Macroeconomics Chapter 6

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

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

2. The term "recession" describes a situation where:

output and living standards decline.

3. 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

4. Real GDP measures the:.

value of final goods and services produced within the borders of a country, corrected for price changes.

5. Harry’s Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry’s again produced 10,000 large pepperoni pizzas (identical to last year’s pizzas), but sold them for $12 each. Based on this information we can conclude that Harry’s production of large

increased nominal GDP by $20,000, but left real GDP unchanged.

6. Why are high rates of unemployment of concern to economists?

There is lost output that could have been produced if the unemployed had been working.

7. Higher rates of unemployment are linked with:

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

8. Inflation is defined as:

an increase in the overall level of prices.

9. The three statistics that are the main focus for those measuring macroeconomic health are:

real GDP, inflation, and unemployment.

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

Nigeria experiences a 2.7 percent increase in real GDP per person.

11. Real gross domestic product

will increase if there is an increase in the level of output

12. Suppose that an economy’s output does not change from one year to the next, but the price level doubles. What happens to real GDP?

real GDP doesn’t change

13. Suppose a small economy produces only MP3 players. In year 1, 10,000 MP3 players are produced and sold at a price of $100 each. In year 2, 12,000 MP3 players are produced and sold at a price of $80 each. Which of the following statements is true?

Real GDP increases while nominal GDP decreases

14. Economists and policy makers are committed to encouraging a large and growing real GDP because

more output means greater consumption opportunities

15. High rates of unemployment:

Indicate that society is not using a large portion of the talent and skills of its people

16. Inflation is troublesome to consumers because of the following effects, except:

Workers’ wages may be rising faster than the overall prices

17. Which of the following is most likely to be an indication of higher unemployment?

A decrease in real GDP

18. Suppose a family’s income increases by 5% at the same time that inflation is 6%. Then

the family’s standard of living will fall

19. Rapid and sustained economic growth of nations:

Is a modern phenomenon

20. The Industrial Revolution began in:

England in the late 1700’s

21. Suppose that real GDP increases by 5% while the population of a country increases by 7%. Then

Output per person necessarily decreases

22. Under modern economic growth, the annual average increase in output per person is

Often not large, perhaps 2% per year

23. Which of the following is not an adjustment made when comparing standards of living across countries?

Adjusting for different unemployment rates across countries

24. In 2009, output per person in the U.S was about

$46,000 per year

25. Which of the following statements is true?

Economic investment refers to the creation and expansion of business enterprises

26. Which of the following is the best example of financial investment?

A retiree purchases Google stock

27. Which of the following is the best example of economic investment?

Apple builds a new plant to manufacture iPads

28. Which of the following is the best example of investment as defined by economists?

A restaurant owner buys a freezer to store ingredients for the restaurant meals

29. Which of the following best represents the effect of an increase in investment?

Moving from point b to point d

30. Which of the following is the principal source of savings in an economy?

Households

31. Savings are transferred from savers to borrowers through the following intermediaries, except:

Real estate brokers

32. Decisions about savings and investment are:

Complicated by the fact that the future is uncertain

33. Increased optimism about the future will lead to:

More current investment and more future consumption

34. Sharply rising oil prices are most likely to lead to a:

Negative supply shock

35. An increase in worker productivity will lead to a:

Positive supply shock

36. Which of the following is an example of a supply shock?

A dramatic increase in energy prices increases production costs for firms in the economy.

37. Which of the following is an example of a demand shock?

Consumers become worried about job loss and buy fewer goods and services than expected.

38. Shocks to the economy occur when: .

actual economic events do not match what people expected.

39. (Consider This) What is the difference between financial investment and economic investment?

Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.

40. (Consider This) Which of the following is an example of economic investment?

Nike buys a new machine that increases shoe production.

41. (Consider This) Suppose that Toyota buys a factory previous owned by Chrysler Motors. Economists would:

not consider this to be an economic investment because no new capital is created through the purchase.

42. (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 and subtly to negative demand shocks, and avoid the large output reductions that frequently result in higher unemployment.