Question 1

In situations of sticky prices and negative demand shocks, we would expect ﬁrms to

Accepted Answer

A)   deplete inventories before increasing production.
B)   reduce production before building up inventories.
C)   build up inventories before reducing production.
D)   lower prices before reducing production or building up inventories.E) A) and B)
F) None of the above

Question 2

Refer to the ﬁgures. Which ﬁgure(s)  represent(s)  a situation where ﬁrms are likely to hold inventories to accommodate unexpected changes in demand?

Accepted Answer

A)   A only
B)   B only
C)   both A and B
D)   neither A nor BE) C) and D)
F) A) and D)

Question 3

Refer to the graphs. Which of the following best represents a positive demand shock when prices are ﬂexible?

Accepted Answer

A)   the shift from D2 to D3 in graph B
B)   the shift from D2 to D3 in graph A
C)   the shift from D2 to D1 in graph B
D)   the shift from D2 to D1 in graph AE) A) and B)
F) A) and D)

Question 4

Banks and other ﬁnancial institutions provide the link between savers and economic investors in the
macroeconomy.

Accepted Answer

A) True 
 B)False

Question 5

Unemployment describes the condition where

Accepted Answer

A)   equipment and machinery are going unused.
B)   a person cannot get a job but is willing to work and is actively seeking work.
C)   a person does not have a job, regardless of whether or not he or she wants one.
D)   any resource sits idle.E) B) and C)
F) A) and B)

Question 6

(Last Word)  Studies in behavioral economics show that when ﬁrms cut worker's pay in order to reduce costs during recessions, the workers

Accepted Answer

A)   feel like they are being taken advantage of.
B)   may begin organizing unions.
C)   retaliate by stealing supplies and vandalizing equipment.
D)   call in sick and show up late more often.
E)   All of these choices are correct.F) A) and D)
G) B) and C)

Question 7

If consumers become pessimistic, the economy is likely to experience a

Accepted Answer

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

Question 8

Inventories held by ﬁrms

Accepted Answer

A)   tend to increase the severity of short-run ﬂuctuations.
B)   tend to reduce the severity of short-run ﬂuctuations.
C)   are held by businesses because they are a costless way of responding to demand shocks.
D)   are the result of positive demand shocks.E) B) and C)
F) A) and B)

Question 9

A period of declining output and living standards is referred to as a recession.

Accepted Answer

A) True 
 B)False

Question 10

Nominal gross domestic product

Accepted Answer

A)   is a measure of the overall level of prices.
B)   measures the value of ﬁnal output produced within a nation in one year, using current prices.
C)   measures the value of ﬁnal output produced within a nation in one year, adjusted for changing prices.
D)   only changes when the level of output changes.E) B) and C)
F) A) and B)

Question 11

Nominal gross domestic product

Accepted Answer

A)   is not affected by the level of inﬂation.
B)   changes only when there is a change in output.
C)   changes only when there is a change in the price level.
D)   can change when there is a change in either output or the price level.E) None of the above
F) B) and C)

Question 12

Refer to the ﬁgure. Assuming this market is representative of the economy as a whole, a positive demand shock will

Accepted Answer

A)   increase both the price level and the quantity of output produced.
B)   increase output but leave prices unchanged.
C)   lower the price level but leave output unchanged.
D)   raise the price level but leave output unchanged.E) B) and C)
F) A) and C)

Question 13

The ﬁgure depicts a situation where

Accepted Answer

A)   prices are sticky, but output is ﬂexible.
B)   prices are ﬂexible, but output is constant.
C)   prices and output are both ﬂexible.
D)   prices are sticky and output is constant.E) A) and B)
F) C) and D)

Question 14

Businesses are the main economic investors, while households are the main savers.

Accepted Answer

A) True 
 B)False

Question 15

When economists refer to "investment," they are describing a situation where

Accepted Answer

A)   people are buying shares of corporate stock.
B)   resources are devoted to increasing future output.
C)   money is saved in a bank account.
D)   ﬁnancial assets are purchased in the hope of a monetary gain.E) B) and C)
F) A) and D)

Question 16

For which of the following goods are services prices least sticky?

Accepted Answer

A)   newspapers
B)   haircuts
C)   microwave ovens
D)   airline ticketsE) A) and C)
F) B) and D)

Question 17

Economists believe that expectations have little impact on macroeconomic outcomes.

Accepted Answer

A) True 
 B)False

Question 18

In 2008-2009, the U.S. economy lost 8 million jobs and saw the economic growth rate fall to
negative 2.4 percent.

Accepted Answer

A) True 
 B)False

Question 19

Refer to the ﬁgure. Assuming this market is representative of the economy as a whole, a negative demand shock will

Accepted Answer

A)   cause inﬂation.
B)   increase unemployment.
C)   lower prices but leave output unaffected.
D)   reduce both prices and output.E) A) and C)
F) B) and C)

Question 20

The Great Recession illustrated the situation where a negative demand shock occurred and

Accepted Answer

A)   prices adjusted but the output level was inﬂexible.
B)   the economy's overall price level was very ﬂexible.
C)   the economy's overall price level was "sticky."
D)   prices and production were both "sticky," or inﬂexible.E) B) and C)
F) A) and B)

Exam 6: An Introduction to Macroeconomics

Refer to the graphs. Which of the following best represents a positive demand shock when prices are ﬂexible?

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When economists refer to "investment," they are describing a situation where

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The Great Recession illustrated the situation where a negative demand shock occurred and

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If consumers become pessimistic, the economy is likely to experience a

Correct AnswerverifiedShow Answer

Economists believe that expectations have little impact on macroeconomic outcomes.

Correct AnswerverifiedShow Answer

In 2008-2009, the U.S. economy lost 8 million jobs and saw the economic growth rate fall to negative 2.4 percent.

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For which of the following goods are services prices least sticky?

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Refer to the ﬁgures. Which ﬁgure(s) represent(s) a situation where ﬁrms are likely to hold inventories to accommodate unexpected changes in demand?

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Nominal gross domestic product

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Businesses are the main economic investors, while households are the main savers.

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Nominal gross domestic product

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In situations of sticky prices and negative demand shocks, we would expect ﬁrms to

Correct AnswerverifiedShow Answer

Banks and other ﬁnancial institutions provide the link between savers and economic investors in the macroeconomy.

Correct AnswerverifiedShow Answer

Refer to the ﬁgure. Assuming this market is representative of the economy as a whole, a positive demand shock will

Correct AnswerverifiedShow Answer

(Last Word) Studies in behavioral economics show that when ﬁrms cut worker's pay in order to reduce costs during recessions, the workers

Correct AnswerverifiedShow Answer

A period of declining output and living standards is referred to as a recession.

Correct AnswerverifiedShow Answer

The ﬁgure depicts a situation where

Correct AnswerverifiedShow Answer

Inventories held by ﬁrms

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Unemployment describes the condition where

Correct AnswerverifiedShow Answer

Refer to the ﬁgure. Assuming this market is representative of the economy as a whole, a negative demand shock will

Correct AnswerverifiedShow Answer

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