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Ch05: Introduction to Macroeconomics

1. Macroeconomics studies _____ a. the different costs associated with production. b. the price and output decisions made by different industries. c. the overall performance of the economy. d. the role of a market in determining an efficient outcome. e. the role of input suppliers in determining the price and quantity of output.ANSWER: c

2. The objective of macroeconomics is to _____ a. study the effect of tariffs and quotas on the production of goods and services. b. analyze the role of government in the political system of a country. c. develop and test theories about how the overall economy works. d. improve the competitiveness of U.S. firms. e. understand the different costs associated with production.ANSWER: c

3. Macroeconomics is especially interested in _____ a. the effect of tariffs and quotas on the production of goods and services. b. what makes an economy grow. c. how the overall economy works. d. improving the competitiveness of U.S. firms. e. maximizing the efficiency of government.ANSWER: b

4. Which of the following would be studied by a macroeconomist? a. demand for Apple watches b. price of gasoline c. consumption by one household d. investments by Google e. the economyANSWER: e

5. Which of the following concepts is not included in the study of macroeconomics? a. the unemployment level b. the inflation rate c. real income d. the profit-maximizing condition e. the role of governmentANSWER: d

6. The market value of all final goods and services produced in a nation during a particular period is called the _____ a. gross domestic product. b. net national product.Copyright Cengage Learning. Powered by Cognero.

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c. national income. d. gross national product. e. gross world product.ANSWER: a

7. The measure of the market value of all final goods and services produced in a state during a particular period, usually a year is called the _____ a. net national product. b. gross domestic product. c. gross state product. d. mercantilism. e. gross world product.ANSWER: c

8. The measure of the market value of all final goods and services produced in the world during a particular period, usually a year, is called the _____ a. net national product. b. gross domestic product. c. gross state product. d. mercantilism. e. gross world product.ANSWER: e

9. Which of the following statements regarding the gross domestic product is true? a. It is useful in comparing the overall performances of different economies at the same time. b. It measures aggregate income in an economy over a period of ten years. c. It measures the value of all goods and services produced in the world during a given period. d. It is a measure of an economy's price level during a particular year. e. It is the difference between the value of all goods and services produced by the government and the value of

those produced by the private sector.ANSWER: a

10. How is GDP calculated? a. by adding up the production of all goods and services in the economy b. by adding up the cost of all goods and services in the economy c. by adding up the quantity of all goods and services in the economy d. by measuring the economy’s price level during a particular year e. by subtracting the value of all goods and services produced by the government and the value of those

produced by the private sectorANSWER: a

11. Which of the following economic measures is most useful in comparing different economies across the world? a. aggregate supply

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b. total unemployment c. gross domestic product d. net national product e. aggregate expenditureANSWER: c

12. Most countries usually allow people and goods to move more freely _____ their borders than _____ their borders. a. across; within b. within; across c. outside; across d. outside; within e. around;withinANSWER: b

13. The U.S. economy is ____ and most complex in world history. a. the most volatile b. the most stable c. the largest d. the most open e. the most closedANSWER: c

14. The U.S. economy has about _____ households and more than _____ million businesses. a. 130 million; 30 million b. 125 million; 28 million c. 120 million; 30 million d. 110 million; 28 million e. 100 million; 30 millionANSWER: b

15. Which of the following statements regarding the U.S. economy is correct? a. The economy, unlike the body, does not renew itself. b. Decision makers are not connected with the economy as a whole. c. Money circulates throughout the economy. d. Policy makers rarely need to know how a healthy economy works. e. Macroeconomists have the ability to run economy-wide experiments.ANSWER: b

16. An economic variable that measures something at a particular point in time is called a _____. a. stock variable b. periodic variable c. dummy variable d. flow variableCopyright Cengage Learning. Powered by Cognero.

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e. constant variableANSWER: a

17. Which of the following variables is measured only at a particular point in time and not over different time periods? a. the unemployment rate b. consumer income c. the federal government's debt d. the federal government's budget deficit e. total expenditureANSWER: c

18. Which of the following is a flow variable? a. price level b. U.S. population c. money supply d. investment spending e. household debtANSWER: d

19. Identify an example of a stock variable. a. the growth in investment in an economy b. the change in the price level in an economy over the years c. the number of unemployed people in an economy in a particular year d. the increase in the money supply in an economy e. the fall in consumer spending during two consecutive yearsANSWER: c

20. Identify an example of a flow variable. a. the volume of the federal government’s debt in the current year b. the population of a country in a particular year c. an individual’s total wealth d. the amount of sales tax collected per year e. the total unemployment in an economyANSWER: d

21. Which of the statements best describes a flow variable? a. an economic variable that measures something at a particular point in time b. an economic variable whose value is determined by the market c. an economic variable that is measured per unit of time d. an economic variable whose value shows no change over time e. an economic variable that remains static when other related variables changeANSWER: c


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22. An example of a stock variable in economic theory will be _____ a. the amount of money saved by an individual each week. b. the amount of money spent on buying gasoline each month. c. the weekly grocery bill of an average household. d. the total value of the government bonds held by an individual. e. the total fiscal spending during a particular quarter.ANSWER: d

23. An example of a flow variable in economics is _____ a. the total amount of bank loan taken by Emily. b. the value of an apartment owned by Jerome. c. the price of an antique painting used to decorate an office. d. the earnings of Malaya from teaching piano classes each month. e. the total value of the U.S. treasury bonds held by China.ANSWER: d

24. An economic variable that is measured per unit of time, such as spending per year, is known as a _____ a. stock variable. b. periodic variable. c. dummy variable d. flow variable. e. controlled variable.ANSWER: d

25. Which of these signifies the role of money in an economy? a. It acts as a tool for poverty alleviation in the economy. b. It serves as a medium of exchange in the economy. c. It indicates the economic wellbeing of a nation. d. It helps differentiate between the nominal and real income of a nation. e. It is a clear indicator of the growth in national income.ANSWER: b

26. Which of the following best describes a stock rather than a flow? a. Each week, you save $100. b. Each week, you buy $10 worth of gasoline. c. Each week, you buy $50 worth of groceries. d. You earn $500 per week at your job. e. You own $5,000 worth of government bonds.ANSWER: e

27. Which of the following best describes a flow rather than a stock? a. You own $5,000 worth of government bonds. b. You own a house valued at $100,000.Copyright Cengage Learning. Powered by Cognero.

