Chapter 6: The Big Picture – Flashcards
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Deflation: 1.) is caused by changes in interest rates 2.) raises the cost of making purchases 3.) can result in an increase in employment 4.) encourages people to hold cash rather than invest
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4.) encourages people to hold cash rather than invest
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According to official statistics for the United States, since the Great Depression: 1.) the economy had longer recessions than expansions only during the 1960s and 1990s 2.) economy has not had another severe and prolonged economic downturn comparable to it 3.) the economy has constantly had positive real GDP growth rates 4.) economists are confident that the business cycle has been tamed
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2.) economy has not had another severe and prolonged economic downturn comparable to it
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Keynesians argue that low levels of spending: 1.) are irrelevant 2.) are evident only during expansions 3.) can lead to prolonged recessions 4.) are not helped by monetary or fiscal policy efforts
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3.) can lead to prolonged recessions
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Fiscal policy entails: 1.) setting interest rates in specific markets 2.) setting levels of taxation and/or government spending 3.) setting the money supply 4.) correcting only recessionary problems
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2.) setting levels of taxation and/or government spending
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Inflation affects people adversely because: 1.) purchasing power tends to increase 2.) the budget deficit increases 3.) nominal income falls 4.) it causes money to lose its value over time
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4.) it causes money to lose its value over time
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If during several months the economy is simultaneously increasing its levels of output and employment, then the economy is in a(n): 1.) depression 2.) turning point between a recovery and a downturn 3.) expansion 4.) recession
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3.) expansion
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Which of the following statements is TRUE? 1.) Since World War II, the economy of Argentina has grown faster than the economy of Canada 2.) Long-run growth models and business cycle models are the same 3.) In the past century, the population of the United States has grown faster than output 4.) The level of saving is important for long-run growth
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4.) The level of saving is important for long-run growth
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An economic expansion in the United States is typically associated with a(n): 1.) decrease in corporate profits 2.) increase in the poverty rate 3.) falling inflation rate 4.) falling unemployment rate
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4.) falling unemployment rate
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The relationship between a country's level of saving and investment: 1.) has often been used to correct a trade deficit but not a trade surplus 2.) pertains to trade surpluses only 3.) does not affect an open economy 4.) affect its trade balances
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4.) affect its trade balances
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If a country has a trade deficit, does it indicate that the country has a serious problem? 1.) Yes. Trade deficit occur when a country has a high budget surplus 2.) Yes. Trade deficits occur when a country does not have a comparative advantage in production 3.) No. Trade deficits occur when a country's investment spending is higher than its level of saving 4.) Yes. Trade deficits occur when a country has low productivity
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3.) No. Trade deficits occur when a country's investment spending is higher than its level of saving
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In the paradox of thrift: 1.) firms that are pessimistic about the future lay off the most saving conscientious workers 2.) increased saving by individuals increases their chances of becoming unemployed 3.) risky behavior during economic tough times has large negative consequences for society 4.) when families and businesses are feeling pessimistic about the future, they spend more
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2.) increased saving by individuals increases their chances of becoming unemployed
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Fiscal policy refers to changes in _________to affect overall spending in the economy: 1.) interest rates 2.) the quantity of money 3.) interest rates and of government spending 4.) government spending and taxation
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4.) government spending and taxation
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For the past several months, per capita output has increased at a slower and slower rate. Over the same period, the unemployment rate has been falling, but it appears to have leveled off and may soon rise. Where in the business cycle is the economy? 1.) trough 2.) expansion 3.) peak 4.) recession
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3.) peak
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Recessions tend to be ________, and expansions tend to be _________ 1.) short; long 2.) short; short 3.) long; short 4.) long; long
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1.) short; long
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Changing the level of government spending is an example of ________ policy. 1.) monetary 2.) fiscal 3.) exchange rate 4.) interest rate
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2.) fiscal
