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Page 1
1.
The topics studied in macroeconomics include:
A)
inflation.
B)
unemployment.
C)
economic growth.
D)
inflation, unemployment, and economic growth.
2.
The topics studied in macroeconomics include:
A)
inflation.
B)
monopolies.
C)
spillovers, such as pollution.
D)
mergers.
3.
Macroeconomics entails the study of the:
A)
overall behavior of the economy.
B)
individual decision makers.
C)
market structures.
D)
cost and production decisions by firms.
4.
Macroeconomics focuses on:
A)
the economy as a whole.
B)
individual decisions.
C)
wages.
D)
the allocation of scarce resources.
5.
The topics studied in macroeconomics include:
A)
the price of a motorcycle.
B)
the wages of engineers.
C)
the average price level in the economy.
D)
how much ice cream consumers buy.
6.
Which is most likely a macroeconomic, not microeconomic, question?
A)
Is the national unemployment rate rising or falling?
B)
Are consumers buying more bottled water and less fruit juice?
C)
Are salaries for nurses rising or falling?
D)
Should a tax be levied on each ton of carbon dioxide a factory emits?
Page 2
7.
Which is a microeconomic question rather than a macroeconomic question?
A)
Will a decrease in the income tax rate lift the nation out of a recession?
B)
Will an increase in consumer spending cause inflation?
C)
Will a decrease in the income tax rate lead to a government budget deficit?
D)
Will an increase in the cigarette tax reduce the number of packs sold?
8.
How the actions of individuals and firms interact to produce a particular economy-wide
level of performance is the focus of:
A)
macroeconomics.
B)
fiscal policy.
C)
monetary policy.
D)
microeconomics.
9.
Which would most likely be a MICROECONOMIC question?
A)
Should I go to business school or take a job?
B)
What determines the overall salary levels paid to workers in a given year?
C)
What government policies should be adopted to promote full employment and
growth?
D)
What determines the level of output for the economy as whole?
10.
Which would NOT be classified as a MACROECONOMIC question?
A)
How many people are employed in the economy as a whole?
B)
What determines the overall level of prices?
C)
What determines the overall trade in goods, services, and financial assets between
the United States and the rest of the world?
D)
What determines a university's cost of offering a new course?
11.
Which question is the most appropriate to the study of MICROECONOMICS?
A)
How does the aggregate price level affect consumer spending?
B)
How does the level of interest rates affect investment spending?
C)
How much will Sony charge for the new game system to be introduced later this
year?
D)
How does the GDP affect overall government spending?
12.
Which question is the most appropriate to the study of MACROECONOMICS?
A)
How does the aggregate price level affect overall consumer spending?
B)
How does the level of interest rates affect Delta's decision to buy a new airplane?
C)
How much will Sony charge for the new game system to be introduced later this
year?
D)
What determines whether Wachovia opens a new office in Beijing?
Page 3
13.
Promotion of employment and growth in the economy as a whole is the focus of:
A)
macroeconomics.
B)
fiscal policy.
C)
monetary policy.
D)
microeconomics.
14.
“Macroeconomics is nothing but a simple aggregation of all the microeconomic parts.”
Do you agree or disagree with this statement?
A)
Don't agree; there is a lot more to the study of macroeconomics than the sum of its
microeconomic parts.
B)
Agree; macroeconomics is exactly equal to the total of all microeconomic units.
C)
Don't agree; these two disciplines deal with completely independent issues.
D)
Don't agree; microeconomics is an aggregation of all the macroeconomic parts.
15.
If all of the households and businesses start saving more during economic hard times,
then aggregate income will fall, hurting everyone in the economy. This is known as:
A)
the quantity theory.
B)
the crowding-out theory.
C)
the paradox of thrift.
D)
the permanent income hypothesis.
16.
The concept that the whole is greater than the sum of its parts best characterizes:
A)
microeconomics.
B)
supply and demand.
C)
macroeconomics.
D)
business forecasting.
17.
A key insight into macroeconomics is that in the short run the combined effect of
individual decisions:
A)
is always the same as what one individual intended.
B)
may be very different from what any one individual intended.
C)
is always beneficial to the economy as a whole.
D)
is always detrimental to the economy as a whole.
