Economics Ch.23 practice

1. The two topics of primary concern in macroeconomics are:

short-run fluctuations in output and employment, and long-run economic growth

The term "recession" describes a situation where:

output and living standards decline

Which of the following statements is most accurate about advanced economies?

Economies experience a positive growth trend over the long run, but experience significant variability in the short run.

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

nominal GDP would rise, but real GDP would be unchanged.

Why are high rates of unemployment of concern to economists?

Higher rates of unemployment are linked to higher crime rates and other social problems., A larger fraction of the nation’s labor resource is going unutilized., There is lost output that could have been produced if the unemployed had been working.

Higher rates of unemployment are linked with:

higher crime rates as the unemployed seek to replace lost income.

Why are economists concerned about inflation?

Inflation lowers the standard of living for people whose income does not increase as fast as the price level.

Modern economic growth refers to countries that have experienced an increase in:

real output per person.

In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation?

the quantity of resources available to the economy

Savings are generated whenever:

current income exceeds current spending

Which of the following would an economist consider to be investment?

Boeing building a new factory

Which of the following is an example of economic investment?

Nike buys a new machine that increases shoe production.

For an economy to increase investment, it must:

increase saving.

Shocks occur:

when expectations are unmet.

Demand shocks:

refer to unexpected changes in the desires of households and businesses to buy goods and services.

Supply shocks:

occur when sellers face unexpected changes in the availability and/or prices of key inputs.

When demand shocks lead to recessions, it is mainly due to:

price inflexibility.

Which of the following results from firms holding inventories?

Firms can maintain production levels and adjust inventories in response to demand shocks.

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

build up inventories before reducing production.

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

Coin-operated laundry machines

Which of the following best explains why prices tend to be inflexible even when demand changes?

Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

(Last Word) Computerized inventory tracking has been credited with reducing the number and severity of
recessions because these tracking systems

allow firms to react more quickly to negative demand shocks, and avoid the large output reductions that frequently result in higher unemployment.