Review Questions for Introduction to Macroeconomics, National Accounting, Inflation, Unemployment

Review Questions for Introduction to Macroeconomics, National Accounting, Inflation, Unemployment

  1. What are the three important macroeconomic goals about which most 

     economists, and society at large, agree?

     a.  rapid economic growth, full employment, and low interest rates

     b.  rapid economic growth, full employment, and stable prices

     c.  rapid economic growth, zero unemployment, and falling prices

     d.  rapid economic growth, low unemployment, and a balanced budget

     e.  rapid economic growth, a balanced budget, and balanced 

         international trade

  2. Macroeconomics is best suited to answering questions about

     a.  unemployment among students on this campus

     b.  why rent is higher in big cities than in smaller ones

     c.  how fast the overall price level will rise next year

     d.  the demand for public transportation in rural areas

     e.  why sales taxes in this area are increasing

  3. Which of the following is primarily a macroeconomic issue?

     a.  a worker deciding how many hours to work at a given rate of pay

     b.  the equilibrium price of oranges

     c.  a consumer's response to the change in price of a substitute good

     d.  the growth of total output in the economy

     e.  a firm's decision as to whether to invest in new capital at a given 

         interest rate

  4. If unemployment has been consistently higher than normal, real GDP is

     a.  lower than potential real GDP

     b.  unchanged from one year to the next

     c.  increasing over time

     d.  decreasing over time

     e.  higher than potential real GDP

  5. If the unemployment rate is 6 percent, it suggests that 6 percent of

     a.  the population is not working

     b.  potential workers are not working

     c.  the workforce is not working at that time

     d.  the individuals who are looking for work cannot find jobs

     e.  people who want to work cannot find jobs

  6. Periodic fluctuations in real GDP are called

     a.  business cycles

     b.  recessions

     c.  peaks

     d.  expansions

     e.  troughs

  7. The Full Employment and Balanced Growth Act of 1978 specified a target 

     U.S. unemployment rate of

     a.  0 percent

     b.  2 percent

     c.  4 percent

     d.  5–6 percent

     e.  7–8 percent

  8. Over the past 75 years, the inflation rate has

     a.  generally increased

     b.  been positive in most years

     c.  stayed low

     d.  been negative in most years

     e.  dramatically increased

  9. Who was the economist that began modern macroeconomics?

     a.  Adam Smith

     b.  Paul Samuelson

     c.  Milton Friedman

     d.  John Maynard Keynes

     e.  Alan Greenspan

 10. Gross domestic product (GDP) is

     a.  the total value of all goods and services produced for the 

         marketplace during a given year, within the nation's borders

     b.  the total value of all final goods and services produced for the 

         marketplace during a given year, by a nation's citizens and 

         businesses

     c.  the total value of all final goods and services produced for the 

         marketplace during a given year, within a nation's borders

     d.  the total value of all goods and services produced for the 

         marketplace during a given year, by a nation's citizens and 

         businesses

     e.  the total value of all goods, services and inputs produced for the 

         marketplace during a given year, within a nation's borders

 11. Purchases of stocks and bonds are examples of investment spending.

 12. GDP measures the output produced within a nation's borders.

 13. When people buy land, their purchases are included in GDP.

 14. Used car dealerships add nothing to GDP because the cars they sell were 

     already recorded in GDP when they were new.

 15. The official measure of unemployment may underestimate actual 

     unemployment because

     a.  people may lie when reporting they are looking for jobs

     b.  the treatment of involuntary part-time workers and discouraged 

         workers is misleading

     c.  the population sample employed by the Labor Department is too small 

         to be representative

     d.  some individuals who should be receiving unemployment benefits do 

         not receive them

     e.  individuals who are unable to work are not included

 16. If some of the unemployed became discouraged workers, which of the 

     following would result?

