MacroEcon Midterm Set 1 – Flashcards

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Macroeconomics is mostly focused on:
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the economy as a whole.
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The two topics of primary concern in macroeconomics are:
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short-run fluctuations in output and employment, and long-run economic growth
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The business cycle depicts:
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short-run fluctuations in output and employment.
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The term "recession" describes a situation where:
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output and living standards decline
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Which of the following is most closely related to recessions?
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negative growth in output
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Which of the following statements is most accurate about advanced economies?
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Economies experience a positive growth trend over the long run, but experience significant variability in the short run.
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Real GDP measures the:
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value of final goods and services produced within the borders of a country, corrected for price changes.
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If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
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nominal GDP would rise, but real GDP would be unchanged.
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Real GDP is preferred to nominal GDP as a measure of economic performance because:
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nominal GDP uses current prices and thus may over- or understate true changes in output.
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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:
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increased nominal GDP from last year, but real GDP was unaffected.
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Why are high rates of unemployment of concern to economists?
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There is lost output that could have been produced if the unemployed had been working.
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Unemployment describes the condition where:
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a person cannot get a job, but is willing to work and is actively seeking work.
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Higher rates of unemployment are linked with:
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higher crime rates as the unemployed seek to replace lost income.
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Inflation is defined as:
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an increase in the overall level of prices
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Why are economists concerned about inflation?
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Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
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The three statistics that are the main focus for those measuring macroeconomic health are:
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real GDP, inflation, and unemployment.
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Modern economic growth refers to countries that have experienced an increase in:
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real output per person.
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Before the period of modern economic growth:
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rates of population growth virtually matched rates of output growth.
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In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation?
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the quantity of resources available to the economy
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Which of the following countries would economists say definitively is achieving modern economic growth?
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Nigeria experiences a 2.7 percent increase in real GDP per person.
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Which of the following is used to measure directly the average standard of living across countries?
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GDP per person
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Savings are generated whenever:
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current income exceeds current spending.
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When economists refer to "investment," they are describing a situation where:
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resources are devoted to increasing future output.
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Which of the following would an economist consider to be investment?
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Boeing building a new factory
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For an economy to increase investment, it must:
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increase saving.
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If an economy wants to increase its current level of investment, it must:
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sacrifice current consumption.
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Increased present saving:
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comes at the expense of reduced current consumption.
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Banks and other financial institutions:
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promote economic growth by helping to direct household saving to businesses that want to invest.
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Shocks to the economy occur:
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when expectations are unmet.
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Shocks to the economy occur when:
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actual economic events do not match what people expected.
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Demand shocks:
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refer to unexpected changes in the desires of households and businesses to buy goods and services.
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Which of the following is an example of a demand shock?
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Consumers become worried about job loss and buy fewer goods and services than expected
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Supply shocks:
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occur when sellers face unexpected changes in the availability and/or prices of key inputs.
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Which of the following is an example of a supply shock?
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A dramatic increase in energy prices increases production costs for firms in the economy.
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When demand shocks lead to recessions, it is mainly due to:
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price inflexibility.
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Which of the following results from firms holding inventories?
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Firms can maintain production levels and adjust inventories in response to demand shocks
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What is the difference between financial investment and economic investment?
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Financial investment refers to the purchase of assets for financial gain; economic
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Which of the following is an example of economic investment?
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Nike buys a new machine that increases shoe production.
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Suppose that Toyota buys a factory previous owned by Chrysler Motors. Economists would:
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not consider this to be an economic investment because no new capital is created through the purchase.
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In 2008 and 2009, the United States experienced what has come to be known as the:
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Great Recession
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The U.S. recession which occurred in 2008 and 2009 represented a case where:
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prices were relatively sticky and most of the impact was on total output.
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Many economists believe that the widespread use of computerized inventory control systems:
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has reduced severity in the business cycle.
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Computerized inventory tracking has been credited with reducing the number and severity of recessions because these tracking systems:
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allow firms to react more quickly and subtly to negative demand shocks, and avoid the large output reductions that frequently result in higher unemployment
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The business cycle is primarily concerned with changes in the level of overall prices over time.
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False
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A sometimes short, sometimes extended period of declining output and living standards is referred to as a recession.
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True
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The business cycle reflects both short-run fluctuations in output and long-run economic growth.
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True
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Economists and policymakers are generally more concerned about nominal GDP than real GDP.
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False
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Nominal GDP measures a nation's output in current year prices.
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True
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Any person without a job is considered to be unemployed.
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False
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Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.
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True
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Inflation reduces the purchasing power of a person's income and savings.
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True
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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.
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True
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Real GDP measures the change in the price level over time.
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False
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Modern economic growth refers to any situation where a nation's output increases.
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False
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In order to achieve modern economic growth, a nation's output must grow faster than its population.
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True
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A nation that realizes a 3 percent increase in its output per person is experiencing modern economic growth.
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True
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Economists refer to purchases of stocks and bonds as "investment."
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False
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The amount of investment in an economy is ultimately limited by the amount of savings in that economy.
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True
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Increasing investment in the present means forgoing future consumption.
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False
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A nation that wants to invest in more newly created capital in the present must be willing to forgo present consumption.
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True
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Banks and other financial institutions provide the link between savers and economic investors in the macroeconomy.
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True
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Economists believe that expectations have little impact on macroeconomic outcomes.
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False
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Shocks occur when actual events do not match expectations.
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True
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A demand shock occurs when large numbers of consumers unexpectedly reduce their purchases of goods and services
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True
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At the end of the summer driving season, the demand for gasoline typically declines. This is an example of a negative demand shock.
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False
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Demand shocks may be positive or negative.
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True
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"Supply shocks" occur any time there is a change in the supply of goods and services.
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False
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Economists believe that most short-run fluctuations in output are the result of supply shocks.
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False
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In the very short run, demand shocks will tend to change the level of output but have little effect on prices.
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True
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In the very short run, firms tend to respond to demand shocks by changing their prices.
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False
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In the short run, firms are more likely to respond to demand shocks by altering inventory levels than by changing how much they produce.
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True
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Milk prices tend to be stickier than gasoline prices.
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True
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Prices tend to be stickier in the shorter run than in the longer run.
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True
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Prices tend to be sticky partially because sellers know that consumers prefer stable prices.
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True
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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.
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False
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The "sticky price" model is the only one used by macroeconomists.
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False
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The term "economic investment" refers only to money spent purchasing newly created capital goods such as factories, tools, and warehouses.
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True
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If a farmer purchases 10 acres of farmland from a neighboring farmer, this would be considered an economic investment.
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False
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If Ford Motor Company purchases factory equipment previously used by General Motors, this would be considered an economic investment.
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False
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