Introduction to Macroeconomics

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

B. 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? A. Economies experience a positive growth trend over the short run, but experience significant variability in the long run. B. Economies experience a positive growth trend over the long run, but experience significant variability in the short run. C. Economies experience positive and stable growth over both the long run and short run. D. Economies experience little long-run growth in output, but can experience significant growth in the short run.

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

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

B. Great Recession

Which of the following is an example of economic investment? A. Volvo buys an old factory building from General Motors. B. Nike buys a new machine that increases shoe production. C. Bill Gates buys shares of stock in IBM. D. Warren Buffet buys U.S. savings bonds.

B. Nike buys a new machine that increases shoe production.

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

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

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

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

The term "recession" describes a situation where: A. inflation rates exceed normal levels. B. output and living standards decline. C. an economy's ability to produce is destroyed. D. government takes a less active role in economic matters.

B. output and living standards decline.

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

B. rates of population growth virtually matched rates of output growth.

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

B. resources are devoted to increasing future output.

In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation? A. purchasing power parity B. the quantity of resources available to the economy C. population size D. different currency values

B. the quantity of resources available to the economy

Real GDP measures the: A. total dollar value of all goods and services produced within the borders of a country 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 consumed within the borders of a country, adjusted for price changes. D. 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.

Which of the following would an economist consider to be investment? A. Boeing building a new factory B. Oprah buying a $10 million home from a fellow celebrity C. A stockbroker buying 10,000 shares of Starbucks stock D. All of the above

A. Boeing building a new factory

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

A. an increase in the overall level of prices.

Many economists believe that the widespread use of computerized inventory control systems: A. has reduced severity in the business cycle. B. will magnify recessions by triggering automatic reductions in output any time inventories begin to accumulate. C. has eliminated price stickiness. D. will eventually prevent recessions from occurring.

A. has reduced severity in the business cycle.

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

A. increase saving.

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 understate 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.

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

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

A. real GDP, inflation, and unemployment.

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

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

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

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

Shocks to the economy occur: A. when expectations are unmet. B. whenever the price level changes. C. whenever government implements fiscal or monetary policy. D. because most economic behavior is unpredictable.

A. when expectations are unmet.

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

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

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

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

Why are high rates of unemployment of concern to economists? A. Higher rates of unemployment generally lead to higher inflation rates. B. Environmental destruction is more prevalent when unemployment rates are high. C. There is lost output that could have been produced if the unemployed had been working. D. All of the above are reasons why economists are concerned about high unemployment rates.

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

Computerized inventory tracking has been credited with reducing the number and severity of recessions because these tracking systems: A. require firms to change prices much more quickly than before. B. effectively eliminate negative demand shocks. C. allow firms to react more quickly and subtly to negative demand shocks, and avoid the large output reductions that frequently result in higher unemployment. D. have eliminated the need for government macroeconomic policy.

C. allow firms to react more quickly and subtly to negative demand shocks, and avoid the large output reductions that frequently result in higher unemployment.

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

C. current income exceeds current spending.

Suppose that Toyota buys a factory previous owned by Chrysler Motors. Economists would: A. consider this to be an economic investment. B. not consider this to be an economic investment because Toyota is less efficient than Chrysler. C. not consider this to be an economic investment because no new capital is created through the purchase. D. not consider this to be an economic investment because there is no way to know how it will affect stock holdings in the two companies.

C. not consider this to be an economic investment because no new capital is created through the purchase.

Supply shocks: A. occur more frequently than demand shocks. B. usually result from fiscal and monetary policy changes. 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 World War II.

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

Banks and other financial institutions: A. are the primary investors in equipment, factories, and other 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. often hinder economic activity by creating barriers between household savers and firms wanting to invest in capital goods.

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

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

C. the economy as a whole.

What is the difference between financial investment and economic investment? A. There is no difference between the two. B. Financial investment refers to the purchase of financial assets only; economic investment refers to the purchase of any new or used capital goods. C. Economic investment is adjusted for inflation; financial investment is not. D. Financial investment refers to the purchase of assets for financial gain; economic

D. Financial investment refers to the purchase of assets for financial gain; economic

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

D. GDP per person

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

D. actual economic events do not match what people expected.

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

D. negative growth 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? A. nominal and real GDP would both rise. B. nominal and real GDP would both be unchanged. C. real GDP would rise, but nominal GDP would be unchanged. D. nominal GDP would rise, but real GDP would be unchanged.

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

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

D. real output per person.

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

D. sacrifice current consumption.

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

D. short-run fluctuations in output and employment.