     a.  the labor force would decrease and the unemployment rate would 

         decrease

     b.  the labor force would decrease and the unemployment rate would 

         remain the same

     c.  the labor force would increase and the unemployment rate would 

         decrease

     d.  the labor force would decrease and the unemployment rate would 

         increase

     e.  the labor force would increase and the unemployment rate would 

         remain the same

 17. Suppose the Bureau of Labor Statistics reports that the 

     noninstitutional civilian population is 210 million, 140 million are 

     employed, 10 million are unemployed. Of the 140 million employed, 4 

     million want to work twice as many hours as they currently work. In 

     addition, the Bureau reports that there are 1 million discouraged 

     workers in the economy. If the Bureau accounts for the involuntary 

     part-time workers by calling them one-half employed and one-half 

     unemployed and accounts for the discouraged workers as fully 

     unemployed, what would be the value of the unemployment rate?

     a.  3.3 percent

     b.  6.7 percent

     c.  8.4 percent

     d.  8.6 percent

     e.  10.0 percent

 18. To be considered employed, a person must have

     a.  worked at least 1 hour during the previous week

     b.  searched at least 1 hour for a job during the previous week

     c.  worked at least 5 hours during the current week

     d.  worked at least 15 minutes during the previous month

     e.  earned at least the minimum wage for five or more hours of work per 

         week

 19. The institution in the U.S. charged with creating and regulating the 

     supply of money is the

     a.  U.S. Treasury

     b.  Federal Reserve

     c.  Department of Commerce

     d.  Department of Weights and Measures

     e.  U.S. Mint

 20. In what year was the Federal Reserve System was created?

     a.  1790

     b.  1861

     c.  1879

     d.  1913

     e.  1935

 21. Parvez is trying to decide whether or not he should lend $1,000 to Eli 

     for a year. Eli would pay a fixed nominal interest rate of 8 percent. 

     Parvez expects the inflation rate to be 4 percent for the year. If he 

     does not lend the $1,000 to Eli, Parvez will purchase an indexed 

     savings bond that pays an interest rate of 4 percent, or he will put 

     the money in a (nonindexed) savings account earning 6 percent. Parvez

     a.  will earn 4 percent in real terms if he loans Eli the money, 0 

         percent in real terms if he buys the bond, and 6 percent in real 

         terms if he puts the money into a savings account

     b.  is better off holding his money as cash

     c.  is indifferent between lending the money to Eli and buying the bond 

         because the real interest rate is the same in either case

     d.  should purchase the bond because it earns the highest real rate of 

         interest

     e.  earns the highest real rate of interest if he puts his $1,000 into 

         a savings account

 22. Suppose that the Department of Transportation is compiling data on 

     traffic accidents and it wants to present the data in the form of an 

     index. If there were 2,000 accidents in the base year, 1997, and 2,100 

     accidents in 1998, what is the value of the index for 1998?

     a.  95.2

     b.  100

     c.  105

     d.  200

     e.  210

 23. Which of the following is a definition for inflation?

     a.  an increase in the value of the dollar over time

     b.  an increase in the overall price level

     c.  an increase in the price of a good or service

     d.  it takes fewer dollars to purchase other currencies

     e.  a decrease in the overall price level

 24. The Consumer Price Index (CPI)

     a.  measures the prices of all goods produced in the economy

     b.  includes prices of raw materials

     c.  is found by averaging the prices of all goods consumed in the 

         economy

     d.  includes only the prices of domestically produced consumer goods

     e.  includes the prices of some used consumer goods

 25. The prices of which of the following goods would be included in the 

     Consumer Price Index?

     a.  fighter planes

     b.  iron ore

     c.  tennis shoes

     d.  firefighters' services

     e.  IBM stock

 26. The CPI includes the prices of

     a.  goods and services purchased by American consumers

     b.  goods and services purchased by all consumers (both foreign and 

         domestic)

     c.  goods and services purchased by the government

     d.  investment goods purchased by businesses

     e.  exports purchased by foreign buyers

 27. Which of the following statements is true about the behavior of the 

     CPI?

