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Test Bank for Macroeconomics, 10th Edition

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    1 Macroeconomics, 10e (Abel/Bernanke/Croushore) Chapter 1 Introduction to Macroeconomics 1.1 What Macroeconomics Is About 1) Which of the following is not a topic of macroeconomics? A) Why nations have different rates of growth. B) What causes inflatio n and what can be done about it. C) What factors contribute to the presence of monopolies in the economy. D) Why unemployment periodically reaches very high levels. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: New 2) The two major reasons fo r the tremendous growth in output in the U.S. economy over the last 125 years are A) population growth and low inflation. B) population growth and increased productivity. C) low unemployment and low inflation. D) low inflation and low trade deficits. Answe r: B Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 3) The main reason that the United States has such a high standard of living is A) low unemployment. B) high average labor productivity. C) low inflation. D) high government budget defi cits. Answer: B Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 4) Which of the following factors are most important for determining the economic growth of a country? A) The country's level of resources B) The independence of the country' s central bank C) The country's rates of saving and investment D) The level of sophistication of a country's financial markets Answer: C Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    2 5) Average labor productivity is the A) amount of wo rkers per machine. B) amount of machines per worker. C) ratio of employed to unemployed workers. D) amount of output per worker. Answer: D Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 6) In analyzing macroeconomic data during the past year, you have discovered that average labor productivity fell, but total output increased. What was most likely to have caused this? A) There is nothing unusual in this outcome because this is what normally occurs. B) The capital — output ratio probably ro se. C) There was an increase in labor input. D) Unemployment probably increased. Answer: C Diff: 2 Topic: Section: 1.1 Question Status: Previous Edition 7) In which of the following periods did average labor productivity in the United States grow the f astest? A) 1929 to 1935 B) 1949 to 1973 C) 1973 to 1995 D) 1995 to 2008 Answer: B Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 8) The most direct effect of an increase in the growth rate of average labor productivity would be an incre ase in A) the inflation rate. B) the unemployment rate. C) the long - run economic growth rate. D) imported goods. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    3 9) Short - run contractions and expansions in economic activity are c alled A) recessions. B) expansions. C) deficits. D) the business cycle. Answer: D Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 10) When national output rises, the economy is said to be in A) an expansion. B) a deflation. C) an inflat ion. D) a recession. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 11) When national output declines, the economy is said to be in A) an expansion. B) a deflation. C) an inflation. D) a recession. Answer: D Diff: 1 Topic: Se ction: 1.1 Question Status: Previous Edition 12) Which of the following best describes a typical business cycle? A) Economic expansions are followed by economic contractions. B) Inflation is followed by unemployment. C) Trade surpluses are followed by tr ade deficits. D) Stagflation is followed by inflationary economic growth. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    4 13) Recessions A) are always followed by long periods of high rates of real economic growth. B) almost ne ver last more than two consecutive quarters. C) cause the unemployment rate to increase. D) do not occur in developed countries, including the United States. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: New 14) During recessions, the unemploy ment rate ________ and output ________. A) rises; falls B) rises; rises C) falls; rises D) falls; falls Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 15) The number of unemployed divided by the labor force equals A) the inflat ion rate. B) the labor force participation rate. C) the unemployment rate. D) the misery index. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 16) The unemployment rate is the A) number of unemployed divided by the number of em ployed. B) number of employed divided by the number of unemployed. C) number of unemployed divided by the labor force. D) labor force divided by the number of unemployed. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    5 17) The highest and most prolonged period of unemployment in the United States over the last 125 years occurred during A) World War II. B) the 1890s Depression. C) the 1990 - 1991 recession. D) the Great Depression of the 1930s. Answer: D Diff: 1 Topic: Section: 1 .1 Question Status: Previous Edition 18) During the Great Depression, the unemployment rate for the United States peaked at approximately A) 10%. B) 70%. C) 45%. D) 25%. Answer: D Diff: 2 Topic: Section: 1.1 Question Status: Previous Edition 19) If a city has 3293 unemployed people and 73,177 in its labor force, then the city's unemployment rate equals A) 45.0%. B) 4.5%. C) 4.3%. D) 0.45%. Answer: B Diff: 2 Topic: Section: 1.1 Question Status: Previous Edition 20) If a city has 3293 unemployed peo ple and 69,884 employed people, then the city's unemployment rate equals A) 45.0%. B) 4.5%. C) 4.3%. D) 0.45%. Answer: B Diff: 2 Topic: Section: 1.1 Question Status: Previous Edition