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Which of the following statements is CORRECT? 1.) when the economy is in recession and jobs are hard to find, inflation tends to fall 2.) inflation affects only the more advanced countries, whereas less advanced countries face deflation 3.) prices of most goods and services remained stable during the Great Depression 4.) supply and demand cannot explain why a particular good or service becomes more expensive relative to other goods and services
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1.) when the economy is in recession and jobs are hard to find, inflation tends to fall
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In the United States, recessions are typically associated with a(n): 1.) falling unemployment rate 2.) decrease in the number of people living in poverty 3.) increase in corporate profits 4.) decrease in the percentage of Americans with health insurance
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4.) decrease in the percentage of Americans with health insurance
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If workers nominal wages have risen by 50% over a 10 years and prices have increased by 40% in the same period, then we can safely conclude that the amount of goods and services workers can buy has: 1.) not changed 2.) fallen 3.) increased 4.) decreased in quality
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3.) increased
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When an economy is expanding unemployment tends to __________ and overall prices tend to ________ 1.) fall; fall 2.) fall; rise 3.) rise; fall 4.) rise; rise
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2.) fall; rise
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An open economy: 1.) allows free practice of speech and religion 2.) trades goods and services with other countries 3.) does not regulate its industries 4.) does not impose taxes on its citizens
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2.) trades goods and services with other countries
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Fiscal and monetary policies: 1.) have been used by the government for over 250 years 2.) are used to correct for short term economic fluctuations 3.) are most effective in microeconomic settings 4.) have no role in macroeconomic policies
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2.) are used to correct for short term economic fluctuations
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In contrast to the conclusions drawn from microeconomics, many economists argue that in macroeconomics, government: 1.) taxation of goods and services does not cause a deadweight loss of economic welfare 2.) intervention in markets usually leaves society as a whole worse off 3.) intervention in markets can prevent or reduce the effects of adverse events on the macroeconomy 4.) control of rent prices increases overall economic activity
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3.) intervention in markets can prevent or reduce the effects of adverse events on the macroeconomy
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Promotion of employment and growth in the economy as a whole is the focus of: 1.) microeconomics 2.) macroeconomics 3.) monetary policies 4.) fiscal policy
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2.) macroeconomics
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Historical evidence shows that for determining a country's living standards, over: 1.) an extended period, long-run growth is just as important as the business cycle 2.) short periods, long-run growth is less important than the business cycle 3.) long periods, it is difficult to determine whether the business or long run growth is more important 4.) an extended period, long-run growth is much more important than the business cycle
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4.) an extended period, long-run growth is much more important than the business cycle
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One normally expects that unemployment increases while aggregate output and aggregate incomes decrease during: 1.) the peak of the business cycle 2.) government intervention 3.) a recession 4.) an expansion
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3.) a recession
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The topics studied in macroeconomics include: 1.) monopolies 2.) mergers 3.) spillovers, such as pollution 4.) inflation
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4.) inflation
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Modern macroeconomic tools used by the government are _________ policy and_______ policy. 1.) monetary: exchange rate 2.) tax; antitrust 3.) capital; labor 4.) fiscal; monetary
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4.) fiscal; monetary
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In macroeconomics: 1.) individual and firm decisions regarding utility and profit maximization are studied 2.) market intervention from the government is not considered important 3.) aggregate data such as real GDP, the price level, and unemployment are analyzed 4.) long-term growth is not considered to be important
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3.) aggregate data such as real GDP, the price level, and unemployment are analyzed
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The topics studied in macroeconomics include: 1.) how much ice cream consumers buy 2.) the price of a motorcycle 3.) the wages of engineers 4.) the average price level in the economy
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4.) the average price level in the economy
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If all of the households and businesses start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as: 1.) the permanent income hypothesis 2.) the paradox of thrift 3.) the quantity theory 4.) the crowding-out theory
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2.) the paradox of thrift
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Which question is the most appropriate to the study of MICROECONOMICS? 1.) How does the level of interest rates affect investment spending? 2.) How does the GDP affect overall government spending? 3.) How much will Sony charge for the new game system to be introduced later this year? 4.) How does the aggregate price level affect consumer spending?
