(Test Bank) Macroeconomics

Jones, 4

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Test Bank

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Test Bank for Macroeconomics, 4e by Charles Jones (All Chapters) CHAPTER 1: Introduction to Macroeconomics MULTIPLE CHOICE 1. A central topic of study in macroeconomics is ________, while a central topic of study in microeconomics is ________. a. the cosmos; particle physics b. the overall performance of an economy; an individual market c. an individual market; the overall performance of an economy d. the overall performance of a single economy; the individual firm e. consumer behavior; firm behavior ANS: B DIF: Easy REF: 1.1 TOP: I. MSC: Remembering 2. The three main variables we discuss in the short run are: a. economic fluctuations, interest rates, and unemployment. b. economic fluctuations, inflation, and money. c. economic fluctuations, inflation, and unemployment. d. interest rates, money supply, and taxes. e. economic fluctuations, interest rates, and money. ANS: C DIF: Easy REF: 1.1 TOP: I. MSC: Remembering 3. Macroeconomics is to microeconomics what ________ is to ________. a. cosmology; particle physics d. chemistry; organic chemistry b. particle physics; cosmology e. biology; zoology c. physics; biology ANS: A DIF: Easy REF: 1.1 TOP: I. MSC: Applying 4. Which of the following does macroeconomics endeavor to answer? i. Why is the typical person in the United States today more than 10 times richer than the typical person a century ago? ii. Why has the unemployment rate been nearly twice as high in Europe as in the United States in recent years? iii. What determines the rate of inflation? What determines how rapidly the overall price level in an economy increases? a. i only d. i and ii b. i, ii, and iii e. ii and iii c. ii only ANS: B DIF: Moderate REF: 1.1 TOP: I. MSC: Applying 5. Which of the following does macroeconomics NOT endeavor to answer? i. Why is the typical person in the United States today more than 10 times richer than the typical person a century ago? ii. Why has the unemployment rate been nearly twice as high in Europe as in the United States in recent years? iii. Why has the price of orange juice risen sharply? a. ii and iii d. i, ii, and iii b. i only e. iii only c. ii only ANS: E DIF: Moderate REF: 1.1 TOP: I. MSC: Applying 6. Which of the following does macroeconomics endeavor to answer? i. What role does the government play in recessions, booms, and determining the rate of inflation? ii. What causes an increase in the price of Exxon stock? iii. How does a dairy farmer react to rising milk prices? a. i only d. i, ii, and iii b. ii only e. ii and iii c. iii only ANS: A DIF: Moderate REF: 1.2 TOP: II. MSC: Applying 7. Which of the following does macroeconomics endeavor to answer? i. How does a dairy farmer react to rising wheat prices? ii. What causes an increase in the price of Apple stock? iii. What are potential causes of financial crises? a. i only d. i, ii, and iii b. ii only e. ii and iii c. iii only ANS: C DIF: Moderate REF: 1.1 TOP: II. MSC: Applying 8. Which of the following does macroeconomics endeavor to answer? i. What role does the government play i n recessions, booms, and determining the rate of inflation? ii. What caused the currency crises in Mexico in the mid -1990s and in many Asian economies at the end of the 1990s? iii. How does a dairy farmer react to rising milk prices? a. iii only d. i, ii, and iii b. ii only e. i and iii c. i and ii ANS: C DIF: Moderate REF: 1.1 TOP: II. MSC: Applying 9. Which of the followi ng lists the four steps we use to study macroeconomic behavior in the correct order? a. (1) document the facts; (2) develop a model; (3) compare the predictions of the model to the original facts; and (4) use the model to make other predictions that may ev entually be tested b. (1) document the facts; (2) use the model to make other predictions that may eventually be tested; (3) compare the predictions of the model to the original facts; and (4) develop a model c. (1) compare the predictions of the model to the original facts; (2) develop a model; (3) document the facts; and (4) use the model to make other