Quiz 1

Question 1

Long-run growth refers to:
A) expansion phase of the business cycle
B) recession phase of the business cycle
C) stimulative effect of spending on health care
D) growth of the economy over several decades

Answer 1

D) growth of the economy over several decades

Question 2

Macroeconomics addresses
A) why shortages arise temporarily
B) how to invest wisely
C)how society can increase its total amount of productive resources
D) why some prices rise more quickly than others

Answer 2

C) How society can increase its total amount of productive resources

Question 3

Modern policy makers:
A) take actions only when the economy appears to be going into a slump
B) try to “smooth out” the business cycle
C) take action only to rein in booms in the economy
D) tend to let business cycles run their natural course without interference

Answer 3

B) try to “smooth out” the business cycle

Question 4

The business cycle is the
A) length of time it takes for a new product to be developed
B) length of time it takes for an unemployed person to get a job
C) length of time it takes for an entrepreneur to start a new business
D) short-run alternation between economic recessions and expansions

Answer 4

D) short-run alternation between economic recessions and expansions

Question 5

The long-run effect of macroeconomic growth is to
A) allow for a higher standard of living
B) discourage people from saving
C) contribute to inflation
D) eliminate the business cycle

Answer 5

A) allow for a higher standard of living

Question 6

The MOST important effect of a recession is its effect on the
A) overall level of prices
B) ability of workers to find jobs
C) trade balance
D) % of Americans without health insurance coverage

Answer 6

B) the ability of workers to find jobs

Question 7

The widely-held view that the government should take an active role in the macroeconomy dated back to the
A) American Revolution
B) Great Depression
C) Civil War
D) drafting of the US constitution

Answer 7

B) Great Depression

Question 8

Disposable income is income earned by households in factor markets
A) minus taxes and government transfers
B) plus taxes and government transfers
C) minus taxes plus government transfers
D) plus taxes minus government transfers

Answer 8

C) minus taxes plus government transfers

Question 9

GDP is a measure of both
A) inflation and savings
B) interest rates and consumption
C) income and output
D) investment and unemployment

Answer 9

C) income and output

Question 10

GDP is equal to
A) the same of total factor income earned by households from firms
B) some of all financial transactions in the economy
C) aggregate sum of profits and losses
D) value of whaat has been consumed

Answer 10

A) sure of total factor income earned by households from firms

Question 11

GDP measured in current-year prices is:
Select one:
A) potential GDP
B) real GDP
C) per capita GDP
D) nominal GDP

Answer 11

D) nominal GDP

Question 12

Households earn income in the form of:
A) stocks, taxes and savings
B) savings and interest
C) wages, dividends, interests and rent
D) market baskets

Answer 12

C) wages, dividends, interests and rent

Question 13

In the circular flow diagram, when households purchase goods and services it is known as
A) money creation
B) consumer spending
C) economic growth
D) indexing the market basket

Answer 13

B) consumer spending

Question 14

Which of the following transactions does NOT represent an addition to US GDP?
A) US form manufactures a bicycle sold to a US consumer
B) US firm manufactures a bicycle sold to a Canadian consumer.
C) US firm hires construction workers to expand its manufacturing facilities
D) A German citizen buys stock in a US company

Answer 14

D) A German citizen buys stock in a US company

Question 15

Which of the following transactions would add to the value of US GDP?
A) A college student buys a used car
B) A college student sells her used textbooks back to the bookstore
C) A grocery store purchases new freezers made in the US
D) A US citizen buys a new television manufactured in Asia

Answer 15

C) A grocery store purchases new freezers made in the US

Question 16

In general, when the economy is in recession and jobs are hard to find, inflation tends to fall. Which of the following statements regarding price level or inflation is correct?
Select one:
a. Supply and demand cannot explain why a particular good or service becomes more expensive relative to other goods and services.
b. Inflation affects only the more advanced countries, whereas less advanced countries face deflation.
c.Prices of most goods and services remained stable during the Great Depression.
d.In general, when the economy is in recession and jobs are hard to find, inflation tends to fall.

Answer 16

d. In general, when the economy is in recession and jobs are hard to find, inflation tends to fall.

Question 17

With regard to the aggregate price level, economists generally believe:
Select one:
a. price stability is a desirable goal.
b. inflation is worse than deflation.
c. deflation is worse than inflation.
d. inflation actually benefits most retired people.

Answer 17

a. price stability is a desirable goal.

Question 18

If the CPI is 120 in year 1 and 150 in year 2, then the rate of inflation from year 1 to year 2 is:
Select one:
a. 10%.
b. 20%.
c. 25%.
d. 50%.

Answer 18

c. 25%.

Question 19

In the CPI of the United States:
Select one:
a. the current cost of a basket of goods is compared to the base-period cost of the same basket of goods.Incorrect
b. calculation of the base-period index is always equal to 100.
c. the base period is 1982–1984.
d. the current cost of a basket of goods is compared to the base-period cost of the same basket of goods, the calculation of the base-period index is always equal to 100, and the base period is 1982–1984.

Answer 19

d. the current cost of a basket of goods is compared to the base-period cost of the same basket of goods, the calculation of the base-period index is always equal to 100, and the base period is 1982–1984.

Question 20

The major difference between the CPI and the producer price index is that:
Select one:

a. the producer price index is based on retail prices and CPI is based on wholesale prices.
b. the producer price index measures the cost of living of self-employed workers and the CPI measures the cost of living of salaried workers.
c. the producer price index generally registers a higher rate of inflation than the CPI.
d. the producer price index is based on the cost of a basket typically purchased by producers, while the CPI is based on the cost of a basket typically purchased by consumers.

Answer 20

d. the producer price index is based on the cost of a basket typically purchased by producers, while the CPI is based on the cost of a basket typically purchased by consumers.