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3.) How much will Sony charge for the new game system to be introduced later this year?
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Expansions are periods when real GDP and employment are growing 1.) True 2.) False
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1.) True
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An increase in the nation's _______ is generally accepted as a long-run indicator of a rising standard of living. 1.) output per person 2.) trade deficit 3.) unemployment rate 4.) inflation rate
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1.) output per person
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A rubbernecking traffic jam is an example of: 1.) individual behavior that has a large aggregate impact 2.) an outcome smaller than the sum of its parts 3.) microeconomics in action 4.) the paradox of thrift
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1.) individual behavior that has a large aggregate impact
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When an economy's overall production grows faster than its population, it is undergoing: 1.) long-run growth per capita 2.) an increase in nominal GDP 3.) deflation 4.) the paradox of thrift
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1.) long-run growth per capita
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Use of fiscal policy involves changes in: 1.) the quantity of money 2.) government spending 3.) the quantity of money and interests rates 4.) interest rates
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2.) government spending
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Look at the figure The Business Cycle. The movement from point B to C is called a(n): 1.) peak 2.) expansion 3.) trough 4.) depression
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2.) expansion
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In the long run the overall price level is mainly determined by: 1.) the government's budgetary policies 2.) changes in the money supply 3.) the business cycle 4.) the price of crude oil
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2.) changes in the money supply
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An economic recovery encompasses all of the following EXCEPT: 1.) a short-run increase in aggregate production 2.) the end of the business cycle 3.) sustained economic growth 4.) a time of increasing employment
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2.) the end of the business cycle
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Keynesian economics stressed: 1.) the long run 2.) that the Depression should run its course to bring down the high cost of living 3.) the self-correcting power of free markets 4.) the importance of total spending
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4.) the importance of total spending
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One of the issues of importance to macroeconomics is: 1.) understanding how living standards change over time 2.) the behavior of individual markets 3.) how firms determine the profit maximizing level of output 4.) the behavior of individuals and their allocation of income
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1.) understanding how living standards change over time
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John Maynard Keynes believed that the government should: 1.) actively try to mitigate the effects of recessions by using fiscal and monetary policies 2.) not interfere with the economy but let the economy self-correct 3.) intervene only when there is a boom but let the recession run its course 4.) not use fiscal and monetary policies, as these policies have long-term adverse effects
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1.) actively try to mitigate the effects of recessions by using fiscal and monetary policies
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Long-run growth is the sustained upward trend in: 1.) interest rates over time 2.) aggregate output per person over the business cycle 3.) aggregate output per person over several decades 4.) the unemployment rate over time
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3.) aggregate output per person over several decades
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The central mission of modern macroeconomics is to prevent: 1.) a deep recession like the Great Depression 2.) high gas prices 3.) surpluses 4.) shortages
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1.) a deep recession like the Great Depression
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In many countries, economists adopt the rule that a recession is a period of at least ________ during which aggregate output falls. 1.) one quarter 2.) a full year 3.) two consecutive quarters 4.) three consecutive quarters
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3.) two consecutive quarters
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Which would most likely be a MICRECONOMIC question? 1.) Should I go to business school or take a job? 2.) What determines the level of output for the economy as a whole? 3.) What determines the overall salary levels paid to workers in a given year? 4.) What government policies should be adopted to promote full employment and growth?
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1.) Should I go to business school or take a job?
