Question 1

Investment is ultimately limited by the amount of savings in the economy.

Accepted Answer

A) True 
 B)False

Question 2

Real GDP measures the

Accepted Answer

A)  total dollar value of all goods and services produced within the borders of a country using current prices.
B)  value of final goods and services produced within the borders of a country, corrected for price changes.
C)  total dollar value of all goods and services consumed within the borders of a country, adjusted for price changes.
D)  value of all goods and services produced in the world, using current prices.E) None of the above
F) A) and B)

Question 3

Which of the following statements is true?

Accepted Answer

A)  Financial investment refers to the creation and expansion of business enterprises.
B)  Economic investment refers to the creation and expansion of business enterprises.
C)  Economic investment refers to the purchase of assets such as stocks, bonds, and real estate.
D)  Both economic investment and financial investment refer to the purchase of assets such as stocks, bonds, and real estate.E) B) and D)
F) A) and C)

Question 4

Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?

Accepted Answer

A)  Firms respond to shorter-term demand shocks by adjusting production levels; more persistent changes in demand result in changes in inventories.
B)  Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.
C)  Firms are reluctant to adjust inventory levels because the costs are higher than changing the quantity of output produced.
D)  Firms are quick to let go of workers when negative demand shocks occur.E) B) and D)
F) A) and B)

Question 5

The term "shock"

Accepted Answer

A)  always refers to an unexpectedly bad event.
B)  always refers to an increase in inflation.
C)  does not tell us whether what has happened is unexpectedly bad or unexpectedly good.
D)  always refers to a decrease in real GDP and an increase in unemployment.E) B) and C)
F) A) and D)

Question 6

Because prices are sticky, a positive demand shock will lead to

Accepted Answer

A)  no change in unemployment.
B)  an increase in unemployment.
C)  a decrease in unemployment.
D)  an unpredictable change in unemployment.E) A) and C)
F) B) and C)

Question 7

Supply shocks

Accepted Answer

A)  occur more frequently than demand shocks.
B)  usually result from fiscal and monetary policy changes.
C)  occur when sellers face unexpected changes in the availability and/or prices of key inputs.
D)  have been responsible for most of the recessions in the United States since World War II.E) None of the above
F) All of the above

Question 8

Which of the following countries would economists say definitively is achieving modern economic growth?

Accepted Answer

A)  Zimbabwe experiences a 5.6 percent increase in nominal GDP.
B)  South Africa experiences a 4.2 percent increase in real GDP.
C)  Ghana experiences a 3.6 percent increase in nominal GDP per person.
D)  Nigeria experiences a 2.7 percent increase in real GDP per person.E) B) and C)
F) None of the above

Question 9

At the end of the summer driving season, the demand for gasoline typically declines.This is an example of a negative demand shock.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not a factor that increases short-run price stickiness?

Accepted Answer

A)  Consumers tend to prefer stable prices.
B)  Stable prices make it easier for consumers to plan their spending.
C)  A firm can lower its price without fear that rival firms will also lower their prices.
D)  Firms try to avoid price wars.E) All of the above
F) A) and B)

Question 11

The amount of investment in an economy is ultimately limited by the amount of savings in that economy.

Accepted Answer

A) True 
 B)False

Question 12

The business cycle reflects both short-run fluctuations in output and long-run economic growth.

Accepted Answer

A) True 
 B)False

Question 13

High rates of unemployment

Accepted Answer

A)  indicate that society is not using a large portion of the talent and skills of its people.
B)  are associated with higher price levels.
C)  always correspond to a decrease in nominal GDP.
D)  do not affect an economy's output of goods and services.E) C) and D)
F) B) and C)

Question 14

Modern economic growth refers to any situation where a nation's output increases.

Accepted Answer

A) True 
 B)False

Question 15

Why are economists concerned about inflation?

Accepted Answer

A)  Inflation generally causes unemployment rates to rise.
B)  Real GDP is necessarily falling when there is inflation.
C)  Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
D)  Inflation increases the value of people's savings and encourages overspending on goods and services.E) All of the above
F) C) and D)

Question 16

Which of the following results from firms holding inventories?

Accepted Answer

A)  The economy is much more susceptible to business cycle fluctuations.
B)  Demand shocks occur with greater frequency.
C)  Demand shocks occur less frequently.
D)  Firms can maintain production levels and adjust inventories in response to demand shocks.E) A) and B)
F) A) and C)

Question 17

If nominal GDP is rising faster than real GDP, then inflation must be occurring.

Accepted Answer

A) True 
 B)False

Question 18

For which of the following goods and services are prices most sticky?

Accepted Answer

A)  taxi fares
B)  beer
C)  coin-operated laundry machines
D)  airline ticketsE) C) and D)
F) B) and C)

Question 19

Sharply rising oil prices are most likely to lead to a

Accepted Answer

A)  negative demand shock.
B)  positive demand shock.
C)  negative supply shock.
D)  positive supply shock.E) A) and D)
F) B) and D)

Question 20

Banks and other financial institutions

Accepted Answer

A)  are the primary investors in equipment, factories, and other capital goods.
B)  lack relevance in the modern economy because they focus primarily on financial assets and generally do not engage in real investment activity.
C)  promote economic growth by helping to direct household savings to businesses that want to invest.
D)  often hinder economic activity by creating barriers between household savers and firms wanting to invest in capital goods.E) B) and C)
F) None of the above

Exam 26: An Introduction to Macroeconomics

Why are economists concerned about inflation?

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Sharply rising oil prices are most likely to lead to a

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Supply shocks

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Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?

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The business cycle reflects both short-run fluctuations in output and long-run economic growth.

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Banks and other financial institutions

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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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Which of the following countries would economists say definitively is achieving modern economic growth?

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If nominal GDP is rising faster than real GDP, then inflation must be occurring.

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Which of the following statements is true?

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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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High rates of unemployment

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Investment is ultimately limited by the amount of savings in the economy.

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The term "shock"

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Modern economic growth refers to any situation where a nation's output increases.

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For which of the following goods and services are prices most sticky?

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Real GDP measures the

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Which of the following is not a factor that increases short-run price stickiness?

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Which of the following results from firms holding inventories?

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Because prices are sticky, a positive demand shock will lead to

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