Ch5 Macroeconomics The Big Picture Exam Prep - Principles of Macroeconomics -Complete Test Bank by Taylor. DOCX document preview.
Chapter 5
Macroeconomics: The Big Picture
Multiple Choice
- Between the early 1980s and 2006, the U.S. economy was in a period of
a. | steady economic growth, and low inflation and unemployment. |
b. | high inflation, unemployment and economic volatility. |
c. | an economic depression of high unemployment and deflation. |
d. | stagnation with no economic growth but stable prices. |
OBJ: factual
SEC: 0. Macroeconomics: The Big Picture
TOP: Recent Economic Fluctuations
MSC: Bloom's: Knowledge
2. According to the textbook, which of the following is one of the most important developments of the 1980-2006 period?
a. | A period called the Great Moderation |
b. | The end of the World Trade Organization |
c. | The dissolution of the European Union |
d. | The beginning of the Great Depression |
OBJ: factual
SEC: 0. Macroeconomics: The Big Picture
TOP: Recent Economic Fluctuations
MSC: Bloom's: Knowledge
3. According to the textbook, which of the following is one of the most important developments of the period between 2007 and 2009?
a. | The rapid economic growth of countries in the European Monetary Union |
b. | The Great Recession occurred in the United States |
c. | The dissolution of the Federal Reserve as the central bank of the United States |
d. | The Great Depression as a global phenomenon |
OBJ: factual
SEC: 0. Macroeconomics: The Big Picture
TOP: Recent Economic Fluctuations
MSC: Bloom's: Knowledge
4. The field of economics that studies the whole market economy is known as
a. | microeconomics. |
b. | market economics. |
c. | macroeconomics. |
d. | global economics. |
OBJ: conceptual
SEC: 0. Macroeconomics: The Big Picture
TOP: Macroeconomics
MSC: Bloom's: Knowledge
5. Which of the following trends were not observed in the 1980-2006 period?
a. | China saw production per capita of its citizens increase significantly. |
b. | India saw production per capita of its citizens increase significantly. |
c. | Sub-Saharan African countries experienced a dramatic expansion of their economies. |
d. | After the recession in 1981-1982, the United States experienced two decades of almost continuous economic growth, with only minor recessions. |
OBJ: factual
SEC: 0. Macroeconomics: The Big Picture
TOP: U.S. Economic Growth;
MSC: Bloom's: Knowledge | AACSB: Analytic
/
- The Great Recession and other economic developments in the United States between 2007 and 2016 were isolated, so they were not shared by other industrial nations in Europe.
Basic
OBJ: factual
SEC: 0. Macroeconomics: The Big Picture
TOP: Recent Economic Fluctuations
MSC: Bloom's: Knowledge
- The economy of the United States was increasingly less stable in the period of 1980-2006, with economic fluctuations at the end of the 1990s that were much larger than those experienced during the rest of the twentieth century.
Basic
OBJ: factual
SEC: 0. Macroeconomics: The Big Picture
TOP: Recent Economic Fluctuations
MSC: Bloom's: Knowledge
Multiple Choice
- GDP is
a. | a term used for economic growth. |
b. | a measure of the economy's potential. |
c. | another term for inflation. |
d. | a measure of the total value of all goods and services produced in a country during a specific period of time. |
e. | the total value of all goods and services produced during a specific period of time adjusted for the general increase in prices. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: GDP
MSC: Bloom's: Knowledge
9. The long-run upward trend in real GDP is called
a. | the business cycle. |
b. | inflation. |
c. | recession. |
d. | economic growth. |
e. | economic fluctuations. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Real GDP
MSC: Bloom's: Knowledge
10. The adjective real, in the term real GDP, is used to indicate that
a. | it is the perfect measure of what is produced. |
b. | this measure of output is official as opposed to an unofficial measure. |
c. | this measure of output is adjusted for the general increase in prices over time. |
d. | this measure of output is adjusted for the government's economic involvement. |
e. | it measures only real goods and services, not the value of those that can't be measured, such as a home-cooked meal. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Real GDP
MSC: Bloom's: Knowledge
/
- Economic growth and economic fluctuations can occur simultaneously.