18.
A rubbernecking traffic jam is an example of:
A)
microeconomics in action.
B)
individual behavior that has a large aggregate impact.
C)
the paradox of thrift.
D)
an outcome smaller than the sum of its parts.
Page 4
19.
What do a rubbernecking traffic jam and the paradox of thrift have in common?
A)
Individual behavior has large negative consequences for the whole of society.
B)
Seemingly bad behavior ends up harming everyone.
C)
Seemingly careless behavior leads to good times for all.
D)
Government intervention can only make matters worse.
20.
In the paradox of thrift:
A)
firms that are pessimistic about the future lay off the most saving-conscientious
workers.
B)
when families and business are feeling pessimistic about the future, they spend
more.
C)
increased saving by individuals increases their chances of becoming unemployed.
D)
risky behavior during economic tough times has large negative consequences for
society.
21.
In contrast to the conclusions drawn from microeconomics, many economists argue that
in macroeconomics, government:
A)
control of rent prices increases overall economic activity.
B)
intervention in markets usually leaves society as a whole worse off.
C)
taxation of goods and services does not cause a deadweight loss of economic
welfare.
D)
intervention in markets can prevent or reduce the effects of adverse events on the
macroeconomy.
22.
Which of the following areas is most likely to suggest a limited role for government?
A)
microeconomics
B)
macroeconomics
C)
behavioral economics
D)
labor economics
23.
The view that the government should take an active role in the macroeconomy dates to:
A)
the Civil War.
B)
World War I.
C)
the Great Depression.
D)
the Vietnam War.
Page 5
24.
Changing the level of government spending is an example of _____ policy.
A)
fiscal
B)
interest rate
C)
monetary
D)
exchange rate
25.
The modern macroeconomic tools used by the government are _____ policy and _____
policy.
A)
tax; antitrust
B)
fiscal; monetary
C)
monetary; exchange rate
D)
capital; labor
26.
Changing interest rates is an example of _____ policy.
A)
fiscal
B)
tax
C)
monetary
D)
exchange rate
27.
Fiscal policy refers to changes in _____ to affect overall spending in the economy:
A)
interest rates
B)
government spending and taxation
C)
the quantity of money
D)
interest rates and of government spending
28.
The economist whose writings in the 1930s argued that the cause of an economic
depression is inadequate spending was:
A)
Herbert Hoover.
B)
John Maynard Keynes.
C)
Andrew Mellon.
D)
Joseph Schumpeter.
29.
One role of government policy is:
A)
to provide insurance to cover damages from macroeconomic fluctuations.
B)
to attempt to manage short-run macroeconomic fluctuations.
C)
to subsidize private insurance for businesses to cover harm from macroeconomic
fluctuations.
D)
to avoid Keynesian economics.
Page 6
30.
Among the tools available to macroeconomic policy makers is:
A)
fiscal policy, for use in manipulating government spending and taxation.
B)
antitrust policy, to break up monopolies.
C)
environmental policy, to clean up the economy.
D)
improving standards for food and drugs.
31.
In 1936 economic theory changed dramatically with the publication of:
A)
The General Theory of Employment, Interest, and Money, by John Maynard
Keynes.
B)
The Wealth of Nations, by Adam Smith.
C)
The Road to Serfdom, by F. A. Hayek.
D)
Principles of Economics, by Paul Samuelson.
32.
The central mission of modern macroeconomics is to prevent:
A)
shortages.
B)
surpluses.
C)
high gas prices.
D)
a deep recession like the Great Depression.
33.
Which of the following are considered to be the two types of macroeconomic policies?
A)
monetary and fiscal policy
B)
monetary and regulation policy
C)
fiscal and regulation policy
D)
fiscal policy and price controls
34.
Fiscal policy attempts to affect the level of overall spending by making changes in:
A)
the interest rate.
B)
the money supply.
C)
banking regulations.
D)
taxes and spending.
35.
Monetary policy attempts to affect the overall level of spending by making changes in:
A)
taxes.
B)
taxes and spending.
C)
taxes and interest rates.
D)
interest rates and the quantity of money.
Page 7
36.
Monetary policy attempts to affect the overall level of spending through:
A)
changes in the inflation rate.
