Unit 2 Macro Test Multiple Choice
A college graduate searching for her first job is experiencing: a) frictional unemployment b) structural unemployment c) seasonal unemployment d) cyclical unemployment e) underemployment
a
If prices are in flexible and demand declines for any length of time, the most likely impact on inventories, production, and GDP would be: Inventories Production Unemployment GDP a) increases decreases increases decreases b) increases decreases constant decreases c) constant constant increases constant d) decreases decreases decreases decreases e) decreases decreases increases decreases
a
If real GDP increased 2% this year and the price level DECREASED 4% this year, how much did the nominal GDP increase this year? a) -2% b) 2% c) 4% d) 6% e) 8%
a
Important factors in decisions to save and invest include the trade-offs between: a) future and current consumption b) inflation and unemployment c) the prices of stocks and bonds d) interest earned on bonds and dividends earned on stocks e) public and private goods
a
Modern economic growth occurs when: a) per capita real output increases b) per capita nominal output increases c) the increase in real output equals the increase in population d) the rate of increase in real output accelerates e) the rate of increase in nominal output accelerates
a
The GDP gap is the difference between: a) actual GDP and potential GDP b) nominal GDP and real GDP c) inflation and unemployment d) the actual unemployment rate and the NRU e) actual GDP and nominal GDP
a
The amount of investment in a nation's economy is limited by: a) the level of saving b) government policy c) consumer demand for products d) corporate profits e) the level of imports
a
The automobile firm above is operating at an optimal output of 900 cars. This firm faces a market condition that promotes macroeconomic: a) stability, because the firm can adjust prices rapidly to demand shocks, allowing the firm's output to remain stable. b) stability, because the firm will adjust output rapidly to supply shocks, allowing the firm's output to remain stable c) instability, because the firm's prices adjust rapidly to supply shocks, even though output remains stable d) instability, because the firm's prices adjust rapidly to supply shocks as output changes e) instability, because the demand for the firm's cars is susceptible to supply shocks
a
The gross domestic product, adjusted for depreciation, is: a) net domestic product b) national income c) personal income d) disposable income e) real gross domestic product
a
The largest sector in the expenditure model of GDP is the: a) consumer sector b) investment sector c) government sector d) import sector e) export sector
a
Which sectors of the economy are most strongly impacted by business cycles? a) Capital goods and consumer durable goods b) Services and consumer non-durable goods c) Public goods and exports d) Imports and financial instruments e) Tax revenues and energy
a
Why are transfer payments not included in the calculation of GDP? a) Recipients have not produced any output in return for the payment b) The payments are generally not made to those with the lowest incomes c) Government spending is not included in the calculation of GDP d) Transfer payments are intended to promote economic activity e) Transfer payments have no impact on the economy
a
Because most prices tend to be "sticky", demand shocks tend to cause changes in: a) population b) employment c) tax rates d) the minimum wage e) production possibilities
b
If a bank charges customers a nominal interest rate of 12% for car loans and expects a 7% inflation rate over the life of a loan, what is the real interest rate? a) -5% b) 5% c) 5.8% d) 19% e) 12%
b
If the CPI in the year 2010 is 200 and the CPI in 2011 is 220, then the rate of inflation for the year 2011 was: a) .10% b) 10% c) .20% d) 20% e) 55%
b
Inflation is defined as an increase in: a) real GDP beyond potential GDP b) the general level of prices c) the value of the dollar d) the purchasing power of money e) nominal GDP
b
Net exports as a factor in U.S. GDP have been negative since the 1980s because: a) the federal government has experienced consistent budget deficits b) the value of imports has exceeded the value of exports c) the real GDP has been declining throughout this period d) inflation has reduced the value of the dollar e) trade barriers have effectively limited the number of imports
b
The GDP price deflator (index) is calculated by dividing: a) the real GDP by the nominal GDP b) this year's market basket price by the base year's market basket price c) national income by the inflation rate d) income-approach GDP by expenditure-approach GDP e) private sector expenditures by public sector expenditures
b
When firms expect a lower rate of return on their investment in physical capacity, they: a) try to negotiate a higher interest rate on bank loans b) are less likely to invest in new physical capital c) raise product prices d) increase hiring e) continue to invest in physical capital with a focus on long-run economic growth
