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

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

Which of the following results from firms holding inventories?

answer

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

question

What is the difference between financial investment and economic investment?

answer

Financial investment refers to the purchase of assets for financial gain; economic

question

Which of the following is an example of economic investment?

answer

Nike buys a new machine that increases shoe production.

question

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

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

answer

Great Recession

question

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

Many economists believe that the widespread use of computerized inventory control systems:

answer

has reduced severity in the business cycle.

question

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

The business cycle is primarily concerned with changes in the level of overall prices over time.

answer

False

question

A sometimes short, sometimes extended period of declining output and living standards is referred to as a recession.

answer

True

question

The business cycle reflects both short-run fluctuations in output and long-run economic growth.

answer

True

question

Economists and policymakers are generally more concerned about nominal GDP than real GDP.

answer

False

question

Nominal GDP measures a nation's output in current year prices.

answer

True

question

Any person without a job is considered to be unemployed.

answer

False

question

Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.

answer

True

question

Inflation reduces the purchasing power of a person's income and savings.

answer

True

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.

answer

True

question

Real GDP measures the change in the price level over time.

answer

False

question

Modern economic growth refers to any situation where a nation's output increases.

answer

False

question

In order to achieve modern economic growth, a nation's output must grow faster than its population.

answer

True

question

A nation that realizes a 3 percent increase in its output per person is experiencing modern economic growth.

answer

True

question

Economists refer to purchases of stocks and bonds as "investment."

answer

False

question

The amount of investment in an economy is ultimately limited by the amount of savings in that economy.

answer

True

question

Increasing investment in the present means forgoing future consumption.

answer

False

question

A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption.

answer

True

question

Banks and other financial institutions provide the link between savers and economic investors in the macroeconomy.

answer

True

question

Economists believe that expectations have little impact on macroeconomic outcomes.

answer

False

question

Shocks occur when actual events do not match expectations.

answer

True

question

A demand shock occurs when large numbers of consumers unexpectedly reduce their purchases of goods and services

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.

answer

False

question

Demand shocks may be positive or negative.

answer

True

question

"Supply shocks" occur any time there is a change in the supply of goods and services.

answer

False

question

Economists believe that most short-run fluctuations in output are the result of supply shocks.

answer

False

question

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

answer

True

question

In the very short run, firms tend to respond to demand shocks by changing their prices.

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.

answer

True

question

Milk prices tend to be stickier than gasoline prices.

answer

True

question

Prices tend to be stickier in the shorter run than in the longer run.

answer

True

question

Prices tend to be sticky partially because sellers know that consumers prefer stable prices.

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.

answer

False

question

The "sticky price" model is the only one used by macroeconomists.

answer

False

question

The term "economic investment" refers only to money spent purchasing newly created capital goods such as factories, tools, and warehouses.

answer

True

question

If a farmer purchases 10 acres of farmland from a neighboring farmer, this would be considered an economic investment.

answer

False

question

If Ford Motor Company purchases factory equipment previously used by General Motors, this would be considered an economic investment.

answer

False

MacroEcon Midterm Set 1 – Flashcards

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