a) the profit maximizing decisions of an individual manufacturer. b) economic growth. c) the rate of inflation. d) the rate of unemployment. Question 2. When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being: a) low inflation b) balanced budget c) prudent monetary policy d) assuring competition between firms Question 3. If macroeconomics looks at the economy as a whole, it focuses on which of the following? a) the division of labor b) households c) business firms d) unemployed people Question 4. In the ______________, households receive goods and services and pay firms for them. a) goods and services market b) labor market c) financial capital market d) savings market Question 5. Which of the following is included in the calculated Gross Domestic Product? a) Farmer Freddie sells his second tractor to his son. b) Suzanne buys a love seat and chair for $85 at the yard sale on the corner. c) A local ice cream store sells $17,000 worth of cones and sundaes on July 1. d) Mr. Farkle buys a used lawn mower from his neighbor, Mr. Sparkle. Question 6. _______________, which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country. a) Inflation b) Trade balance c) Economic growth d) Education Question 7. GDP does not directly include: a) the value of final goods and services produced, but not sold, during a period. b) the value of services rendered during a period. c) the value of intermediate goods sold during a period. d) the value of goods produced domestically and sold abroad. Question 8. A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are: a) expansion, trough, recession, peak b) trough, expansion, recession, peak c) contraction, recession, expansion, boom d) expansion, peak, recession, trough Question 9. Ethiopia has a GDP of $8 billion (measured in U.S. dollars) and a population of 55 million. Costa Rica has a GDP of $9 billion (measured in U.S. dollars) and a population of 4 million. Calculate per capita GDP for each country. a) Ethiopia = $145.00 Costa Rica = $2250.00 b) Ethiopia = $1450.00 Costa Rica = $22,500.00 c) Ethiopia = $14.50 Costa Rica = $225.00 d) Ethiopia = $14.50 Costa Rica = $2250.00 Question 10. Country Able and Country Baker initially have the same real GDP per capita. Country Able experiences no economic growth, while Country Baker grows at a sustained rate of 7 percent. In 12 years, Country Baker's GDP will be approximately ___________ that of Country Able. a) one-half b) one-fourth c) triple d) double Question 11. Increased investment alone will guarantee economic growth. a) This is a true statement, because growth occurs only with savings. b) This is a false statement, because economic growth hinges on the quality and type of investment as well as the human capital and improvements in technology. c) This is a false statement, because an economy must rely on capital injections from abroad. d)  This is a true statement, because money is the only resource needed for growth. Question 12. Some recent economic research has suggested that African countries' economic growth may have been limited by __________________ . a) population b) geography and climate c) government interventionism d) technological challenges Question 13. A nation's prosperity is sometimes measured in terms of ___________. a) GNP Correct Response b) GDP per capita c) GDP d) economic output Question 14. A university student who is enrolled in school fulltime and not seeking employment is considered: a) underemployed. b) unemployable, and not counted in official statistics. c) out of the labor force. d) employed in leisure. Question 15. The unemployment rate may overestimate the true extent of unemployment if: a) many part-time employees would like to work fulltime, but are unable to get the additional work. b) many people who claim to be unemployed actually work in the underground economy. c) people falsely claim that they are actively seeking work in order to receive unemployment benefits. d) either B) or C) occurs. Question 16. A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be: a) structurally unemployed. b) underemployed. c) cyclically unemployed. d) frictionally unemployed. Question 17. The effect of substitution bias is that the rise in the price of a fixed basket of goods over time tends to ___________________ the rise in a consumer’s true cost of living, because it doesn’t take into account that the person can substitute between goods according to changes in their relative prices. a) overstate b) stabilize c) reduce d) understate Question 18. When a price, wage, or interest rate is adjusted automatically with inflation, it is said to be __________. a) COLAed b) indexed c) semi-indexed d) nominally adjusted Question 19. Alex wants to measure the nominal 1998 GDP of $993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be? a) $2,063 billion b) $835 billion c) $430 billion d) $2,449 billion Question 20. If the price index moves from 107 to 110, the rate of inflation is: a) 30% b) 2.8% c) 3% d) 28% Quiz 2 Question 1. The _____________ holds that a rise in price level will make domestic goods relatively more expensive, ____________ exports and _______________ imports. a) employment effect; discouraging; encouraging b) interest rate effect; encouraging; discouraging c) wealth effect; encouraging; discouraging d) foreign price effect; discouraging; encouraging Question 2. If Keynes’ law applies during economic contractions and Say’s law applies during economic expansion, how will the three goals of macroeconomics be affected? a) the economy will face genuine limits to how much can