Chapter 01 - Introduction

Chapter 01
Introduction

MultipleChoiceQuestions

1.WhichofthefollowingisNOTacentralissueinmacroeconomics?
a.Howshouldthecentralbankofacountryfightinflation?
b.Whatisresponsibleforhighandpersistentunemployment?
C.Howdotaxchangesinfluenceconsumers'choicesofwhattobuy?
d.Whatfactorsdetermineeconomicgrowth?
e.Whatcanorshouldthegovernmentdotostabilizetheeconomy?

Difficulty:Easy

2.MacroeconomicsdoesNOTfocuson
a.Policiesthataffectconsumptionandsaving
B.Policiesthataffecttheperformanceofthehealthcaresector
c.Thedeterminationofchangesinwagesandprices
d.Thedeterminationofinterestrates
e.Noneoftheabove,allofthemaremacroeconomicissues

Difficulty:Easy

3.WhichofthefollowingisNOTdealtwithinmicroeconomics?
a.Theeffectofagriculturalsubsidiesonthepriceofmilk
b.Differencesbetweenthemarketforskilledlaborversusthemarketforunskilledlabor
c.Issuesrelatedtothestructureandperformanceofthehealthcaresector
D.Policiesthataffectthelevelofaggregateconsumption
e.Issuesrelatedtothederegulationofthetelecommunicationsindustry

Difficulty:Easy

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Chapter 01 - Introduction

4.Whichoftheeconomistsbelowmostlikelyadvocatedactivistgovernmentpolicies?
a.MiltonFriedman
B.JohnMaynardKeynes
c.RobertLucas
d.ThomasSargent
e.AdamSmith

Difficulty:Easy

5.Instudyinggrowththeory,we
A.Assumethatlabor,capital,andrawmaterialsareallusedefficiently
b.Assumethatincreaseduseofinputscannotleadtoahigherlivingstandard
c.Assumethattechnologicaladvancescannotaffectlivingstandards
d.Trytoexplainthereasonsforrecessionsandbooms
e.Alloftheabove

Difficulty:Easy

6.WhichofthefollowingfactorsdoesNOTcontributetoeconomicgrowth?
a.Theavailabilityofresourcessuchaslaborandcapital
b.Increasesinthesizeofthepopulation
c.Theavailabilityofnewandbettertechnology
d.Increasedknowledgegainedthrougheducationorworkexperience
E.Alloftheabovecanincreaseeconomicgrowth

Difficulty:Easy

7.WhichofthefollowingisaFALSEstatement?
a.Theverylongrunfocusesonthegrowthofproductivecapacity
b.Intheverylongrun,theproductivecapacityisassumedtobegiven
c.Intheveryshortrun,shiftsinaggregatedemanddeterminehowmuchoutputisproduced
D.Fluctuationsininflationandunemploymentareimportantlongrunissues
e.Atthefullemploymentlevelofoutput,capitalisnotused100percent

Difficulty:Easy

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Chapter 01 - Introduction

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Chapter 01 - Introduction

8.GovernmentinterventionintoeconomicactivitywillNOTleadtoachangeintheprice
level
A.Intheveryshortrunmodel
b.Inthemediumrunmodel
c.Intheverylongrunmodel
d.Intheclassicalmodel
e.Assumingamacromodelthatfocusesonthegrowthofproductivecapacity

Difficulty:Easy

9.Intheveryshortrun,thelevelof
a.Outputisdeterminedbybothaggregatedemandandaggregatesupply
B.Outputisdeterminedbyaggregatedemandalone
c.Priceswillchangeifaggregatedemandshifts
d.Pricesisdeterminedbyaggregatedemandalone
e.BothAandC

Difficulty:Easy

10.Inthesimplemacromodelofthischapter,thelongrunAScurveis
a.Horizontal
B.Vertical
c.Upwardsloping
d.Assumedtobecompletelypriceelastic
e.EitherBorC,dependingonhowfastpricesadjust

Difficulty:Easy

11.IntheverylongrunADASmodel,iftheADcurveshiftstotheleft,then
a.Pricesandoutputwillbothdecrease
b.Pricesandoutputwillbothincrease
C.Priceswilldecreasebutoutputwillremainthesame
d.Outputwilldecreasebutpriceswillremainthesame
e.Outputwillincreasebutpriceswilldecrease

Difficulty:Easy

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Chapter 01 - Introduction

12.Ifanincreaseinaggregatedemandcausespricestoincreaseslightlybutoutputtoincrease
significantly,then
A.TheAScurvemustbeveryflat
b.TheADcurvemustbeverysteep
c.TheADandAScurvesmustbothbeverysteep
d.WemustbelookingattheverylongrunADASmodel
e.WemustbelookingattheveryshortrunADASmodel