b
Which of the following factors would cause demand-pull inflation? a) Increase in the cost of raw materials for firms b) Increase in the money supply c) Significant decrease in the supply of oil d) Serious crop failure e) Reduction in imports allowed into the country
b
Which of the following groups of people is least likely to be hurt by unanticipated inflation? a) Retirees living on a fixed pension b) People who have borrowed money to buy cars c) Savers earning income from interest on savings accounts d) Workers earning the minimum wage e) Creditors who provide loans to customers
b
Why must GDP be calculated using the expenditure approach equal GDP calculated using the income approach? a) Income and spending are both reported to government agencies b) Spending in the economy must equal the incomes earned in the economy c) Taxes must be paid on both income and sales d) Both approaches use product sales as their base e) Economists add a statistical correction to the expenditure approach C+Ig+G+X to ensure that it equals the income approach
b
A recession is generally characterized by: I. a decrease in real GDP II. a decrease in employment III. an increase in price level a) I only b) III only c) I and II only d) II and III only e) I, II, and III
c
All of the following products would be included in the calculation of the U.S. GDP EXCEPT: a) German cars produced in Kentucky b) haircuts done by Italian-owned firms in the United States c) printers produced by American-owned companies manufactured and sold in Canada d) an American firm's purchase of capital equipment produced in Arizona e) United States government spending on construction of interstate highways
c
Assume that Ashley holds a $1000 savings account that pays 6% annually. At the end of the first year, Ashley receives $60 in interest, but the inflation rate over the year is 13%. The nominal and real value of the savings account is: a) $1060 nominal and $1000 real b) $1000 nominal and $1060 real c) $1060 nominal and $938 real d) $938 nominal and $1060 real e) $1000 nominal and $938 real
c
Based on the table above, the amount included in the calculation of the current year's GDP would be: a) $1,140 b) $790 c) $350 d) $230 e) $120
c
Because of short-run prices stickiness, the economy generally responds to negative demand shocks by increasing: a) output b) wages c) unemployment d) prices e) real GDP
c
Because the underground economy and nonmarket transactions are not included in the official calculation of a nation's GDP, the official GDP: a) overestimates actual production in the economy b) should not be used as an indicator of production in the economy c) underestimates actual production in the economy d) accurately records the well-being of a nation's residents e) overestimates incomes in the economy
c
Given the data in the table above, the real GDP for this one-product economy in year 3 is: a) $50 b) $70 c) $80 d) $200 e) $250
c
If a worker's nominal income increases by 5% and the inflation rate increases by 3%, how did the worker's real income change? a) It fell by 8% b) It fell by 2% c) It rose by 2% d) It rose by 5% e) It rose by 8%
c
If the consumer price index (CPI) for this year is 240 and the CPI for last year was 200, what is the rate of inflation for this year? a) -40% b) 1.2% c) 20% d) 40% e) 83%
c
In order to promote economic growth, a nation must invest in: a) gold b) stocks c) human capital d) government growth e) trade barriers
c
The automobile firm above is operating at an optimal output of 900 cars. This firm faces a market condition that promotes macroeconomic: a) stability, because the firm's output adjusts rapidly to demand shocks, allowing the firm's price to remain stable b) stability, because the firm's output adjusts rapidly to supply shocks, allowing the firm's price to remain stable c) instability, because the firm's output adjusts rapidly to demand shocks, even though price remains stable d) instability, because the firm's output adjusts rapidly to supply shocks, even though price remains stable e) stability, because the market conditions that the firm faces adjust rapidly to demand and supply shocks
c
The core inflation rate differs from the CPI in that the core inflation rate: a) includes volatile items such as food and energy that are at the heart of an economy, whereas the CPI excludes volatile items b) includes only the prices of critical resources that are at the heart of an industrial economy, whereas the CPI includes the prices of a broad basket of goods c) excludes volatile items such as food and energy which can rise and fall suddenly, whereas the CPI includes volatile items in calculating the broad basket of goods d) excludes food prices which can rise and fall suddenly, whereas the CPI does not e) excludes energy prices which can rise and fall suddenly, whereas the CPI does not