predictions that may eventually be tested d. (1) develop a model; (2) document the facts; (3) compare the pred ictions of the model to the original facts; and (4) use the model to make other predictions that may eventually be tested e. None of these answers is correct. ANS: A DIF: Easy REF: 1.2 TOP: II. MSC: Remembering 10. ________ are parameters to the m odel and generally are fixed over time, while ________ are the outcomes of the model. a. Shocks; parameters b. Endogenous variables; exogenous variables c. Endogenous variables; shocks d. Exogenous variables; endogenous variables e. Parameters; system variables ANS: D DIF: Easy REF: 1.2 TOP: II. MSC: Remembering 11. Which of the following questions should a successful model predict? i. How do changes in government policies change the labor market? ii. How does money supply influence inflation? iii. How does investment affect economic growth? a. ii only d. i and ii b. i, ii, and iii e. i and iii c. iii only ANS: B DIF: Moderate REF: 1.2 TOP: II. MSC: Applying 12. Which of the following questions should a successful model predict? i. How do changes in government policies change the labor market? ii. How does money supply influence inflation? iii. What is the relationship between inflation and unemployment? a. iii only d. i and ii b. ii only e. i and iii c. i, ii, and iii ANS: C DIF: Moderate REF: 1.2 TOP: II. MSC: Applying 13. Which of the following questions should a successful model predict? i. Why, in general, do Americans have higher incomes than Africans? ii. How much less unemployment is there during an economic expansion? iii. Why does the United States have a lower unemployment rate than Europe? a. i and ii d. i, ii, and iii b. ii only e. i and iii c. iii only ANS: D DIF: Moderate REF: 1.2 TOP: II. MSC: Applying 14. Consider the following model of the labor market: Labor supply: Labor demand: The endogenous variables are: a. and . b. and the equilibrium wage, w. c. and the equilibrium wage, w. d. the equilibrium quantity of labor, L*, and wage, w*. e. and the equilibrium quantity of labor, L. ANS: D DIF: Difficult REF: 1.2 TOP: II. MSC: Applying 15. Consider the following model of the labor market: Labor supply: Labor demand: The values of the equilibrium quantity of labor, L, and wage, w, are: a. . b. . c. . d. . e. . ANS: A DIF: Difficult REF: 1.2 TOP: II. MSC: Applying 16. Consider the following model of the labor market: Labor supply: Labor demand: The value of the equilibrium quantity of labor, L, and wage, w, are: a. = 44/5; = 1/5. d. = 6; = 6. b. = 5; = 6. e. Not enough information is given. c. = 6; = 5. ANS: C DIF: Difficult REF: 1.2 TOP: II. MSC: Applying 17. Income per person began at ________ in 1870 and ________ over a factor of 15 to ________ in 2012. a. $2,500; rose; $35,000 d. $44,000; fell; $3,500 b. $2,800; rose; $58,000 e. $40,000; fell; $2,500 c. $2,800; rose; $100,000 ANS: B DIF: Easy REF: 1.3 TOP: III.A. MSC: Remembering 18. Actual gross domestic product (GDP) is ________ equal to potential GDP. a. rarely not d. rarely b. always e. Not enough information is given. c. always not ANS: D DIF: Easy REF: 1.3 TOP: III.A. | III.B. MSC: Understanding 19. When we look at the ________ run, we are concerned with the ________. a. short; causes of economic fluctuations b. long; causes of economic fluctuations c. short; determinants of economic growth d. long; causes of inflation e. long; money supply ANS: A DIF: Easy REF: 1.3 TOP: III.A. | III.B. MSC: Understanding 20. When we look at the ________ run, we are concerned with ________. a. long; the money supply b. long; the causes of economic fluctuations c. long; the causes of economic growth d. long; the causes of inflation e. long; unemployment ANS: C DIF: Easy REF: 1.3 TOP: III.A. MSC: Understanding 21. The short run is concerned with ________, while the long run is concerned with ________. a. inflation; unemployment b. the causes of economic fluctuations; inflation c. the causes of economic fluctuations; the determinants of economic growth d. the determinants of economic growth; the causes of economic fluctuations e. the causes of economic fluctuations; the money supply ANS: C DIF: Easy REF: 1.3 TOP: III.B. MSC: Understanding TRUE/FALSE 1. Macroeconomics is the study of an individual market. ANS: F DIF: Easy REF: 1.1 TOP: I. MSC: Remembering NOT: It is the study of the overall performance of an economy. 