B)
changes in the quantity of money and the interest rate.
C)
changes in tax policy or government spending.
D)
discretionary regulation of profits and wages.
37.
Fiscal policy attempts to affect the overall level of spending through:
A)
changes in the inflation rate.
B)
changes in the quantity of money or the interest rate.
C)
changes in tax policy or government spending.
D)
discretionary regulation of profits and wages.
38.
If macroeconomic policy has been successful over time, it is likely that the economy has
not seen:
A)
any inflation.
B)
any severe recessions.
C)
any unemployment.
D)
a business cycle.
39.
Use of monetary policy entails changes in:
A)
government spending.
B)
tax receipts.
C)
the quantity of money.
D)
tax rates.
40.
Use of fiscal policy involves changes in:
A)
interest rates.
B)
government spending.
C)
the quantity of money.
D)
the quantity of money and interest rates.
41.
When the Great Depression reached its trough in 1933, the unemployment rate was
approximately:
A)
5%.
B)
10%.
C)
25%.
D)
50%.
Page 8
42.
The onset of the Great Depression:
A)
was not a shock to anyone, since most economists predicted the roaring '20s were
bound to end in disaster.
B)
caused a disagreement between the Hoover administration and conventional
economists because Hoover wanted the government to intervene much more
quickly than most others.
C)
came as a considerable shock to the conventional wisdom of economics at that time
and opened the door for critiques of mainstream thought by economists like John
Maynard Keynes.
D)
was in 1918 at the end of World War I.
43.
The General Theory of Employment, Interest, and Money, written by _____ and
published in _____, transformed the way economists thought about macroeconomics.
A)
Milton Friedman; 1946
B)
Paul Samuelson; 1940
C)
John Maynard Keynes; 1936
D)
Paul Lucas; 1966
44.
The General Theory of Employment, Interest, and Money was written by:
A)
Robert Lucas.
B)
David Ricardo.
C)
John Maynard Keynes.
D)
Thomas Malthus.
45.
Keynesian economics stressed:
A)
the importance of total spending.
B)
the self-correcting power of free markets.
C)
the long run.
D)
that the Depression should run its course to bring down the high cost of living.
46.
In recent times, the U.S. government has been trying to help the economy through one
of the worst economic slumps ever. The policies used are based on _____ theory.
A)
Keynesian
B)
classical
C)
supply-side
D)
trickle-down
Page 9
47.
Keynesian economics promotes ideas:
A)
that government intervention can be destabilizing.
B)
that the government can help a depressed economy via fiscal and monetary
policies.
C)
that the private sector is perfectly capable of regulating itself.
D)
that the free market system will always prevail.
48.
Changing the quantity of money, hence the interest rate, hence overall spending in the
economy, is use of _____ policy.
A)
monetary
B)
fiscal
C)
free-market
D)
trickle-down
49.
Changing government spending and taxes to affect overall spending is use of _____
policy.
A)
tax-and-spend
B)
monetary
C)
fiscal
D)
free-trade
50.
John Maynard Keynes believed that the government should:
A)
actively try to mitigate the effects of recessions by using fiscal and monetary
policies.
B)
not interfere with the economy but let the economy self-correct.
C)
intervene only when there is a boom but let the recession run its course.
D)
not use fiscal and monetary policies, as these policies have long-term adverse
effects.
51.
Periods in which output and employment are falling are:
A)
recessions.
B)
booms.
C)
expansions.
D)
deflations.
52.
An expansion is a period in which:
A)
output declines.
B)
the price level falls.
C)
output rises.
D)
unemployment rises.
Page 10
53.
Recessions are periods when:
A)
output rises.
B)
the aggregate price level rises.
C)
the unemployment rate is falling.
D)
output and employment are falling.
54.
The short-run alternation between economic downturns and recessions, then economic
upturns and expansions is known as the _____ cycle.
A)
business
B)
contractionary
C)
expansionary
D)
disequilibrium
55.
If during several months the economy is simultaneously increasing its levels of output
and employment, then the economy is in a(n):
A)
depression.
B)
expansion.
C)
recession.
D)
turning point between a recovery and a downturn.
56.
A business cycle is a:
A)
very deep and prolonged economic downturn.
