ECO2013 Principles of Macroeconomics Study Guide Exam 3: ECO2013 (1967)

4. The difference between microeconomics and macroeconomics is a matter of a. scale. d. politics. b. time. e. cost. c. demographics.

a. scale.

30. Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been chosen as the base year. In 2002, the basket's cost was $76.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.00. The value of the CPI was a. 100 in 2002. d. at least 118 in 2007. b. 108 in 2004. e. no more than 90 in 2001. c. 120 in 2006.

a. 100 in 2002.

14 During which period was the economy in an expansion? a. 2005-2009 d. 2004-2008 b. 2000-2004 e. 2000-2012 c. 2009-2013

a. 2005-2009

7. Which of the following is a sign that an economy is in poor health? a. a prolonged decline in total output b. failure of total output to equal total income c. failure of output to remain constant over time d. a shift in production, from goods to services e. a prolonged rise in total income

a. a prolonged decline in total output

10. The business cycle measures a. fluctuations in the long-run trend growth rate of GDP. b. fluctuations in the profit of businesses. c. fluctuations in consumption. d. short-run fluctuations in economic activity. e. fluctuations in the average tax rate paid by businesses.

a. fluctuations in the long-run trend growth rate of GDP.

34. Contractionary fiscal policy occurs when the a. government decreases spending or increases taxes to slow economic expansion. b. government decreases spending or decreases taxes to slow economic expansion. c. government increases spending or increases taxes to slow economic expansion. d. government increases spending or decreases taxes to stimulate the economy toward expansion. e. Federal Reserve decreases money supply to stimulate the economy toward expansion.

a. government decreases spending or increases taxes to slow economic expansion.

31. If the current short-run equilibrium level of output is greater than full-employment output, we can then expect that in the long run the a. price level will rise and short-run aggregate supply will fall. b. price level will rise and aggregate demand will fall. c. price level will fall and short-run aggregate supply will rise. d. price level will fall and aggregate demand will rise. e. long-run aggregate supply will increase.

a. price level will rise and short-run aggregate supply will fall.

21. The government has decided to give governmental grants to community colleges that offer job training for individuals who have recently been laid off due to their outmoded skills. The government is trying to reduce the level of a. structural unemployment. d. real GDP. b. frictional unemployment. e. household consumption. c. cyclical unemployment.

a. structural unemployment.

15. The percent change in the overall level of prices in the economy is called a. the inflation rate. b. the growth rate of GDP. c. GDP. d. GDP per capita. e. the interest rate.

a. the inflation rate.

22. Frictional unemployment is a. unemployment caused by time delays in matching available jobs and workers. b. unemployment caused by changes in the industrial makeup of an economy. c. unemployment caused by economic downturns. d. when a worker stops looking for a job because he or she feels no job is available. e. not one of the three types of unemployment.

a. unemployment caused by time delays in matching available jobs and workers.

17. Official unemployment is identified as when a worker a. who is not currently employed is searching for a job unsuccessfully. b. who is not currently employed stops searching for a job. c. leaves his or her job to attend school full-time. d. retires from his or her job. e. who is not currently employed stops searching for a job because he or she feels there is no job available.

a. who is not currently employed is searching for a job unsuccessfully.

19. Between 1960 and 2012, the average unemployment rate in the United States was about a. 4 percent. d. 8 percent. b. 6 percent. e. 9 percent. c. 0 percent.

b. 6 percent.

41 . In the short run, contractionary monetary policy ________ real GDP, ________ unemployment, and ________ the price level. a. raises; lowers; raises d. lowers; raises; lowers b. raises; raises; raises e. raises; lowers; lowers c. lowers; lowers; raises

d. lowers; raises; lowers

27. What is the consumer price index (CPI)? a. The CPI is the measure of consumer prices in both rural and urban areas. It is calculated by adding up all prices. b. The CPI is a measure of the price level based on the consumption patterns of a typical consumer. c. The CPI is a measure of all prices in the economy. d. The CPI is a measure of food prices, because food is what is consumed. e. The CPI is a measure of food, clothing, and housing prices.

b. The CPI is a measure of the price level based on the consumption patterns of a typical consumer.

24. From 1960 until 2012, the long-run average rate of inflation in the United States was a. less than 1 percent. d. about 12 percent. b. about 4 percent. e. negative. c. about 8 percent.

b. about 4 percent.

16. To determine a value for gross domestic product (GDP), you would add up the a. quantities of the final goods and services produced. b. dollar value of the final goods and services produced. c. dollar value of the final goods and services produced minus the dollar value of the intermediate goods and services produced. d. dollar value of all goods and services produced. e. quantities of all goods and services produced.

b. dollar value of the final goods and services produced.

13 The contraction phase of a business cycle is best described as the time. a. elapsed from a trough to a peak. b. elapsed from a peak to a trough. c. elapsed from a peak to a peak. d. elapsed from a trough to a trough. e. spent producing below the long-run trend of GDP.

b. elapsed from a peak to a trough.

9. Gross domestic product (GDP) is best defined as the total market value of all a. goods and services produced within a country within a given time. b. final goods and services produced within a country within a given time. c. services produced within a country within a given time. d. goods produced within a country within a given time. e. final goods produced within a country within a given time.

b. final goods and services produced within a country within a given time.

32. If nominal income increases, then real income a. increases. b. increases if the price index falls. c. increases if the percent increase in price index rises by more than the percent change in nominal income. d. increases if you buy only the goods included in the consumer price index (CPI) and the majority of those goods get cheaper. e. decreases.

b. increases if the price index falls

40. During the Great Recession, a(n) ________ caused aggregate demand to decrease. a. cut in income tax rates d. decrease in interest rates b. rapid decline in housing prices e. increase in international trade c. increase in consumer sentiment

b. rapid decline in housing prices

33. The notion of the loanable funds market is the method by which a. consumers get payday loans and auto-title loans. b. savers (typically households and individuals) supply funds to borrowers (typically firms). c. savers (typically firms) supply funds to borrowers (typically the government). d. borrowers are exploited by loan sharks. e. the government lends money to big corporations.

b. savers (typically households and individuals) supply funds to borrowers (typically firms).