2. These four steps, in the following order, are used to study macroeconomic behavior: (1) document the facts; (2) develop a model; (3) compare the predictions of the model to the original fact s; and (4) use the model to make other predictions that eventually may be tested. ANS: T DIF: Easy REF: 1.2 TOP: II. MSC: Applying 3. These four steps, in the following order, are used to study macroeconomic behavior: (1) document the facts; (2) use the model to make other predictions that may eventually be tested; (3) compare the predictions of the model to the original facts; and (4) develop a model. ANS: F DIF: Easy REF: 1.2 TOP: II. MSC: Applying NOT: They are (1) document the facts; (2) develop a model; (3) compare the predictions of the model to the original facts; and (4) use the model to make other predictions that eventually may be tested. 4. A main concern of long -run macroeconomics is the causes of economic growth. ANS: T DIF: Easy REF: 1.3 TOP: III.A. MSC: Applying 5. A main concern of long -run macroeconomics is the causes of economic fluctuations. ANS: F DIF: Easy REF: 1.3 TOP: III.A. MSC: Understanding NOT: We are concerned with economic growth. 6. A main concern of short -run macroeconomics is the causes of econo mic fluctuations and how to fix them. ANS: T DIF: Moderate REF: 1.3 TOP: III.B. MSC: Applying 7. A main concern of short -run macroeconomics is the causes of economic growth. ANS: F DIF: Easy REF: 1.3 TOP: III.B. MSC: Understanding NOT: We are concer ned with the causes of economic fluctuations. 8. An economic model is an exact replica of the economy. ANS: F DIF: Moderate REF: 1.2 TOP: II. MSC: Analyzing NOT: It is a very simplified version of the economy that gives us insight into how the economy functions. 9. An endogenous variable is often called a parameter. ANS: F DIF: Moderate REF: 1.2 TOP: II. MSC: Understanding NOT: It is a variable that is predic ted by the model; the parameter is chosen by the economist. 10. An exogenous variable is one that is taken as given (what the text refers to as parameters). ANS: T DIF: Easy REF: 1.2 TOP: II. MSC: Remembering SHORT ANSWER 1. What are at least four of the main concerns of the study of macroeconomics? ANS: Here are a handful of options: (a) Why does the average person today have 10 times more income than the typical person 100 years ago? (b) What determines the rate of infla tion, and how do we control it? (c) How can we minimize the number of people unemployed? (d) What role, if any, does the government and/or central bank have in promoting economic well-being? (e) Why do unemployment rates differ across countries? (f) Wh y are some countries richer than others, and how can we promote development in lower -income countries? (g) What are the causes, and fixes, for economic crises? DIF: Moderate REF: 1.1 TOP: I. MSC: Understanding 2. What are the steps macroeconomists use to analyze the economy? ANS: (a) Document the facts; (b) Develop a framework for analysis (a model); (c) Test the model using empirical analysis or some other comparable analysis and compare to the observed fact s; and (d) Use the model to make other predictions that may eventually be tested DIF: Easy REF: 1.2 TOP: II. MSC: Remembering 3. Describe the differences between the short run and the long run. ANS: In the short run, we are concerned with the causes of economic fluctuations, or the business cycle. In the long run, we are concerned with the determinants of economic growth. Thus, the long run is the trend of output, and the short run represents the fluctuations around the trend. DIF: Moderate REF: 1.3 TOP: III.A. | III.B. MSC: Understanding 4. Consider the following model of the labor market: Labor Supply: Labor Demand: (a) Identify the model’s parameters. (b) Identify the endogenous variables. (c) Solve the model. (d) What must the relationship between and be? (e) If the supply and demand for labor were given as and what are the equilibrium wage and labor force? ANS: (a) Using