question

Macroeconomics is mostly focused on:

answer

the economy as a whole.

question

The two topics of primary concern in macroeconomics are:

answer

short-run fluctuations in output and employment, and long-run economic growth.

question

The business cycle depicts:

answer

short-run fluctuations in output and employment.

question

The term "recession" describes a situation where:

answer

output and living standards decline.

question

Which of the following is most closely related to recessions?

answer

negative growth in output

question

Which of the following statements is most accurate about advanced economies?

answer

Economies experience a positive growth trend over the long run, but experience significant variability in the short run.

question

Real GDP measures the:

answer

value of final goods and services produced within the borders of a country, corrected for price changes.

question

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

answer

nominal GDP would rise, but real GDP would be unchanged.

question

Real GDP is preferred to nominal GDP as a measure of economic performance because:

answer

nominal GDP uses current prices and thus may over- or understate true changes in output.

question

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:

answer

increased nominal GDP from last year, but real GDP was unaffected.

question

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:

answer

increased nominal GDP by $20,000, but left real GDP unchanged.

question

Why are high rates of unemployment of concern to economists?

answer

There is lost output that could have been produced if the unemployed had been working.

question

Unemployment describes the condition where:

answer

a person cannot get a job, but is willing to work and is actively seeking work.

question

Higher rates of unemployment are linked with:

answer

higher crime rates as the unemployed seek to replace lost income.

question

Inflation is defined as:

answer

an increase in the overall level of prices.

question

Why are economists concerned about inflation?

answer

Inflation lowers the standard of living for people whose income does not increase as fast as the price level.

question

The three statistics that are the main focus for those measuring macroeconomic health are:

answer

real GDP, inflation, and unemployment.

question

Modern economic growth refers to countries that have experienced an increase in:

answer

real output per person.

question

Before the period of modern economic growth:

answer

rates of population growth virtually matched rates of output growth.

question

In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation?

answer

the quantity of resources available to the economy

question

Which of the following countries would economists say definitively is achieving modern economic growth?

answer

Nigeria experiences a 2.7 percent increase in real GDP per person.

question

Which of the following is used to measure directly the average standard of living across countries?

answer

GDP per person

question

Savings are generated whenever:

answer

current income exceeds current spending.

question

When economists refer to "investment," they are describing a situation where:

answer

resources are devoted to increasing future output.

question

Which of the following would an economist consider to be investment?

answer

Boeing building a new factory

question

For an economy to increase investment, it must:

answer

increase saving.

question

If an economy wants to increase its current level of investment, it must:

answer

sacrifice current consumption.

question

Increased present saving:

answer

comes at the expense of reduced current consumption.

question

Banks and other financial institutions:

answer

promote economic growth by helping to direct household saving to businesses that want to invest.

question

Shocks to the economy occur:

answer

when expectations are unmet.

question

Shocks to the economy occur when:

answer

actual economic events do not match what people expected.

question

Demand shocks:

answer

refer to unexpected changes in the desires of households and businesses to buy goods and services.

question

Which of the following is an example of a demand shock?

answer

Consumers become worried about job loss and buy fewer goods and services than expected.

question

Supply shocks:

answer

occur when sellers face unexpected changes in the availability and/or prices of key inputs.

question

Which of the following is an example of a supply shock?

answer

A dramatic increase in energy prices increases production costs for firms in the economy.

question

When demand shocks lead to recessions, it is mainly due to:

answer

price inflexibility.

question

Suppose that Techno TV produces LCD televisions. At a price of $2,000 per television, Techno determines that its optimal output is 3000 television sets per week. If prices are sticky and fears of a recession reduce demand for LCD televisions, we would expect Techno to:

answer

reduce output in the short run.

question

The figure above depicts a situation where:

answer

prices are flexible, but output is constant.

question

Refer to the figure above. Assuming this market is representative of the economy as a whole, this economy:

answer

is capable of always producing at its optimal capacity.

question

Refer to the figure above. Assuming this market is representative of the economy as a whole, a positive demand shock will:

answer

raise the price level, but leave output unchanged.

question

Refer to the figure above. Assuming this market is representative of the economy as a whole, a negative demand shock will:

answer

lower prices, but leave output unaffected.

