Chapter 1: Introduction

Difficulty: Easy
1. Which of the following is NOT a central issue in macroeconomics?
A) How shoul the central !an" of a country fight inflation?
#) What is res$onsi!le for high an $ersistent unem$loyment?
%) How o ta& changes influence consumers' choices of what to !uy?
D) What factors etermine economic growth?
E) What can or shoul the go(ernment o to sta!ili)e the economy?
Ans: %
Difficulty: Easy
*. +acroeconomics oes NOT focus on
A) $olicies that affect consum$tion an sa(ing
#) $olicies that affect the $erformance of the health care sector
%) the etermination of changes in wages an $rices
D) the etermination of interest rates
E) none of the a!o(e, all of them are macroeconomic issues
Ans: #
Difficulty: Easy
-. Which of the following is NOT ealt with in microeconomics?
A) the effect of agricultural su!siies on the $rice of mil"
#) ifferences !etween the mar"et for s"ille la!or (ersus the mar"et for uns"ille la!or
%) issues relate to the structure an $erformance of the health care sector
D) $olicies that affect the le(el of aggregate consum$tion
E) issues relate to the eregulation of the telecommunications inustry
Ans: D
Difficulty: Easy
.. Which of the economists !elow most li"ely a(ocate acti(ist go(ernment $olicies?
A) +ilton /rieman
#) 0ohn +aynar 1eynes
%) 2o!ert 3ucas
D) Thomas 4argent
E) Aam 4mith
Ans: #
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Difficulty: Easy
6. 7n stuying growth theory, we
A) assume that la!or, ca$ital, an raw materials are all use efficiently
#) assume that increase use of in$uts cannot lea to a higher li(ing stanar
%) assume that technological a(ances cannot affect li(ing stanars
D) try to e&$lain the reasons for recessions an !ooms
E) all of the a!o(e
Ans: A
Difficulty: Easy
8. Which of the following factors oes NOT contri!ute to economic growth?
A) the a(aila!ility of resources such as la!or an ca$ital
#) increases in the si)e of the $o$ulation
%) the a(aila!ility of new an !etter technology
D) increase "nowlege gaine through eucation or wor" e&$erience
E) all of the a!o(e can increase economic growth
Ans: E
Difficulty: Easy
9. Which of the following is a /A34E statement?
A) the (ery long run focuses on the growth of $roucti(e ca$acity
#) in the (ery long run, the $roucti(e ca$acity is assume to !e gi(en
%) in the (ery short run, shifts in aggregate eman etermine how much out$ut is $rouce
D) fluctuations in inflation an unem$loyment are im$ortant long5run issues
E) at the full5em$loyment le(el of out$ut, ca$ital is not use 1:: $ercent
Ans: D
Difficulty: Easy
;. <o(ernment inter(ention into economic acti(ity will NOT lea to a change in the $rice le(el
A) in the (ery short5run moel
#) in the meium5run moel
%) in the (ery long5run moel
D) in the classical moel
E) assuming a macro5moel that focuses on the growth of $roucti(e ca$acity
Ans: A
15*
Difficulty: Easy
=. 7n the (ery short run, the le(el of
A) out$ut is etermine !y !oth aggregate eman an aggregate su$$ly
#) out$ut is etermine !y aggregate eman alone
%) $rices will change if aggregate eman shifts
D) $rices is etermine !y aggregate eman alone
E) !oth A) an %)
Ans: #
Difficulty: Easy
1:. 7n the sim$le macro moel of this cha$ter, the long5run A45cur(e is
A) hori)ontal
#) (ertical
%) u$war5slo$ing
D) assume to !e com$letely $rice elastic
E) either #) or %), e$ening on how fast $rices a>ust
Ans: #
Difficulty: Easy
11. 7n the (ery long5run AD5A4 moel, if the AD5cur(e shifts to the left, then
A) $rices an out$ut will !oth ecrease
#) $rices an out$ut will !oth increase
%) $rices will ecrease !ut out$ut will remain the same
D) out$ut will ecrease !ut $rices will remain the same
E) out$ut will increase !ut $rices will ecrease
Ans: %
Difficulty: Easy
1*. 7f an increase in aggregate eman causes $rices to increase slightly !ut out$ut to increase
significantly, then
A) the A45cur(e must !e (ery flat
#) the AD5cur(e must !e (ery stee$
%) the AD5 an A45cur(es must !oth !e (ery stee$
D) we must !e loo"ing at the (ery long5run AD5A4 moel
E) we must !e loo"ing at the (ery short5run AD5A4 moel
Ans: A
Difficulty: +eium
15-
1-. 7n the (ery long5run AD5A4 moel,
A) only fiscal $olicy can affect !oth out$ut an $rices
#) only monetary $olicy can affect !oth out$ut an $rices
%) monetary $olicy can affect out$ut !ut not $rices
D) acti(e sta!ili)ation $olicy is ineffecti(e in changing out$ut
E) the unem$loyment rate is always assume to !e )ero
Ans: D
Difficulty: Easy
1.. 7f a shift in the AD5cur(e has no im$act on the $rice le(el, then
A) the unem$loyment rate must !e e&tremely low
#) the AD5cur(e must !e (ertical
%) the A45cur(e must !e hori)ontal
D) the A45cur(e must !e (ertical
E) !oth A) an D)