B)
period in which output and employment are rising.
C)
period in which output and employment are falling.
D)
short-run alternation between economic upturns and downturns.
57.
The alternation between recessions and expansions is known as the:
A)
unemployment rate.
B)
long-run economic growth.
C)
business cycle.
D)
macroeconomy.
58.
In a typical business cycle, the trough is immediately followed by the:
A)
peak.
B)
recession.
C)
depression.
D)
expansion.
Page 11
59.
In a typical business cycle, the peak is immediately followed by the:
A)
recession.
B)
trough.
C)
expansion.
D)
depression.
60.
An economic expansion in the United States is typically associated with a(n):
A)
falling inflation rate.
B)
increase in the poverty rate.
C)
falling unemployment rate.
D)
decrease in corporate profits.
61.
Economists have identified several consecutive months of falling employment, and
forecasts for the next few months suggest more of the same. The economy is at the
_____ stage of the business cycle.
A)
recession
B)
expansion
C)
peak
D)
trough
62.
For the past several months, per capita output has increased at a slower and slower rate.
Over the same period, the unemployment rate has been falling, but it appears to have
leveled off and may soon rise. Where in the business cycle is the economy?
A)
peak
B)
recession
C)
trough
D)
expansion
63.
The point at which a recession ends and the expansion begins is called the:
A)
trough.
B)
downturn.
C)
peak.
D)
lag.
64.
The trough of the business cycle:
A)
comes right after the expansion phase.
B)
comes before the recession phase.
C)
is a temporary maximum level of real GDP.
D)
is a temporary minimum level of real GDP.
Page 12
65.
A period of rising real GDP is a(n):
A)
peak.
B)
trough.
C)
expansion.
D)
recession.
66.
A period of falling real GDP is a(n):
A)
peak.
B)
trough.
C)
expansion.
D)
recession.
67.
A pattern of expansion, then recession, then expansion again is a(n):
A)
annual trend.
B)
secular trend.
C)
business cycle.
D)
consumer cycle.
68.
The point on a business cycle when real GDP stops rising and begins falling is a(n):
A)
peak.
B)
trough.
C)
expansion.
D)
recession.
69.
The point on a business cycle when real GDP stops falling and begins rising is a(n):
A)
peak.
B)
expansion.
C)
trough.
D)
recession.
70.
The sequence of business cycle phases is:
A)
peak, trough, expansion, recession.
B)
peak, expansion, trough, recession.
C)
peak, recession, trough, expansion.
D)
peak, expansion, recession, trough.
Page 13
71.
Rising total output accompanied by increasing employment is generally known as:
A)
stagflation.
B)
recession.
C)
inflation.
D)
expansion.
72.
A country's real gross domestic product (GDP), undergoes periodic fluctuations called
a(n):
A)
recession.
B)
business cycle.
C)
expansion.
D)
trough.
Use the following to answer questions 73-74:
Figure: The Business Cycle
73.
(Figure: The Business Cycle) Look at the figure The Business Cycle. Point B on this
graph shows a(n):
A)
peak.
B)
trough.
C)
expansion.
D)
recession.
Page 14
74.
(Figure: The Business Cycle) Look at the figure The Business Cycle. The movement
from point B to C is called a(n):
A)
trough.
B)
expansion.
C)
depression.
D)
peak.
75.
A recession leads to all of the following EXCEPT:
A)
higher unemployment.
B)
reduced output.
C)
reduced income and living standards.
D)
higher employment.
76.
In the United States, recessions are typically associated with a(n):
A)
falling unemployment rate.
B)
decrease in the number of people living in poverty.
C)
decrease in the percentage of Americans with health insurance.
D)
increase in corporate profits.
77.
The most painful effect of a recession is:
A)
inflation.
B)
unemployment.
C)
money neutrality.
D)
liquidity trap.
78.
The most painful consequence of a recession is:
A)
rising unemployment.
B)
increasing inflation.
C)
increasing aggregate output.
D)
higher interest rates.
79.
In many countries, economists adopt the rule that a recession is a period of at least
_____ during which aggregate output falls.
A)
one quarter
B)
two consecutive quarters
C)
three consecutive quarters
D)
a full year
Page 15
80.