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c. You own a coin collection valued at $10,000. d. You earn $500 per week. e. You own an automobile worth $45,000.ANSWER: d

28. If all firms expect greater demand for their products or services, they will hire _____ resources like labor and capital and the economy will experience _____. a. fewer; recession b. fewer; growth c. more; deflation d. more; recession e. more; growthANSWER: e

29. The economic policy based on the incorrect theory that a nation’s economic objective should be to accumulate precious metals in the public treasury is called _____. a. laissez-faire b. deficit financing c. socialism d. mercantilism e. capitalismANSWER: d

30. Which of the following is true of the mercantilism policy? a. It accepts gold as a medium of exchange. b. It encourages the free movement of labor and capital resources between nations. c. It emphasizes government control over the production of important goods and services. d. It emphasizes the importance of trade restrictions in achieving economic growth. e. It believes that a nation’s economic vitality depends on its employment level.ANSWER: d

31. The mercantilism policy failed to generate gains from trade for countries that adopted it because of _____ a. increases in consumer spending. b. high levels of federal debt. c. supply-side shocks from oil-exporting countries. d. runaway inflation in the United States. e. retaliations from other countries.ANSWER: e

32. Which of the following faulty economic policies was adopted by President Hoover during the Great Depression? a. an increase in tax rate b. an increase in trade barriers c. a decrease in tax rate


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d. a decrease in government spending e. an increase in government spendingANSWER: a

33. Economic fluctuations _____ a. are linked, but not perfectly synchronized, across countries. b. are perfectly synchronized across countries. c. in one country are independent of fluctuations in other countries. d. in the United States always occur after fluctuations in other developed economies. e. in the United States usually occur before fluctuations in other developed economies.ANSWER: a

34. Economic fluctuations or business cycles _____ a. measure changes in the total number of new businesses started during a year. b. are fluctuations in the Dow Jones industrial average relative to a long-term growth trend. c. look at the role played by business on the level of unemployment. d. are fluctuations in the level of economic activity relative to a long-term growth trend. e. are changes in government spending that occur over a period of time.ANSWER: d

35. Which of the following is true of economic fluctuations? a. They can be experienced by the world economy as well as by a single nation. b. They tend to be equal in length and intensity across all nations. c. They reflect an economy's sociopolitical condition. d. They tend to become more severe when the government attempts to stabilize an economy. e. They have been completely offset by appropriate government policies during the last 40 years.ANSWER: a

36. Which of the following statements is correct about the U.S. economy? a. Economic fluctuations in the U.S. economy have been smoothed out. b. The U.S. economy experiences economic fluctuations. c. The U.S. economy has shrunk over the long term. d. Business cycles usually involve a small number of states. e. Business cycles only affect production and employment.ANSWER: b

37. A period of decline in economic activity lasting more than a few months is a(n) _____ a. expansion. b. contraction. c. depression. d. recession. e. fluctuation.ANSWER: dCopyright Cengage Learning. Powered by Cognero.

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38. A recession is best defined as a period during which _____ a. the percentage of the population employed increases. b. employment, output, and income decrease. c. the money supply in an economy decreases. d. the usage of labor and capital resources increases. e. budget deficit and trade deficit decrease.ANSWER: b

39. Which of the following is true of a recessionary period? a. It is usually accompanied by an improvement in the value of an economy's currency. b. It is usually accompanied by low levels of unemployment. c. It is usually accompanied by a dramatic decline in the stock of inventories. d. It usually lasts for a few months. e. It leads to a drastic decline in government spending.ANSWER: d

40. A key difference between recessions and depressions is that recessions are _____ a. longer than depressions. b. more severe than depressions. c. accompanied by price increases, while depressions are accompanied by price decreases. d. shorter and less severe than depressions. e. accompanied by price decreases, while depressions are accompanied by price increases.ANSWER: d

41. A depression can be defined as _____ a. a mild reduction in total production coupled with a rising unemployment rate that lasts for several years. b. a mild decline in total production that lasts less than six months. c. a severe fall in stock prices that causes financial panic and lasts less than six months. d. a severe reduction in total production coupled with high unemployment that lasts for several years. e. a decline in government spending and taxes that lasts less than six months.ANSWER: d

42. A period of sustained growth in output in an economy is referred to as a(n) _____ a. expansion. b. contraction. c. peak. d. trough. e. recession.ANSWER: a

43. A period of sustained decline in output in an economy is known as a(n) _____ a. expansion.


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b. stagnation. c. peak. d. trough. e. contraction.ANSWER: e

44. Which of the following is true of a recession? a. It is typically accompanied by inflation and investment growth. b. It lasts for more than two years on an average. c. It is typically longer than periods of expansion. d. It begins after an expansion has peaked. e. It continues as long as actual output exceeds the potential output.ANSWER: d

45. Which of the following would indicate the beginning of an expansionary phase in an economy? a. a minor increase in the number of new firms b. a decline in stock market prices c. an improvement in consumer confidence d. a slowdown in housing construction e. a decrease in the number of orders for new equipmentANSWER: c

46. Which of the following would indicate the beginning of a recessionary phase in an economy? a. many new firms starting up b. stock prices improving c. businesses slowing down d. demand for real estate picking up e. orders for new equipment increasingANSWER: c

47. The demand for _____ is most severely affected by a recession. a. medicines b. automobiles c. breakfast cereals d. haircuts e. gasolineANSWER: b

48. What is an increase in the economy’s average price level called? a. real GDP b. interest c. inflation d. national productCopyright Cengage Learning. Powered by Cognero.

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e. unemploymentANSWER: c

49. The value of a country's final goods and services after adjusting for changes due to inflation is called its _____ a. real GDP. b. nominal GDP. c. disposable income. d. net national product. e. full employment output.ANSWER: a

50. Long-term growth in production in the U.S. economy can be partially explained by _____ a. improvements in the rules of the game that facilitate production and exchange. b. the peaks and troughs of the business cycle or economic fluctuations. c. trade surpluses that lead to accumulation of precious metals. d. increases in government budget deficits. e. a gradual but consistent increase in the price level.ANSWER: a

51. Which of the following factors can partly explain the long-term growth in production in the U.S. economy? a. trade surpluses and accumulation of precious metals b. a gradual but consistent increase in the price level c. growth in population d. improvements in technology e. federal government budget deficitsANSWER: d

52. Which of the following partly accounts for the long-term growth in production in the U.S. economy? a. an increase in government spending b. an increase in the availability of resources c. a reduction in federal taxes d. a gradual but consistent increase in the price level e. a general optimism about the future and the pioneering spirit of AmericaANSWER: b

53. How much more output did the U.S. economy produce in 2016 compared to 1929? a. 8 times more output b. 10 times more output c. 12 times more output d. 14 times more output e. 16 times more outputANSWER: e


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54. Identify a valid trend observed in U.S. business cycles since 1933. a. Contractions lasted for more than two years on an average. b. There were only two or three complete cycles. c. There have been no recessions since 1979. d. Expansions generally lasted longer than contractions. e. Each cycle lasted longer than the previous one.ANSWER: d

55. Which of the following statements about U.S. business cycles since 1945 is true? a. Expansions are shorter and recessions are longer. b. Expansions are longer and recessions are shorter. c. Expansions and recessions are shorter. d. Expansions and recessions are longer. e. The duration of expansions and recessions have remained roughly the same.ANSWER: b

56. What is the average GDP growth per year in the U.S. economy since 1929? a. 3.1 percent per year b. 2.5 percent per year c. 1 percent per year d. 5.2 percent per year e. 7 percent per yearANSWER: a