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    6 21) A country is said to be experiencing inflation when A) prices o f most goods and services are rising over time. B) prices of most goods and services are falling over time. C) total output is rising over time. D) total output is falling over time. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Editio n 22) From 1800 to 1940, the price level in the United States A) trended neither upward nor downward. B) fluctuated wildly. C) declined slowly. D) increased slowly. Answer: A Diff: 2 Topic: Section: 1.1 Question Status: Previous Edition 23) Before World War II, the average level of prices in the United States usually A) fell during wartime and rose during peacetime. B) fell during wartime and fell during peacetime. C) rose during wartime and fell during peacetime. D) rose during wartime and rose dur ing peacetime. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 24) A country is said to be experiencing inflation when A) prices of most goods and services are rising over time. B) prices of most goods and services are falling ov er time. C) total output is rising over time. D) total output is falling over time. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    7 25) A country is said to be experiencing deflation when A) prices of most goods and services ar e rising over time. B) prices of most goods and services are falling over time. C) total output is rising over time. D) total output is falling over time. Answer: B Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 26) The inflation rate is the A) percent increase in the average level of prices over a year. B) percent increase in output over a year. C) percent increase in the unemployment rate over a year. D) price level divided by the level of output. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 27) If the price level was 100 in 2017 and 102 in 2018, the inflation rate was A) 102%. B) 20%. C) 2%. D) 0.2%. Answer: C Diff: 2 Topic: Section: 1.1 Question Status: Revised 28) A closed economy is a national econo my that A) doesn't interact economically with the rest of the world. B) has a stock market that is not open to traders from outside the country. C) has extensive trading and financial relationships with other national economies. D) has not established dipl omatic relations with other national economies. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    8 29) An open economy is a national economy that A) doesn't interact economically with the rest of the world. B) has a stock market th at is open to traders from anywhere in the world. C) has extensive trading and financial relationships with other national economies. D) has established diplomatic relations with most other national economies. Answer: C Diff: 1 Topic: Section: 1.1 Questi on Status: Previous Edition 30) An economy that doesn't interact economically with the rest of the world is called ________ economy. A) a closed B) an open C) a surplus D) an authoritarian Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previou s Edition 31) U.S. exports are goods and services A) produced abroad and sold to Americans. B) produced in the United States and sold to Americans. C) produced abroad and sold to foreigners. D) produced in the United States and sold to foreigners. Answer: D Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 32) U.S. imports are goods and services A) produced abroad and sold to Americans. B) produced in the United States and sold to Americans. C) produced abroad and sold to foreigners. D) pro duced in the United States and sold to foreigners. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    9 33) Following World War I and World War II, the United States had a A) small trade surplus. B) small trade deficit. C) large t rade deficit. D) large trade surplus. Answer: D Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 34) In the 1980s, 1990s, and 2000s, the United States has had a A) small trade surplus. B) small trade deficit. C) large trade deficit. D) large trade surplus. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 35) A country has a trade surplus when A) imports exceed exports. B) imports equal exports. C) exports exceed imports. D) imports equal zero. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 36) A country has a trade deficit when A) imports exceed exports. B) imports equal exports. C) exports exceed imports. D) exports are zero. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    10 37) Data on exports and imports for the United States over the period from 1890 to 2018 show that A) the United States had large trade deficits throughout this entire period. B) the United States had large trade surpluses throughout th is entire period. C) the percentage of total output exported by U.S. firms fell dramatically during World War I and World War II. D) a higher percentage of U.S. goods was exported in recent years than in earlier years. Answer: D Diff: 2 Topic: Section: 1 .1 Question Status: Revised 38) A central bank is an institution that A) pays for government expenditures. B) controls a nation's monetary policy. C) runs a country's stock market. D) determines a nation's fiscal policy. Answer: B Diff: 1 Topic: Secti on: 1.1 Question Status: Previous Edition 39) In the United States, monetary policy is determined by A) the Federal Reserve. B) the president. C) private citizens. D) the Treasury Department. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previ ous Edition 40) The peak in U.S. government spending as a percent of GDP occurred during A) World War II. B) the 1960s war on poverty. C) the Great Depression. D) the war against Iraq in the 2000s. Answer: A Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    11 41) Why were the U.S. government budget deficits of the 1980s and early 1990s so unusual from a historical point of view? A) It was the first time the U.S. government had ever run deficits. B) In the past, deficits were usually that lar ge only in wartime. C) It was the first time that deficits were accompanied by very high rates of inflation. D) It was the first time that deficits diverted funds from other productive uses, such as investment in modern equipment. Answer: B Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 42) Critics of the government's fiscal policies argued that government deficits A) prevented capital from flowing into the United States. B) were linked to the excess of imports over exports that occurred in the 1980s. C) caused the level of unemployment in the United States to increase during the 1980s. D) had directly contributed to a decline in the level of demand in the American economy. Answer: B Diff: 2 Topic: Section: 1.1 Question Status: Previous Edition 43) The difference between microeconomics and macroeconomics is that A) microeconomics looks at supply and demand for goods, macroeconomics looks at supply and demand for services. B) microeconomics looks at prices, macroeconomics looks at inflati on. C) microeconomics looks at individual consumers, macroeconomics looks at national totals. D) microeconomics looks at national issues, macroeconomics looks at global issues. Answer: C Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition 44) Aggregation is the process of A) calculating real GDP based on nominal GDP and the price index. B) summing individual economic variables to obtain economywide totals. C) forecasting the components of GDP. D) predicting when recessions will occur. Answer: B Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    12 45) Starting from a year in which gross domestic product for the economy is $8,0 00 billion, calculate how much output the national economy would produce in each of the next five years if it continued to grow at its potential real growth rate of 3%. How much output would the economy produce in each year if it grew by 4% the first year, 2% the second year, 1% the third year, - 1% the fourth year, and - 3% the fifth year? (Note: A negative gro wth rate means output is declining.) By the fifth year, how far is output below its potential level? Answer: Potential Output (billions) Actual Output (billions) Year 1: $8,000 × 1.03 = $8,240 $8,000 × 1.04 = $8,320 Year 2: $8,240 × 1.03 = $8,487 $8 ,320 × 1.02 = $8,486 Year 3: $8,487 × 1.03 = $8,742 $8,486 × 1.01 = $8,571 Year 4: $8,742 × 1.03 = $9,004 $8,571 × 0.99 = $8,486 Year 5: $9,004 × 1.03 = $9,274 $8,486 × 0.97 = $8,231 [Note: Don't worry about rounding differences that arise in probl ems like this, because such differences depend on how many digits you carry over from one calculation to the next.] Output is below potential output by [(9,274 - 8,231)/9,274] × 100% = 11.2%. Diff: 2 Topic: Section: 1.1 Question Status: New 46) What a re the major factors affecting the long - term growth of the economy's output? Answer: The major factors are population growth and average labor productivity. Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    13 47) Macroeconomic information for the economy of Anchovy is given below. (a) What was the growth rate of average labor productivity in Anchovy between Year 1 and Year 2? (b) What was the inflation rate in Anchovy between Year 1 and Year 2? (c) What was the unemployment rate in Year 1? In Year 2? Answer: (a) Average labor productivity: Year 1: 8000/700 = 80/7; Year 2: 9000/800 = 90/8; growth rate = [(90/8)/(80/7)] - 1 = - 0.016 = - 1.6% (b) Inflation rate: (9/8) - 1 = 0.125 = 12.5% (c) Unemployment rates: Year 1: 70/770 = 0.091 = 9.1%; Year 2: 100/900 = 0.111 = 11.1% Diff: 2 Topic: Section: 1.1 Question Status: Previous Edition 48) Using the CPI measure of the price level, which is 100 in the base year of 2015, calculate the annual inflation rates for (a) 2016, when the index is 103.7 . (b) 2017, when the index is 105.5. (c) 2018, when the index is 107.7. Answer: (a) Inflation in 2014 = (103.7 - 100.0)/100 × 100% = 3.7%. (b) Inflation in 2015 = (105.5 - 103.7)/103.7 × 100% = 1.7%. (c) Inflation in 2016 = (107.7 - 105.5)/105.5 × 100% = 2.1%. Diff: 2 Topic: Section: 1.1 Question Status: Revised 49) What is meant by aggregation ? Why is aggregation important for macroeconomic analysis? Answer: Aggregation refers to the process of adding together individual economic variables to obtain economywide totals. Aggregation distinguishes microeconomics from macroeconomics. It allows us to study the economy as a whole, rather than looking at its individual parts. Diff: 1 Topic: Section: 1.1 Question Status: Previous Edition