The most widely used indicator of the conditions in the labor market is the:
A)
unemployment rate.
B)
population growth rate.
C)
inflation rate.
D)
trade deficit.
81.
An independent panel of economic experts at the _____ analyzes the macroeconomy
and determines when recessions begin and end.
A)
Bureau of the Census
B)
President's Council of Economic Advisers
C)
Treasury Department
D)
National Bureau of Economic Research
82.
The purpose of macroeconomic policy is to:
A)
bring unemployment closer to the natural rate.
B)
reduce the severity of recessions.
C)
rein in excessively strong expansions.
D)
bring unemployment closer to the natural rate, rein in excessively strong
expansions, and reduce the severity of recessions.
83.
According to official statistics for the United States, since the Great Depression:
A)
economists are confident that the business cycle has been tamed.
B)
the economy has constantly had positive real GDP growth rates.
C)
the economy had longer recessions than expansions only during the 1960s and
1990s.
D)
the economy has not had another severe and prolonged economic downturn
comparable to it.
84.
A depression occurs when:
A)
both output and employment increase.
B)
the economic downturn becomes extremely deep and prolonged.
C)
both price level and unemployment increase.
D)
output rises but employment remains unchanged.
85.
Long-run growth is the sustained upward trend in:
A)
aggregate output per person over several decades.
B)
the unemployment rate over time.
C)
interest rates over time.
D)
aggregate output per person over the business cycle.
Page 16
86.
Long-run growth is the:
A)
sustained upward trend in aggregate output per person over several decades.
B)
expansion phase of business cycles.
C)
downturn phase of business cycles.
D)
sustained downward trend in the employment rate over several decades.
87.
Long-run growth is:
A)
a sustained upward trend in the economy's overall output per person, which
generates higher incomes and a higher standard of living for its members.
B)
an increase in the rate of inflation across time, which reduces real salaries.
C)
an increase in the overall output of the economy over a three- or four-year period.
D)
a reduction in the price level over decades.
88.
Historical evidence shows that for determining a country's living standards, over:
A)
an extended period, long-run growth is just as important as the business cycle.
B)
short periods, long-run growth is less important than the business cycle.
C)
an extended period, long-run growth is much more important than the business
cycle.
D)
long periods, it is difficult to determine whether the business cycle or long-run
growth is more important.
89.
An increase in the nation's _____ is generally accepted as a long-run indicator of a
rising standard of living.
A)
output per person
B)
unemployment rate
C)
inflation rate
D)
trade deficit
90.
Long-run economic growth is best measured by:
A)
a sustained rise in the production of goods and services.
B)
the growth of the money supply.
C)
trade surpluses in the long run.
D)
the rate of private saving.
91.
Which one of the following measures long-run economic growth?
A)
a rise in employment
B)
an increase in the money supply
C)
a sustained increase in the production of goods and services
D)
an increase in the labor force
Page 17
92.
Economists use the term long-term growth to indicate:
A)
the expansion phase of the business cycle.
B)
growth of the economy over several decades.
C)
growth of the economy over one to five years.
D)
long-run growth of the value of a company.
93.
Per capita economic growth is:
A)
growth per unit of capital.
B)
growth per person.
C)
always accelerated during a business cycle.
D)
a sustained increase in interest rates.
94.
Which statement about the U.S. economy is FALSE?
A)
Since the Second World War, aggregate output has grown more slowly than the
population.
B)
Since the Second World War, aggregate output has grown more rapidly than the
population.
C)
Since the Second World War, macroeconomic policy has helped make the
economy more stable.
D)
Long-run growth per capita is the key to higher wages and a rising standard of
living.
95.
Which of the following statements is TRUE?
A)
In the past century, the population of the United States has grown faster than
output.
B)
Long-run growth models and business cycle models are the same.
C)
Since World War II, the economy of Argentina has grown faster than the economy
of Canada.
D)
The level of saving is important for long-run growth.
96.
Which of the following statements is TRUE?
A)
Long-run growth started during the Renaissance.
B)
Long-run growth started in the early 1700s.
C)
Peasants in eighteenth-century Europe had a standard of living more than 50 times
that of the Egyptian peasants in the age of the pharaohs.
