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 produce 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:

answer

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

question

Why are high rates of unemployment concerns 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 ass 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 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 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 generate 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 an 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

Refers 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 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

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

Airline tickets

question

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

answer

o.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 sticky in the short run, but become more flexible over time.

question

The overall behavior of the economy:

answer

differs over time as prices become increasingly more 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.

question

The business cycle is primarily concerned with changes in the level of overall prices over time. (T/F)

answer

False

question

A sometimes short, sometimes extended period of declining output and living standards is referred to as a recession. (T/F)

answer

True

question

The business cycle reflects both short-run fluctuations in output and long-run economic growth. (T/F)

answer

True

question

Economists and policymakers are generally more concerned about nominal GDP than real GDP. (T/F)

answer

False

question

Nominal GDP measures a nation's output in current year prices. (T/F)

answer

True

question

Any person without a job is considered to be unemployed. (T/F)

answer

False

question

Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness. (T/F)

answer

True

question

Inflation reduces the purchasing power of a person's income and savings. (T/F)

answer

True

question

In 2007, unemployment rates in the United States exceeded the rates in Germany, India, and Poland. (T/F)

answer

False

question

In 2008-2009, the U.S. economy lost 8 million jobs and saw the unemployment rate rise from 4.6 percent to as high as 10.1 percent. (T/F)

answer

True

question

Real GDP measures the change in the price level over time. (T/F)

answer

True

question

Modern economic growth refers to any situation where a nation's output increases. (T/F)

answer

False

question

In order to achieve modern economic growth, a nation's output must grow faster than its population. (T/F)

answer

True

question

A nation that realizes a 3 percent increase in its output per person is experiencing modern economic growth. (T/F)

answer

True

question

Output per person has grown steadily since the beginning of the Roman Empire. (T/F)

answer

False

question

China's GDP per person in 2009 was less than one-tenth of U.S. GDP per person in the same year. (T/F)

answer

False

question

Economists refer to purchases of stocks and bonds as "investment." (T/F)

answer

False

question

The amount of investment in an economy is ultimately limited by the amount of savings in that economy. (T/F)

answer

True

question

Increasing investment in the present means forgoing future consumption. (T/F)

answer

False

question

A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption. (T/F)

answer

True

question

Banks and other financial institutions provide the link between savers and economic investors in the macroeconomy. (T/F)

answer

True

question

Shocks occur when actual events do not match expectations. (T/F)

answer

True

question

A demand shock occurs when large numbers of consumers unexpectedly reduce their purchases of goods and services. (T/F)

answer

True

question

At the end of the summer driving season, the demand for gasoline typically declines. This is an example of a negative demand shock. (T/F)

answer

False

question

Demand shocks may be positive or negative. (T/F)

answer

True

question

"Supply shocks" occur any time there is a change in the supply of goods and services. (T/F)

answer

False

question

Economists believe that most short-run fluctuations in output are the result of supply shocks. (T/F)

answer

False

question

Demand shocks cause problems in the macroeconomy primarily because prices are sticky. (T/F)

answer

True

question

In the very short run, demand shocks will tend to change the level of output but have little effect on prices. (T/F)

answer

True

question

In the very short run, firms tend to respond to demand shocks by changing their prices. (T/F)

answer

False

question

Negative demand shocks have a more significant impact on output and employment when prices are flexible. (T/F)

answer

False

question

In the short run, firms are more likely to respond to demand shocks by altering inventory levels than by changing how much they produce. (T/F)

answer

True

question

Milk prices tend to be stickier than gasoline prices. (T/F)

answer

True

question

Prices tend to be stickier in the shorter run than in the longer run. (T/F)

answer

True

question

Prices tend to be sticky partially because sellers know that consumers prefer stable prices. (T/F)

answer

True

question

Prices tend to be more flexible when there are only two or three rival firms rather than a large number of sellers in the market. (T/F)

answer

False

question

The "sticky price" model is the only one used by macroeconomists. (T/F)

answer

False

question

(Consider This) The term "economic investment" refers only to money spent purchasing newly created capital goods such as factories, tools, and warehouses. (T/F)

answer

True

question

(Consider This) If a farmer purchases 10 acres of farmland from a neighboring farmer, this would be considered an economic investment. (T/F)

answer

False

question

(Consider This) If Ford Motor Company purchases factory equipment previously used by General Motors, this would be considered an economic investment. (T/F)

answer

False

question

Short-run fluctuations in output and employment are referred to as:

answer

Business cycles

question

The situation where output and living standards decline is referred to as:

answer

A recessions

question

The major statistics that provide macroeconomists a picture of the health of an economy include the following, EXCEPT:

answer

Prices of oil and gasoline

question

Real gross domestic product:

answer

Measures the value of the final goods and services produces within the borders of a given country during a given time period corrected for changing prices

question

Real gross domestic product:

answer

Will increase if there is an increase in the level of output

question

Nominal gross domestic product:

answer

Measures the value of final goods and services produced within the borders of a given country during a given time period using current prices.

question

Nominal gross domestic product:

answer

Can change when there is a change in either output or the price level

question

Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to real GDP?