be produced b) institutional and market structures will connect factors of production c) trade-offs and connections may differ in the short run and the long run d) determinates of total supply for the economy will be traded-off Question 3. If the price level of what firms produce is rising across an economy, but the costs of production are constant, then: a) the maximum potential GDP will be exceeded. b) higher profits will induce expanded production. c) increase in quantity produced won't be large. d) a majority of industries will start running into limits. Question 4. What term is used to describe the maximum quantity that an economy can produce, in the context of its existing inputs, market and legal institutions? a) potential GDP b) AS curve c) aggregate supply d) GDP deflator Question 5. Referring to the above diagram, which of the following is a true statement? a) Macroeconomic policy will be needed to address rising inflation. b) The equilibrium in the economy is at a level of output above full employment. c) There is sufficient aggregate demand to cause inflationary pressures. d) There is insufficient aggregate demand to reach full employment. Question 6. The equilibrium quantity of labor and the equilibrium wage level decrease when: a) labor demand shifts to the right, if wages are flexible. b) labor supply shifts to the left, if wages are flexible. c) labor demand shifts to the left, if wages are flexible. d) labor supply shifts to the right, if wages are flexible. Question 7. According to the Keynesian framework, ________________________ may cause a recession, but not inflation. a) a major trading partner's economic slowdown b) a decrease in interest rates c) a decrease in a major trading partners export prices d) an increase in domestic investment Question 8. The equilibrium quantity of labor and the equilibrium wage increase when: a) labor supply shifts to the right, if wages are flexible. b) labor supply shifts to the left, if wages are flexible. c) labor demand shifts to the left, if wages are flexible. d) labor demand shifts to the right, if wages are flexible. Question 9. Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed? a) 141.70 b) 147.62 c) 147.48 d) 144.41 Question 10. Refer to the graph shown below. This graph illustrates a: a) Phillips Curve. b) Keneyesian Curve. c) Neoclassical Curve. d) Labor Demand Curve. Question 11. If Evelyn uses her debit card to buy an iPod, then the money to pay the retailer will come from: a) the debit card company's M1 funds. b) the debit card company's M2 funds. c) her M2 funds. d) her M1 funds. Question 12. If the central bank decreases the amount of reserves banks are required to hold from 20% to 10%, then: a) both the money multiplier and the supply of money in the economy will decrease. b) both the money multiplier and the supply of money in the economy will increase. c) the money multiplier will increase and the supply of money in the economy will decrease. d) the money multiplier will decrease and the supply of money in the economy will increase. Question 13. If Brent uses his credit card to purchase a new television, then the money to pay the retailer is taken from: a) his M1 funds. b) his M2 funds. c) the credit card company's M1 funds. d) the credit card company's M2 funds. Question 14. Stealth bank has deposits of $700 million. It holds reserves of $20 million and has purchased government bonds worth $350 million. The banks loans, if sold at current market value, would be worth $600 million. What is the total value of Stealth bank’s assets? a) $1.7 billion b) $470 million c) $1.3 billion d) $970 million Question 15. When a shift in ________________ occurs, rational expectations hold that its impact on output and employment will only be temporary. a) wage levels b) aggregate demand c) price levels d) aggregate supply Question 16. Why do neoclassical economists tend to put relatively more emphasis on long-term growth than on fighting recession? a) government focuses more on recession and cyclical unemployment b) upward trend of potential GDP determines the rate of inflation c) standard of living is ultimately determined by long-term growth d) price and wage stickiness is reasonable in the short run Question 17. The central bank requires Southern to hold 10% of deposits as reserves. Southern Bank's policy prohibits it from holding excess reserves. If the central bank sells $25 million in bonds to Southern Bank which of the following will result? a) the money supply in the economy decreases b) decrease in Southern's bond assets by $25 million c) increase in Southern's loan assets of $25 million d) Southern's net worth increases by $25 million Question 18. When the central bank lowers the reserve requirement on deposits: a) the money supply and interest rates increase. b) the money supply decreases and interest rates increase. c) the money supply and interest rates decrease. d) the money supply increases and interest rates decrease. Question 19. When a Central Bank takes action to decrease the money supply and increase the interest rate, it is following: a) a expansionary monetary policy. b) a contractionary monetary policy. c) a loose monetary policy. d) a quantitative easing policy. Chapter 15 problems Question 20. If the economy is at equilibrium as shown in the diagram above, then an expansionary monetary policy will: a)  reduce both unemployment and inflation. b) reduce unemployment, but increase inflation. c) reduce unemployment, but have little effect on inflation. d) have no effect on both unemployment and inflation.