D)
Long-run growth is a relatively modern phenomenon.
Page 18
97.
Which of the following is TRUE?
A)
Inflation means an increase in the overall level of prices.
B)
Deflation refers to a decrease in prices only in the energy and transportation
sectors.
C)
During inflation most people enjoy an increase in their standard of living even if
their wages don't increase.
D)
Inflation was a problem for the first time in the recession of 1929–1933.
98.
Inflation:
A)
is a movement of the economy toward economic growth.
B)
can be thought of as an increase in a nation's standard of living.
C)
is a sustained fall in the overall level of prices.
D)
is an increase in the overall level of prices.
99.
If the economy grew at 3% this year and average prices increased _____, people would
be better off this year than last year.
A)
3%
B)
faster than 3%
C)
less than 3%
D)
faster than 10%
100.
If wages grew at 5% last year and average prices grew at 3%, then the average worker:
A)
is better off.
B)
is worse off.
C)
has lost purchasing power.
D)
is unaffected.
101.
If workers' nominal wages have risen by 50% over a 10 years and prices have increased
by 40% in that same period, then we can safely conclude that the amount of goods and
services workers can buy has:
A)
fallen.
B)
increased.
C)
not changed.
D)
decreased in quality.
102.
An increase in the nation's overall price level is:
A)
long-term economic growth.
B)
unemployment.
C)
inflation.
D)
deflation.
Page 19
103.
During inflation the _____ price level _____.
A)
average; falls
B)
average; increases
C)
average; remains constant
D)
real; falls
104.
The annual percentage change in the aggregate price level is negative when there is:
A)
deflation.
B)
disinflation.
C)
inflation.
D)
spiraling inflation.
105.
With inflation:
A)
overall prices are increasing, although some may be decreasing.
B)
all prices must be increasing.
C)
the economy must be contracting.
D)
the economy must be producing at full employment.
106.
Inflation:
A)
raises the cost of making purchases.
B)
can result in a decrease in barter transactions.
C)
encourages people to hold cash.
D)
is caused by changes in interest rates.
107.
In the long run the overall price level is mainly determined by:
A)
the business cycle.
B)
the price of crude oil.
C)
changes in the money supply.
D)
the government's budgetary policies.
108.
Deflation:
A)
raises the cost of making purchases.
B)
can result in an increase in employment.
C)
encourages people to hold cash rather than invest.
D)
is caused by changes in interest rates.
Page 20
109.
With regard to the aggregate price level, economists generally believe:
A)
price stability is desirable.
B)
inflation is worse than deflation.
C)
deflation is worse than inflation.
D)
inflation benefits most retired people.
110.
Which of the following is TRUE about inflation and deflation?
A)
Both are good for the economy.
B)
Inflation is always good for the economy and deflation is always bad for the
economy.
C)
Inflation is always bad for the economy and deflation is always good for the
economy.
D)
Both inflation and deflation can pose problems for the economy.
111.
Inflation affects people adversely because:
A)
nominal income falls.
B)
purchasing power tends to increase.
C)
the budget deficit increases.
D)
it causes money to lose its value over time.
112.
Which of the following statements is CORRECT?
A)
Supply and demand cannot explain why a particular good or service becomes more
expensive relative to other goods and services.
B)
Inflation affects only the more advanced countries, whereas less advanced
countries face deflation.
C)
Prices of most goods and services remained stable during the Great Depression.
D)
When the economy is in recession and jobs are hard to find, inflation tends to fall.
113.
Price stability occurs when:
A)
the overall price level is zero.
B)
the economy is at full employment.
C)
the overall cost of living is changing very slowly.
D)
food prices have remained the same.
114.
If a country sells more goods and services to the rest of the world than it purchases from
the other countries, then the country has a:
A)
trade deficit.
B)
budget deficit.
C)
trade surplus.
D)
budget surplus.
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115.
If a country has a trade deficit, does it indicate that the country has a serious problem?
A)
No. Trade deficits occur when a country's investment spending is higher than its
level of saving.
B)
Yes. Trade deficits occur when a country has low productivity.
C)
Yes. Trade deficits occur when a country does not have a comparative advantage in
production.
D)
Yes. Trade deficits occur when a country has a high budget surplus.