     a.  it has risen steadily since 1960

     b.  it has fallen steadily since 1960

     c.  it fell during the 1960s and has risen ever since

     d.  it rose sharply in the 1970s and then declined in the 1980s

     e.  it has risen and fallen with roughly equal frequency since 1960

 28. Inflation can be defined as a

     a.  period of high prices

     b.  period of rising prices

     c.  period during which prices rise at an increasing rate

     d.  period during which all prices rise

     e.  decline in the standard of living

 29. If we read that the CPI had value of 120 in 1998, we would know that

     a.  the typical market basket in 1998 was 20 percent more expensive 

         than in the previous year

     b.  the typical market basket in 1998 was 120 percent more expensive 

         than in the base year

     c.  the typical market basket in the base year was 120 percent more 

         expensive than in 1998

     d.  the typical market basket in 1998 was 20 percent more expensive 

         than in the base year

     e.  the cost of a loaf of bread is higher now than it has been during 

         the past ten years

 30. Suppose you had the following information regarding the economy:

         Year          Nominal Wage           CPI

         1997             $15.00              100

         1998             $16.50              110

         1999             $25.00              150

     Which of the following best describes the behavior of the real wage 

     rate?

     a.  it increased from 1991 to 1992 and increased further from 1992 to 

         1993

     b.  it dropped from 1991 to 1992 and then increased from 1992 to 1993

     c.  it dropped from 1991 to 1992 and then remained the same from 1992 

         to 1993

     d.  it increased from 1991 to 1992 and then dropped from 1992 to 1993

     e.  it remained the same from 1991 to 1992 and then dropped from 1992 

         to 1993

 31. The wage rate that workers should really care about is

     a.  both the real wage rate and the nominal wage rate

     b.  the nominal wage rate

     c.  the nominal wage rate multiplied by the real wage rate

     d.  neither the real wage rate nor the nominal wage rate

     e.  the real wage rate

 32. The formula for determining a real variable is real variable =

     a.  (nominal variable/100) ´ CPI

     b.  (nominal variable ´ CPI)/100

     c.  (nominal variable/price index) ´ 100

     d.  (nominal variable/price index) + 100

     e.  (nominal variable/price index)/100

 33. The index used to translate nominal GDP into real GDP is

     a.  Consumer Price Index

     b.  Wholesale Price Index

     c.  GDP Price Index

     d.  Producer Price Index

     e.  Manufacturer's Input Price Index

 34. Which of the following statements about unanticipated inflation is 

     true?

     a.  it reduces average purchasing power in the economy

     b.  it reduces total purchasing power in the economy

     c.  it redistributes purchasing power in the economy

     d.  it reduces nominal wages

     e.  its effects are spread evenly throughout the economy so that no one 

         gains or loses from inflation

 35. If inflation is higher than anticipated and benefits are not indexed, 

     which group loses purchasing power?

     a.  borrowers and lenders

     b.  lenders and retirees

     c.  borrowers and retirees

     d.  only borrowers

     e.  only lenders

 36. Which of the following is a reason why the Consumer Price Index (CPI) 

     is not calculated as a simple average of all prices?

     a.  some goods experience large price changes and the CPI would be too 

         variable if computed by a simple average

     b.  goods differ in their importance in the average consumer's budget

     c.  some goods never experience price changes and the CPI would not be 

         variable enough if computed as a simple average

     d.  it would be difficult to compute a price index using a simple 

         average of all prices

     e.  actually, the CPI is a simple average of all prices

 37. Because the CPI updates its market basket only once every ten years or 

     so,

     a.  it routinely overestimates the relative importance of the goods 

         whose prices are rising most rapidly and overestimates the relative 

         importance of goods whose prices are falling or rising more slowly

     b.  it routinely underestimates the relative importance of the goods 

         whose prices are rising most rapidly and overestimates the relative 

         importance of goods whose prices are falling or rising more slowly

     c.  it routinely underestimates the relative importance of the goods 

         whose prices are rising most rapidly and underestimates the 

         relative importance of goods whose prices are falling or rising 

         more slowly

     d.  it routinely overestimates the relative importance of the goods 

         whose prices are rising most rapidly and underestimates the 

         relative importance of goods whose prices are falling or rising 

         more slowly

     e.  the rate of inflation is only reported on an annual basis

 38. The Consumer Price Index (CPI) excludes goods imported from other 

     countries and consumed by residents of the United States.