Ans: %
Difficulty: Easy
16. 7n the meium run, if <D? goes own !ut the $rice le(el goes u$,
A) the AD5cur(e must ha(e shifte to the right
#) the AD5cur(e must ha(e shifte to the left
%) the A45cur(e must ha(e shifte to the right
D) the A45cur(e must ha(e shifte to the left
E) the AD5cur(e an the A45cur(e must ha(e !oth shifte to the right
Ans: D
Difficulty: +eium
18. Which of the following is /A34E in the meium run?
A) a change in monetary $olicy can shift the AD5cur(e
#) a change in fiscal $olicy can shift the AD5cur(e
%) a change in fiscal $olicy can change out$ut an $rices
D) a change in monetary $olicy can change $rices !ut not out$ut
E) a change in la!or $roucti(ity can shift the A45cur(e
Ans: D
Difficulty: Easy
15.
19. The AD5cur(e will shift if there is a change in
A) monetary or fiscal $olicy
#) the le(el of consumer confience
%) the $roucti(e ca$acity of our economy
D) all of the a!o(e
E) only A) an #)
Ans: E
Difficulty: Easy
1;. The $osition of the A45cur(e e$ens on
A) fiscal $olicy
#) monetary $olicy
%) consumer confience
D) the $roucti(e ca$acity of the economy
E) all of the a!o(e
Ans: D
Difficulty: Easy
1=. Nominal <D? is correctly efine as
A) the monetary (alue of all goos an ser(ices, final an intermeiate, $rouce in a gi(en
year
#) the monetary (alue of all wealth that is accumulate in a gi(en year
%) the national income minus all non5income charges against out$ut
D) the monetary (alue of all final goos an ser(ices currently $rouce in our economy in a
gi(en year
E) the mar"et (alue of all goos $rouce !y omestically5owne resources in a gi(en year
Ans: D
Difficulty: +eium
*:. Which of the following transactions has a irect an immeiate effect on <D??
A) an unem$loye wor"er gets unem$loyment com$ensation
#) you sell your use car to a frien
%) you !uy some 7#+ stoc"
D) a <erman tourist rin"s %anaian !eer in a New @or" %ity restaurant
E) the (alue of your Enron stoc" holings ro$s rastically
Ans: D
Difficulty: Easy
156
*1. Which of the following oes NOT irectly affect <D??
A) a car ealer liAuiates his in(entory at a loss of B1:: $er car
#) Wal5+art !uys 1:: 1orean5mae C%2s an sells them in 2oano"e, Cirginia
C) stoc" mar"et (alues ro$ shar$ly
D) a %anaian tourist (isits New @or" to see the #lue 0ays $lay in @an"ee staium
E) !oth A) an %)
Ans: %
Difficulty: +eium
**. 7f nominal <D?, $rices, an $o$ulation all increase !ut real <D? remains the same then
A) real <D? $er ca$ita will ecrease
#) real <D? $er ca$ita will increase
%) we cannot tell what will ha$$en to real <D? $er ca$ita
D) the stanar of li(ing will increase
E) the stanar of li(ing will remain the same
Ans: A
Difficulty: +eium
*-. 7f the !ase year was last year, which of the following statements has to !e /A34E for ne&t
year?
A) real <D? will !e greater than nominal <D? if $rices are falling
#) real <D? will !e greater than nominal <D? if $rices are rising
%) real <D? cannot increase if $rices are falling
D) real <D? cannot ecrease if $rices are rising
E) nominal <D? cannot ecrease if $rices are rising
Ans: #
Difficulty: Easy
*.. Assume an economy that is currently at the full5em$loyment le(el of out$ut. 7f aggregate
eman ecreases, what shoul we e&$ect in the meian run?