the notation in the text, the parameters are and . (b) They are the wage, w, and the labor in the market, L. (c) Setting supply equal to demand, we get Solving this for w* and L*, we get . (d) To ensure the wage is positive, it must be that . (e) Using the above equation we get = 1/5 and = 12/5. DIF: Difficult REF: 1.2 TOP: II. MSC: Applying CHAPTER 2: Measuring the Macroeconomy MULTIPLE CHOICE 1. Who led the team that created the original National Income and Product Accounts in the 1930s? a. John M. Keynes d. Simon Kuznets b. Paul A. Samuelson e. Milton Friedman c. William D. Nordhaus ANS: D DIF: Easy REF: 2.1 TOP: I. MSC: Remembering 2. Which measure of overall economic activity was NOT available in the 1930s? a. stock prices d. steel production b. GDP e. gold prices c. industrial production ANS: B DIF: Easy REF: 2.1 TOP: I. MSC: Understanding 3. The National Income and Product Accounts provides a system for aggregating the production of: a. all goods and services into a single measure of economic activity. b. all goods into a single measure of economic activity. c. all services into a single measure of economic activity. d. most goods and services into a single measure of economic activity . e. all goods and services into two measures of economic activity. ANS: A DIF: Easy REF: 2.1 TOP: I. MSC: Understanding 4. In 2015, U.S. national output was equal to about: a. $17.9 billion. d. $13.1 trillion. b. $17.9 trillion. e. $13.1 million. c. $13.1 billion. ANS: B DIF: Easy REF: 2.2 TOP: II. MSC: Remembering 5. In 2015, U.S. national output per person was equal to about: a. $15.7 billion. d. $12,000. b. $43,000. e. $80,000. c. $56,000. ANS: C DIF: Easy REF: 2.2 TOP: II. MSC: Remembering 6. The National Income and Product Accounts allows us to relate ________ to ________ to ________. a. household income; government income; firm income b. total output; total spending; inflation c. total output; inflation; total income d. household income; household expenditure; total output e. total output; total spending; total income ANS: E DIF: Easy REF: 2.2 TOP: II.A. MSC: Applying 7. The National Income and Product Accounts identity states: a. Expenditure = Production + Income. d. Expenditure = Production − Income. b. Production = Expenditure − Income. e. Production = Expenditure = Income. c. Production = Expenditure + Income. ANS: E DIF: Easy REF: 2.2 TOP: II.A. MSC: Applying 8. The difference between economic profits and normal profits is that: a. normal profits are earnings based on the normal competitive payments to the factors used in production; economic profits are the above -normal returns associated with prices that exceed competitive prices. b. economic profits are earnings based on the norm al competitive payments to the factors used in production; normal profits are the above -normal returns associated with prices that exceed competitive prices. c. normal profits are earnings based on the normal competitive payments to the factors used in production; economic profits are the above -normal returns associated with prices that exceed monopolistic prices. d. economic profits are earnings based on the noncompetitive payments to the factors used in production; normal profits are the above -normal re turns associated with prices that exceed competitive prices. e. None of these answers is correct. ANS: A DIF: Moderate REF: 2.2 TOP: II.A. MSC: Understanding 9. Goods that are produced in a different year than they are sold are called: a. inventory. d. a loss. b. output adjustment. e. net national product. c. capital depreciation. ANS: A DIF: Moderate REF: 2.2 TOP: II.A. MSC: Remembering 10. The statistic used by economists to measure the value of economic output is: a. the unemployment rate. d. the GDP deflator. b. GDP. e. the federal funds rate. c. the CPI. ANS: B DIF: Easy REF: 2.2 TOP: II. MSC: Understanding 11. An economy’s ________ is/are equal to its ________. a. consumption; income b. expenditure on goods and services; output c. expenditure on goods; expenditure on services d. investment; government expenditures e. taxes; net exports ANS: B DIF: Easy REF: 2.2 TOP: II.A. MSC: Understanding 12. According to the expenditure