 39. If inflation is fully anticipated and if there are no restrictions on 

     contracts, then inflation will not redistribute purchasing power.

 40. Most economists believe that substitution behavior by consumers causes 

     the Consumer Price Index (CPI) to overstate the rate of inflation.

 41. An index number is important in only a relative sense--in comparison to 

     an index number from another period.

Answer Key  

Review Questions for Chapters 4, 5 and 6.

  1.      >   b 

         HallMA04 Ch 4 #2 (MC #2)       

  2.      >   c 

         HallMA04 Ch 4 #3 (MC #3)       

  3.      >   d 

         HallMA04 Ch 4 #7 (MC #7)       

  4.      >   a 

         HallMA04 Ch 4 #28 (MC #28)       

  5.      >   c 

         HallMA04 Ch 4 #25 (MC #25)       

  6.      >   a 

         HallMA04 Ch 4 #31 (MC #31)       

  7.      >   c 

         HallMA04 Ch 4 #33 (MC #33)       

  8.      >   b 

         HallMA04 Ch 4 #36 (MC #36)       

  9.      >   d 

         HallMA04 Ch 4 #47 (MC #47)       

 10.      >   c 

         HallMA05 Ch 5 #1 (MC #1)       

 11.      >   False 

         HallMA05 Ch 5 #166 (TF #10)       

 12.      >   True 

         HallMA05 Ch 5 #160 (TF #4)       

 13.      >   False 

         HallMA05 Ch 5 #157 (TF #1)       

 14.      >   False 

         HallMA05 Ch 5 #158 (TF #2)       

 15.      >   b 

         HallMA05 Ch 5 #149 (MC #149)       

 16.      >   a 

         HallMA05 Ch 5 #150 (MC #150)       

 17.      >   d 

         HallMA05 Ch 5 #147 (MC #147)       

 18.      >   a 

         HallMA05 Ch 5 #140 (MC #140)       

 19.      >   b 

         HallMA06 Ch 6 #6 (MC #6)       

 20.      >   d 

         HallMA06 Ch 6 #12 (MC #12)       

 21.      >   c 

         HallMA06 Ch 6 #13 (MC #13)       

 22.      >   c 

         HallMA06 Ch 6 #17 (MC #17)       

 23.      >   b 

         HallMA06 Ch 6 #18 (MC #18)       

 24.      >   e 

         HallMA06 Ch 6 #20 (MC #20)       

 25.      >   c 

         HallMA06 Ch 6 #23 (MC #23)       

 26.      >   a 

         HallMA06 Ch 6 #28 (MC #28)       

 27.      >   a 

         HallMA06 Ch 6 #31 (MC #31)       

 28.      >   b 

         HallMA06 Ch 6 #33 (MC #33)       

 29.      >   d 

         HallMA06 Ch 6 #37 (MC #37)       

 30.      >   e 

         HallMA06 Ch 6 #59 (MC #59)       

 31.      >   e 

         HallMA06 Ch 6 #60 (MC #60)       

 32.      >   c 

         HallMA06 Ch 6 #66 (MC #66)       

 33.      >   c 

         HallMA06 Ch 6 #68 (MC #68)       

 34.      >   c 

         HallMA06 Ch 6 #73 (MC #73)       

 35.      >   b 

         HallMA06 Ch 6 #79 (MC #79)       

 36.      >   b 

         HallMA06 Ch 6 #80 (MC #80)       

 37.      >   d 

         HallMA06 Ch 6 #125 (MC #125)       

 38.      >   False 

         HallMA06 Ch 6 #133 (TF #6)       

 39.      >   True 

         HallMA06 Ch 6 #135 (TF #8)       

 40.      >   True 

         HallMA06 Ch 6 #140 (TF #13)       

 41.      >   True 

         HallMA06 Ch 6 #144 (TF #17)