Basic
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: GDP
MSC: Bloom's: Knowledge
- GDP is the total value of all goods and services newly produced in the economy during a specified period of time, adjusted for inflation.
Moderate
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: GDP
MSC: Bloom's: Knowledge | AACSB: Analytic
Multiple Choice
Which of the following is the best measure of how individuals benefit from economic growth?
a. | The rate of increase in GDP per capita |
b. | The rate of increase in GDP |
c. | The rate of increase in real GDP per capita |
d. | The rate of inflation |
e. | The rate of increase in real GDP |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Real GDP Per Capita
MSC: Bloom's: Analysis | AACSB: Analytic
14. The term per capita refers to
a. | the rate of change. |
b. | the rate of inflation. |
c. | the population. |
d. | the price level. |
e. | the name of the country. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Real GDP Per Capita
MSC: Bloom's: Knowledge
15. The average annual growth rate of the U.S. economy over the past 50 years has been about
a. | 0 percent. |
b. | 10 percent. |
c. | 15 percent. |
d. | 3 percent. |
e. | 3 percent. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: The Economic Growth Record
MSC: Bloom's: Knowledge
16. The increase in U.S. production over the past 50 years
a. | equals Japan's increase in production over the same period of time. |
b. | equals Germany's increase in production over the same period of time. |
c. | is less than the increase in production in either Germany or Japan. |
d. | is larger than the sum of Germany's and Japan's current real GDP. |
e. | equals the sum of both Japan's and Germany's increase in production over the same period of time. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: The Economic Growth Record
MSC: Bloom's: Knowledge | AACSB: Analytic
17. Over the past 50 years, the U.S. population
a. | declined by about 90 million people. |
b. | increased by slightly over 120 million people. |
c. | declined by about 10 million people. |
d. | increased by about 10 million people. |
e. | increased by over 500 million people. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: The Economic Growth Record
MSC: Bloom's: Knowledge
18. Because of the increase in population over the past 50 years,
a. | the rate of increase in real GDP per capita has been greater than the rate of increase in real GDP. |
b. | real GDP has grown at a slower rate than GDP. |
c. | the rate of increase in real GDP per capita has been less than the rate of increase in real GDP. |
d. | there has been no growth in real GDP. |
e. | the rate of increase in real GDP has been greater than the rate of increase in GDP. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: The Economic Growth Record
MSC: Bloom's: Knowledge | AACSB: Analytic
19. Over the past 50 years, the average rate of increase in U.S. real GDP per capita has been about
a. | 5 percent. |
b. | 0 percent. |
c. | 13 percent. |
d. | 3 percent. |
e. | 2 percent. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: The Economic Growth Record
MSC: Bloom's: Knowledge | AACSB: Analytic
20. Suppose a country’s real GDP increased 3 percent between 2016 and 2017, while its population increased 2 percent. Between 2016 and 2017, real GDP per capita of this country
a. | increased by 5 percent. |
b. | increased by 1percent. |
c. | decreased by 5 percent. |
d. | decreased by 1 percent. |
e. | remained the same. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: The Economic Growth
MSC: Bloom's: Knowledge | AACSB: Analytic
21. The increase in real GDP per capita over the past 50 years is closest to
a. | $1,000. |
b. | $3 trillion. |
c. | $30,000. |
d. | $100,000. |
e. | $3,000. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: The Economic Growth Record
MSC: Bloom's: Knowledge
22. Over the past 50 years, real GDP per capita has roughly
a. | stayed the same. |
b. | tripled. |
c. | increased by 50 percent. |
d. | doubled. |
e. | declined by 50 percent. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: The Economic Growth Record