Difficulty:Easy

13.IntheverylongrunADASmodel,
a.Onlyfiscalpolicycanaffectbothoutputandprices
b.Onlymonetarypolicycanaffectbothoutputandprices
c.Monetarypolicycanaffectoutputbutnotprices
D.Activestabilizationpolicyisineffectiveinchangingoutput
e.Theunemploymentrateisalwaysassumedtobezero

Difficulty:Medium

14.IfashiftintheADcurvehasnoimpactonthepricelevel,then
a.Theunemploymentratemustbeextremelylow
b.TheADcurvemustbevertical
C.TheAScurvemustbehorizontal
d.TheAScurvemustbevertical
e.BothAandD

Difficulty:Easy

15.Inthemediumrun,ifGDPgoesdownbutthepricelevelgoesup,
a.TheADcurvemusthaveshiftedtotheright
b.TheADcurvemusthaveshiftedtotheleft
c.TheAScurvemusthaveshiftedtotheright
D.TheAScurvemusthaveshiftedtotheleft
e.TheADcurveandtheAScurvemusthavebothshiftedtotheright

Difficulty:Easy

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Chapter 01 - Introduction

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Chapter 01 - Introduction

16.WhichofthefollowingisFALSEinthemediumrun?
a.AchangeinmonetarypolicycanshifttheADcurve
b.AchangeinfiscalpolicycanshifttheADcurve
c.Achangeinfiscalpolicycanchangeoutputandprices
D.Achangeinmonetarypolicycanchangepricesbutnotoutput
e.AchangeinlaborproductivitycanshifttheAScurve

Difficulty:Medium

17.ThepositionoftheADcurvedependson
a.Monetaryandfiscalpolicies
b.Thelevelofconsumerconfidence
c.Theproductivecapacityofoureconomy
d.Alloftheabove
E.OnlyAandB

Difficulty:Easy

18.ThepositionoftheAScurvedependson
a.Fiscalpolicy
b.Monetarypolicy
c.Consumerconfidence
D.Theproductivecapacityoftheeconomy
e.Alloftheabove

Difficulty:Easy

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Chapter 01 - Introduction

19.NominalGDPiscorrectlydefinedas
a.Themonetaryvalueofallgoodsandservices,finalandintermediate,producedinagiven
Year
b.Themonetaryvalueofallwealththatisaccumulatedinagivenyear
c.Thenationalincomeminusallnonincomechargesagainstoutput
D.Themonetaryvalueofallfinalgoodsandservicescurrentlyproducedinoureconomyina
givenyear
e.Themarketvalueofallgoodsproducedbydomesticallyownedresourcesinagivenyear

Difficulty:Easy

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Chapter 01 - Introduction

20.WhichofthefollowingtransactionshasadirectandimmediateeffectonGDP?
a.Anunemployedworkergetsunemploymentcompensation
b.Yousellyourusedcartoafriend
c.YoubuysomeIBMstock
D.AGermantouristdrinksCanadianbeerinaNewYorkCityrestaurant
e.ThevalueofyourEnronstockholdingsdropsdrastically

Difficulty:Medium

21.WhichofthefollowingdoesNOTdirectlyaffectGDP?
a.Acardealerliquidateshisinventoryatalossof$100percar
b.WalMartbuys100KoreanmadeVCRsandsellstheminRoanoke,Virginia
C.Stockmarketvaluesdropsharply
d.ACanadiantouristvisitsNewYorktoseetheBlueJaysplayinYankeestadium
e.BothAandC

Difficulty:Easy

22.IfnominalGDP,prices,andpopulationallincreasebutrealGDPremainsthesamethen
A.RealGDPpercapitawilldecrease
b.RealGDPpercapitawillincrease
c.WecannottellwhatwillhappentorealGDPpercapita
d.Thestandardoflivingwillincrease
e.Thestandardoflivingwillremainthesame

Difficulty:Medium

23.WhichofthefollowingstatementsisFALSE?
a.RealGDPisgreaterthannominalGDPifpricesarefalling
B.RealGDPisgreaterthannominalGDPifpricesarerising
c.RealGDPcannotincreaseifpricesarefalling
d.RealGDPcannotdecreaseifpricesarerising
e.NominalGDPcannotdecreaseifpricesarerising

Difficulty:Medium

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Chapter 01 - Introduction

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Chapter 01 - Introduction

24.Assumeaneconomythatiscurrentlyatthefullemploymentlevelofoutput.Ifaggregate
demanddecreases,whatshouldweexpect?
a.AdecreaseinpotentialGDPandthepricelevel
b.Anincreaseinunemploymentandthepricelevel
c.Adecreaseinunemploymentandthepricelevel
D.Anincreaseinunemploymentandadecreaseinthepricelevel
e.AdecreaseinpotentialGDPandanincreaseinunemployment

