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Chapter 06 - An Introduction to Macroeconomics
80. Nominal GDP measures a nation's output in current year prices.
81. Any person without a job is considered to be unemployed.
82. Higher unemployment rates are linked with higher crime rates and higher rates of physical
and mental illness.
83. Inflation reduces the purchasing power of a person's income and savings.
Chapter 06 - An Introduction to Macroeconomics
84. In 2007, unemployment rates in the United States exceeded the rates in Germany, India,
and Poland.
85. 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.
86. Real GDP measures the change in the price level over time.
87. Modern economic growth refers to any situation where a nation's output increases.
Chapter 06 - An Introduction to Macroeconomics
88. In order to achieve modern economic growth, a nation's output must grow faster than its
population.
89. A nation that realizes a 3 percent increase in its output per person is experiencing modern
economic growth.
90. Output per person has grown steadily since the beginning of the Roman Empire.
91. China's GDP per person in 2009 was less than one-tenth of U.S. GDP per person in the
same year.
Chapter 06 - An Introduction to Macroeconomics
92. Economists refer to purchases of stocks and bonds as "investment."
93. The amount of investment in an economy is ultimately limited by the amount of savings in
that economy.
94. Increasing investment in the present means forgoing future consumption.
95. A nation that wants to invest in more newly created capital in the present must be willing
to forgo present consumption.
Chapter 06 - An Introduction to Macroeconomics
96. Banks and other financial institutions provide the link between savers and economic
investors in the macroeconomy.
97. Economists believe that expectations have little impact on macroeconomic outcomes.
98. Shocks occur when actual events do not match expectations.
99. A demand shock occurs when large numbers of consumers unexpectedly reduce their
purchases of goods and services.
Chapter 06 - An Introduction to Macroeconomics
100. At the end of the summer driving season, the demand for gasoline typically declines.
This is an example of a negative demand shock.
101. Demand shocks may be positive or negative.
102. "Supply shocks" occur any time there is a change in the supply of goods and services.
103. Economists believe that most short-run fluctuations in output are the result of supply
shocks.
Chapter 06 - An Introduction to Macroeconomics
104. Demand shocks cause problems in the macroeconomy primarily because prices are
sticky.
105. In the very short run, demand shocks will tend to change the level of output but have
little effect on prices.
106. In the very short run, firms tend to respond to demand shocks by changing their prices.
107. Negative demand shocks have a more significant impact on output and employment
when prices are flexible.
Chapter 06 - An Introduction to Macroeconomics
108. In the short run, firms are more likely to respond to demand shocks by altering inventory
levels than by changing how much they produce.
109. Milk prices tend to be stickier than gasoline prices.
110. Prices tend to be stickier in the shorter run than in the longer run.
111. Prices tend to be sticky partially because sellers know that consumers prefer stable
prices.
Chapter 06 - An Introduction to Macroeconomics
112. 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.
113. The "sticky price" model is the only one used by macroeconomists.
114. (Consider This) The term "economic investment" refers only to money spent purchasing
newly created capital goods such as factories, tools, and warehouses.
115. (Consider This) If a farmer purchases 10 acres of farmland from a neighboring farmer,
this would be considered an economic investment.
Chapter 06 - An Introduction to Macroeconomics
116. (Consider This) If Ford Motor Company purchases factory equipment previously used by
General Motors, this would be considered an economic investment.
