Macro Midterm (Quiz Questions)

Controlling interest rates is an example of: A. tax policy B. fiscal policy C. monetary policy D. exchange rate policy

Answer: C. monetary policy

If money income remains the same, while the average price level doubles, then: A. interest rates will fall B. nominal income will fall C. real income will fall D. purchasing power will increase

Answer: C. real income will fall

If we add up all the values added at every stage of production for a good, we will get: A. the total cost of the labor used to produce the good B. the intermediate value of the good C. the final value of the good D. the prices of the factors of production used to produce the good

Answer: C. the final value of the good

A wage offered by an employer that exceeds the equilibrium wage rate as an incentive for greater work effort and performance is known as the: A. union wage B. minimum wage C. equilibrium wage D. efficiency wage

Answer: D. Efficiency Wage

Suppose that a doctor who lives alone hires the services of a maid and pays her $15,000 a year to clean his house. Suppose that he marries her the following year. Other things equal, which of the following can we safely conclude would be true about the reported official GDP the following year? A. it would stay the same B. it would rise C. there is not enough information to evaluate the impact it would have on GDP D. It would fall

Answer: D. It would fall

The ______ is the most widely used measure of inflation in the United States A. producer price index B. national income account C. GDP deflator D. consumer price index

Answer: D. consumer price index

A process that brings the inflation rate down, is called: A. hyperinflation B. stagflation C. deflation D. disinflation

Answer: D. disinflation

A laptop computer purchased by an accounting firm is considered to be: A. pre tax dividend B. private saving C. consumption spending D. investment spending

Answer: D. investment spending

Inflation: A. is a sustained fall in the overall level of prices B. is defined as a movement of the economy towards economic growth C. can be thought of as an increase in a nation's standard of living D. is an increase in the overall level of prices

Answer: D. is an increase in the overall level of prices

Structual unemployment means there are: A. more jobs than workers in a particular industry B. people just entering the labor force C. wages that are too low in particular industry D. more people seeking work than there are jobs in a particular industry

Answer: D. more people seeking work than there are jobs in a particular industry

If nominal GDP of 2009 is higher than nominal GDP of 2008, we can state that: A. production in 2009 is higher than production in 2008, while prices remain unchanged. B. production is 2009 has gone down while prices have increased. C. prices in 2009 are higher than prices in 2008, while production remains unchanged D. production or prices or both are higher in 2009, compared to 2008.

Answer: D. production or prices or both are higher in 2009, compared to 2008.

The natural level of unemployment contains no _______ unemployment A. minority B. structural C. cyclical D. frictional

Answer: C. cyclical

A period of rising real GDP is a(n): A. recession B. trough C. expansion D. peak

Answer: C. expansion

Which one of the following equations correctly measures GDP? A. C + I + G + X - IM B. C + I + G - T + TR C. C + I + G + IM - X D. C + I + G + X + IM

Answer: A. C + I + G + X - IM

"Macroeconomics is nothing but a simple aggregation of all the micoreconomic parts." Do you agree with this statement? A. No, because there is alot more to the study of macro than the sum of all its individual micro parts. B. No, because these 2 disciplines deal with completely independent issues. C. Yes, because macro is exactly equal to the sum total of all microeconomic units D. No, because it is microeconomics which is an aggregation of all the macroeconomic parts.

Answer: A. No, because there is alot more to the study of macro than the sum of all its individual micro parts.

The trade balance is the difference between the value of the: A. goods and service that one country sells to other countries and the value of the goods and services it buys in return B. trade deficit and the budget deficit C. national debt and the foreign debt D. exchange rates of two countries that are exchanged in international trade

Answer: A. goods and service that one country sells to other countries and the value of the goods and services it buys in return

When intermediate goods are included in the GDP calculation, this is referred to as: A. deflating the value of GDP B. double counting C. the value added method D. the expenditure method of GDP calculation

Answer: B. double counting Count only each producer's value added in the calculation of GDP: the difference between the value of its sales and the value of the intermediate goods and services it purchases from other businesses.

The unemployment rate is the ratio of anyone: A. out of work to the total population B. unemployed to those in the labor force C. out of work to those over age 16 D. unemployed to those looking for work

Answer: B. unemployed to those in the labor force

In the country of Sildavia, a market basket of goods and services cosy $130 in 2003, $140 in 2004, and $160 in 2005. Based on this information and considering 2003 as the base year, inflation from 2003 to 2005 was: A. 7.14% B. 14.28% C. 23.07% D. 7.69%

Answer: C. 23.07% (160 - 130) / 130 = 0.2307 --> 23.07%

Which of the following statements about long-run growth is true? A. Long-run growth started during the Renaissance. B. Long-run growth started in the early 1700s. C. Long-run growth is a relatively modern phenomenon D. Peasants in 18th century Europe had a standard of living more than 50 times higher than the Egyptian peasants in the age of the pharaohs.

Answer: C. Long-run growth is a relatively modern phenomenon

If during 2005, the country of Sildavia recorded investment spending for $3 billion, government purchases for $3 billion, consumer spending for $7 billion, imports for $5 billion , government transfers for $1 billion and exports for $3 billion. Sildavia's GDP in 2005 was: A. $14 billion B. $13 billion C. $12 billion D. $11 billion

Answer: D. $11 billion Consumer Spending (7) + Investment Spending (3) + Government Purchases (3) + Exports (3) - Imports (5)

Sally works twenty hours a week for an accounting firm. She would like to work full time and expects that she will in the future. Sally is a(n): A. discouraged worker B. full time worker C. unemployed worker D. underemployed worked

Answer: D. Underemployed worker

A recession in America is typically associated with: A. an increase in corporate profits B. a falling unemployment rate C. a decrease in the number of people living in poverty D. a decrease in the % of Americans with health insurance

Answer: D. a decrease in the % of Americans with health insurance

Long-run economic growth is best measured by: A. the growth of a nation's money supply over time B. the rate of private saving in the long run C. the trade surpluses enjoyed by a country in the long rum D. a sustained rise in the quantity of goods and services produced by the country

Answer: D. a sustained rise in the quantity of goods and services produced by the country

Keynesians argue that low levels of spending: A. not possible in an economy B. only evident during expansions C. not helped by monetary or fiscal policy efforts D. possible and can lead to prolonged recessions

Answer: D. can lead to prolonged recessions.