Difficulty:Easy

25.PotentialGDPisthevalueofGDPthatcanbecalculatedifweassumethat
a.Therearenomeasurementerrors
b.Theunemploymentrateiszero
c.Theinflationrateiszero
d.GDPhasbeenadjustedforinflation
E.Thecapitalstockisworkingatfullcapacityandwehavefullemployment

Difficulty:Easy

26.Thefullemploymentlevelofoutputisdefinedas
A.Actualoutputplustheoutputgap
b.Potentialoutputplustheoutputgap
c.Potentialoutputminustheoutputgap
d.Thelevelofoutputatazerounemploymentrate
e.BothAandD

Difficulty:Easy

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Chapter 01 - Introduction

27.Whichofthefollowingisthemostimportantvariableforjudginganeconomy'slongrun
performance?
a.GrowthinnominalGDP
b.GrowthinrealGDP
C.GrowthinrealGDPpercapita
d.GrowthinpotentialGDP
e.Growthinthecapitalstock

Difficulty:Medium

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Chapter 01 - Introduction

28.RealGDPcangrowovertimebecauseof
a.Anincreaseintheamountoflaborusedintheproductionprocess
b.Anincreaseinthecapitalstock
c.Efficiencyimprovements
D.Alloftheabove
e.OnlyAandB

Difficulty:Easy

29.ThetrendpathofGDPcanchangebecauseofefficiencyimprovements,whichcanresult
from
a.Decreasesintheunemploymentrate
b.Increasesintherateofcapacityutilization
C.Changesinknowledge
d.Decreasesinwaste
e.Alloftheabove

Difficulty:Medium

30.Theoutputgapshowsthedeviationofactualoutputfrompotentialoutputandit
A.Maybeeitherpositiveornegative
b.Willalwaysbepositive
c.Increasesastheunemploymentratedecreases
d.Becomesnegativeifthelaborforcegrowsfasterthanactualoutput
e.Increasesifinflationincreases

Difficulty:Easy

31.Whichofthefollowingcanberesponsibleforachangeintheoutputgap?
a.AnincreaseinpotentialGDP
b.AdecreaseinactualGDP
c.Adecreaseinaggregatedemand
D.Alloftheabove
e.OnlyAandB

Difficulty:Easy

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Chapter 01 - Introduction

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Chapter 01 - Introduction

32.IfrealGDPincreasesfrom$9.5trilliononeyearto$9.6trillioninthenextyear,which
willbetrue?
a.TheGDPgaphasprobablybecomesmaller
B.Economicgrowthisbelowthelongtermtrendrate
c.Economicgrowthisabovethelongtermtrendrate
d.Economicgrowthisaboutthesameasthelongtermtrendrate
e.BothAandC

Difficulty:Medium

33.Whichofthefollowingcountrieshadthehighestaverageannualpercapitarealincome
growthratefrom1965to2004?
a.Brazil
B.China
c.Japan
d.UnitedKingdom
e.UnitedStates

Difficulty:Easy

34.Whichofthefollowingcountrieshadthelowestaverageannualpercapitaincomegrowth
ratefrom1965to2004?
a.China
b.India
c.Japan
d.Spain
E.UnitedStates

Difficulty:Easy

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Chapter 01 - Introduction

35.Japan'saveragegrowthrateofrealGDPpercapitafrom1965to2004was
a.MorethantwiceashighasthatoftheU.S.
b.AboutthesameasthatoftheU.S.
c.LessthanhalfashighasthatoftheU.S.
D.HigherthanthatoftheU.S.butlowerthanthatofChina
e.LowerthanthatoftheU.S.buthigherthanthatofChina

Difficulty:Easy

36.TheaveragegrowthrateofrealU.S.GDPpercapitafrom1965to2004wasabout
a.1.7percent
B.2.1percent
c.2.6percent
d.3.1percent
e.4.2percent

Difficulty:Easy

37.TheaveragegrowthrateofrealU.S.GDPfrom1960to2005wasabout
a.1.7percent
b.2.5percent
C.3.4percent
d.4.4percent
e.5.8percent

Difficulty:Easy

38.Theunemploymentrateisdefinedas
a.Thenumberofunemployeddividedbytotalpopulation
b.Thenumberofpeoplenotlookingforjobsdividedbythelaborforce
C.Thefractionofthelaborforcethatcannotfindjobs
d.Thefractionoftotalpopulationthatcannotfindjobs
e.Totalpopulationminusthenumberofemployedworkers