MSC: Bloom's: Knowledge | AACSB: Analytic
23. If real GDP and population are both growing at a positive rate,
a. | real GDP must be growing slower than real GDP per capita. |
b. | real GDP must be growing faster than real GDP per capita. |
c. | real GDP per capita must be increasing. |
d. | real GDP per capita must be decreasing. |
e. | None of these |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Growth
MSC: Bloom's: Analysis | AACSB: Analytic
24. If real GDP is growing at a slower rate than the growth rate of population,
a. | real GDP must be growing more slowly than real GDP per capita. |
b. | real GDP must be growing faster than real GDP per capita. |
c. | real GDP per capita must be negative. |
d. | real GDP per capita must be increasing. |
e. | None of these |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Growth
MSC: Bloom's: Analysis | AACSB: Analytic
25. Which of the following statements is ?
a. | If real GDP grows faster than population, the real GDP per capita will decrease. |
b. | If real GDP grows slower than population, the real GDP per capita will increase. |
c. | If real GDP and population grow at the same rate, the real GDP per capita will remain constant. |
d. | None of these |
e. | All of these |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Growth
MSC: Bloom's: Analysis | AACSB: Analytic
/
- When real GDP per capita is increasing, the standard of living is improving on average.
Basic
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Growth
MSC: Bloom's: Knowledge
- Everybody has benefited from the economic growth of the past 50 years.
Basic
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Growth
MSC: Bloom's: Knowledge
- Recessions in the United States have become less severe between 1980 and 2006.
Basic
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recent Economic Fluctuations
MSC: Bloom's: Knowledge
- If real GDP and population grow at the same rate, the real GDP per capita will decrease.
Moderate
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic growth
MSC: Bloom's: Analysis | AACSB: Analytic
- According to the text, the difference in real income per capita between the North and the South has widened in the 100 years after the Civil War.
Basic
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic growth
MSC: Bloom's: Knowledge
Multiple Choice
- The recession phase
a. | is no longer a phase of the business cycle. |
b. | has the same duration and depth in all business cycles. |
c. | varies in duration and depth with each business cycle. |
d. | has the same depth in all business cycles. |
e. | has the same duration in all business cycles. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recession MSC: Bloom's: Knowledge
32. A recession that is very severe is called
a. | monumental shift. |
b. | microeconomic collapse. |
c. | depression. |
d. | deflation. |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recession
MSC: Bloom's: Knowledge
33. As a rule of thumb, a recession is
a. | a fall in real GDP lasting at least one month. |
b. | a fall in real GDP lasting at least six months. |
c. | said to occur whenever real GDP falls below the long-term trend. |
d. | said to occur whenever real GDP falls below the long-term trend for at least one month. |
e. | a fall in real GDP lasting at least one year. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recession MSC: Bloom's: Knowledge
Exhibit 17-1
Real GDP
Year
A
B
C
D
E
growth trend
34. In Exhibit 17-1, the best example of a recession phase is
a. | from point A to point B. |
b. | from point A to point C. |
c. | from point B to point D. |
d. | from point C to point E. |
e. | from point E to point E. |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recession
MSC: Bloom's: Application | AACSB: Analytic
35. In Exhibit 17-1, the best example of an expansion phase is
a. | from point A to point B. |
b. | from point B to point E. |
c. | from point B to point C. |
d. | from point B to point D. |
e. | from point A to point E. |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Expansion Phase