A) a ecrease in $otential <D? an the $rice le(el
#) an increase in unem$loyment an the $rice le(el
%) a ecrease in unem$loyment an the $rice le(el
D) an increase in unem$loyment an a ecrease in the $rice le(el
E) a ecrease in $otential <D? an an increase in unem$loyment
Ans: D
Difficulty: Easy
158
*6. ?otential <D? is the (alue of <D? that can !e calculate if we assume that
A) there are no measurement errors
#) the unem$loyment rate is )ero
%) the inflation rate is )ero
D) <D? has !een a>uste for inflation
E) the ca$ital stoc" is wor"ing at full ca$acity an we ha(e full em$loyment
Ans: E
Difficulty: Easy
*8. The full5em$loyment le(el of out$ut is efine as
A) actual out$ut $lus the out$ut ga$
#) $otential out$ut $lus the out$ut ga$
%) $otential out$ut minus the out$ut ga$
D) the le(el of out$ut at a )ero unem$loyment rate
E) !oth A) an D)
Ans: A
Difficulty: +eium
*9. Which of the following is the most im$ortant (aria!le for >uging an economy's long5run
$erformance?
A) growth in nominal <D?
#) growth in real <D?
%) growth in real <D? $er ca$ita
D) growth in $otential <D?
E) growth in the ca$ital stoc"
Ans: %
Difficulty: Easy
*;. 2eal <D? can grow o(er time !ecause of
A) an increase in the amount of la!or use in the $rouction $rocess
#) an increase in the ca$ital stoc"
%) efficiency im$ro(ements
D) all of the a!o(e
E) only A) an #)
Ans: D
Difficulty: +eium
*=. The tren $ath of <D? can change !ecause of efficiency im$ro(ements, which can result
159
from
A) ecreases in the unem$loyment rate
#) increases in the rate of ca$acity utili)ation
%) changes in "nowlege
D) ecreases in waste
E) all of the a!o(e
Ans: %
Difficulty: Easy
-:. The out$ut ga$ shows the e(iation of actual out$ut from $otential out$ut an it
A) may !e either $ositi(e or negati(e
#) will always !e $ositi(e
%) increases as the unem$loyment rate ecreases
D) !ecomes negati(e if the la!or force grows faster than actual out$ut
E) increases if inflation increases
Ans: A
Difficulty: Easy
-1. Which of the following can !e res$onsi!le for a change in the out$ut ga$?
A) an increase in $otential <D?
#) a ecrease in actual <D?
%) a ecrease in aggregate eman
D) all of the a!o(e
E) only A) an #)
Ans: D
Difficulty: +eium
-*. 7f real <D? increases from B1-.6 trillion one year to B1-.8 trillion in the ne&t year, which
will !e true?
A) the <D? ga$ has $ro!a!ly !ecome smaller
#) economic growth is !elow the long5term tren rate
%) economic growth is a!o(e the long5term tren rate
D) economic growth is a!out the same as the long5term tren rate
E) !oth A) an %)
Ans: #
Difficulty: Easy
--. Which of the following countries ha the highest a(erage annual $er5ca$ita real income
15;
growth rate from 1=86 to *::;?
A) #ra)il
#) %hina
%) 0a$an
D) Dnite 1ingom
E) Dnite 4tates
Ans: #
Difficulty: Easy
-.. Which of the following countries ha the lowest a(erage annual $er5ca$ita income growth
rate from 1=86 to *::;?
A) #ra)il
#) 7nia
%) 0a$an
D) 4$ain
E) Dnite 4tates
Ans: E
Difficulty: Easy
-6. 0a$anEs a(erage growth rate of real <D? $er ca$ita from 1=86 to *::; was
A) more than twice as high as that of the D.4.
#) a!out the same as that of the D.4.
%) less than half as high as that of the D.4.
D) higher than that of the D.4. !ut lower than that of %hina
E) lower than that of the D.4. !ut higher than that of %hina
Ans: D
Difficulty: Easy
-8. The a(erage growth rate of real <D? $er ca$ita in the D.4. from 1=86 to *::; was a!out
A) 1.9 $ercent
#) *.: $ercent
%) *.9 $ercent
D) -.: $ercent
E) -.- $ercent
Ans: #
Difficulty: Easy
-9. The official unem$loyment rate for the D.4. inclues
15=
A) $eo$le acti(ely loo"ing for >o!s
#) $eo$le only marginally attache to the wor" force
%) iscourage wor"ers who are not acti(ely loo"ing for >o!s
D) only A) an #)
E) all of the a!o(e
Ans: A
Difficulty: Easy
-;. The unem$loyment rate is efine as
A) the num!er of unem$loye i(ie !y total $o$ulation
#) the num!er of $eo$le not loo"ing for >o!s i(ie !y the la!or force
%) the fraction of the la!or force that cannot fin >o!s !ut who are acti(ely loo"ing
D) the fraction of total $o$ulation that cannot fin >o!s
E) total $o$ulation minus the num!er of em$loye wor"ers
Ans: %
Difficulty: Easy
-=. 3a!or is fully em$loye when
A) e(eryone is wor"ing eight hours $er ay fi(e ays $er wee" each year
#) e(eryone who wants to wor" can fin a >o! within a reasona!le amount of time
%) the unem$loyment rate is )ero
D) the unem$loyment rate is !elow - $ercent
E) none of the a!o(e
Ans: #
Difficulty: Easy
.:. 3oo"ing at how the rate of inflation an unem$loyment ha(e !eha(e o(er the last three
ecaes we can see that
A) unem$loyment an inflation ha(e always increase together
#) unem$loyment has always increase when inflation ecrease
%) there is no sim$le relationshi$ !etween unem$loyment an inflation
D) low unem$loyment always im$lies high inflation
E) high unem$loyment always im$lies high inflation
Ans: %
Difficulty: Easy
.1. The ?hilli$s cur(e is often use to show the relationshi$ !etween
A) <D? an unem$loyment in a gi(en year
151:
#) the rate of inflation an unem$loyment o(er time
%) em$loyment an <D?