answer

Real GDP doesn't change

question

Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to nominal GDP?

answer

Nominal GDP doubles

question

Suppose a small economy produces only HD TV sets. In year 1, 100,000 sets are produced and sold at a price of $1,200 each. In year 2, 100,000 sets are produced and sold at a price of $1,000 each. As a result:

answer

Nominal GDP decreases, while real GDP remains constant

question

Suppose a small economy produces only MP3 players. In year 1, 10,000 MP3 players are produced and sold at a price of $100 each. In year 2, 12,000 MP3 players are produced and sold at a price of $80 each. Which of the following statements is true?

answer

Real GDP increases while nominal GDP decreases

question

Economists and policy makers are committed to encouraging a large and growing real GDP because

answer

More output means greater consumption opportunities

question

Higher rates of unemployment:

answer

Indicate that society is not using a large portion of the talent and skill of its people

question

High rates of unemployment are undesirable because they:

answer

Are associated with higher levels of crime and illness

question

An increase in the overall level of prices is called:

answer

Inflation

question

Inflation is troublesome to consumers because of the following effects, EXCEPT:

answer

Workers' wages may be rising faster than the overall prices

question

Which of the following is most likely to be indiction of higher unemployment?

answer

A decrease in real GDP

question

Suppose a family's income increases by 5% at the same time that inflation is 6%. Then:

answer

The family's standard of living will fall

question

If a family's income increases by 5% at the same time that inflation is 3.5%, then the:

answer

Family will need to spend more in order to maintain its standard of living.

question

Macroeconomic models help clarify important questions such as the following, EXCEPT:

answer

How will OPEC manipulate and maintain the price of crude oil in the world markets?

question

Rapid and sustained economic growth of nations:

answer

Is a modern phenomenon

question

The Industrial Revolution began in:

answer

England in the late 1700's

question

For many decades prior to the Industrial Revolution, the standards of living in England and China:

answer

Remained roughly constant

question

In earlier centuries, the Roman and Chinese economies:

answer

expanded but output per person remained virtually stagnant

question

Suppose the real GDP increase by 5% while the population of a country increases by 7%. Then

answer

Out put per person necessarily decreases

question

Modern Economic Growth:

answer

Makes a country's output per rise at a compounded rate

question

Under modern economic growth, the annual average increase in output per person is

answer

Often not large, perhaps 2% per year.

question

Before the late 1700's, living standards in the richest part of the world were

answer

At most only two or three times higher than living standards in the poorest parts of the world

question

Which of the following is not an adjustment made when comparing standards of living across countries?

answer

Adjusting for different unemployment rates across countries.

question

Purchasing Power Parity refers to

answer

adjusting GDP figures for the fact that prices are much lower in some countries than in others

question

In 2009, output per person in the U.S. was about

answer

$46,000 per year

question

Which among the following countries had the highest GDP per person in 2009

answer

Canada

question

Investment happens when:

answer

Resources are devoted towards increasing future output

question

Savings:

answer

Occur when current spending is less than current incomes

question

There is a trade-off between:

answer

current consumption and future consumption

question

The amount of investment is ultimately limited by the amount of:

answer

Capital

question

Which of the following statements if true?

answer

Economic investment refers to the creation and expansion of business enterprises

question

Which of the following is the best example of financial investment?

answer

A retiree purchases Google stock

question

Which of the following is the best example of economic investment?

answer

Apple builds a new plant to manufacture iPads

question

Which of the following is the best example of investment as defined by economists?

answer

A restaurant owner buys a freezer to store ingredients for the restaurant meals

question

One principle of economic growth is the notion that, to raise living standards over time, an economy must:

answer

Devote some portion of its current output to increasing its future output

question

Which of the following is the principle source of savings in an economy?

answer

Households

question

Savings are transferred from savers to borrowers through the following intermediaries, EXCEPT:

answer

Real Estate Brokers

question

Decisions about savings and investment are:

answer

complicated by the fact that the future is uncertain

question

Increased optimism about the future will lead to:

answer

More current investment and more future comsumption

question

Situations in which firms expect one thing to happen but then something else happens are called:

answer

Shocks

question

In economics, the work "Shocks" refers to:

answer

Situations were firms' expectations are not met

question

Sharply rising oil prices are most likely to lead to a:

answer

negative supply shock

question

If consumers become pessimistic, the economy is likely to experience a:

answer

Negative demand shock

question

An increase in worker productivity will lead to a:

answer

Positive supply shock

question

The term "Shock":

answer

Does not tell us whether what has happened is unexpectedly bad or unexpectedly good

question

What impact will a negative demand shock have on the main measures of economic performance?

answer

Real GDP will decrease, inflation will decrease, and unemployment will increase

question

What impact will a negative supply shock have on the main measures of economic performance?