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Business cycles are defined by the expansion, contraction, then expansion again of nominal GDP. 1.) True 2.) False
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2.) False
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The paradox of thrift highlights: 1.) the role of investment in the macroeconomy. 2.) how individual decisions to save more may worsen a recession 3.) how an increase in spending occurs during recession 4.) irrational behavior on the part of households
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2.) how individual decisions to save more may worsen a recession
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The additional profit by Microsoft Corporation by marketing and using a proprietary method of coding software is a microeconomic issue. 1.) True 2.) False
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1.) True
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With inflation: 1.) all prices must be increasing 2.) overall prices are increasing, although some may be decreasing 3.) the economy must be producing at full employment 4.) the economy must be contracting
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2.) overall prices are increasing, although some may be decreasing
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Look at the figure The Business Cycle. Point B on this graph shows a(n): 1.) recession 2.) trough 3.) expansion 4.) peak
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2.) trough
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The purpose of macroeconomic policy is to: 1.) rein in excessively strong expansions 2.) bring unemployment closer to the natural rate, rein in excessively strong expansions, and reduce the severity of recessions 3.) bring unemployment closer to the natural rate 4.) reduce the severity of recessions
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2.) bring unemployment closer to the natural rate, rein in excessively strong expansions, and reduce the severity of recessions
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If an economy is open: 1.) trading with other countries makes up a portion of its economy 2.) anyone can immigrate to the country 3.) its real GDP will drop 4.) it does not trade with other countries
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1.) trading with other countries makes up a portion of its economy
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A nation whose value of imports exceed its value of exports is said to have: 1.) a trade deficit 2.) price stability 3.) a trade surplus 4.) hyperinflation
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1.) a trade deficit
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If the economy grew at 3% this year and average prices increased ________, people would be better off this year than last year. 1.) faster than 3% 2.) less than 3% 3.) 3% 4.) faster than 10%
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2.) less than 3%
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Monetary and fiscal policy are tools to reduce the severity of recessions. 1.) True 2.) False
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1.) True
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If a country runs a trade deficit, its investment spending is probably: 1.) equal to zero 2.) above its level of saving 3.) equal to its level of saving 4.) less than its level of saving
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2.) above its level of saving
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During a recession, one will often observe: 1.) rising aggregate output 2.) zero unemployment rates 3.) rising unemployment rates and falling aggregate output 4.) rising unemployment rates
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3.) rising unemployment rates and falling aggregate output
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When economists measure economic growth, they often use: 1.) real GDP 2.) nominal GDP 3.) the inflation rate 4.) the unemployment rate
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1.) real GDP
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In an open economy: 1.) the exchange rate is determined by the government 2.) there is trade in goods, services, and/or assets with other countries 3.) specialization in activities with a comparative advantage is not possible 4.) trade is beneficial only to the larger economy
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2.) there is trade in goods, services, and/or assets with other countries
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If wages grew at 5% last year and average prices grew at 3%, then the average worker: 1.) is worse off 2.) is better off 3.) is unaffected 4.) has lost purchasing power
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2.) is better off
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In the consumer price index of the United States: 1.) the base-period index is always equal to 100 2.) the base period is 1982-1984 3.) the current cost of a basket of goods is compared to the base-period cost of the same basket of goods 4.) the current cost of a basket of goods is compared to the base-period cost of the same basket of goods. The calculation of the base-period index is always equal to 100, and the base period is 1982-1984
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4.) the current cost of a basket of goods is compared to the base-period cost of the same basket of goods. The calculation of the base-period index is always equal to 100, and the base period is 1982-1984
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An increase in the nation's _____ is generally accepted as a long-run indicator of a rising standard of living. 1.) trade deficit 2.) output per person 3.) unemployment rate 4.) inflation rate
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2.) output per person
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Changing interest rates is an example of ________ policy. 1.) fiscal 2.) tax 3.) exchange rate 4.) monetary
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4.) monetary
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Long-run economic growth is best measured by: 1.) a sustained rise in the production of goods and services 2.) the rate of private saving 3.) trade surpluses in the long run 4.) the growth of the money supply
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1.) a sustained rise in the production of goods and services
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Which is a microeconomic question rather than a macroeconomic question? 1.) Will a decrease in the income tax rate lead to a government budget deficit? 2.) Will a decrease in the income tax rate lift the nation out of a recession? 3.) Will an increase in consumer spending cause inflation? 4.) Will an increase in the cigarette tax reduce the number of packs sold?
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4.) Will an increase in the cigarette tax reduce the number of packs sold?