The actual unemployment rate in the economy is 9%. If the natural rate of unemployment is 5%, then the: A. structural unemployment rate is 4% B. cyclical unemployment rate is 14% C. frictional unemployment rate is 4% D. cyclical unemployment rate is 4%

Answer: D. cyclical unemployment rate is 4% 9 - 5 = 4

Fiscal policy involves: A. changes which only correct recessionary problems B. changes in interest rates in specific markets C. deliberate changes in the money supply D. deliberate changes in taxation and/or government spending

Answer: D. deliberate changes in taxation and/or government spending.

GDP tends to overstate economic well-being by including which of the following? A. payments for cleaning up the environment B. expenditures on crime prevention C. repairs to structures destroyed by storms D. expenditures on crime prevention, payments for cleaning up the environment, and repairs to structures destroyed by storms

Answer: D. expenditures on crime prevention, payments for cleaning up the environment, and repairs to structures destroyed by storms

A worker classified as frictionally unemployed is one who is: A. works part-time but would prefer to work full time B. discouraged and drops out of the labor force C. let go during a recession D. voluntarily looking for work, somewhere a job exists that demands his or her skills

Answer: D. voluntarily looking for work, somewhere a job exists that demands his or her skills

Changing the level of government transfers is an example of: A. fiscal policy B. interest rate policy C. monetary policy D. exchange rate policy

Answer: A. fiscal policy

Disposable Income equals: A. income plus government transfers minus taxes. B. A. income plus government spending minus taxes. C. income minus taxes minus government transfers C. income minus taxes plus government spending

Answer: A. income plus government transfers minus taxes.

Alex expects the inflation rate to be 4%. If Alex borrows money at a nominal interest rate of 5%, his real interest rate is: A. less than the nominal interest rate B. negative C. equal to the nominal interest rate D. greater than the nominal interest rate

Answer: A. less than the nominal interest rate Real Interest = 5 - 4 = 1

Macroeconomics involves the study of the: A. overall behavior of the economy B. different market structures that exist in the economy C. individual decision makers in the economy D. cost and production decisions made by firms

Answer: A. overall behavior of the economy

Unemployment rates tend to decrease when: A. there is an expansion in the economy B. a contraction in the economy occurs C. underemployed workers become unemployed D. discouraged workers become active job seekers

Answer: A. there is an expansion in the economy

Real GDP is nominal GDP adjusted for: A. double counting B. changes in prices C. imports D. population

Answer: B. changes in prices

The natural rate of unemployment: A. is equal to zero B. includes structural and frictional unemployment C. is always greater than the actual unemployment rate D. includes frictional, structural, and cyclical unemployment

Answer: B. includes structural and frictional unemployment

When a firm buys a new machine for its business, this is considered: A. private saving B. investment C. government spending D. consumption

Answer: B. investment

When the Great Depression reached its trough in 1933, the unemployment rate was approximately: A. 5% B. 50% C. 25% D. 10%

Answer: C. 25%

If the cost of a market basket is $150 in Year 1 and $200 in Year 2, the price index for Year 1 with a Year 2 base is: A. 133 B. 100 C. 75 D. 150

Answer: C. 75 150/200 = .75

Last month Brent lost his job at the auto parts factory because his factory, like many others, relocated to Asia. Brent has been looking for similar factory jobs in his town but has found no openings. Brent is best classified as: A. demand for labor has risen B. supply of labor has fallen C. demand for labor has fallen D. supply of labor has risen

Answer: C. Demand for labor has fallen

Deviations in the actual rate of unemployment away from the natural rate of unemployment is called: A. frictional unemployment B. seasonal unemployment C. cyclical unemployment D. structural unemployment

Answer: C. cyclical unemployment

Deflation is a(n): A. appreciation of the nation's currency B. increase in the average level of prices C. decrease in the average level of prices D. decrease in the purchasing power of a unit of money

Answer: C. decrease in the average level of prices

When consumers purchase imported products, this is: A. double counting B. considered domestic spending since it is spent by a domestic consumer C. not a part of the GDP calculation D. subtracted from GDP

Answer: D. subtracted from GDP

The paradox of thrift highlights: A. how individual decisions to save more may worsen a recession. B. the irrational behavior on the part of households. C. how an increase in spending occurs during recessions. D. the role which investment plays in the macro economy.

Answer: A. how individual decisions to save more may worsen a recession.

When economists measure economic growth, they often use: A. real GDP B. the inflation rate C. the unemployment rate D. nominal GDP

Answer: A. real GDP

The real interest rate was 0 because inflation rate was the same as nominal rate. Borrower benefits from higher inflation

Suppose that you borrowed $100 from a bank at the beginning of the year at a 5% (nominal) interest rate. • You would repay $100 along with interest of $5 at the end of the year. • Suppose that inflation took place at 5% during the year. What does this imply for your real cost of borrowing? • During this year, each dollar would lose its purchasing power at a rate of 5% due to the 5% inflation rate. When you give $105 back to your bank at the end of year, the purchasing power of that $105 then would be exactly the same as that of $100 year ago. This means?