Chapter 1
Using the CPI measure of the price level, which is 100 in the base year of 2001, calculate the annual inflation rates for (a) 2002, when the index is 103.7. (b) 2003, when the index is 105.5. (c) 2004, when the index is 107.7.
(a) Inflation in 2002 = (103.7 - 100)/100 × 100% = 3.7%. (b) Inflation in 2003 = (105.5 - 103.7)/100 × 100% = 1.7%. (c) Inflation in 2004 = (107.7 - 105.5)/100 × 100% = 2.1%.
If the price level was 100 in 1999 and 102 in 2000, the inflation rate was
2%.
Which of the following best describes a typical business cycle?
Economic expansions are followed by economic contractions
How did Keynes propose to solve the problem of high unemployment?
Have the government increase its demand for goods and services.
Average labor productivity is the
amount of output per worker
When national output rises, the economy is said to be in
an expansion
A central bank is an institution that
controls a nation's monetary policy
A closed economy is a national economy that
doesn't interact economically with the rest of the world
A country that has many well-trained macroeconomic analysts will not necessarily have more beneficial macroeconomic policies because
economic policy is usually made by politicians, not economists
Positive analysis of economic policy
examines the economic consequences of policies but does not address the question of whether those consequences are desirable
A country has a trade surplus when
exports exceed imports
Classical economists argue that
government policies will be ineffective and counterproductive
The main reason that the United States has such a high standard of living is
high average labor productivity
A country has a trade deficit when
imports exceed exports
The main goal of macroeconomic research is to
make general statements about how the economy works
The inflation rate is the
percent increase in the average level of prices over a year.
Keynes assumed that wages and prices were slow to adjust in order to explain
persistently high unemployment
What are the major factors affecting the long-term growth of the economy's output?
population growth and average labor productivity
The two major reasons for the tremendous growth in output in the U.S. economy over the last 125 years are
population growth and increased productivity
A country is said to be experiencing inflation when
prices of most goods and services are rising over time
U.S. imports are goods and services
produced abroad and sold to Americans
Equilibrium in the economy means
quantities demanded and supplied are equal in all markets
During recessions, the unemployment rate ___________ and output ___________
rises; falls
Aggregation is the process of
summing individual economic variables to obtain economywide totals
In the United States, monetary policy is determined by
the Federal Reserve
Short-run contractions and expansions in economic activity are called
the business cycle
The two most comprehensive, widely accepted macroeconomic models are
the classical model and the Keynesian model
The most direct effect of an increase in the growth rate of average labor productivity would be an increase in
the long-run economic growth rate
The number of unemployed divided by the labor force equals
the unemployment rate
Critics of the government's fiscal policies argued that government deficits
were linked to the excess of imports over exports that occurred in the 1980s