57. As a rule of thumb, a recession means economic activity declines for more than _____ months. a. 2 b. 3 c. 4 d. 5 e. 6ANSWER: e

58. When did the Great Depression end? a. 1929 b. 1954 c. 2009 d. 2007 e. 2011ANSWER: a

59. When did the Great Recession end? a. 1929 b. 1954Copyright Cengage Learning. Powered by Cognero.

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c. 2009 d. 2007 e. 2011ANSWER: c

60. _____ are variables that predict or lead to a recession or recovery. a. Coincident economic indicators b. Lagging economic indicators c. Leading economic indicators d. Perfect economic indicators e. Real economic indicatorsANSWER: c

61. Which of the following statements about leading economic indicators is true? a. Most people refer to them before making any important spending decision. b. They are the only economic indicators available to economists. c. They indicate when an economy is in a recession or an expansion. d. They foreshadow turning points in the business cycle. e. They can predict precisely when turning points in an economy will occur.ANSWER: d

62. By a leading economic indicator, economists mean _____ a. an indicator of future economic activity. b. an indicator that reflects economic fluctuations as they occur. c. a highly accurate indicator that is easily measured. d. an indicator that predicts the level of inflation in an economy. e. any variable that follows changes in economic activity.ANSWER: a

63. Economic activities that signal forthcoming changes in the economy are referred to as _____ a. coincidental economic indicators. b. GDP implicit price deflators. c. lagging economic indicators. d. perfect economic indicators. e. leading economic indicators.ANSWER: e

64. When economists refer to an economy’s price level, they indicate _____ a. the rate of inflation in that economy. b. the prices of goods and services relative to consumers' incomes. c. a composite measure of prices of all goods and services. d. a period of level, or steady, prices in that economy. e. the price of a specific consumer good.Copyright Cengage Learning. Powered by Cognero.

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ANSWER: c

65. _____ are variables that reflect peaks and troughs in economic activity as they occur. a. Coincident economic indicators b. Lagging economic indicators c. Leading economic indicators d. Perfect economic indicators e. Real economic indicatorsANSWER: a

66. Which of these is a coincident economic indicator? a. the demand for plant and machinery b. personal income c. real estate growth d. the interest rate e. the unemployment rateANSWER: b

67. _____ are variables that follow, or trail, changes in overall economic activity. a. Coincident economic indicators b. Lagging economic indicators c. Leading economic indicators d. Perfect economic indicators e. Real economic indicatorsANSWER: b

68. Which of these is a lagging economic indicator? a. the unemployment rate b. personal income c. industrial production d. total employment e. fluctuations in stock pricesANSWER: a

69. _____ is a composite measure of all final goods and services produced in an economy during a given period. a. Aggregate demand b. The aggregate demand curve c. Aggregate supply d. The aggregate supply curve e. Aggregate outputANSWER: e

70. Which of these is the most ideal measure of aggregate output?Copyright Cengage Learning. Powered by Cognero.

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a. disposable income b. nominal GDP c. personal income d. real GDP e. gross national productANSWER: d

71. _____ reflects the relationship between the economy’s price level and aggregate output demanded. a. Aggregate demand b. The aggregate demand curve c. Aggregate supply d. The aggregate supply curve e. Aggregate outputANSWER: a

72. The average price of aggregate output is called the economy’s _____. a. aggregate demand b. real GDP c. aggregate supply d. price level e. equilibriumANSWER: d

73. Identify the correct statement. a. If the price level increases, we feel poorer and buy less. b. If the price level increases, we feel richer and buy more. c. If domestic prices increase, we substitute imported goods with domestic goods. d. An increase in the price of a particular good does not affect the price level in an economy. e. A decrease in the price of a particular good is like an increase in income, and therefore, we buy more of the

good.ANSWER: a

74. Which of the following is a likely consequence of an increase in the price level in the economy, other things constant? a. firms demanding less imported raw materials b. government demanding less military hardware c. foreigners demanding greater amounts of U.S. goods d. households demanding more housing and furniture e. firms demanding more capital resourcesANSWER: b

75. The price level in any year _____ a. reflects aggregate output measured in dollars of constant purchasing power. b. is an index number that compares average prices that year with average prices in some base year.Copyright Cengage Learning. Powered by Cognero.

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c. always represents a higher number than the base year index. d. represents the relationship between the economy’s price level and aggregate output demanded e. represents the relationship between the economy’s price level and real GDP.ANSWER: b

76. The price index _____ a. represents the relationship between the economy’s price level and aggregate output demanded. b. shows how the economy’s output changes over time. c. is used to figure out real GDP each year. d. aggregates output measured in dollars of constant purchasing power. e. represents the relationship between the economy’s price level and real GDP.ANSWER: c

77. Economists use the price index to eliminate year-to-year changes in GDP caused solely by changes in _____ a. the exchange rate. b. the unemployment rate. c. fiscal spending. d. consumer demand. e. the price level.ANSWER: e

78. Which of the following describes an economy’s price level? a. the cost of producing goods and services using domestically owned factors of production b. the difference between nominal GDP and real GDP for a particular year c. the year-to-year changes in the prices of consumer goods d. the total price of aggregate output e. the average price of aggregate outputANSWER: d

79. Which of the following is the significance of a country’s price index? a. It helps in measuring changes in the nominal interest rate in the country. b. It helps in measuring the total disposable income of the country. c. It helps in determining the country’s real GDP each year. d. It helps in measuring changes in the prices of only luxury goods. e. It helps in measuring the demand for goods and services exported by the country.ANSWER: c

80. Which of these describes the real gross domestic product? a. gross domestic product from which depreciation costs have been deducted b. gross domestic product that has been adjusted for changes in the price level c. gross domestic product from which taxes have been deducted d. gross domestic product that has been adjusted for changes in the exchange rate e. gross domestic product that has been adjusted for changes in interest ratesCopyright Cengage Learning. Powered by Cognero.

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ANSWER: b

81. _____ is the economy’s aggregate output measured in dollars of constant purchasing power. a. GDP b. The price level c. Nominal GDP d. Real GDP e. Aggregate outputANSWER: d

82. What does real GDP measure? a. the change in real output b. the change in the amount of goods and services sold c. the economy’s price level changes over time d. trends in the business cycle e. the dollar value of all productionANSWER: a

83. The _____ reflects the relationship between the economy’s price level and aggregate output demanded. a. aggregate demand b. aggregate demand curve c. aggregate supply d. aggregate supply curve e. aggregate outputANSWER: b

84. The aggregate demand curve reflects _____ a. a direct relationship between the price level in an economy and the real GDP demanded. b. a direct relationship between real GDP demanded and total unemployment. c. an inverse relationship between the price level in an economy and the nominal GDP demanded. d. an inverse relationship between the price level in an economy and the real GDP demanded. e. an inverse relationship between the real GDP demanded and total unemployment.ANSWER: d

85. One explanation for the slope of the aggregate demand curve is that _____ a. nominal income falls and so does the demand for goods and services as prices rise. b. falling prices make people feel poorer and reduce spending. c. the government spends less to drive the price level back to normal as prices rise. d. businesses increase spending when inflation is high and rising. e. domestic goods become more expensive relative to foreign goods when prices rise, reducing exports.ANSWER: e

86. Which of these statements correctly explains the shape of the aggregate demand curve?Copyright Cengage Learning. Powered by Cognero.