18. Which of the following people would be officially considered unemployed? a. Mitchell, who is a full-time student working part-time at the bookstore b. Janice, who is actively seeking a full-time job while currently working at a part-time job c. Jade, who has stopped looking for a job because she feels there are no jobs available for her d. Jenna, who just graduated college and is searching for a job that fits her graphic-design skills e. Ralph, who is a stay-at-home father and is not currently looking for a job.

c. Jade, who has stopped looking for a job because she feels there are no jobs available for her

11. The phase of the business cycle where the economy is growing faster than usual is called a. an economic trough. b. the long-run trend of gross domestic product (GDP). c. an economic expansion. d. an economic contraction. e. an economic peak. .

c. an economic expansion.

5. Microeconomics includes the study of a. the unemployment rate. b. the overall level of prices in an economy. c. changes in the price of commercial real estate. d. expansions and contractions of the economy. e. measures of the standard of living.

c. changes in the price of commercial real estate.

6. Economists measure the total output of an economy in order to a. estimate the economy's consumption of resources. b. measure the overall level of prices. c. know how to adjust gross domestic product (GDP) for inflation. d. prevent the appearance of business cycles. e. gauge the economy's overall health.

c. know how to adjust gross domestic product (GDP) for inflation.

26. Inflation necessarily occurs when a. the price of gasoline rises. b. a greater number of goods increase in price compared to the number of goods that undergo a price decrease. c. the overall price level, such as the consumer price index (CPI), rises. d. there is an increase in the rate of change in the price level. e. the price of at least one good, but possibly more than one good, in the economy increases.

c. the overall price level, such as the consumer price index (CPI), rises.

8. Gross domestic product (GDP) is defined as the total of all final goods and services produced ________ during a fixed period of time. a. by a nation's public sector d. for export by a nation b. by a nation's private sector e. for domestic consumption c. within a nation's borders

c. within a nation's borders

38 The Great Depression actually consisted of two separate recessions. The "second wave" of the Great Depression began in ________ and lasted for ________ months. a. August 1929; 44 d. May 1937; 14 b. March 2001; 8 e. December 1974; c. December 2007; 18

d. May 1937; 14

39. The Great Depression is characterized by a decrease in aggregate demand. Of the following factors, which would have caused aggregate demand to decrease? a. an increase in the labor supply d. a decrease in expected future income b. an increase in the money supply e. an increase in government spending c. an advancement in technology

d. a decrease in expected future income

12. The phase of the business cycle where economic activity is decreasing is called a. an economic trough. b. the long-run trend of gross domestic product (GDP). c. an economic expansion. d. an economic contraction. e. an economic peak.

d. an economic contraction.

1. Macroeconomics is the study of: a. individual markets. b. the behavior of the firm. c. the behavior of the consumer. d. changes in national income. e. changes in commodity prices

d. changes in national income.

35. Expansionary fiscal policy occurs when the ________ to stimulate the economy toward expansion. a. government decreases spending or increases taxes b. government decreases spending or decreases taxes c. government increases spending or increases taxes d. government increases spending or decreases taxes e. Federal Reserve increases money supply.

d. government increases spending or decreases taxes

28. Typically, the largest percentage category in the consumer price index (CPI) is a. transportation. d. housing. b. education. e. medical care. c. food and beverages.

d. housing.

36 . Keynesian economists believe that a. the long run is more important than the short run. b. prices are flexible. c. savings is crucial to growth. d. more focus should be placed on aggregate demand than aggregate supply. e. the market tends toward stability and full employment.

d. more focus should be placed on aggregate demand than aggregate supply.

20. Workers who lose their jobs because of market innovations are considered a. discouraged workers. d. structurally unemployed. b. cyclically unemployed. e. employed. c. frictionally unemployed.

d. structurally unemployed.

25. Deflation is best described as when a. all prices in the economy fall. b. the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. c. the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. d. the overall level of prices of goods falls. e. the overall level of prices of goods rises.

d. the overall level of prices of goods falls.

23. Inflation occurs when a. all prices in the economy rise. b. the prices of some goods rise and prices of some goods fall, but more goods have price increases than decreases. c. the prices of some goods rise and prices of some goods fall, but fewer goods have price increases than decreases. d. the overall level of prices rises. e. all prices in the economy fall.

d. the overall level of prices rises.

2. Which of the following is a topic of microeconomics? a. the level of national income b. the level of employment in the country c. the prices of all goods in the country d. the profit of firms in the banking industry e. the level of national output

d. the profit of firms in the banking industry

29. According to the July 2015 consumer price index (CPI), the top three consumer expenditure categories are, respectively, a. housing, transportation, and entertainment. b. transportation, housing, and energy. c. housing, medical care, and food and beverages. d. transportation, housing, and medical care. e. housing, transportation, and food and beverages.

e. housing, transportation, and food and beverages.

37. Classical economists stress the importance of aggregate ________ and generally believe that the economy ________ to reach full-employment equilibrium on its own. a. supply and demand; needs help d. demand; does not need help b. demand; needs help e. supply; does not need help c. supply; needs help

e. supply; does not need help

3. Which of the following is a topic of macroeconomics? a. the income earned by a person b. the profit earned by a firm c. production in the computer industry d. the price of ice cream e. the number of unemployed people in the economy

e. the number of unemployed people in the economy