level of prices B) the growth phase of the business cycle C) the rate of growth in nominal GDP D) a situation where all prices in the economy rise simultaneously

A

(BONUS) According to the Austrian school, the best explanation for what caused the Great Recession was that: A) interest rates that were too low induced excessive borrowing B) government spending that was too low created insufficient public capital C) interest rates that were too high discouraged firm borrowing and investment D) tax rates that were too high discouraged spending

d

(BONUS) Which of the following explanations argues that the Great Recession resulted from asset-price bubbles cause by euphoria and debt-fueled speculation? A) Structural explanation B) Austrian explanation C) Stimulus explanation D) Minsky explanation

C

Banks and other financial institutions: A) often hinder economic activity by creating barriers between household savers and firms wanting to invest in capital goods B) lack relevance in the modern economy because they focus primarily on financial assets and generally do not engage in real investment activity C) promote economic growth by helping to direct household saving to businesses that want to invest D) are the primary investors in equipment, factories, and other capital goods

D

Before the period of modern economic growth: A) output and population growth were stagnant B) only civilizations such as the Roman Empire experienced economic growth C) most economies realized high rates of growth in output per person D) rates of population growth virtually matched rates of output growth

D

The business cycle depicts: A) the phases a business goes through from when it first opens to when it finally closes B) fluctuations in the general price level C) the evolution of technology over time D) short-run fluctuations in output and employment

C

Demand Shocks: A) always have a negative impact on the economy B) cause fewer short-run fluctuations that supply shocks C) refer to unexpected changes in the desires of households and businesses to buy goods and services D) refer to unexpected changes in the ability of firms to produce and sell goods and services

D

Higher rates of unemployment are linked with A) lower rates of heart disease as the unemployed have eliminated job stress B) greater political stability because the employed tend to be more politically active C) improvements in overall health as the unemployed have more leisure time to be physically active D) higher crime rates as the unemployed seek to replace lost income

B

If an economy wants to increase its current level of investment, it must: A) sacrifice future consumption B) sacrifice current consumption C) offer more stocks and bonds to financial investors D) print more money

D

In 2008 and 2009, the United States experienced what has come to b known as the: A) Great Stagnation B) Great Depression C) Great Expansion D) Great Recession

D

Macroeconomics is mostly focused on: A) why specific businesses fail B) only the largest industries in the economy C) the individual markets within an economy D) the economy as a whole

D

Modern economic growth refers to countries that have experienced an increase in: A) nominal GDP over time B) real GDP over time C) real output spread evenly across all sectors of the economy D) real output per person

A

Real GDP is preferred to nominal GDP as a measure of economic performance because: A) nominal GDP uses current prices and thus may over or underestimate true changes in output B) nominal GDP only includes goods and excludes services C) nominal GDP is not adjusted for population changes D) real GDP accounts for changes in the quality of goods and services produced

B

Real GDP measures the: A) value of all goods and services produced in the world, using current prices B) value of final goods and services produced within the borders of a country, corrected for price changes C) total dollar value of all goods and services produced within the borders of a country using current prices D) total dollar value of all goods and services consumed within the borders of a country, adjusted for price changes

A

Savings are generated whenever: A) current income exceeds current spending B) prices are rising C) real GDP exceeds nominal GDP D) current spending exceeds current income

A

Shocks to the economy occur when: A) actual economic events do not match what people expected B) prices are flexible C) stock prices rise by more than 10 percent per year D) government takes a more active role in the economy

C

Supply shocks: A) usually result from fiscal and monetary policy changes B) occur more frequently than demand shocks C) occur when sellers face unexpected changes in the availability and/or prices of key inputs D) have been responsible for most of the recessions in the United States since WWII

D

The three statistics that are the main focus for those measuring macroeconomic health are: A) real GDP, nominal GDP, and unemployment B) nominal GDP, unemployment, and inflation C) real GDP, nominal GDP, and inflation D) real GDP, inflation, and unemployment

B

The two topics of primary concern in macroeconomics are: A) oil prices and housing markets B) short-run fluctuations in output and employment and long-run economic growth C) monopoly power of corporations and small business profitability D) unemployment and wage rates in labor markets

A

Unemployment describes the condition where: A) a person cannot get a job but is willing to work and is actively seeking work B) a person does not have a job, regardless of whether or not he or she wants one C) and resource sits idle D) equipment and machinery are going unused

C

When demand shocks lead to recessions, it is mainly due to: A) unexpected changes in the supply of goods and services B) the inability of government policy to affect demand C) price inflexibility D) government regulations that prevent firms from adjusting output in response to the shocks

B

When economists refer to "investment," they are describing a situation where: A) financial assets are purchased in the hope of a monetary gain B) resources are devoted to increasing future output C) people are buying shares of corporate stock D) Money is saved a bank account

A

Which of the following is an example of a demand shock? A) consumers become worried about job loss and buy fewer goods and services than expected B) floods in the midwest destroy crops C) Hurricane Harry knocks out oil drilling platforms in the Gulf of Mexico D) the federal government unexpectedly requires automobile producers to raise fuel efficiency standards

D

Which of the following is an example of a supply shock? A) government increases spending on education B) a surprise tax rebate from the government gives people more money to spend C) a surge in consumer optimism prompts increased buying of goods and services D) a dramatic increase in energy prices increases production costs for firms in the economy

D

Which of the following is most closely related to recessions? A) positive long-run economic growth B) falling rates of unemployment C) rapid growth in the price level D) negative real growth in output

C

Which of the following is used to measure directly the average standard of living across countries? A) purchasing power parity B) Real GDP C) GDP per person D) nominal GDP

A

Which of the following results from firms holding inventories: A) firms can maintain production levels and adjust inventories in response to demand shocks B) the economy is much more susceptible to business cycle fluctuations C) demand shocks occur less frequently D) demand shocks occur with greater frequency

B

Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices? A) firms are quick to let go of works when negative demand shocks occur B) firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels C) firms are reluctant to adjust inventory levels because the costs are higher than changing the quantity of output produced D) firms respond to shorter-term demand shocks by adjusting production levels; more persistent changes in demand result in changes in inventories

D

Which of the following statements best describes price flexibility in the economy? A) prices tend to be just as sticky in the short run as in the long run B) prices tend to be flexible in the short run but become more sticky over time C) prices tend to be sticky in the short run and stuck in the long run D) prices tend to be sticky in the short run but become more flexible over time

D

Why are economists concerned about inflation? A) real GDP is necessarily falling when there is inflation B) inflation generally causes unemployment rates to rise C) inflation increases the value of peoples' saving and encourages overspending on goods and services D) inflation lowers the standard of living for people whose income does not increase as fast as the price level