approach, if Y is GDP, C is consumption, I is investment, G is government purchases, and NX is net exports, the national income identity can be written as: a. . d. . b. . e. . c. . ANS: E DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 13. According to the expenditure approach, if Y is GDP, C is consumption, I is investment, G is government purchases, and NX is net exports, the national income identity can be written as: a. . d. . b. . e. . c. . ANS: C DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 14. According to the expenditure approach, if Y is GDP, C is consumption, I is investment, G is government purchases, and NX is net exports, which of the following is the national income identity? a. d. b. e. c. ANS: B DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering Refer to the following table when answering the following questions. Table 2.1: U.S. 2010 and 2015 Expenditures ($ billions) 2010 2015 Personal consumption expenditures 10,202 12,284 Goods 3,363 4,012 Services 6,839 8,272 Gross private domestic investment 2,101 3,057 Fixed investment 2,039 2,963 Nonresidential 1,658 2,311 Residential 381 652 Change in private inventories 62 93 Net exports of goods and services –513 –522 Exports 1,852 2,264 Imports 2,365 2,786 Government consumption 3,174 3,218 Federal 1,304 1,225 State and local 1,870 1,993 15. Consider Table 2.1. Total GDP in 2010 was about ________ billion. a. $16,520 d. $36,698 b. $14,964 e. $15,459 c. $11,790 ANS: B DIF: Moderate REF: 2.2 TOP: II.B. MSC: Applying 16. Consider Table 2.1. Total GDP in 2015 was about ________ billion. a. $44,609 d. $18,037 b. $18,830 e. $20,391 c. $14,818 ANS: D DIF: Moderate REF: 2.2 TOP: II.B. MSC: Applying 17. Consider Table 2.1. The federal government’s share of total GDP in 2010 was about ________ percent, and in 2015 it was ________ percent. a. 12; 11 d. 9; 7 b. 31; 29 e. 21; 18 c. 33; 34 ANS: D DIF: Moderate REF: 2.2 TOP: II.B. MSC: Applying 18. Consider Table 2.1. The household’s share of total investment in 2010 was about ________ percent, and in 2015 it was ________ percent. a. 18; 21 d. 4; 4 b. 97; 98 e. Not enough information is given. c. 79; 81 ANS: A DIF: Moderate REF: 2.2 TOP: II.B. MSC: Applying 19. Household consumption as a share of GDP ________ and investment’s share ________ between 2010 and 2015. a. decreased; increased d. increased; decreased b. stayed the same; increased e. stayed the same; stayed the same c. decreased; stayed the same ANS: B DIF: Difficult REF: 2.2 TOP: II.B. MSC: Applying 20. Government consumption as a share of GDP ________ and investment’s share ________ between 2010 and 2015. a. decreased; increased d. increased; decreased b. stayed the same; increased e. stayed the same; stayed the same c. decreased; stayed the same ANS: A DIF: Difficult REF: 2.2 TOP: II.B. MSC: Applying 21. In 2015, household expenditures accounted for about ________ percent of total GDP. a. 50 d. 76 b. 68 e. 13 c. 45 ANS: B DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 22. In 2015, investment expenditures accounted for about ________ percent of total GDP. a. 71 d. 10 b. −3.5 e. 15 c. 17 ANS: C DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 23. In 2015, government expenditures accounted for about ________ percent of total GDP. a. 5 d. 13 b. −4 e. 18 c. 66 ANS: E DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 24. In 2015, net exports accounted for about ________ percent of total GDP. a. −3 d. 100 b. 13 e. −14 c. 20 ANS: A DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 25. Net exports are also called: a. capital outflows. d. foreign aid. b. the trade balance. e. government transfers. c. the current account. ANS: B DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 26. Using the expenditure approach, government expenditures include: a. defense and nondefense federal, state, and local government expenditures. b. only nondefense federal government expenditures. c. federal government expenditures and transfer payments. d. only state and local government expenditures. e. residential inve stment and state and local government expenditures. ANS: A DIF: Moderate REF: 2.2 TOP: II.B. MSC: Understanding 27. In 2015, government