Macroeconomics
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. Juan lost his job as a nuclear physicist working for a defense contractor. He can not find a job because no firms in the defense industry or any other industry are hiring people with his skills. Juan is __________ unemployed.
| a. | frictionally |
| b. | cyclically |
| c. | structurally |
| d. | naturally |
____ 2. A plumber who quits his job in San Diego and moves to Orlando where additional plumbers are needed is said to be __________ unemployed
| a. | frictionally | c. | cyclically |
| b. | structurally | d. | underemployed |
____ 3. Disposable income is
| a. | equal to GDP minus the capital consumption allowance. |
| b. | that portion of personal income that can be used for consumption and saving. |
| c. | the sum of all payments to suppliers of the factors of production. |
| d. | the amount of income that individuals actually receive. |
| e. | another term for personal income. |
____ 4. The standard definition of “recession” is
| a. | a period of a positive frictional unemployment rate. |
| b. | two or more consecutive quarters of falling Real GDP. |
| c. | the lowest point in a business cycle. |
| d. | a period of negative inflation. |
____ 5. Increases in import spending
| a. | raise GDP. |
| b. | lower GDP. |
| c. | are always balanced off in GDP by changes in exports. |
| d. | may raise or lower GDP. |
____ 6. If the CPI is 100 in the base year and 140 in the current year, how much did prices rise between these two years?
| a. | 40 percent |
| b. | 140 percent |
| c. | 1.40 percent |
| d. | 0.14 percent |
____ 7. A person is unemployed if he
| a. | is a member of the civilian labor force, out of work, and actively seeking work. |
| b. | is 15 years old and seeking his first job. |
| c. | is out of work, available for work, but not actively seeking work. |
| d. | all of the above |
____ 8. In an economy with 100 million people, 70 million hold jobs and 9 million are not working but are looking for jobs. The unemployment rate is
| a. | 12.86% |
| b. | 11.39%. |
| c. | 9%. |
| d. | 10.25%. |
| e. | 2.87% |
____ 9. Good X sold for $40 in 1957. The CPI in 1957 was 27.6 and the CPI in 2006 was 201.6. What was the price of good X in 2006 dollars?
| a. | $266.67 |
| b. | $147.25 |
| c. | $1,201.60 |
| d. | $292.17 |
____ 10. Look at the following data: The structural unemployment rate is 4 percent, the natural unemployment rate is 5 percent, and the cyclical unemployment rate is 3 percent. The frictional unemployment rate is __________ percent and the actual unemployment rate is __________ percent.
| a. | 2; 7 |
| b. | 2; 8 |
| c. | 1; 7 |
| d. | 1; 8 |
____ 11. In the definition of GDP, the words “total market value” refer to total
| a. | dollar value at base prices. |
| b. | dollar value at current prices. |
| c. | subjective value. |
| d. | objective value. |
| e. | a and d |
____ 12. The best reason economists take only final goods and services into account when calculating GDP is that
| a. | this is the way things have always been done. |
| b. | they want to avoid the problem of final counting. |
| c. | they want to avoid the problem of double counting. |
| d. | this is the only way things can be done. |
____ 13. Gross Domestic Product is computed by using
| a. | base-year prices. |
| b. | wholesale prices. |
| c. | previous-year prices. |
| d. | current-year prices. |
____ 14. Macroeconomists define consumption as
| a. | purchases by the business sector. |
| b. | wearing away and breakdown of capital goods. |
| c. | the difference between imports and exports. |
| d. | purchases by the household sector. |
____ 15. National income equals
| a. | wages + salaries + corporate profits + net income. |
| b. | compensation of employees + proprietors’ income + corporate profits + rental income + net interest. |
| c. | compensation of employees + proprietors’ income + indirect business taxes + rental income + net interest. |
| d. | the monetary value of fringe benefits + tips + wages + profits + salaries. |
| e. | none of the above |
____ 16. Suppose you have data on durable goods, nondurable goods, fixed investment, government purchases, exports, and imports. Can you compute GDP?
| a. | No, since data on services and prices are missing. |
| b. | No, since data on inventory investment are missing. |
| c. | No, since data on inventory investment and services are missing. |
| d. | No, since data on services are missing. |
| e. | Yes. |
____ 17. Look at the following data: GDP = $7,920 billion; investment = $2,100 billion; exports = $300 billion; government purchases = $1,450 billion; consumption = $4,500 billion. What does import spending equal?
| a. | $430 billion |
| b. | $374 billion |
| c. | $200 billion |
| d. | $274 billion |
| e. | $474 billion |
____ 18. An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2, and $3, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP?