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a. As prices fall, nominal income rises and so does the demand for real goods and services. b. Rising prices reduce people's wealth and thereby decrease spending. c. With falling prices, government decides to spend less to increase the price level. d. Businesses increase investment spending in response to higher interest rates caused by inflation. e. As prices fall, domestically produced goods become more expensive relative to foreign goods, resulting in an

increase in production.ANSWER: b

87. As the price level increases, the amount of goods and services that consumers, businesses, and governments desire to purchase will change. This is depicted by _____ a. a leftward movement of the aggregate demand curve. b. a rightward movement of the aggregate demand curve. c. an upward movement along the aggregate demand curve. d. a downward movement along the aggregate demand curve. e. an increase in the slope of the aggregate demand curve.ANSWER: c

88. A fall in the price level will _____ a. cause an upward movement along the aggregate demand curve. b. cause a downward movement along the aggregate demand curve. c. cause a leftward shift of the aggregate demand curve. d. cause a rightward shift of the aggregate demand curve. e. have no impact on the aggregate demand curve.ANSWER: b

89. A rise in the price level will _____ a. cause an upward movement along the aggregate demand curve. b. cause a downward movement along the aggregate demand curve. c. cause a leftward shift of the aggregate demand curve. d. cause a rightward shift of the aggregate demand curve. e. have no impact on the aggregate demand curve.ANSWER: a

90. If the price level in the U.S. decreases, aggregate output demanded _____ a. decreases because U.S. products become cheaper relative to foreign products. b. decreases because U.S. products become more expensive relative to foreign products. c. increases because U.S. products become cheaper relative to foreign products. d. increases because U.S. products become more expensive relative to foreign products. e. decreases because household wealth and spending in the U.S. decrease.ANSWER: c

91. If the price level in the U.S. increases, aggregate output demanded _____ a. decreases because U.S. products become cheaper relative to foreign products.


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b. decreases because U.S. products become more expensive relative to foreign products. c. increases because U.S. products become cheaper relative to foreign products. d. increases because U.S. products become more expensive relative to foreign products. e. decreases because household wealth and spending increase.ANSWER: b

92. The aggregate demand curve for an economy depicts the _____ a. quantity of goods and services demanded during a given time period at different interest rates, other things

constant. b. quantity of goods and services demanded at different price levels during different time periods, other things

constant. c. quantity of goods and services demanded at different price levels during a given time period, other things

constant. d. quantity of goods and services that the economy is capable of producing during a given time period, other

things constant. e. final quantity of goods and services actually produced by the economy during a given time period, other

things constant.ANSWER: c

93. Which of the following is the most likely to occur when a decrease in the price level in an economy affects the wealth of consumers? a. a rightward shift of the aggregate supply curve b. a leftward shift of the aggregate demand curve c. a movement along the aggregate demand curve d. a leftward shift of the aggregate supply curve e. a leftward shift of both the aggregate demand and aggregate supply curvesANSWER: c

94. _____ varies along a given aggregate demand curve. a. The nominal interest rate in the domestic country b. The exchange rate between the domestic currency and a foreign currency c. The aggregate supply in a foreign country d. The price level in the domestic country e. The prices of resources used in productionANSWER: d

95. Identify the most likely impact of a decrease in the wealth of consumers in an economy, other things remaining constant. a. a leftward shift of the aggregate supply curve b. a leftward shift of the aggregate demand curve c. an upward movement along the aggregate demand curve d. a downward movement along the aggregate demand curve e. an increase in the slope of the aggregate supply curveANSWER: bCopyright Cengage Learning. Powered by Cognero.

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96. _____ reflects the relationship between the economy’s price level and aggregate output supplied. a. Aggregate demand b. The aggregate demand curve c. Aggregate supply d. The aggregate supply curve e. Aggregate outputANSWER: c

97. Which of the following is a likely impact of an increase in the price level in an economy on the aggregate supply in the economy? a. an increase in the quantity of real GDP supplied b. a decrease in the quantity of real GDP supplied c. a leftward shift of the aggregate supply curve d. a rightward shift of the aggregate supply curve e. an increase in the slope of the aggregate supply curveANSWER: a

98. Which of the following is a likely impact of a decrease in the price level in an economy on the aggregate supply in the economy? a. an increase in the quantity of real GDP supplied b. a decrease in the quantity of real GDP supplied c. a leftward shift of the aggregate supply curve d. a rightward shift of the aggregate supply curve e. an increase in the slope of the aggregate supply curveANSWER: b

99. The aggregate supply curve represents _____ a. the quantity of aggregate output that producers are willing and able to supply at each possible price level. b. the total quantity of a particular good that all producers are willing to supply at each possible price level. c. the total quantity of a particular good that all producers are willing to supply at the equilibrium price level. d. the quantity of aggregate output that producers are willing and able to supply at the equilibrium price level. e. the quantity of aggregate output that producers are willing and able to supply at the equilibrium level of GDP.ANSWER: a

100. The aggregate supply curve of an economy _____ a. is a downward-sloping straight line. b. is an upward-sloping curve. c. is a vertical line parallel to the price axis. d. is a horizontal line parallel to the output axis. e. is a ray from the origin.ANSWER: b


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101. Which of the following is not assumed to be constant along an aggregate supply curve? a. the price level in an economy b. the exchange rate between the domestic and a foreign currency c. the state of technology used in production d. the unemployment rate e. resource pricesANSWER: a

102. Macroeconomic equilibrium is best described as a situation in which _____ a. the slope of the aggregate demand curve equals the slope of the aggregate supply curve. b. quantity demanded exceeds quantity supplied. c. quantity demanded exceeds quantity supplied at a unique price level. d. quantity supplied exceeds quantity demanded at a unique price level. e. quantity supplied equals quantity demanded at a unique price level.ANSWER: e

103. If the U.S. price level increases relative to price levels in foreign countries, _____. a. the aggregate supply curve for the U.S. will shift outward and the aggregate demand curve would remain

unchanged b. the aggregate supply curve for the U.S. will shift inward and the aggregate demand curve would remain

unchanged c. the aggregate demand curve for the U.S. will shift outward and the aggregate supply curve would remain

unchanged d. the aggregate demand curve for the U.S. will shift inward and the aggregate supply curve would remain

unchanged e. both the aggregate demand and the aggregate supply curves for the U.S. will shift outwardANSWER: d

Table 5.1Aggregate Demand (quantity demanded in billions of dollars)

Price Level ($) Aggregate Supply (quantity supplied in billions of dollars)

100 150 1,200200 125 1,000400 100 800600 75 600800 50 400

1,000 25 200

104. Refer to Table 5.1, which shows an aggregate demand schedule and an aggregate supply schedule. What is aggregate demand at a price level of $75? a. $100 billion dollars b. $200 billion dollars c. $400 billion dollars d. $600 billion dollarsCopyright Cengage Learning. Powered by Cognero.

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e. $800 billion dollarsANSWER: d

105. Refer to Table 5.1, which shows an aggregate demand schedule and an aggregate supply schedule. What is aggregate supply at a price level of $75? a. $200 billion dollars b. $400 billion dollars c. $600 billion dollars d. $800 billion dollars e. $1,000 billion dollarsANSWER: c

106. Refer to Table 5.1, which shows an aggregate demand schedule and an aggregate supply schedule. Which of the following is true? a. Equilibrium output is $1,000, and equilibrium price level is 25. b. Equilibrium output is $800, and equilibrium price level is 50. c. Equilibrium output is $200, and equilibrium price level is 125. d. Equilibrium output is $400, and equilibrium price level is 100. e. Equilibrium output is $600, and equilibrium price level is 75.ANSWER: e

107. For a given aggregate supply curve, an increase in aggregate demand will _____ a. decrease the real interest rate. b. increase real GDP. c. decrease the price level. d. increase the real exchange rate. e. decrease real GDP.ANSWER: b

108. Given an aggregate supply curve, a decrease in aggregate demand will _____ a. increase the real interest rate. b. increase real GDP. c. increase the price level. d. decrease the real exchange rate. e. decrease real GDP.ANSWER: e

109. Which of the following is most likely to happen if the aggregate demand curve for an economy (which was initially in equilibrium) shifts to the left, aggregate supply remaining unchanged? a. The equilibrium real GDP will decrease. b. The equilibrium price level in the economy will increase. c. The aggregate supply curve will shift rightward. d. The aggregate supply curve will shift leftward.


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e. The economy will experience an expansion.ANSWER: a

110. Which of the following occurred in the era before and during the Great Depression? a. recessions and depressions b. strong economic growth c. high unemployment and high inflation d. strong economic growth and high inflation e. low unemployment and high inflationANSWER: a

111. Which of the following occurred from 2007 to 2009? a. the Great Depression b. the Great Recession c. a stable economy d. strong economic growth e. high unemployment and high inflationANSWER: b

112. When did the longest contraction on record occur? a. between 1873 and 1879 b. during the Great Depression c. during the Great Recession d. during the 1930s e. during the early 1970sANSWER: a

113. What occurred between 1873 and 1879? a. A U.S. economic expansion became the longest on record. b. Federal spending increased for both the war and social programs at home. c. The outbreak of war boosted employment to fight for the country and to make tanks, ships, aircraft, and the

like. d. 80 railroads went bankrupt and most of the nation’s steel mills shut down. e. Home prices declined and foreclosures rose, as more borrowers failed to make their mortgage payments.ANSWER: d

114. What occurred during the 1890s? a. A U.S. economic expansion that became the longest on record. b. The economy contracted about half the time, and the unemployment rate topped 18 percent. c. The outbreak of war boosted employment to fight for the country and to make tanks, ships, aircraft, and the

like. d. Federal spending increased on both the war in Vietnam and social programs at home. e. Home prices declined and foreclosures rose, as more borrowers failed to make their mortgage payments.


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ANSWER: b

115. What occurred during the 1930s? a. The deepest economic contraction in U.S. history occurred. b. The economy contracted about half the time, and the unemployment rate topped 18 percent. c. The outbreak of war boosted employment to fight for the country and to make tanks, ships, aircraft, and the

like. d. Federal spending increased on both the war and social programs at home. e. Home prices declined and foreclosures rose, as more borrowers failed to make their mortgage payments.ANSWER: a

116. In terms of the aggregate demand and aggregate supply framework, the Great Depression can be viewed as a _____ a. rightward shift of the aggregate demand curve. b. rightward shift of the aggregate supply curve. c. downward movement along the aggregate demand curve. d. a leftward shift of the aggregate demand curve. e. a leftward shift of the aggregate supply curve.ANSWER: d

117. During the Great Depression Real GDP fell dramatically. What was the result? a. a shift in aggregate demand to the right b. a shift in aggregate supply to the right c. a movement along the aggregate demand curve d. a shift in aggregate demand to the left e. a shift in aggregate supply to the leftANSWER: d

Exhibit 5.1


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118. Refer to Exhibit 5.1, which shows the aggregate demand and supply curves for the United States. From the beginning of period 1 to the end of period 2, _____ a. real GDP decreased and then increased. b. real GDP increased and then decreased. c. real GDP fell from $10,000 to $6,000. d. real GDP remained constant at $6,000. e. the inflation rate fell from 4 percent to 2 percent.ANSWER: a

Exhibit 5.2


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119. Refer to Exhibit 5.2, which shows the aggregate demand and supply curves for the United States. Between period 1 and period 2, nominal GDP changed from $40,000 to: a. $18,000 in period 1 and went back to $40,000 in period 2. b. $18,000 in period 1 and stayed there in period 2. c. $18,000 in period 1 and to $10,000 in period 2. d. $10,000 in period 1 and stayed there in period 2. e. $10,000 in period 1 and to $18,000 in period 2.ANSWER: c

120. Refer to Exhibit 5.2 which shows the aggregate demand and supply curves for the United States. As the aggregate demand curve shifts from AD to AD', the equilibrium price level in period 1 _____ a. increases from 3 to 4. b. decreases from 4 to 3. c. decreases from 4 to 1. d. increases from 1 to 4. e. decreases from 4 to 2.ANSWER: b

Exhibit 5.3Copyright Cengage Learning. Powered by Cognero.

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121. Refer to Exhibit 5.3, which shows the aggregate demand and supply curves for the United States. In this Exhibit, which of the following might cause a shift in the aggregate demand curve from AD to AD'? a. an increase in household wealth b. a fall in domestic interest rates c. an increase in government spending d. an appreciation of the dollar relative to other currencies e. a decrease in the nation’s money supplyANSWER: d

122. Refer to Exhibit 5.3 which shows the aggregate demand and supply curves for the United States. The price level changes from _____ when the aggregate supply curve shifts from AS' to AS". a. 4 to 2 b. 2 to 3 c. 2 to 2 d. 3 to 1 e. 2 to 4ANSWER: e

Exhibit 5.4

123. Refer to Exhibit 5.4, which shows the aggregate demand and supply curves for the United States. A rightward shift Copyright Cengage Learning. Powered by Cognero.

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of the aggregate supply curve from AS to AS' is likely to be caused by _____ a. an increase in resource prices, improved technology, or an extension of patent protection. b. a decrease in resource prices, improved technology, or an extension of patent protection. c. a decrease in resource prices, improved technology, or a shortening of patent protection. d. an appreciation of the dollar, higher inflation in Europe, or a decrease in resource prices. e. a depreciation of the dollar, higher inflation in Asia, or improved technology.ANSWER: b

124. Which of these changes was observed in the United States between 1929 and 1933? a. The aggregate supply curve shifted inward with no change in the aggregate demand curve. b. The aggregate demand curve shifted inward with no change in the aggregate supply curve. c. The aggregate demand curve shifted outward with no change in the aggregate supply curve. d. The aggregate supply curve shifted outward with no change in the aggregate demand curve. e. The aggregate supply and demand curves both shifted outward.ANSWER: b

125. Which of the following occurred during the Great Depression? a. Unemployment and prices increased, while output decreased. b. Unemployment increased, while output and prices decreased. c. Unemployment and prices decreased, while output increased. d. Unemployment and output decreased, while prices increased. e. Unemployment and output increased, while prices decreased.ANSWER: b

126. Which of the following economic changes was observed during the Great Depression? a. a fall in the domestic price level, leading to an increase in the demand for imports b. a fall in resource prices, leading to an increase in aggregate supply c. an increase in unemployment, leading to a decrease in aggregate demand d. an increase in the domestic price level, leading to an increase in the demand for exports e. an increase in real GDP, leading to an increase in the real interest rateANSWER: c

127. What was most likely the cause of the Great Depression? a. a fall in the domestic price level, leading to an increase in the demand for imports b. a fall in resource prices, leading to an increase in aggregate supply c. an increase in unemployment, leading to a decrease in aggregate demand d. an increase in the domestic price level, leading to an increase in the demand for exports e. Economists still debate the exact causes.ANSWER: c

128. What do most economists agree was the trigger of the Great Depression? a. a fall in the domestic price level b. a stock market crashCopyright Cengage Learning. Powered by Cognero.

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c. high unemployment and high inflation d. an increase in the domestic price level e. rising house pricesANSWER: b

129. Before the Great Depression, macroeconomic policy was based primarily on _____ a. human spirits. b. demand-side economics. c. supply-side economics. d. laissez-faire philosophy. e. government interference.ANSWER: d

130. The laissez-faire approach that was popular before the Great Depression influenced the U.S. government to see business downturns as _____ a. natural phases in an otherwise healthy system and to therefore take short-term deficit spending measures to

help recovery. b. natural phases in an otherwise healthy system and to therefore wait for recovery to occur naturally. c. serious maladies in an otherwise healthy system and to therefore work to redesign the system to avoid such

failures in the future. d. failures of the type of system that Adam Smith envisaged and to therefore work to move toward an open

economy with free trade. e. failures of the system to achieve the form that Adam Smith envisaged and to therefore work to decrease

government interference at the micro level.ANSWER: b

131. The concept of "invisible hand" introduced by Adam Smith explains _____ a. why people act in their own best interests. b. why the government intervenes to overcome failures in private markets. c. how people, acting out of self-interest, unintentionally promote the general good. d. how comparative advantage and specialization promote international trade. e. how the creation of goods and services generates its own demand by creating employment and income.ANSWER: c

132. What did “The General Theory of Employment, Interest, and Money” attempt to explain? a. why people act in their own best interests b. why aggregate demand was unstable c. how people, acting out of self-interest, unintentionally promote the general good d. how comparative advantage and specialization promote international trade e. how the creation of goods and services generates its own demand by creating employment and incomeANSWER: c

133. According to John Maynard Keynes’ General Theory of Employment, Interest, and Money, the government should _____ in order to get the economy out of a depression.Copyright Cengage Learning. Powered by Cognero.

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a. increase spending b. decrease spending c. reduce subsidies d. increase taxes e. allow an economy to correct itselfANSWER: a

134. Keynes proposed that the government jolt the economy out of its depression by _____ a. increasing aggregate supply. b. decreasing aggregate demand. c. decreasing aggregate supply. d. increasing aggregate demand. e. allowing the economy to correct itself.ANSWER: d

135. An increase in government spending, other things constant, will cause a _____ a. leftward shift of the aggregate supply curve. b. rightward shift of the aggregate supply curve. c. leftward shift of the aggregate demand curve. d. rightward shift of the aggregate demand curve. e. downward movement along the aggregate supply curve.ANSWER: d

136. According to Keynes, in order to get the economy out of a recession, the government should _____ a. follow an expansionary fiscal policy. b. encourage firms to export to other nations. c. follow a contractionary fiscal policy. d. follow a contractionary monetary policy. e. not interfere in the market and let the market system heal itself.ANSWER: a

137. According to Keynes, the adoption of an expansionary fiscal policy will cause _____ a. both equilibrium price level and equilibrium output to rise. b. equilibrium price level to rise and equilibrium output to fall. c. equilibrium price level to fall and equilibrium output to rise. d. both equilibrium price level and equilibrium output to fall. e. equilibrium price level to remain the same and equilibrium output to fall.ANSWER: a

138. The Keynesian approach to economic policy is also known as _____ a. supply-side economics. b. Classical economics. c. demand-side economics.Copyright Cengage Learning. Powered by Cognero.

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d. mercantilism. e. laissez-faire.ANSWER: c

139. Keynes believed that the best method for boosting an economy during a recession was to _____ a. increase money supply so that individuals would have more incentive to spend. b. cut government spending and increase taxes to reduce or even eliminate fiscal deficit. c. increase government spending and cut taxes so that consumers could spend more. d. cut both government spending and taxes to reduce government expenditure in the economy. e. increase both government spending and taxes to increase the role of government in the economy.ANSWER: c

140. The Keynesian approach to government economic policy _____ a. has emphasized the role of individual self-interest as a powerful stabilizing force. b. has consistently failed to reduce fluctuations in economic activity. c. was ineffective during the 1960s. d. highlighted the role of aggregate demand. e. was rechristened supply-side economics around 1980.ANSWER: d

141. According to Keynes, if private sector demand is insufficient to maintain full employment, the government should _____ a. make the economy's natural transition to a lower level of employment as easy as possible. b. shock the economy with an increase in aggregate demand. c. reduce aggregate supply to reduce inflation. d. print money to promote consumer spending. e. take steps to increase aggregate supply in an economy.ANSWER: b

142. The Keynesian approach to fiscal policy calls for _____ a. budget deficits during periods of inflationary pressure. b. budget surpluses during periods of high unemployment. c. a balanced budget despite the state of the economy. d. tax cuts during recession. e. spending increases during inflation.ANSWER: d

143. The Employment Act of 1946 _____ a. guaranteed employment to all the citizens of the United States. b. allowed the federal government to hire as many people as it could to achieve full employment. c. gave the federal government the power to levy an income tax. d. imposed a responsibility on the federal government to promote maximum employment. e. obligated the federal government to run budget surpluses to achieve full employment.Copyright Cengage Learning. Powered by Cognero.

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ANSWER: d

144. The phrase "fine-tuning the economy" implies _____ a. making government economic policy more "people-oriented." b. using government policies to adjust the economy and promote economic stability. c. solving microeconomic problems such as externalities and losing sight of the big picture. d. placing fewer regulations on the private sector, thereby eliminating the need for government intervention. e. designing policies based exclusively on leading economic indicators.ANSWER: b

145. In the 1960s, government policy makers believed that they could _____ a. stabilize the economy by letting the market system solve all problems. b. reduce unemployment by running federal budget surpluses. c. eliminate the government's role in stabilization policy. d. use changes in the money supply to virtually eliminate business cycles. e. use taxation and government spending to fine-tune the economy.ANSWER: e

146. Which of the following decades is known as the "Golden Age of Keynesian Economics"? a. the 1930s b. the 1950s c. the 1960s d. the 1970s e. the 1980sANSWER: c

147. The term inflation is used to describe a(n) _____ a. rise in the value of money. b. decline in nominal income. c. sustained increase in the price level. d. general reduction in prices. e. economic problem faced only by the elderly population.ANSWER: c

148. Which of the following is a central argument of Keynes's General Theory? a. Competition does not allocate resources efficiently in a modern industrial economy. b. Full employment can be maintained even during a major recession if wage rates are lowered far enough. c. Modern industrial economies do not tend automatically toward full employment rates of output. d. Money does not play an important role in either causing or curing recession. e. Government can best stabilize the economy by letting the market system automatically adjust toward full

employment.ANSWER: c


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149. Confidence in Keynesian economics _____ a. diminished in the 1960s as the unemployment rate fell. b. flourished in the 1960s despite two major recessions. c. diminished in the 1960s as unemployment increased. d. diminished in the 1970s as inflation occurred simultaneously with two recessions. e. flourished through the 1980s despite Reagan's supply-side policies.ANSWER: d

150. The term stagflation refers to _____ a. a simultaneous reduction in output and the price level. b. a simultaneous increase in output and the price level. c. a decline in the price level accompanied by increases in real output and employment. d. an increase in the price level accompanied by decreases in real output and employment. e. a simultaneous increase in both the trade deficit and the budget deficit.ANSWER: d

151. Suppose an economy is initially in equilibrium and there is a sudden increase in oil prices. Which of the following is the most likely result? a. a growth in real GDP b. price stability c. full employment output d. stagflation e. deflationANSWER: d

152. Which of these is most likely to result when a demand-management policy is used in an economy that is experiencing stagflation? a. a decrease in investment spending b. an increase in the rate of inflation c. an increase in unemployment d. a decrease in the rate of inflation e. a decrease in real GDPANSWER: b

153. On a graph showing the aggregate demand and aggregate supply curves, stagflation can be represented by a(n) _____ a. leftward shift of the aggregate supply curve. b. rightward shift of the aggregate supply curve. c. upward movement along the aggregate supply curve. d. rightward shift of the aggregate demand curve e. upward movement along the aggregate demand curve.ANSWER: a

154. The word stagflation describes a situation in which _____


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a. a higher price level occurs simultaneously with higher employment. b. a lower price level occurs simultaneously with economic growth. c. a higher price level occurs simultaneously with lower aggregate output. d. a lower price level occurs simultaneously with federal budget deficits. e. a higher price level occurs simultaneously with federal budget surpluses.ANSWER: c

155. Which of the following was true of the United States before 1970? a. The government was not responsible for promoting employment, output, and price stability. b. Most of the macroeconomic instability was caused by changes in international oil prices. c. Most of the macroeconomic instability was caused by shifts in the aggregate demand curve. d. Most of the macroeconomic instability was caused by the depreciation of the dollar. e. The government was responsible for using monetary policy to correct depressions.ANSWER: c

156. A key idea behind _____ was that the federal government, by lowering tax rates, would increase after-tax wages, which would provide incentives to increase the supply of labor and other resources. a. demand-side economics b. supply-side economics c. the invisible hand d. laissez-faire philosophy e. Keynesian economicsANSWER: b

157. The term supply-side economics refers to _____ a. macroeconomic policy that focuses on a leftward shift of the aggregate demand curve through tax cuts or

other changes to increase production incentives. b. microeconomic policy that focuses on a leftward shift of the aggregate supply curve through tax cuts or other

changes to increase production incentives. c. macroeconomic policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or

other changes to increase production incentives. d. microeconomic policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or

other changes to increase production incentives. e. macroeconomic policy that focuses on a rightward shift of the aggregate demand curve through tax cuts or

other changes to increase production incentives.ANSWER: c

158. Keynesian policies are ineffective at combating stagflation because stagflation is caused by _____ a. budget surpluses. b. decreases in aggregate supply. c. trade deficits. d. decreases in aggregate demand. e. budget deficits.


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ANSWER: b

159. In combating stagflation, a government-induced _____ a. increase in aggregate demand would help reduce inflation but aggravate unemployment. b. decrease in aggregate demand would help reduce unemployment but aggravate inflation. c. increase in aggregate demand would help reduce unemployment but aggravate inflation. d. decrease in aggregate demand would help reduce both unemployment and inflation. e. increase in aggregate demand would help reduce both unemployment and inflation.ANSWER: c

160. The Reagan tax cut of 1981 was an attempt to _____ a. stimulate aggregate supply. b. stimulate aggregate demand. c. stabilize the value of the U.S. dollar. d. increase the demand for U.S. exports. e. reduce the federal budget deficit.ANSWER: a

161. What did President Ronald Reagan and Congress do in 1981 to increase aggregate supply? a. increase federal spending increased on wars in and social programs at home b. impose ceilings on prices and wages to combat inflation c. stabilize the value of the U.S. dollar d. cut personal income tax rates by an average of 23 percent e. raise personal income tax rates by an average of 23 percentANSWER: d

162. A federal policy that leads to an increase in aggregate supply is likely to result in _____ a. lower levels of employment. b. an increase in aggregate demand. c. a higher price level. d. lower levels of real GDP. e. an economic expansion.ANSWER: e

163. If the government of a country owes $3,500 billion to the International Monetary Fund and then borrows an additional $300 billion this year, it implies that the _____ a. national debt is $300 billion and the fiscal deficit is $3.8 trillion. b. national debt is $3,800 billion and the fiscal deficit is $300 billion. c. national debt is $4,100 billion. d. fiscal deficit is $3,800 billion. e. national debt and fiscal deficit both equal $3.8 trillion.ANSWER: b


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164. Identify the correct statement. a. A budget deficit is a flow variable, while debt is a stock variable. b. A budget deficit is a stock variable, while debt is a flow variable. c. A budget deficit and debt are both stock variables. d. The budget deficit decreases when aggregate demand decreases. e. Debt increases when the budget deficit decreases.ANSWER: a

165. The tax cuts passed during the Reagan administration in the United States were designed primarily to _____ a. boost savings among consumers. b. shift the aggregate demand curve rightward. c. reduce the balance-of-payments deficit. d. increase the supply of productive resources. e. increase the tax base and include more tax payers.ANSWER: d