D) changes in <D? an the rate of inflation
E) unem$loyment an <D? growth
Ans: #
Difficulty: Easy
.*. When the economy goes into a recession, we can generally e&$ect that
A) inflation will ecrease while out$ut will increase
#) inflation will increase while unem$loyment will ecrease
%) inflation an out$ut will increase
D) inflation will ecrease while unem$loyment will increase
E) none of the a!o(e
Ans: D
Difficulty: Easy
.-. As the economy enters a !oom we can generally e&$ect that
A) inflation will ecrease with little change in the unem$loyment rate
#) unem$loyment will increase an inflation will ecrease
%) nominal <D? will increase !ut only !ecause of an increase in the $rice le(el
D) inflation will increase an the unem$loyment rate will ecrease
E) out$ut will increase with little change in unem$loyment or inflation
Ans: D
Difficulty: +eium
... 3oo"ing at the $erformance of the D.4. economy o(er the last three ecaes we reali)e that
A) whene(er the inflation rate has ecrease, the unem$loyment rate has also ecrease
#) whene(er the unem$loyment rate has increase, the inflation rate has ecrease
%) unem$loyment an inflation are not necessarily in(ersely relate
D) !oth inflation an unem$loyment ha(e remaine fairly sta!le o(er time
E) neither unem$loyment nor inflation has e(er e&ceee 1: $ercent
Ans: %
Difficulty: Easy
.6. ?rices usually a>ust fairly slowlyF the s$ee of $rice a>ustment can !e summari)e !y
A) the ?hilli$s cur(e
#) the AD5cur(e
%) the long5run A45cur(e
1511
D) the out$ut ga$
E) the tren $ath of <D?
Ans: A
Difficulty: Easy
.8. The %?7 is efine as
A) the cost5$rice ine&, measuring cost increases to $roucers
#) the cross5$rice ine&, measuring the increase in relati(e $rices of two ifferent in$uts use in
the $rouction $rocess
%) a $rice ine& that measures the a(erage $rice increase of all final goos an ser(ices
$rouce
D) a $rice ine& that measures the cost of a gi(en mar"et !as"et of intermeiate goos an raw
materials
E) a $rice ine& that measures the cost of a mar"et !as"et of goos re$resenting the $urchases of
a ty$ical ur!an consumer
Ans: E
Difficulty: Easy
.9. 7f we loo" at the inflation rate Gas measure !y the %?7) in the D.4. from 1=8: to *:1:, we
see that inflation was at its highest in the year
A) 1=8:
#) 1=9:
%) 1=;:
D) 1==:
E) *:::
Ans: %
Difficulty: +eium
.;. 4ince 1=8: the D.4. inflation rate measure !y the %?7 has
A) increase at a steay rate
#) remaine remar"a!ly constant
%) fluctuate wiely an always !een $ositi(e
D) fluctuate wiely an usually !een $ositi(e although it has occasionally !een negati(e
E) always increase as the unem$loyment rate has ecline
Ans: %
Difficulty: Easy
.=. 7f we loo" at inflation as measure !y the %?7 in the D.4. o(er the last four ecaes, we
reali)e that the rate of inflation
A) (arie much more in the 1=8:s than in the 1=9:s or 1=;:s
151*
#) was much lower in the 1=9:s than in any other ecae
%) (arie greatly o(er time !ut has continue to ecrease on a(erage since 1=8=
D) reache an all5time low in 1=;1
E) none of the a!o(e
Ans: E
Difficulty: Easy
6:. E(en small increases in the inflation rate a u$. /or e&am$le, how much woul an item you
!ought for B1.:: in 1=8: ha(e cost on a(erage in *::=?
A) B-.*-
#) B..-.
%) B6.16
D) B9.*9
E) B=.8=
Ans: D
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