answer

Real GDP will decrease, inflation will increase, and unemployment will increase

question

Economists believe that most short-run fluctuations:

answer

Are the results of demand shocks

question

If prices are "sticky" in the short run, then:

answer

The economy will respond to demand shocks primarily through changes in output and employment

question

If prices are inflexible, then a negative demand shock will lead to:

answer

a short-run decrease in real GDP

question

Because prices are sticky, positive demand shock will lead to:

answer

a decrease in unemployment

question

Business cycle fluctuations typically arise because:

answer

The actual demand for goods and services ends up being more or less than what firms were expecting

question

Which of the following statements is true?

answer

If prices were fully flexible, there would be no short-run economic fluctuations

question

If prices of goods and services quickly adjust to demand shocks, then

answer

Firms would find it easier to produce at their optimal output rates

question

If prices of goods and services are free to quickly adjust, then:

answer

A negative demand shock would have no short-run effect on unemployment

question

If prices of goods and services are inflexible, then:

answer

A positive demand shock would lead to increased real GDP in the short-run

question

Inventories:

answer

Tend to reduce the severity of short-run fluctuations

question

Inventories rise when:

answer

Actual demand for output is less than expected

question

Suppose that inventories are rising. We could expect that, in the future:

answer

Real GDP will likely decrease

question

Suppose that inventories are falling. We could expect that, in the future:

answer

Unemployment will likely decrease

question

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a negative demand shock?

answer

Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase.

question

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a positive demand shock.

answer

Firms' inventories will decrease, causing them to increase production. Ultimately, real GDP will increase, and unemployment will decrease.

question

Which of the following markets is most likely to exhibit extremely flexible prices?

answer

The oil market

question

For which of the following goods is the price least likely to be flexible?

answer

Newspapers

question

Which of the following statements about price stickiness or flexibility is true?

answer

Prices of many raw materials are much more flexible than the prices of final goods and services

question

Which of the following is NOT a factor that increases short-run price stickiness?

answer

A firm can lower its price without fear that rival firms ill also lower their prices

question

Price wars:

answer

Occur when one firms lowers its price and rival firms react by lowering their prices

question

Which of the following statements about price wars is true?

answer

Firms that have to deal with the possibility of price wars often have sticky prices.

question

In macroeconomic models, prices are assumed to be completely inflexible in:

answer

The short-run only

question

Firms that choose to use a fixed-price policy:

answer

Will tend to experience larger inventory changes than firms that follow a flexible-price policy

question

Economists need different models of the economy because:

answer

The economy behaves differently depending on how much time has passes after a demand shock

question

Many Economists believe that over several decades before the great recession occurred:

answer

Economic fluctuations have become much less severe because of the introduction of computerized inventory tracking systems

question

The so-called Great Recession in the U.S. occurred in:

answer

2007-2009

question

During the Great Recession, the U.S. car companies experienced a demand shock, and as it turned out:

answer

Production fell because prices were sticky

question

Before computers, businesses counted their inventory so infrequently that changes in production needed to respond to changes in demand:

answer

were quite sharp

question

Computerized inventory tracking has enabled businesses to do the following, EXCEPT:

answer

wait a longer period before adjusting production levels to changes in demand

question

Business cycles refer to short term fluctuations in prices. (T/F)

answer

False

question

Real GDP can change due to changes in the price level. (T/F)

answer

False

question

If nominal GDP is rising faster than real GDP, then inflation must be occurring. (T/F)

answer

True

question

If nominal GDP increases form one year to the next, then we know that the economy's out has grown. (T/F)

answer

False

question

Inflation refers to an increase in the overall level of prices. (T/F)

answer

True

question

The Industrial Revolution began in England in the late 1700's. (T/F)

answer

True

question

Citizens living in the richest nations today have material standards of living that are on average more than 50 times higher than people living in the poorest countries. (T/F)

answer

True

question

Savings are generate when current consumption is less than the current output. (T/F)

answer

True

question

Buying 100 shares of Google stock would be an example of economic investment. (T/F)

answer

False

question

Economists use the word investment to refer to the purchase of assets such as stocks, bonds, and real estate. (T/F)

answer

False

question

Investment is ultimately limited by the amount of savings in the economy. (T/F)

answer

True

question

The opportunity cost of investment is a reduction in future consumption. (T/F)

answer

False

question

Businesses are the main economic investors, while households are the main savers. (T/F)

answer

True

question

Economists believe that short0run fluctuations are the result of supply shocks. (T/F)

answer

False

question

When prices are inflexible, the economy will respond to demand shocks through short run changes in output and unemployment. (T/F)

answer

True

question

If expectations are always met, then firms would never contribute to any of the short-run fluctuations in employment and output that are observed in real-world economies. (T/F)

answer

True

question

If the price of goods and services were flexible, then the economy could always produce at its optimal capacity. (T/F)

answer

True

question

An unexpected negative demand shock would lead to a decrease in inventories. (T/F)

answer

False

question

An unexpected negative demand shock would lead to a decrease in real GDP. (T/F)

answer

True

question

Sticky prices could be the result of the firm being afraid of price wars. (T/F)

answer

True

question

Price stickiness tends to moderate over time. (T/F)

answer

True

question

Economists use different models of the economy because the economy behaves differently depending on how much times has passes after a demand shock. (T/F)

answer

True

Chp 1: Macro Economics Flashcards

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