Difficulty:Easy

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39.Laborisfullyemployedwhen
a.Everyoneisworkingeighthoursperdayfivedaysperweekeachyear
B.Everyonewhowantstoworkcanfindajobwithinareasonableamountoftime
c.Theunemploymentrateiszero
d.Theunemploymentrateisbelow3percent
e.Noneoftheabove

Difficulty:Easy

40.Lookingathowtherateofinflationandunemploymenthavebehavedoverthelastthree
decadeswecanseethat
a.Unemploymentandinflationhavealwaysincreasedtogether
b.Unemploymenthasalwaysincreasedwheninflationdecreased
C.Thereisnosimplerelationshipbetweenunemploymentandinflation
d.Lowunemploymentalwaysimplieshighinflation
e.Highunemploymentalwaysimplieshighinflation

Difficulty:Easy

41.ThePhillipscurveisoftenusedtoshowtherelationshipbetween
a.TheGDPdeflatorandunemploymentinayear
B.Therateofinflationandunemploymentovertime
c.EmploymentandGDP
d.ChangesinGDPandtherateofinflation
e.UnemploymentandGDPgrowth

Difficulty:Easy

42.Whentheeconomygoesintoarecession,wecangenerallyexpectthat
a.Inflationwilldecreasewhileoutputwillincrease
b.Inflationwillincreasewhileunemploymentwilldecrease
c.Inflationandoutputwillincrease
D.Inflationwilldecreasewhileunemploymentwillincrease
e.Noneoftheabove

Difficulty:Easy

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43.Astheeconomyentersaboomwecangenerallyexpectthat
a.Inflationwilldecreasewithlittlechangeintheunemploymentrate
b.Unemploymentwillincreaseandinflationwilldecrease
c.NominalGDPwillincreasebutonlybecauseofanincreaseinthepricelevel
D.Inflationwillincreaseandtheunemploymentratewilldecrease
e.Outputwillincreasewithlittlechangeinunemploymentorinflation

Difficulty:Easy

44.LookingattheperformanceoftheU.S.economyoverthelastthreedecadeswerealize
that
A.Inthelongrun,theunemploymentrateislargelyindependentofinflation
b.Whenevertheunemploymentratehasincreased,theinflationratehasdecreased
c.Whenevertheinflationratehasdecreased,theunemploymentratehasalsodecreased
d.Bothinflationandunemploymenthaveshownsmallvariations,alwaysmovinginopposite
directions
e.Neitherunemploymentnorinflationeverexceeded10percent

Difficulty:Medium

45.Pricesusuallyadjustfairlyslowly;thespeedofpriceadjustmentcanbesummarizedby
A.ThePhillipscurve
b.TheADcurve
c.ThelongrunAScurve
d.Theoutputgap
e.ThetrendpathofGDP

Difficulty:Easy

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Chapter 01 - Introduction

46.TheCPIisdefinedas
a.Thecostpriceindex,measuringcostincreasestoproducers
b.Thecrosspriceindex,measuringtheincreaseinrelativepricesoftwodifferentinputsused
intheproductionprocess
c.Apriceindexthatmeasurestheaveragepriceincreaseofallfinalgoodsandservices
produced
d.Apriceindexthatmeasuresthecostofagivenmarketbasketofintermediategoodsand
rawmaterials
E.Apriceindexthatmeasuresthecostofamarketbasketofgoodsrepresentingthe
purchasesofatypicalurbanconsumer

Difficulty:Easy

47.Ifwelookattheinflationrate(asmeasuredbytheCPI)intheU.S.from1960to2005,we
seethatinflationwasatitshighestintheyear
a.1960
b.1970
C.1980
d.1990
e.2000

Difficulty:Easy

48.Since1960theU.S.inflationratemeasuredbytheCPIhas
a.Increasedatasteadyrate
b.Remainedremarkablyconstant
C.Fluctuatedwidelyandalwaysbeenpositive
d.Fluctuatedwidelyandusuallybeenpositivealthoughithasoccasionallybeennegative
e.Alwaysincreasedastheunemploymentratehasdeclined

Difficulty:Medium

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49.IfwelookatinflationasmeasuredbytheCPIintheU.S.overthelastfourdecades,we
realizethattherateofinflation
a.Variedmuchmoreinthe1960sthaninthe1970sor1980s
b.Wasmuchlowerinthe1970sthaninanyotherdecade
c.Variedgreatlyovertimebuthascontinuedtodecreaseonaveragesince1969
d.Reachedanalltimelowin1981
E.Noneoftheabove

Difficulty:Easy

50.Evensmallincreasesintheinflationrateaddup.Forexample,howmuchwouldanitem
youboughtfor$1.00in1960havecostonaveragein2005?
a.$3.20
b.$4.30
c.$5.10
D.$6.60
e.$9.60

Difficulty:Easy

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