Macro Big Quiz
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 to demand 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.
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.
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
Shocks to the economy occur when
actual economic events do not match what people expected.
Refer to the figure. Assuming this 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 firms are likely to hold inventories to accommodate unexpected changes in demand?
B only
Refer to the figures. Which figure(s) represent(s) a situation where prices are sticky?
B only
Which of the following is an example of a demand shock?
Consumers become worried about job loss and buy fewer goods and services than expected.
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.
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 consumers.
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, $20 each. Based on this information, we can conclude that Camille's production of cakes
increased both nominal and real GDP from last year.
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) but sold them for $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 Parlor 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.
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.
Real GDP is preferred to nominal GDP as a measure of economic performance because
nominal GDP uses current prices and thus may over or understate true changes in output.
Modern economic growth refers to countries that have experienced an increase in
output per person
Modern economic growth refers to countries that have experienced an increase in
output per person.
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 "investment," 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
The average amount of time between price changes for gasoline is
two to three weeks.
Real GDP measures the
value of final goods and services produced within the borders of a country, corrected for price changes.