116.
Goods and services that are produced in a foreign country but consumed domestically
are called:
A)
exports.
B)
imports.
C)
investment goods.
D)
consumer durables.
117.
An open economy:
A)
trades goods and services with other countries.
B)
does not regulate its industries.
C)
does not impose taxes on its citizens.
D)
allows free practice of speech and religion.
118.
A nation whose value of imports exceeds its value of exports is said to have:
A)
hyperinflation.
B)
a trade deficit.
C)
price stability.
D)
a trade surplus.
119.
An open economy:
A)
trades only with its neighbors.
B)
trades goods but not services or assets with other countries.
C)
does not trade goods, services, or assets with other countries.
D)
trades goods and services with other countries.
120.
In an open economy:
A)
the exchange rate is determined by the government.
B)
specialization in activities with a comparative advantage is not possible.
C)
trade is beneficial only to the larger economy.
D)
there is trade in goods, services, and/or assets with other countries.
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121.
The trade balance is the difference between the value of:
A)
the trade deficit and the budget deficit.
B)
exports and the imports.
C)
the exchange rates of two countries that are engaged in international trade.
D)
the national debt and the foreign debt.
122.
The additional profit earned by Microsoft Corporation by marketing and using a
proprietary method of coding software is a microeconomic issue.
A)
True
B)
False
123.
Fiscal policy entails changes in the quantity of money or the interest rate.
A)
True
B)
False
124.
Monetary and fiscal policy are tools to reduce the severity of recessions.
A)
True
B)
False
125.
One type of macroeconomic policy is antitrust enforcement.
A)
True
B)
False
126.
Fiscal policy can be used to reduce the severity of recessions.
A)
True
B)
False
127.
The business cycle is the long-run alternation between downturns and upturns.
A)
True
B)
False
128.
Expansions are periods when real GDP and employment are growing.
A)
True
B)
False
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129.
Recessions are periods in which output and employment are falling.
A)
True
B)
False
130.
Business cycles are defined by the expansion, contraction, then expansion again of
nominal GDP.
A)
True
B)
False
131.
Following a trough, real GDP increases.
A)
True
B)
False
132.
The peak of the business cycle provides evidence that the recession is over.
A)
True
B)
False
133.
Between 1980 and 2014, inflation wiped out most of the wage gains of the typical
worker.
A)
True
B)
False
134.
A newspaper article documents the closing of a factory and the many jobs that are lost.
A separate article describes the rising U.S. unemployment rate. Why is the first article a
microeconomic issue and the second article a macroeconomic issue?
135.
The economy is in a recession and Congress passes legislation to reduce income taxes.
Tom, seeing an increase in his take-home pay, goes to Best Buy and purchases a new
television. Why is the tax cut a macroeconomic issue, while Tom's new TV is a
microeconomic issue?
136.
Explain what is meant by the paradox of thrift.
137.
What are Keynesian policies?
Page 24
138.
Suppose the business cycle is expanding. Predict how the economic indicators of real
gross domestic product, the unemployment rate, and the inflation rate are moving.
139.
You read a newspaper article that says the unemployment rate rose this month. Are we
in a recession? Explain.
140.
What is long-run economic growth, and why is it so important for a nation's economy?
141.
Your boss is impressed with your performance over the past year and has decided to
give you a 5% increase in your salary. Are you unambiguously better off with your
increased salary? What factors must be considered?
142.
In a typical business cycle recession, the unemployment rate rises and the inflation rate
falls. Explain these two trends.
143.
The United States imports coffee from Brazil and exports cars to Brazil. Is this a
macroeconomic or microeconomic issue?
144.
One of the issues of importance to macroeconomists is:
A)
the behavior of individuals and their allocation of income.
B)
how firms determine the profit-maximizing level of output.
C)
understanding how living standards change over time.
D)
the behavior of individual markets.
145.
In macroeconomics:
A)
aggregate data such as real GDP, the price level, and unemployment are analyzed.
B)
individual and firm decisions regarding utility and profit maximization are studied.
C)
long-term growth is not considered to be important.
D)
market intervention from the government is not considered important.
146.
The paradox of thrift highlights:
A)
the role of investment in the macroeconomy.