MSC: Bloom's: Application | AACSB: Analytic
Exhibit 17-2
Date | Real GDP |
2006 | 1,3089 |
2007 | 1,3194 |
2008 | 1,3269 |
2009 | 1,3364 |
2010 | 1,3339 |
2011 | 1,3359 |
2012 | 1,3224 |
2013 | 1,2994 |
2014 | 1,2833 |
2015 | 1,2810 |
2016 | 1,2861 |
2017 | 1,3019 |
36. Based on the data in Exhibit 17-2, a recession occurred beginning in which year?
a. | 2006 |
b. | 2007 |
c. | 2008 |
d. | 2009 |
e. | 2010 |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recession
MSC: Bloom's: Application | AACSB: Analytic
37. Based on the data in Exhibit 17-2, the recession ended in which year?
a. | 2017 |
b. | 2016 |
c. | 2015 |
d. | 2014 |
e. | 2013 |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recession
MSC: Bloom's: Application | AACSB: Analytic
38. The most recent recession officially started in
a. | December 2007. |
b. | March 2001. |
c. | March 2012. |
d. | November 2006. |
e. | March 2016. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recent Recession
MSC: Bloom's: Knowledge
39. The Great Recession officially ended in
a. | December 2017. |
b. | April 2008. |
c. | June 2009. |
d. | August 2011. |
e. | None of these |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recent Recession
MSC: Bloom's: Knowledge
40. The economic downturn of 2008-2009 is commonly called
a. | the Great Depression. |
b. | the Great Moderation. |
c. | the Great Recession. |
d. | the Great Inflation. |
e. | None of these |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recent Recession
MSC: Bloom's: Knowledge
41. In terms of the decline in real GDP, the 2008-2009 recession was
a. | eight times less severe than the Great Depression. |
b. | eight times more severe than the Great Depression. |
c. | the same as the Great Depression. |
d. | 20 times more severe than the Great Depression. |
e. | None of these |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recent Recession
MSC: Bloom's: Knowledge
42. How long did the recent economic expansion last before the beginning of the Great Recession?
a. | About a year. |
b. | About two years. |
c. | About three years. |
d. | About 6 years. |
e. | About 20 years. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recent Recession
MSC: Bloom's: Knowledge
43. Which of the following statements is ?
a. | The economy returns to normal when a recession ends. |
b. | When a recession ends, most people feel the effects of an improving economy. |
c. | The most recent economic expansion lasted about 26 years. |
d. | A recession is not over until the unemployment rate begins to fall. |
e. | The most recent recession officially started in December 2007. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recent Recession
MSC: Bloom's: Knowledge | AACSB: Analytic
44. The term depression best describes
a. | all of the recessions occurring after World War II except for the 1990-1991 recession. |
b. | all of the recessions occurring after World War II including the 1990-1991 recession. |
c. | all of the recessions that have ever occurred. |
d. | the 1990-1991 recession. |
e. | the recessions that occurred in 1920-1921, 1929-1933, and 1937-1938. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Depressions
MSC: Bloom's: Knowledge | AACSB: Analytic
45. Which of the following best describes the behavior of real GDP in the United States?
a. | A long-term downward trend and more pronounced economic fluctuations in recent times |
b. | A long-term downward trend and less pronounced economic fluctuations in recent times |
c. | A long-term upward trend and more pronounced economic fluctuations in recent times |
d. | A long-term upward trend and less pronounced economic fluctuations in recent times |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Fluctuations
MSC: Bloom's: Knowledge | AACSB: Analytic
/
- Economists generally agree on the cause of the recession that began in 1990.
Moderate
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Fluctuations
MSC: Bloom's: Knowledge
- The most recent recession officially started in December 2009.
Moderate
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Fluctuations
MSC: Bloom's: Knowledge
- To say that a recession is over is the same as saying the economy has returned to normal.
Moderate
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Fluctuations
MSC: Bloom's: Knowledge | AACSB: Analytic
- After a recession, the economy usually takes several years to return to its pre-recession state.
Basic
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Fluctuations
MSC: Bloom's: Knowledge
- A decline in real GDP that lasts for at least a year is known as a recession.
Basic
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Fluctuations
MSC: Bloom's: Knowledge
Short Answer
- When examining a graph that plots real GDP over time, what two types of patterns occur?
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Real GDP
MSC: Bloom's: Knowledge
- Explain what real GDP measures.
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Real GDP
MSC: Bloom's: Comprehension
- When a recession is over, do people begin to immediately feel the effects of an improving economy? Use the experience of the most recent recession to justify your answer.
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Aftermath of a Recession
MSC: Bloom's: Analysis | AACSB: Analytic
- What is the difference between a recession and a depression? Have there been any depressions over the last 50 years? Justify your answer.
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Depressions
MSC: Bloom's: Knowledge | AACSB: Analytic
- Does it make a difference if the rate of growth in real GDP per capita changes by less than a percentage point? Justify your answer using evidence from U.S. experience.