question

The figure above depicts a situation where:

answer

prices are sticky, but output is flexible.

question

Refer to the figure above. Assuming this market is representative of the economy as a whole, this economy:

answer

faces fluctuating output levels whenever there is a demand shock.

question

Refer to the figure above. Assuming this market is representative of the economy as a whole, a positive demand shock will:

answer

increase output, but leave prices unchanged.

question

Refer to the figure above. Assuming this market is representative of the economy as a whole, a negative demand shock will most likely:

answer

increase unemployment.

question

Refer to the above figures. Which figure(s) represent a situation where prices are flexible?

answer

A only.

question

Refer to the above figures. Which figure(s) represent a situation where prices are sticky?

answer

B only.

question

Refer to the above figures. Which figure(s) represent a situation where negative demand shocks can result in a recession?

answer

B only.

question

Refer to the above figures. Which of the following events would most likely result in higher unemployment?

answer

A shift from D2 to D1 in Figure B.

question

Refer to the above figures. Which of the following events would most likely result in inflation?

answer

A shift from D2 to D3 in Figure A.

question

Refer to the above figures. Which figure(s) represent a situation where firms are likely to hold inventories to accommodate unexpected changes in demand?

answer

B only.

question

Which of the following results from firms holding inventories?

answer

Firms can maintain production levels and adjust inventories in response to demand shocks.

question

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:

answer

sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs.

question

In situations of sticky prices and negative demand shocks we would expect firms to:

answer

build up inventories before reducing production.

question

Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?

answer

Firms respond to shorter term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.

question

For which of the following goods or services are prices most sticky?

answer

Coin-operated laundry machines

question

For which of the following goods or services are prices least sticky?

answer

Airlines tickets

question

The average number of months between price changes for gasoline is:

answer

0.6

question

Prices for airline tickets change on average about once per month. This would suggest that airline ticket prices are:

answer

relatively flexible

question

Prices tend to be sticky because:

answer

firms are worried that frequent price changes would annoy consumers.

question

Which of the following best explains why prices tend to be inflexible even when demand changes?

answer

Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

question

Prices are particularly sticky:

answer

when there are widespread macroeconomic and monetary disturbances in the economy.

question

Which of the following statements best describes price flexibility in the economy?

answer

Prices tend to be sticky in the short run, but become more flexible over time.

question

Refer to the above figures. As the economy moves from the very short run to the longer run, we would expect:

answer

the representation of the economy to move from Figure B to Figure A.

question

Refer to the above figures. In terms of representing the economy:

answer

Figure B represents the very short run, where prices are sticky, and Figure A represents the longer run.

question

Refer to the above figures. If government policy can be used to affect the level of demand in the economy, these figures suggest that government policy:

answer

can affect the level of output in the very short run, when prices are stuck.

question

The overall behavior of the economy:

answer

differs over time as prices become increasingly flexible in the months and years following a shock.

question

(Consider This) What is the difference between financial investment and economic investment?

answer

Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.

question

(Consider This) Which of the following is an example of economic investment?

answer

Nike buys a new machine that increases shoe production.

question

(Consider This) Suppose that Toyota buys a factory previous owned by Chrysler Motors. Economists would:

answer

not consider this to be an economic investment because no new capital is created through the purchase.

question

(Consider This) In 2008 and 2009, the United States experienced what has come to be known as the:

answer

Great Recession

question

(Consider This) The U.S. recession which occurred in 2008 and 2009 represented a case where:

answer

prices were relatively sticky and most of the impact was on total output.

question

(Last Word) Many economists believe that the widespread use of computerized inventory control systems:

answer

has reduced severity in the business cycle.

question

(Last Word) Computerized inventory tracking has been credited with reducing the number and severity of recessions because these tracking systems:

answer

allow firms to react more quickly and subtly to negative demand shocks, and avoid the large output reductions that frequently result in higher unemployment.

question

(Last Word) Which of the following statements is true about computerized inventory tracking systems and the severity of recessions?

answer

While these systems are credited with reducing business cycle severity prior to the recession of 2007-2009, some economists believe that they contributed to the suddenness and severity of the 2007-2009 recession.

Chapter 6 An Introduction to Macroeconomics A – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards