Question 1

The amount of investment is ultimately limited by the amount of:

Accepted Answer

A)   Production
B)   Saving
C)   Employment
D)   InflationE) A) and B)
F) C) and D)

Question 2

Inflation refers to an increase in the overall level of prices.

Accepted Answer

A) True 
 B)False

Question 3

If prices are "sticky" in the short run, then:

Accepted Answer

A)   The economy will respond to demand shocks primarily through changes in output and employment
B)   The economy will respond to demand shocks primarily through changes in prices and inflation
C)   Prices will adjust to equalize the quantities demanded and supplied of goods and services
D)   Unemployment will not change in response to a demand shockE) All of the above
F) C) and D)

Question 4

Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a positive demand shock?

Accepted Answer

A)   Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will increase.
B)   Firms' inventories will decrease, causing them to increase production. Ultimately, real GDP will increase and unemployment will decrease.
C)   Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will increase and unemployment will increase.
D)   Firms' inventories will increase, causing them to cut production. Ultimately, real GDP will decrease and unemployment will decrease.E) B) and C)
F) All of the above

Question 5

Price stickiness tends to moderate over time.

Accepted Answer

A) True 
 B)False

Question 6

When prices are inflexible, the economy will respond to demand shocks through short run changes in output and unemployment.

Accepted Answer

A) True 
 B)False

Question 7

The Great Recession of 2007-09 was triggered by a:

Accepted Answer

A)   Steep rise in bond values
B)   Steep decline in housing prices
C)   Sharp increase in oil prices
D)   Sharp decline in the value of the U.S. dollarE) B) and C)
F) A) and D)

Question 8

In economics, the word "shocks" refers to:

Accepted Answer

A)   Situations where firms' expectations are not met
B)   Any change in the demand for goods and services
C)   Any change in the supply of goods and services
D)   A decrease in real GDPE) A) and C)
F) B) and C)

Question 9

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

Accepted Answer

A)   Household incomes may be rising slower than the overall prices
B)   The purchasing power of people's savings would decrease
C)   Workers' wages may be rising faster than the overall price level
D)   The standard of living would fall if a household has a fixed nominal incomeE) A) and B)
F) C) and D)

Question 10

Explanations about what caused the Great Recession differ sharply among economists. The so-called Minsky Explanation involves the following factors, except:

Accepted Answer

A)   A massive euphoric bubble in housing prices that eventually burst
B)   A huge negative demand shock in the economy
C)   Flexible average price level in the economy
D)   Excessive access to home-mortgage loansE) None of the above
F) A) and B)

Question 11

If prices of goods and services are inflexible, then:

Accepted Answer

A)   A negative demand shock would lead to increased real GDP in the short run
B)   A positive demand shock would lead to increased real GDP in the short run
C)   A negative demand shock would have no short-run effect on real GDP
D)   There would be no short-run demand shocksE) B) and D)
F) A) and D)

Question 12

Sticky prices could be the result of firms being afraid of price wars.

Accepted Answer

A) True 
 B)False

Question 13

If nominal GDP is rising faster than real GDP, then inflation must be occurring.

Accepted Answer

A) True 
 B)False

Question 14

Purchasing power parity refers to:

Accepted Answer

A)   Converting each country's GDP into U.S. dollars
B)   Dividing each country's GDP by the size of its population
C)   Adjusting GDP figures for the fact that prices are much lower in some countries than in others
D)   Adjusting different GDP figures for inflation over timeE) None of the above
F) A) and D)

Question 15

The term "shock":

Accepted Answer

A)   Always refers to an unexpectedly bad event
B)   Always refers to an increase in inflation
C)   Does not tell us whether what has happened is unexpectedly bad or unexpectedly good
D)   Always refers to a decrease in real GDP and an increase in unemploymentE) All of the above
F) C) and D)

Question 16

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

Accepted Answer

A)   Converting each country's GDP into U.S. dollars
B)   Dividing each country's GDP by the size of its population
C)   Adjusting for different price levels across countries
D)   Adjusting for different unemployment rates across countriesE) A) and D)
F) B) and C)

Question 17

Saving in the economy:

Accepted Answer

A)   Occurs when current spending is less than current incomes
B)   Is generally not a determinant of future output
C)   And investment are essentially the same concept
D)   Occurs when current consumption is more than current outputE) B) and C)
F) B) and D)

Question 18

There is a trade-off between:

Accepted Answer

A)   Saving and investment
B)   Current production and future consumption
C)   Current consumption and future consumption
D)   Consumption and spendingE) A) and B)
F) None of the above

Question 19

Which among the following countries had the highest GDP per person in 2011?

Accepted Answer

A)   Mexico
B)   India
C)   Russia
D)   ChinaE) A) and C)
F) All of the above

Question 20

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

Accepted Answer

A)   Moving from point a to point b
B)   Moving from point d to point c
C)   Moving from point a to point c
D)   Moving from point b to point dE) A) and D)
F) A) and C)

Exam 6: An Introduction to Macroeconomics

Explanations about what caused the Great Recession differ sharply among economists. The so-called Minsky Explanation involves the following factors, except:

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Suppose that prices are sticky in the short-run. Which of the following best describes the economy's response to a positive demand shock?

Correct AnswerverifiedShow Answer

The term "shock":

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which among the following countries had the highest GDP per person in 2011?

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Price stickiness tends to moderate over time.

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When prices are inflexible, the economy will respond to demand shocks through short run changes in output and unemployment.

Correct AnswerverifiedShow Answer

In economics, the word "shocks" refers to:

Correct AnswerverifiedShow Answer

If nominal GDP is rising faster than real GDP, then inflation must be occurring.

Correct AnswerverifiedShow Answer

If prices are "sticky" in the short run, then:

Correct AnswerverifiedShow Answer

The amount of investment is ultimately limited by the amount of:

Correct AnswerverifiedShow Answer

There is a trade-off between:

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Purchasing power parity refers to:

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Saving in the economy:

Correct AnswerverifiedShow Answer

Sticky prices could be the result of firms being afraid of price wars.

Correct AnswerverifiedShow Answer

The Great Recession of 2007-09 was triggered by a:

Correct AnswerverifiedShow Answer

Inflation refers to an increase in the overall level of prices.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If prices of goods and services are inflexible, then:

Correct AnswerverifiedShow Answer

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