Macroeconomics - Big Quiz - Ch 6 - Practice Questions

Refer to the figures. In terms of representing the economy.

Figure B represents the very short run, where prices are sticky, and Figure A represents the long run.

Which of the following statements best describes how firms respond shocks under conditions of inflexible prices?

Firms respond to short-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.

Which of the following is used to compare the average standard of living across countries?

GDP per person

Which of the following statements best describes price flexibility in the economy?

Prices tend to be sticky in the short run but become more flexible over time.

Unemployment describes the condition where

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

Refer to the figures. Which of the following events would most likely result in higher unemployment?

a shift from D2 to D1 in Figure B

Refer to the figure. Assuming the market is representative of the economy as a whole, a negative demand shock will most likely

increase unemployment

Refer to the figures. Which figure(s) represent(s) a situation where prices are sticky?

B only

Refer to the figures. Which figures represent(s) a situation where firms are likely to hold inventories to accommodate unexpected changes in demand?

B only

Which of the following is an example of a demand shock?

Customers become worried about job loss and buy fewer goods and services than expected.

Camille's Cakes produced 500 cakes last year that sold for $20 each. This year Camille's produced 600 cakes (identical to last year's cakes) and sold them for the same price as last year, $20 each. Based on this information, we can conclude that Camille's production of cakes

Increased both nominal and real GDP from last year.

Increased present saving

comes at the expense of reduced current consumption.

Refer to the figure. Assuming this market is representative of the economy as a whole, this economy

faces fluctuating output levels whenever there is a demand shock.

All the following statements about financial institutions are true except

financial institutions are responsible for channeling business saving to households.

Prices tend to be sticky because

firms are worried that frequent price changes would annoy customers.

Prices for oil and other commodities tend to be

flexible.

For an economy to increase investment, it must

increase saving.

Camille's Cakes produced 500 cakes last year that sold for $20 each. This year Camille's produced 600 cakes (identical to last year's cakes) and sold them for the same price as last year, $25 each. Based on this information, we can conclude that Camille's production of cakes

increased both nominal and real GDP from last year.

Harry's Pepperoni Pizza produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas this year

increased nominal GDP by $20,000 but left real GDP unchanged.

Why are economists concerned about inflation?

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

Refer to the figure. Assuming this market is representative of the economy as a whole, this economy

is capable of always producing at its optimal capacity.

Refer to the figure. Assuming this market is representative of the economy as a whole, a negative demand shock will

lower prices but leave output unaffected.

Which of the following is most closely related to recessions?

negative real growth in output.

Real GDP is preferred to nominal GDP as measure of economic performance because

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

Suppose that Techno Co. produces laptop computers. At a price of $1,000 per laptop. Techno determines that its optimal output is 3,000 laptops per week. If prices are sticky and fears of a recession reduce demand for laptop computers, we would expect Techno to

reduce output in the short run.

When economists refer to "investments," they are describing a situation where

resources are devoted to increasing future output.

Kara's Kittens typically produces and sells at its optimal (lowest per-unit cost) level of 30 scratching posts per week. Kara's also maintains an inventory of 20 scratching posts. If prices are sticky and there is a positive demand shock this week resulting in demand for 40 scratching posts, we would expect Kara's to

sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs.

The business cycle depicts

short-run fluctuations in output and employment.

Macroeconomics is mostly focused on

the economy as a whole.

The average amount of time between price changes for gasoline is

two to three weeks.

Why do economists consider unemployment to be undesirable?

unemployment is wasteful because we lose all the goods and services that unemployed workers could have produced if they had been working.

Real GDP measures the

value of final goods and services produced within the borders of a county, adjusted for price changes.