transfer payments accounted for about ________ of government spending. a. one-half d. three -fifths b. one-third e. 100 percent c. 68 percent ANS: A DIF: Moderate REF: 2.2 TOP: II.B. MSC: Applying 28. Using the expenditure approach, consumption expenditures include household purchases of: a. durable and nondurable goods and services. b. durable and nondurable goods. c. durable and nondurable goods and taxes. d. durable and nondurable goods and reside nces. e. nondurable goods. ANS: A DIF: Moderate REF: 2.2 TOP: II.B. MSC: Understanding 29. Using the expenditure approach, investment includes: a. household residential expenditures. b. firm structures, equipment, and inventories. c. fixed firm and household structures, equipment, and inventories. d. government and firm equipment expenditures. e. government defense and firm equipment expenditures. ANS: C DIF: Moderate REF: 2.2 TOP: II.B. MSC: Understanding 30. Which of the following is/are NOT included in the expenditure approach to national income accounting? a. transfer payments d. changes in stock prices b. taxes e. None of these answers is correct. c. Social Security ANS: E DIF: Moderate REF: 2.2 TOP: II.B. MSC: Applying 31. Which of the following are included in the expenditure approach to national income accounting? a. defense expenditures d. household service expenditures b. firm expenditures on equipment e. All of these answers are correct. c. residential expenditures ANS: E DIF: Moderate REF: 2.2 TOP: II.B. MSC: Applying 32. In 2015, the U.S. GDP was about ________, and ________ was/were the largest share. a. $5 trillion; net exports b. $22.5 billion; government expenditures c. $10.5 trillion; investment d. $13.6 billion; consumption e. $17.9 trillion; consumption ANS: E DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 33. During the 1940s, ________ increased sharply as a percentage of U.S. GDP because of ________. a. government expenditure; World War II b. residential investment; the war on poverty c. nonresidential investment; the space program d. durable consumption expenditures; rationing of nondurable goods e. transfer payments; the New Deal ANS: A DIF: Easy REF: 2.2 TOP: II.B. MSC: Remembering 34. Which of the following is/are NOT included in the expenditure approach to national income accounting? a. software d. All of these answers are correct. b. taxes e. None of these answers is correct. c. defense expenditures ANS: B DIF: Moderate REF: 2.2 TOP: II.B. MSC: Applying 35. U.S. expenditure shares by households, firms, and the government were relatively ________ except during ________. a. constant; the 1970s d. constant; the Vietnam War b. variable; the Great Depression e. variable; the 1990s c. constant; World War II ANS: C DIF: Moderate REF: 2.2 TOP: II.C. MSC: Understanding 36. Since about ________, U.S. expenditure shares by households, firms, and the government have been relatively ________. a. 1939; constant b. the Great Depression era; constant c. 1950; variable d. 1950; constant e. 1945; constant ANS: D DIF: Moderate REF: 2.2 TOP: II.C. MSC: Understanding 37. According to the text, the gains in GDP’s consumption share have: a. caused a rapid decline in inventories. b. driven investment below 10 percent. c. no impact on net exports. d. been at a cost to net exports and government spending. e. also pushed up the government expenditure share. ANS: D DIF: Moderate REF: 2.2 TOP: II.C. MSC: Understanding 38. Prior to the late 1970s, the United States ________ about as much as it ________. a. exported; consumed d. invested; exported b. exported; imported e. imported; invested c. imported; consumed ANS: B DIF: Moderate REF: 2.2 TOP: II.C. MSC: Understanding 39. According to the income approach to GDP, the largest percentage of GDP comes from: a. indirect business taxes. d. depreciation of fixed capital. b. firm profits. e. None of these answers is correct. c. compensation to employees. ANS: C DIF: Easy REF: 2.2 TOP: II.C. MSC: Understanding Refer to the following table when answering the following questions. Table 2.2: U.S. 2014 –2015 Domestic Income ($ billions) 2014 2015 Compensation of employees, paid 9,264 9,704 Wages and salaries 7,487 7,866