| a. | $180 |
| b. | $200 |
| c. | $140 |
| d. | $240 |
| e. | none of the above |
____ 19. Consumption expenditures in the U.S. usually account for approximately __________ percent of GDP.
| a. | 33.3 |
| b. | 53.9 |
| c. | 66.7 |
| d. | 70 |
| e. | 80 |
____ 20. An aggregate demand (AD) curve shows the
| a. | amount of a particular good people are willing and able to buy at a particular price, ceteris paribus. |
| b. | real output (Real GDP) people are willing and able to sell at different price levels, ceteris paribus. |
| c. | real output (Real (GDP) people are willing and able to buy and to sell at different price levels, ceteris paribus. |
| d. | real output (Real GDP) people are willing and able to buy at different price levels, ceteris paribus. |
____ 21. If some of a person’s wealth is in cash, it follows that
| a. | this person’s wealth will change as the price level changes. |
| b. | this person’s wealth will not change as the price level changes. |
| c. | this person is wealthier than a person who holds all his wealth in nonmonetary form. |
| d. | a and c |
| e. | b and c |
____ 22. As the price level falls,
| a. | the purchasing power of cash holdings rises. |
| b. | the purchasing power of cash holdings falls. |
| c. | the purchasing power of cash holdings remains constant. |
| d. | cash holdings turn into dollar-denominated assets. |
| e. | none of the above |
____ 23. The real balance effect is one of the
| a. | reasons why an AD curve is downward-sloping. |
| b. | shifters of an AD curve. |
| c. | reasons why a short-run aggregate supply curve can be derived. |
| d. | shifters of a short-run aggregate supply curve. |
____ 24. Suppose the price level is rising and it is widely forecast to rise even further. This forecast might cause __________ of some consumption plans, resulting in __________ the AD curve.
| a. | postponement; a rightward shift of |
| b. | postponement; a leftward shift of |
| c. | acceleration; a rightward shift of |
| d. | acceleration; movement down along |
____ 25. A rise in foreign real national income tends to raise U.S. __________, shifting the U.S. AD curve to the __________.
| a. | exports; left |
| b. | exports; right |
| c. | imports; left |
| d. | imports; right |
____ 26. Suppose the real exchange rate of 105 Japanese yen to the dollar moves to 115 yen to the dollar. The dollar has __________, making Japanese goods __________ expensive for Americans.
| a. | appreciated; less |
| b. | appreciated; more |
| c. | depreciated; less |
| d. | depreciated; more |
____ 27. The short-run aggregate supply curve is
| a. | downward sloping. |
| b. | upward sloping. |
| c. | vertical. |
| d. | horizontal. |
____ 28. An increase in labor’s productivity will cause the SRAS curve to shift __________ and the price level to __________.
| a. | leftward; increase |
| b. | rightward; decrease |
| c. | rightward; increase |
| d. | leftward; decrease |
____ 29. Foreign real national income rises. This raises U.S. ___________ which ________ aggregate demand (AD). The AD curve shifts ___________.
| a. | net exports; raises; rightward |
| b. | imports; raises; rightward |
| c. | prices; reduces; leftward |
| d. | investment; reduces; leftward |
| e. | none of the above |
Exhibit 7-1
____ 30. Refer to Exhibit 7-1. Which of the points on this graph is most likely representative of the lowest unemployment rate.
| a. | A |
| b. | B |
| c. | C |
| d. | D |
____ 31. Refer to Exhibit 7-1. Assume that the economy is originally in equilibrium at point A. If businesses become optimistic about future sales, at which point is the economy most likely to end up?
| a. | A |
| b. | B |
| c. | C |
| d. | D |
____ 32. Refer to Exhibit 7-1. Assume the economy is originally in equilibrium at point A. If wage rates rise, at which point is the economy most likely to end up?
| a. | A |
| b. | B |
| c. | C |
| d. | D |
____ 33. Refer to Exhibit 7-1. Assume the economy is originally in equilibrium at point A. If unusually bad weather leads to decreased production of wheat, corn, and other crops, at which point is the economy most likely to end up?
| a. | A |
| b. | B |
| c. | C |
| d. | D |
____ 34. When the economy is at its full employment Real GDP, the unemployment rate is equal to
| a. | zero. |
| b. | the natural unemployment rate. |
| c. | the frictional unemployment rate. |
| d. | the structural unemployment rate. |
____ 35. An economy is producing its Natural Real GDP when the rate of unemployment is equal to the __________ unemployment rate.
