Macro Economics Test Answers – Flashcards

1. A point on a nation’s production-possibilities curve represents:

A. An undesirable combination of goods and services.

B. Combinations of production that are unattainable, given current technology and resources.

C. Levels of production that will cause both unemployment and inflation.

*D. The full employment of resources to achieve a particular combination of goods and services.*

3. The role of the entrepreneur in an economy is to:

*A. Bring the factors of production together and assume the risk of production.*

B. Work with government planners to determine what goods are produced.

C. Arrange bank financing for the owners of new businesses.

D. Ensure full employment of labor.

4. A consequence of the economic problem of scarcity is that:

*A. Choices have to be made about how resources are used.*

B. here is never too much of any good or service produced.

C. The production of goods and services must be controlled by the government.

D. The production-possibilities curve is bowed outward.

5. In terms of the production-possibilities curve, inefficiency is represented by:

A. All points on the curve.

B. All points outside the curve.

*C. All points inside the curve.*

D. A rightward shift of the curve.

6. Economics can be defined as the study of:

A. For whom resources are allocated to increase efficiency.

B. How society spends the income of individuals.

*C. How scarce resources are allocated to best meet society’s goals.*

D. What scarce resources are used to produce goods and services.

7. A production-possibilities curve indicates the:

A. Combinations of goods and services an economy is actually producing.

*B. Maximum combinations of goods and services an economy can produce given its available resources and technology.*

C. Maximum combinations of goods and services an economy can produce given unlimited resources.

D. Average combinations of goods and services an economy can produce given its available resources and technology.

8. Macroeconomics focuses on the performance of:

A. Individual consumers.

B. Government agencies.

*C. The overall economy.*

D. All of the above.

9. Opportunity cost is:

A. Only measured in dollars and cents.

B. The dollar cost to society of producing the goods.

C. The difficulty associated with using one good in place of another.

*D. The alternative that must be given up in order to get something else.*

10. When the invisible hand does not produce optimal outcomes for the economy, there is evidence of:

*A. Market failure.*

B. Government failure.

C. Macroeconomic failure.

D. Scarcity.

11. The fundamental problem of economics is:

A. The law of increasing opportunity costs.

*B. The scarcity of resources relative to human wants.*

C. How to get government to operate efficiently.

D. How to create employment for everyone.

13. The basic factors of production include:

A. Land, labor, money, and capital.

B. Land, labor, money, and inputs.

C. Labor and capital.

*D. Land, labor, capital, and entrepreneurship.*

14. A mixed economy:

A. Is justified by the superiority of laissez faire over government intervention.

*B. Utilizes both market and nonmarket signals to allocate goods and services.*

C. Relies on the use of central planning by private firms rather than the government.

D. Is one that allows trade with other countries.

15.If Korea is currently producing at efficiency, and it proceeds to increase the size of its military, then, as long as nothing else changes, its:

A. Production-possibilities curve will shift outward.

B. Production-possibilities curve will shift inward.

C. Production of non-military goods will increase.

*D. Production of non-military goods will decrease.*

1. If the population of a country is 250,000 people, its labor force consists of 145,000 people, 35,000 people are unemployed, 10,000 are unable to work, and 5,000 are unwilling to work, the unemployment rate is:

22.1 percent.

14.0 percent.

*24.1 percent.*

19.4 percent.

2. Suppose a country has 1 billion people, 75 percent of whom are in the labor force, with 90 million unemployed. Full employment occurs at 2 percent.

Based on the information above, by what percentage has real output failed to reach its potential according to the revised Okun’s Law?

A. 2 percent

B. 10 percent

C. 12 percent

*D. 20 percent*

3. The labor-force participation rate is the number:

A. Of unemployed divided by the number of employed.

B. Of employed divided by the number in the labor force.

C. Of employed divided by the total population.

*D. In the labor force divided by the total population.*

4. What is the likely consequence of an unemployment rate falling below the rate at which “full employment” is achieved?

A. The threat of recession

*B. Increased inflationary pressures*

C. An increase in discouraged workers

D. Political upheaval

5. When the U.S. unemployment rate decreased in the late 1990s, so did all of the following except:

A. Crime rates.

B. Divorce rates.

C. Child abuse.

*D. Income per capita.*

7. During an economic downturn, consumers spend considerably less on goods and services. This results in layoffs, and the laid off workers are classified as:

*A. Cyclically unemployed.*

B. Structurally unemployed.

C. Frictionally unemployed.

D. Seasonally unemployed.

8. All of the following are considered to be possible side effects of increased unemployment except:

A. Admissions to mental institutions.

B. Fatal heart attacks.

C. Increased crime.

*D. Decreased stress levels.*

9. Which of the following is included in the labor force?

A. A hard-working homemaker who does not want to be employed outside the home

B. A man doing ten years in prison for armed robbery

*C. The president of Microsoft*

D. A retired commander of the armed forces

10. Those that work part-time and do not desire full-time employment are referred to as:

*A. Employed.*

B. The phantom unemployed.

C. Underemployed

D. Discouraged workers.

11. According to Okun’s Law, if unemployment rises by 5 percent while imports and exports increase at roughly the same rate, the economy will lose output equal to:

A. 1 percent.

B. 2 percent.

C. 5 percent.

*D. 10 percent.*

13. The type of unemployment that economists generally associate with normal growth of the labor force and expanding job opportunities in a dynamic economy is:

*A. Frictional unemployment.*

B. Seasonal unemployment.

C. Cyclical unemployment.

D. Structural unemployment.

14. Automobile workers in Detroit who are unemployed because of foreign imports at the same time that job vacancies exist for coal miners in West Virginia would most likely be classified as:

*A. Structurally unemployed.*

B. Cyclically unemployed.

C. Frictionally unemployed.

D. Seasonally unemployed.

15. Suppose a country has 10 million people, three-fourths of those individuals are in the labor force, with 500,000 unemployed. Full employment occurs at 5 percent.