B)
how individual decisions to save more may worsen a recession.
C)
how an increase in spending occurs during recessions.
D)
irrational behavior on the part of households.
Page 25
147.
Fiscal and monetary policies:
A)
have no role in macroeconomic policies.
B)
have been used by the government for over 250 years.
C)
are most effective in microeconomic settings.
D)
are used to correct for short-term economic fluctuations.
148.
Fiscal policy entails:
A)
setting the money supply.
B)
setting levels of taxation and/or government spending.
C)
setting interest rates in specific markets.
D)
correcting only recessionary problems.
149.
Keynesians argue that low levels of spending:
A)
are irrelevant.
B)
can lead to prolonged recessions.
C)
are not helped by monetary or fiscal policy efforts.
D)
are evident only during expansions.
150.
Setting interest rates and the money supply in an effort to change overall spending in is
use of:
A)
fiscal policy.
B)
monetary policy.
C)
investment.
D)
the stock market.
151.
Setting government spending and taxes in an effort to change overall spending in an
economy is use of:
A)
fiscal policy.
B)
monetary policy.
C)
investment.
D)
the stock market.
152.
During the Great Depression, unemployment rates reached as high as:
A)
25%.
B)
50%.
C)
10%.
D)
60%.
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153.
Recessions tend to be _____, and expansions tend to be _____.
A)
short; short
B)
long; long
C)
short; long
D)
long; short
154.
During a recession, one will often observe:
A)
rising aggregate output.
B)
rising unemployment rates and falling aggregate output.
C)
rising employment rates.
D)
zero unemployment rates.
155.
When economists measure economic growth, they often use:
A)
the inflation rate.
B)
the unemployment rate.
C)
nominal GDP.
D)
real GDP.
156.
One normally expects that unemployment increases while aggregate output and
aggregate incomes decrease during:
A)
an expansion.
B)
government intervention.
C)
a recession.
D)
the peak of the business cycle.
157.
A contraction in the business cycle is:
A)
the long run.
B)
a recession.
C)
accompanied by an increase in employment.
D)
viewed as a rarity.
158.
When an economy is operating between a trough and a peak of the business cycle, it is
in:
A)
an expansion.
B)
a contraction.
C)
a short-run condition.
D)
the beginning of a fall in aggregate spending.
Page 27
159.
An economic recovery encompasses all of the following EXCEPT:
A)
sustained economic growth.
B)
a short-run increase in aggregate production.
C)
a time of increasing employment.
D)
the end of the business cycle.
160.
When an economy is expanding, unemployment tends to _____ and overall prices tend
to _____.
A)
fall; rise
B)
fall; fall
C)
rise; fall
D)
rise; rise
161.
When an economy's overall production grows faster than its population, it is
undergoing:
A)
long-run growth per capita.
B)
an increase in nominal GDP.
C)
deflation.
D)
the paradox of thrift.
162.
An overall decrease in the price level is called:
A)
inflation.
B)
deflation.
C)
long-run growth.
D)
the result of an increase in economic production.
163.
When overall price levels rise over time, it is referred to as:
A)
deflation.
B)
inflation.
C)
an increase in purchasing power.
D)
the consumer price index.
164.
If an economy is open:
A)
anyone can immigrate to the country.
B)
trading with other countries makes up a portion of its economy.
C)
it does not trade with other countries.
D)
Its real GDP will drop.
Page 28
165.
A trade surplus occurs:
A)
during economic contractions only.
B)
when the value of imports exceeds the value of exports.
C)
when the value of imports is less than the value exports.
D)
when unemployment is rising.
166.
If the value of a country's exports is greater than the value of its imports, it is:
A)
running a trade surplus.
B)
running a trade deficit.
C)
in an economic contraction.
D)
likely to find its investment spending greater than its level of saving.
167.
If a country runs a trade deficit, its investment spending is probably:
A)
above its level of saving.
B)
less than its level of saving.
C)
equal to its level of saving.
D)
equal to zero.
168.
The relation between a country's level of saving and investment:
A)
affects its trade balances.
B)
does not affect an open economy.
C)
has often been used to correct a trade deficit but not a trade surplus.
D)
pertains to trade surpluses only.
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Answer Key
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