| a. | frictional |
| b. | structural |
| c. | sum of the frictional unemployment rate and the structural |
| d. | seasonal |
| e. | cyclical |
____ 36. If Real GDP is less than Natural Real GDP, the economy is in
| a. | an inflationary gap. |
| b. | a recessionary gap. |
| c. | an unemployment gap. |
| d. | a real gap. |
____ 37. If the economy is currently in a recessionary gap,
| a. | all economists will argue that the economy can remove the gap itself. |
| b. | some economists will argue that the economy can remove the gap itself. |
| c. | no economist will argue that the economy can remove the gap itself. |
| d. | all economists will argue that over time the recessionary gap will worsen. |
Exhibit 8-1
____ 38. Refer to Exhibit 8-1. The economy is currently producing Q1. At this level of Real GDP, the economy is in a(n)
| a. | inflationary gap. |
| b. | recessionary gap. |
| c. | unemployment gap. |
| d. | high Real GDP gap. |
| e. | none of the above |
____ 39. Refer to Exhibit 8-1. The economy is currently producing Q1. If an economist believes the economy (itself) can move to QN, then he believes that the
| a. | LRAS curve will shift leftward until it intersects the SRAS and AD curves at Q1. |
| b. | AD curve will shift rightward and intersect the SRAS curve at point B. |
| c. | SRAS curve will shift rightward and intersect the AD curve at point A. |
| d. | economy will likely stay “stuck” in short-run equilibrium. |
____ 40. Refer to Exhibit 8-1. The unemployment rate is lower at
| a. | Q1 than QN. |
| b. | QN than Q1. |
| c. | point A than point B. |
| d. | point B than point A. |
____ 41. Refer to Exhibit 8-1. The economy is currently producing Q1. An economist who believes wages are flexible in the downward direction would argue that
| a. | it is likely the economy will soon move to point B. |
| b. | it is likely the economy will soon move to point A. |
| c. | it is not likely the economy will move to point A on its own accord now or anytime soon. |
| d. | Real GDP will soon take a downturn. |
Exhibit 8-2
____ 42. Refer to Exhibit 8-2. The economy is currently producing Q1. At this level of Real GDP, the economy is in a(n)
| a. | inflationary gap. |
| b. | recessionary gap. |
| c. | unemployment gap. |
| d. | high Real GDP gap. |
| e. | none of the above |
____ 43. Refer to Exhibit 8-2. The economy is currently producing Q1. At this level of Real GDP, the economy is experiencing
| a. | a shortage in the labor market. |
| b. | a surplus in the labor market. |
| c. | neither a shortage nor a surplus in the labor market. |
| d. | all of the above are equally likely |
____ 44. If the natural unemployment rate is 5.5 percent, then the economy is at full employment when the actual unemployment rate is
| a. | more than 5.5 percent. |
| b. | between 0 and 5.5 percent. |
| c. | 0 percent. |
| d. | 5.5 percent. |
| e. | none of the above |
____ 45. If the economy is self-regulating and in a recessionary gap,
| a. | wages and prices will fall. |
| b. | wages will fall, but prices will rise. |
| c. | neither wages nor prices will change. |
| d. | wages will rise, but prices will fall. |
| e. | wages and prices will rise. |
____ 46. Say’s law says
| a. | demand creates its own supply. |
| b. | the more supply there is, the lower prices are. |
| c. | supply creates supply. |
| d. | supply creates its own demand. |
| e. | none of the above |
Exhibit 8-7
____ 47. Refer to Exhibit 8-7. Which point is representative of the economy in a recessionary gap?
| a. | A |
| b. | B |
| c. | C |
| d. | D |
| e. | E |
____ 48. Refer to Exhibit 8-7. Which point is representative of the economy in an inflationary gap?
| a. | A |
| b. | B |
| c. | C |
| d. | E |
____ 49. Refer to Exhibit 8-7. Which point is representative of the economy on its LRAS curve?
| a. | A |
| b. | B |
| c. | C |
| d. | D |
| e. | E |
Exhibit 8-8
Suppose that at a given price level the following values exist in a hypothetical economy:
Consumption = $2,000 billion
Investment = $900 billion
Government Purchases = $700 billion
Exports = $200 billion
Imports = $300 billion
Assume that the level of total expenditures is equal to the value of goods and services that suppliers want to sell.
____ 50. Refer to Exhibit 8-8. The level of total expenditures (TE) in this economy is currently __________ billion.
| a. | $3,500 |
| b. | $4,100 |
| c. | $3,600 |
| d. | $4,500. |