c
The measure of consumer income after payment of personal taxes is: a) national income b) personal income c) disposable income d) gross domestic product e) net domestic product
c
Unemployment measures the percentage of people in the labor force who: a) are not working b) are not looking for jobs c) are not working and are actively looking for jobs d) have given up looking for jobs e) are not working or are only working part-time
c
When a nation's economy is operating at its NRU, and is experiencing only frictional and structural unemployment, the economy is said to be: a) inside of its production possibilities curve because unemployment exists b) in a recession with cyclical unemployment because unemployment exists c) operating at full employment GDP d) operating below its potential GDP because unemployment exists e) facing a recessionary gap because actual GDP is less than potential GDP
c
"Too much money chasing too few goods" best describes: a) cost-push inflation b) bottle-neck inflation c) wage inflation d) demand-pull inflation e) supply-side inflation
d
A measure of the average standard of living that can be used to compare countries is: a) real GDP b) government spending c) the income tax rate d) GDP per capita e) welfare spending
d
A significant crop failure would create a: a) positive demand shock b) negative demand shock c) positive supply shock d) negative supply shock e) negative demand and supply shock
d
Economic investment includes I. stocks and bonds bought for capital gain II. purchases of new machinery and tools for production III. real estate bought for capital gain IV. construction of new warehouses and factories to assist production a) I only b) I and III only c) II only d) II and IV only e) II, III, and IV only
d
Full employment rate of unemployment (NRU) is achieved when the economy experiences no: a) frictional unemployment b) structural unemployment c) seasonal unemployment d) cyclical unemployment e) unemployment
d
Given the 2009 figures for the US economy (in billions of dollars) in the table above, the "Total" measures: a) net national income for the year 2009 using the income approach b) net national income for the year 2009 using the expenditure approach c) gross domestic product for the year 2009 using the income approach d) gross domestic product for the year 2009 using the expenditure approach e) national income for the year 2009 using the expenditure approach
d
Savings are transferred to businesses for investment through: a) the federal government b) state and local governments c) major corporations d) banks and financial institutions e) consumer purchases
d
Savings occur when current consumption is: a) equal to current income b) greater than current income c) equal to or greater than current income d) less than current income e) equal to or less than current income
d
The calculation of gross private domestic investment includes I. firms' spending for equipment and machinery II. all construction III. depreciation IV. changes in inventories a) I only b) II and III only c) III and IV only d) I, II, and IV only e) I, II, III, and IV
d
The majority of spending in the consumer sector is spent for: a) Durable goods, such as furniture b) Nondurable goods, such as food c) Construction, such as new homes d) Services, such as haircuts e) Used goods, such as used cars
d
The significant decrease in the supply of oil during the 1973-1974 oil crisis caused: a) a positive supply shock b) demand-pull inflation c) a positive GDP gap d) cost-push inflation e) a decrease in per-unit production costs
d
Why are intermediate goods not included in the calculation of GDP? a) Consumers cannot use intermediate goods b) They are not subject to sales taxes c) They are imported d) They would be double-counted when the finished product is counted e) They are only a single stage in multiple steps of production
d
Assuming that the base year for calculating the consumer price index (CPI) is set to the year 2000, the CPI for year 2011 would be: a) [(CPI for 2011)-(CPI for 2010)0] x100 b) [(CPI for 2011)/(CPI for 2010)0] x100 c) [(price of market basket for 2011)- (price of marker basket for 2010)] x100 d) [(price of market basket for 2011)- (price of market basket for 2010)]/ [price of market basket for base year 2000] x100 e) [(price of market basket for 2011)/ (estimated price of market basket for base year 2000)] x100
e
Banks and other financial institutions perform an important economic function by: I. providing a safe place for households to save money II. paying interest to give households an incentive to save III. providing loans to firms to invest in capital a) I only b) III only c) I and II only d) II and III only e) I, II, and III
e
Business cycles occur as a result of supply and demand shocks that are caused by I. irregular innovation II. changes in productivity III. political events IV. changes in the money supply a) I and II only b) II and III only c) III and IV only d) I, II, and IV only e) I, II, III, and IV