166. The aim of supply-side economics is to _____ a. increase government spending to stimulate aggregate supply. b. stimulate exports to increase the balance of payments. c. decrease wages to make production cheaper. d. lower taxes to increase the supply of resources. e. reduce both the inflation and unemployment problems through increases in taxes.ANSWER: d

167. The Reagan administration's 1981 personal income tax changes were designed to _____ a. stimulate aggregate demand and reduce unemployment. b. stimulate aggregate demand and increase economic growth. c. stimulate aggregate supply and increase economic growth. d. decrease aggregate demand in order to reduce inflation. e. increase tax revenues to reduce the federal budget deficit.ANSWER: c

168. Which of these is a supply-side approach to increase growth? a. spending on the construction and repair of state highways b. providing tax benefits to start-up companies c. investing in the production of arms and ammunitions d. replacing old aircrafts with new fighter planes e. increasing transfer payments to retireesANSWER: b

169. In the history of the U.S. economy, which economic era saw both high unemployment and high inflation at the same time? a. after the Great Depression to the early 1970s


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b. from the early 1980s to the 1990s c. during the colonial period d. before and during the Great Depression e. from the early 1970s to the early 1980sANSWER: e

170. The global financial panic in September 2008 that led to a sharp fall in business investment spending and consumer spending can be viewed as _____ a. a sharp decrease in aggregate supply. b. a sharp decrease in aggregate demand. c. a sharp decrease in both aggregate supply and aggregate demand. d. a modest increase in aggregate supply. e. a modest increase in both aggregate demand and aggregate supply.ANSWER: b

171. Due to the implementation of the Troubled Asset Relief Program and the American Recovery and Reinvestment Act, the Federal budget deficit _____. a. doubled b. tripled c. stayed the same d. decreased significantly e. quadrupledANSWER: b

172. Which of these factors can explain the short recession experienced by the United States in 2001? a. terrorist attacks b. the stock market crash c. bursting of the real estate bubble d. a rise in international oil prices e. expenditure on warANSWER: a

173. The recession that set in after December 2007 can be attributed to _____ a. an increase in the expenditure on war. b. a decline in home prices and an increase in foreclosures. c. an increase in terrorist activities. d. crop failures around the world. e. an increase in oil prices in the international market.ANSWER: b

174. Which of the following financial institutions reported the largest bankruptcy in U.S. history in September 2008? a. Morgan Stanley b. Goldman Sachs


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c. Lehman Brothers d. JP Morgan Chase e. Barclays CapitalANSWER: c

175. Which of the following can be concluded about the long-run performance of the U.S. economy? a. It has been able to create employment opportunities but only at the cost of high inflation. b. It has failed to generate sufficient aggregate demand in the economy. c. It has been one of the most productive economies in the world in terms of growth in real GDP. d. It has focused fiscal policies mostly at improving aggregate supply. e. It has suffered from huge fiscal deficits that dampened economic growth.ANSWER: c

176. Which of the following was true of the U.S. job market between 1929 and 2011? a. The number of jobs created in the organized sector was less than that in the unorganized sector. b. The number of employed people increased by less than five percent. c. The average education of workers increased over the years. d. The productivity of workers declined over the years. e. The growth in employment opportunities was slower compared to the growth in population.ANSWER: c

177. Which is the best explanation for the increased productivity of workers since 1929? a. The number of jobs created in the organized sector was less than that in the unorganized sector. b. The number of employed people increased by less than five percent. c. The availability of more and higher-quality human capital and physical capital. d. The productivity of workers declined over the years. e. The growth in employment opportunities was slower compared to the growth in population.ANSWER: c

178. Which of these is the best measure of the average standard of living in an economy? a. The unemployment rate b. Nominal income c. Real GDP d. National debt e. Real GDP per capitaANSWER: e

179. What does real GDP per capita measure? a. nominal GDP multiplied by population b. nominal GDP divided by population c. real GDP d. real GDP multiplied by population e. real GDP divided by populationCopyright Cengage Learning. Powered by Cognero.

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ANSWER: e

180. If the real GDP of a country in 2016 was $500 billion and its population was 100 billion, then real GDP per capita for that year was _____ a. $0.5 billion. b. $1 billion. c. $10 billion. d. $5 billion. e. $2.5 billion.ANSWER: d

181. If the real GDP of a country in 2017 was $300 billion, its price index was 108.3, and its population was 150 billion, then real GDP per capita for that year was _____ a. $0.5 billion b. $1 billion c. $8.3 billion d. $258.3 billion e. $2 billionANSWER: e

182. The gross domestic product measures the value of all final goods and services produced by resources owned by a nation. a. True b. FalseANSWER: False

183. Macroeconomics simply focuses on the annual performance of a particular national economy and ignores its interactions with other national economies around the world. a. True b. FalseANSWER: False

184. When business leaders become pessimistic about future sales and profits and decrease their spending on plant and equipment, their expectations are usually fulfilled. a. True b. FalseANSWER: True

185. Macroeconomists test their theories using controlled economy-wide experiments of various kinds. a. True b. FalseANSWER: False

186. An economic policy that is based on a flawed theory can, at times, provide a desired outcome.


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a. True b. FalseANSWER: False

187. The failure of the mercantilism policy and the tax policy during the Great Depression proves that economic policies are meaningless and they do more harm than good. a. True b. FalseANSWER: False

188. Since the Great Depression, business fluctuations have become more severe and longer in duration. a. True b. FalseANSWER: False

189. The period between two successive peaks in a business cycle is called a contraction. a. True b. FalseANSWER: False

190. The aggregate demand curve slopes downward because households feel poorer after a decrease in the price level. a. True b. FalseANSWER: False

191. An increase in wage rate, other things constant, shifts the aggregate supply curve downward. a. True b. FalseANSWER: False

192. The aggregate supply curve reflects the inverse relationship between the interest rate and the quantity of real GDP supplied. a. True b. FalseANSWER: False

193. For a given aggregate supply curve, the price level and output will both increase when aggregate demand decreases. a. True b. FalseANSWER: False

194. A federal budget deficit can simultaneously reduce inflation and unemployment. a. True b. False


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ANSWER: False

195. Keynes believed that the best method for tackling recessions was to reduce government spending and raise taxes, thereby reducing the federal budget deficit. a. True b. FalseANSWER: False

196. Stagflation in an economy can be effectively controlled by Keynesian demand-management policies. a. True b. FalseANSWER: False

197. Stagflation is a situation with high unemployment rates, high inflation rates, and little or no growth in the economy. a. True b. FalseANSWER: True

198. The Reagan administration's policies were aimed at managing aggregate demand. a. True b. FalseANSWER: False

199. The federal debt is a stock variable that measures the net accumulation of prior federal deficits. a. True b. FalseANSWER: True

200. An investment bank is a financial institution that finances federal budget deficits at very low interest rates. a. True b. FalseANSWER: False

201. The term ____ describes the structure of economic activity in a community, a region, a country, a group of countries, or the world. a. macroeconomics b. economics c. competitiveness d. microeconomics e. efficiencyANSWER: a


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