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    14 1.2 What Macroec onomists Do 1) Many people perceive erroneously that most macroeconomists spend a lot of time engaged in A) forecasting. B) macroeconomic research. C) macroeconomic analysis. D) data development. Answer: A Diff: 1 Topic: Section: 1.2 Question Status: P revious Edition 2) Of these areas of macroeconomics, which employs the fewest economists? A) Macroeconomic forecasting B) Macroeconomic analysis C) Macroeconomic research Answer: A Diff: 1 Topic: Section: 1.2 Question Status: New 3) The most difficul t part of forecasting is A) lack of computing power. B) not enough theoretical models. C) insufficient data on the economy. D) the complexity of the economy. Answer: D Diff: 1 Topic: Section: 1.2 Question Status: New 4) A macroeconomist who is employe d at a university is most likely to be primarily engaged in which of these tasks? A) Macroeconomic forecasting B) Macroeconomic analysis C) Macroeconomic research D) Macroeconomic data development Answer: C Diff: 1 Topic: Section: 1.2 Question Status: New

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    15 5) The main function of public - sector macroeconomic analysts is to A) assist in policymaking. B) find ways to increase corporate profits. C) engage in theoretical research. D) forecast the developments in industries. Answer: A Diff: 1 Topic: Sect ion: 1.2 Question Status: New 6) The main goal of macroeconomic research is to A) predict how the macroeconomy will perform in the future. B) analyze current macroeconomic data. C) develop new data that can be used to understand better the operation of t he economy. D) make general statements about how the economy works. Answer: D Diff: 1 Topic: Section: 1.2 Question Status: Previous Edition 7) A set of ideas about the economy that have been organized in a logical framework is called A) empirical analy sis. B) a methodology. C) economic theory. D) data development. Answer: C Diff: 1 Topic: Section: 1.2 Question Status: Previous Edition 8) A simplified description of some aspect of the economy is called A) empirical analysis. B) a methodology. C) an e conomic model. D) data development. Answer: C Diff: 1 Topic: Section: 1.2 Question Status: New

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