e
Given the 2009 figures for the US economy (in billions of dollars) in the table above, the $1,864 billion consumption of fixed capital represents: a) newly purchased privately-owned capital equipment by American businesses b) newly purchased privately-owned capital equipment by all firms operating within the United States c) newly purchased publicly-owned capital equipment within the United States d) depreciation of privately-owned capital equipment by American businesses e) depreciation of privately and publicly-owned capital equipment within the United States
e
Gross private domestic investment for the current year includes I. all stocks and bonds purchased in the current year II. all final purchases of machinery, equipment, and tools used to produce final goods and services III. all changes in business inventories IV. all purchases of personal and business real estate V. all construction a) I and II only b) I, II, and IV only c) II and III only d) II, III, and IV only e) II, III, and V only
e
If a contract worker received an increase in nominal annual salary of 3% and the price level rose in that year by 2%, then that contract worker received a real annual salary: a) increase of 3% b) increase of 5% c) increase of less than 3% but greater than 2% d) decrease of 1% e) increase of 1%
e
Real GDP, rather than nominal GDP, is used to compare changes in national output over time, because real GDP removes the effects of: a) imports b) unemployment c) taxes d) interest e) inflation
e
The official unemployment rate misses the dissatisfaction of those who I. have been discouraged and so have given up looking for work II. are receiving unemployment benefits III. are working part-time but want full-time jobs IV. do not have public transportation a) I only b) I and IV only c) II and III only d) II, III, and IV only e) I and III only
e
The shortcomings of GDP as a measure of all economic activity in a country include all of the following EXCEPT that it: a) does not include home production such as repairing one's own car b) cannot measure improvements in the quality of products c) does not take into consideration negative externalities such as pollution d) does not take into account increased leisure time or quality of life e) does not count government spending for public schools
e
To calculate disposable income, which of the following adjustments are made to personal income? a) Private transfer payments are added and both household taxes and household savings are subtracted. b) Private transfer payments, household taxes, and savings are subtracted c) Household taxes are subtracted and private transfer payments and household savings are added d) All personal taxes are subtracted and Social Security payments are added e) All personal taxes are subtracted
e
When the economy is operating at potential output, then the unemployment rate is: a) zero and the economy is operating at the NRU b) positive, it includes the frictional rate of unemployment, and the economy is operating at the NRU c) positive, it includes the friction rate of unemployment, and the economy is operating above the NRU d) positive, it includes both frictional and structural unemployment, and the economy is operating above the NRU e) positive, it includes both frictional and structural unemployment, and the economy is operating at the NRU
e
Which factors best explain why prices tend to remain inflexible in the short run? I. Consumers prefer stable, predictable prices II. Many firms face market competition, and rivals will simply match price cuts III. When prices are volatile, planning by firms and their customers becomes difficult IV. When prices are volatile, consumers who bought at high prices will feel exploited a) I and II only b) I and III only c) II and IV only d) I and IV only e) I, II, III, and IV
e
Which of the following events could lead to a recessionary phase of the business cycle? a) An increase in worker productivity b) Firms investing in new technology c) An increase in consumer confidence d) A supply shock that reduces the costs of production for firms e) A reduction in the money supply
e
Which of the following would be included in the calculation of U.S. GDP? a) A girl mowing her family's yard b) A student buying a used car c) A neighbor paying a babysitter with homemade cookies d) A senior citizen receiving a Social Security check e) A family buying dinner at a restaurant
e
Which of these is an example of investment, as economists define the term? a) An accountant purchases stock to earn money for his son's education b) An author purchases a piece of art for her home to impress visitors c) A grocery store manager buys more bananas to restock the shelves d) The government increases spending for food stamp benefits during a recession e) A firm purchases equipment to make production more efficient
e