Based on the information above, what is the unemployment rate?

*A. 6.67 percent*

B. 75 percent

C. 7.5 percent

D. 5 percent

16. Jack graduated from college last month, but he has not yet started looking for a job. Jack is:

A. Frictionally unemployed.

B. Structurally unemployed.

B. A discouraged worker and is part of the unemployment statistic.

*D. Not part of the labor force and is not counted in the unemployment rate.*

17. Full employment in the U.S. economy means that:

A. Frictional unemployment has been reduced to zero.

B. The total unemployment rate has been reduced to zero.

*C. The economy has reached the lowest level of unemployment compatible with price stability.*

D. Structural unemployment has reached its minimum as a result of increased spending and the economy is moving toward the peak of the business cycle.

18. Unemployment is defined as:

*A. The inability of labor force participants to find jobs.*

B. The inability of citizens to find jobs that utilize their capabilities.

C. The proportion of the labor force that is unemployed.

D. A decrease in the labor force.

Unemployment was particularly high during:

*The Great Depression.*

World War II.

The Korean War.

The Vietnam War.

20. Suppose a country has 1 billion people, 75 percent of whom are in the labor force, with 90 million unemployed. Full employment occurs at 2 percent.

Based on the information above, what is the unemployment rate?

*A. 12.0 percent*

B. 25.0 percent

C. 9.0 percent

D. 8.3 percent

1. During a period of unanticipated inflation:

*A. Debtors are better off and creditors are worse off.*

B. Debtors and creditors are both better off because of lower real interest rates.

C. Individuals on fixed incomes are better off.

D. All individuals are worse off because of the level of uncertainty.

2. If nominal GDP is $9,600 billion and the GDP deflator is 118.5, then real GDP is:

A. $6,586.7 billion.

B. $10,852.7 billion.

C. $3,657.0 billion.

*D. $8,101.3 billion.*

3. All of the following are macroeconomic effects of inflation except:

A. Uncertainty.

B. Speculation.

C. Bracket creep.

*D. Lower taxes*

4. A friend tells you that his income has risen every year by 5 percent. At the same time prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend:

*A. Is experiencing money illusion.*

B. Really is better off as he suggests.

C. Has experienced an increase in nominal and real income.

D. Has experienced an increase in real income only.

5. If the price of iPods rises 10 percent during a year when the level of average prices rises 3 percent, the relative price of iPods compared with other goods:

A. Remains constant.

*B. Increases.*

C. Decreases.

D. More information is required to answer this question.

6. The Consumer Price Index is:

A. A measure of changes in the average price of all goods and services.

*B. A measure of changes in the average price of consumer goods and services.*

C. Used to measure the impact of business speculation on consumers.

D. The impact felt by consumers who move into a higher tax bracket because of inflation.

7. The term “nominal income” refers to:

A. Money income adjusted for any change in the price level.

B. Real purchasing power.

C. Real purchasing power deflated for rising prices.

*D. Money income measured in current dollars.*

8. If deflation is 0.5 percent per year and you receive a 1 percent decrease in your salary, then your:

A. Real income falls, but your nominal income remains unchanged.

*B. Real and nominal income both fall.*

C. Real income remains unchanged, but your nominal income rises.

D. Real and nominal income both rise.

9. Inflation is:

A. A rise in the price of every good and service.

B. An increase in relative prices of all goods and services.

C. A situation in which purchasing power increases.

*D. An increase in the average level of prices of goods and services.*

10. Inflation ________________ the purchasing power of money.

A. Increases

*B. Decreases*

C. Does not affect

D. Stabilizes

11. If the price of Bluetooth headsets rises 12 percent during a year when the level of average prices rises 13 percent, the relative price of Bluetooth headsets:

A. Remains constant.

B. Increases.

*C. Decreases.*

D. More information is required to answer this question.

12. Income in constant prices is:

A. Nominal income.

*B. Real income.*

C. Bracket creep.

D. Income effect.

13. If your rent increases from $1,000 to $1,100 over a period of one year and your income rises from $6,000 to $7,000, then it is true that your nominal income has:

A. Increased but your real income has decreased.

*B. Increased and your real income has increased.*

C. Decreased and your real income has decreased.

D. Increased but your real income has remained the same.

14. If the CPI increases from 110 to 125 for one year, the rate of inflation for that year is:

A. 15 percent.

*B. 13.6 percent.*

C. 1.13 percent.

D. 50 percent

15. Deflation is a/an ____________ in the average level of prices of goods and services.

A. Increase

*B. Decrease*

C. Stagnation

D. Increase followed by a decrease