Chapter 5 Introduction to Macroeconomics Principles of Macroeconomics, Case/Fair, 8e



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Chapter 5 Introduction to Macroeconomics

Principles of Macroeconomics, Case/Fair, 8e



5.1 The Roots of Macroeconomics

Multiple Choice

1)



Which of the following is NOT a topic studied in Macroeconomics?

A)



Gross Domestic Product

B)



The unemployment rate

C)



The price of IBM computers

D)



The inflation rate

2)



Which of the following is a topic studied in Macroeconomics?

A)



Gross Domestic Product

B)



The wage of auto workers

C)



The price of IBM computers

D)



The amount of pizza produced

3)



Which of the following is a topic studied in Macroeconomics?

A)



Output growth

B)



Unemployment

C)



Inflation

D)



All of the above

4)



Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are

A)



administered prices.

B)



sticky prices.

C)



regulatory prices.

D)



market prices.

5

Which of the following is an assumption used by Classical economists?

A)



Wages adjust downward but not upward.

B)



Wages adjust upward but not downward.

C)



Wages are inflexible.

D)



Wages adjust both upward and downward.

6)



According to the Classical model, unemployment

A)



could not persist because wages would rise to eliminate the excess supply of labor.

B)



could not persist because wages would fall to eliminate the excess supply of labor.

C)



could be eliminated through fiscal and monetary policies.

D)



could be eliminated only through government intervention.

7)



According to Classical economists, if the quantity of labor demanded exceeds the quantity supplied, there is a

A)



surplus of labor and wages will rise.

B)



shortage of labor and wages will fall.

C)



shortage of labor and wages will rise.

D)



surplus of labor and wages will fall.

8)




According to the Classical economists, the economy

A)



requires fine-tuning to reach full employment.

B)



has sticky prices in many industries.

C)



is self-correcting.

D)



will never be at full employment.

9.



Macroeconomic policies became more influenced by Keynes' theories starting with,

A)



the period of high unemployment and high inflation in the 1970s.

B)



the Great Depression.

C)



the period of high inflation in the early 1980s.

D)



the OPEC recession.

10)



According to Keynes, the level of employment is determined by

A)



flexible wages and prices.

B)



interest rates.

C)



price and wages.

D)



the level of aggregate demand for goods and services.

11)



Suppose the government reduced corporate profit taxes to encourage investment. This policy is in line with

A)



Keynesian economics.

B)



Classical economics.

C)



the macrofoundations of microeconomics.

D)



supply-side or growth economics.

12

The concept of "market clearing" is adopted and defended by

A)



Keynesian economists.

B)



Classical economists.

C)
D)

fine-tuning economists.

demand-side economists.13.increase in the overall price level is known as



A)



deflation.

B)



recession.

C)



inflation.

D)



stagflation.

14.



Suppose the economy suffers a high rate of unemployment. According to Keynesian economists, the government should increase employment by

A)



decreasing money supply.

B)



balancing the budget.

C)



not doing anything.

D)



increasing government spending.

15)



Which of the following would be an example of fine tuning?

A)



Firms increase wages to attract high-quality workers.

B)



Firms increase employment benefits to increase workers' productivity.

C)



The federal government enacts legislation to increase spending to try to stimulate the economy.




D) The federal government passes legislation that would require that the government's budget always be balanced

16)




Stagflation occurs when the economy's inflation rate is high and

A)



employment is high.

B)



the unemployment rate is high.

C)



the unemployment rate is low.

D)



the rate of change in economic activities is positive.


True/False

1)



According to the Classical model, an excess supply of labor would drive up wages to a new equilibrium level and therefore unemployment would not persist.

2)



According to Keynes, aggregate supply determines the level of economic activities in the economy.

3)



According to Keynes, the government's role during periods when private demand is low is to stimulate aggregate demand and, by so doing, lift the economy out of recession.

4)



In the Classical model, the level of employment is determined by the level of aggregate demand.

5)



"Fine tuning" is any government attempt to regulate inflation or unemployment.



Classical economists believed that economic slowdowns are self-correcting.

5.2 Macroeconomic Concerns

Multiple Choice

1)



Inflation is a(n)

A)



decrease in the overall price level.

B)



decrease in the overall level of economic activity.

C)



increase in the overall price level.

D)



increase in the overall level of economic activity.

2)



A deflation is when

A)



the average price level declines.

B)



economic activity declines.

C)



the economic growth rate declines.

D)



the unemployment rate declines.

3. A period of very rapid increase in the overall price level is known as



A)



stagnation.

B)



hyperinflation.

C)



stagflation.

D)



depression.

4)



The trend of the economy is

A)



the long run growth path of the economy.

B)



the long run inflation rate.

C)



the long run unemployment rate.

D)



All of the above

5)




The term business cycle refers to the

A)



short-term ups and downs in the price level.

B)



long-term trends in the price level.

C)



short-term ups and downs in the level of economic activity.

D)



long-term trends in the level of economic activity.

6)



A period during which aggregate output rises is known as a(n)

A)



recession.

B)



inflation.

C)



hyperinflation.

D)



expansion.

7)



A period when the economy shrinks is known as

A)



a recession.

B)



a contraction.

C)



a slump.

D)



all of the above.

8)



In a business cycle, a peak represents the end of ________ and a trough represents the end of ________.

A)



an expansion; a recession

B)



a depression; an expansion

C)



a trough; a peak

D)



a recession; an expansion

9)



In a business cycle, a peak represents the end of

A)



an expansion.

B)



a depression.

C)



trough.

D)



a recessio




10)In a business cycle, a trough represents the end of

A)



an expansion.

B)



an inflation.

C)



a peak

D)



a recession.


11)



If the labor force is 100 and employment is 95, then the unemployment rate is

A)



100%.

B)



95%.

C)



5%.

D)



0%.

12)



A prolonged and deep recession is called

A)



a business cycle.

B)



a depression.

C)



a stagflation.

D)



hyperinflation.

13



Between a peak and a trough, the economy goes through a(n)

A)



expansion.

B)



inflation.

C)



recession.

D)



boom.


14)



Unemployment means that

A)



at the going wage rate, there are people who want to work but cannot find work.

B)



people are not willing to work at the going wage rate.

C)



there are some people who will not work at the going wage rate.

D)



there is excess demand in the labor market.

15)



The unemployment rate equals

A)



labor force/population

B)



unemployed/employed.

C)



(employed - unemployed)/labor force.

D)



(labor force - employed)/labor force.


True/False

1)



Fiscal policy generally takes the form of regulations specifying the maximum amount by which the money supply can be changed.

2)



Macroeconomics is concerned with inflation or deflation, output growth and unemployment.

3)



Macroeconomics is concerned with the market price and equilibrium quantity of each good or service.

4)



The unemployment rate is the number of people unemployed divided by number of people in the labor force.

5)



Hyperinflation is when there is a decline in the price level.
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