2) The Great Recession occurred in: A) B) C) D)

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1 Problem Set Econ 2013: Chapter : An Introduction to Macroenonomics Name ID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Short-run fluctuations in output and employment are referred to as: A) Recession and inflation B) Economic growth C) Inventory cycles D) Business cycles 2) The Great Recession occurred in: A) B) C) D) ) Real gross domestic product is a measure of the: A) Value of final output produced within a country in one year, adjusted for changing prices B) Average price level in the economy C) Value of final output produced within a country in one year, using current prices D) Total value of available resources in a nation 4) Suppose that an economy's output does not change from one year to the next, but the price level doubles. What happens to nominal GDP? A) Nominal GDP doesn't change B) Nominal GDP doubles C) Nominal GDP is halved D) There is not enough information to determine what happens to nominal GDP 5) Economists and policy makers are committed to encouraging a high and growing level of real GDP because: A) This means greater consumption opportunities B) This implies an increase in investment C) This implies a lower price level D) This means a higher level of unemployment 6) High rates of unemployment are undesirable because they: A) Always lead to a decline in nominal GDP B) Cannot be reduced through government policy C) Are associated with increases in the price level D) Are associated with higher levels crime and illness 7) Which of the following is not an adjustment made when comparing standards of living across countries? A) Converting each country's GDP into U.S. dollars B) Adjusting for different price levels across countries C) Adjusting for different unemployment rates across countries D) Dividing each country's GDP by the size of its population 1) 2) 3) 4) 5) 6) 7) 1

2 8) At the core of understanding economic growth is the idea that to raise living standards over time, an economy must: A) Produce and consume goods and services B) Export and import C) Save and invest D) Employ resources and earn incomes 9) Which of the following is the best example of investment as defined by economists? A) A business manager purchases stock on the New York Stock Exchange B) A restaurant owner buys a freezer to store ingredients for the restaurant meals C) A worker deposits money into a long-term retirement account D) A college professor buys a truck to drive around in 10) 8) 9) 10) Which of the following best represents the effect of an increase in investment? A) Moving from point b to point d B) Moving from point d to point c C) Moving from point a to point b D) Moving from point a to point c 11) Decisions about saving and investment are: A) Complicated by the fact that the future is uncertain B) Independent of expectations about the future C) Unaffected by expectations of the future D) Generally made under conditions of complete certainty about the future 12) What impact will a negative supply shock have on the main measures of economic performance? A) Real GDP will decrease, inflation will increase, and unemployment will increase B) Real GDP will increase, inflation will increase, and unemployment will decrease C) Real GDP will decrease, inflation will decrease, and unemployment will increase D) Real GDP will increase, inflation will decrease, and unemployment will decrease 11) 12) 2

3 13) If prices are inflexible, then a negative demand shock will lead to: A) A short-run decrease in real GDP B) A short-run increase in real GDP C) A short-run decrease in prices D) No change in real GDP in the short run 14) 13) 14) Refer to the graphs above. Which of the following best represents a positive demand shock when prices are flexible? A) The shift from D2 to D1 in graph A B) The shift from D2 to D3 in graph B C) The shift from D2 to D1 in graph B D) The shift from D2 to D3 in graph A 15) Business cycle fluctuations typically arise because: A) The actual demand for goods and services ends up being more or less than what firms were expecting B) Prices tend to be flexible in the short run C) The actual supply of goods and services ends up being more or less than what consumers were expecting D) The actual demand for goods and services ends up being more or less than the expected supply of goods and services 16) Which of the following statements is true? A) If prices were fully flexible, there would be no short-run economic fluctuations B) Short-run economic fluctuations are made worse because prices are flexible C) If prices were fully inflexible, there would be no short-run economic fluctuations D) Short-run economic fluctuations would be less severe if prices were inflexible 15) 16) 3

4 17) Inventories rise when: A) Actual demand for output is more than expected B) Actual supply of output is less than expected C) Actual demand for output is less than expected D) Actual demand for output is about the same as expected 18) Suppose that inventories are falling. We could expect that, in the future: A) Real GDP will likely decrease B) Unemployment will likely increase C) We can't predict what will happen to unemployment D) Unemployment will likely decrease 19) The Great Recession of illustrated the situation where a negative demand shock occurred and: A) Prices and production were both "sticky" or inflexible B) The economy's overall price level was "sticky" C) Prices adjusted but the output level was inflexible D) The economy's overall price level was very flexible 20) Firms that choose to use a fixed-price policy: A) Will tend to experience larger inventory changes than firms that follow a flexible-price policy B) Will not hold inventories C) Will tend to experience smaller inventory changes than firms that follow a flexible-price policy D) Find that their inventories do not respond to demand shocks 17) 18) 19) 20) TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 21) If nominal GDP is rising faster than real GDP, then inflation must be occurring. 21) 22) Inflation refers to an increase in the overall level of prices. 22) 23) Buying 100 shares of Google stock would be an example of economic investment. 23) 24) Business cycles refer to short term fluctuations in prices. 24) 25) When prices are inflexible, the economy will respond to demand shocks through short run changes in output and unemployment. 25) 4

5 Answer Key Testname: CHAPTER6_AN_INTRODUCTION_TO_MACROECONOMICS 1) D 2) A 3) A 4) B 5) A 6) D 7) C 8) C 9) B 10) A 11) A 12) A 13) A 14) B 15) A 16) A 17) C 18) D 19) B 20) A 21) TRUE 22) TRUE 23) FALSE 24) FALSE 25) TRUE 5