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Growth
MSC: Bloom's: Analysis | AACSB: Analytic
- What is meant by a recession? As a rule of thumb, when is the economy considered to be in a recession?
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Recession
MSC: Bloom's: Knowledge
Exhibit 17-3
| X | Y | ||
2016 | 2017 | 2016 | 2017 | |
Real GDP | $144 billion | $157 billion | $396 billion | $430 billion |
Population | 59.4 million | 60.2 million | 44.4 million | 44.8 million |
- The data in Exhibit 17-3 shows the values of real GDP and population for two countries, X and Y, for the years 2016 and 2017. Which of these two countries experienced a faster increase in the standard of living between 2016 and 2017?
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Real GDP Per Capita
MSC: Bloom's: Application | AACSB: Analytic
Exhibit 17-4
Date | Real GDP (billions of dollars) | Real GDP Trend (billions of dollars) |
Mar 2015 | 572 | 564 |
Jun 2015 | 568 | 568 |
Sep 2015 | 576 | 572 |
Dec 2015 | 578 | 576 |
Mar 2016 | 574 | 580 |
Jun 2016 | 572 | 584 |
Sep 2016 | 571 | 588 |
Dec 2016 | 574 | 592 |
Mar 2017 | 588 | 596 |
Jun 2017 | 568 | 600 |
Sep 2017 | 592 | 604 |
Dec 2017 | 596 | 608 |
- The data in Exhibit 17-4 shows, for a certain country, real GDP and its growth trend from March of 2015 through December of 2017. Identify when the peak occurred, when the recession occurred, and when the economy reached its trough.
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Fluctuations
MSC: Bloom's: Application | AACSB: Analytic
Multiple Choice
- Over the last 50 years in the United States, the unemployment rate has
a. | remained a constant 5 percent. |
b. | averaged zero. |
c. | fluctuated but shown no clear upward or downward trend. |
d. | shown a steady upward trend. |
e. | shown a steady downward trend. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Analysis | AACSB: Analytic
- The unemployment rate
a. | is not related to the level of real GDP. |
b. | increases as real GDP decreases. |
c. | decreases as real GDP decreases. |
d. | increases as real GDP increases. |
e. | increases only if real GDP is below potential. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
- The unemployment rate
a. | has increased steadily over the last 40 years. |
b. | is never equal to zero. |
c. | is zero if the economy is in an expansion. |
d. | increases as real GDP increases. |
e. | is zero unless the economy is in a recession. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
- The unemployment rate is defined as
a. | the percentage of the population not working. |
b. | the percentage of the labor force not working full-time. |
c. | the number of people in the population who do not work. |
d. | the percentage of the labor force not working. |
e. | the number of people in the labor force who do not work. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Knowledge
- The labor force is
a. | those in the population who have a job. |
b. | the percentage of people in the population who have a job. |
c. | those in the population who have a full-time job. |
d. | that part of the population that is working or looking for a job. |
e. | the same as the population. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Labor Force
MSC: Bloom's: Knowledge
- During the Great Depression, the unemployment rate
a. | fell to 1 percent. |
b. | rose to 10.4 percent. |
c. | rose to over 25 percent. |
d. | fell to 0 percent. |
e. | rose to over 50 percent. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Knowledge
- The highest unemployment rate recorded in the United States since World War II is
a. | 42 percent. |
b. | 3 percent. |
c. | 10.4 percent. |
d. | 5 percent. |
e. | 19.1 percent. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
- Which of the following statements is about the most recent recessions in the U.S.?
a. | The unemployment rate began to fall as the economy went into recession. |
b. | The unemployment rate did not change during most recent recessions. |
c. | The most recent recessions reported unemployment rates that were significantly higher than those observed during the great depression. |
d. | The unemployment rate increased to over 20 percent during the most recent recessions. |
e. | None of these. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
- As the economy went into recession in 2008, the unemployment rate
a. | increased by about 3 percentage points. |
b. | increased by 15 percentage points. |
c. | fell by 5 percentage points. |
d. | fell by 1.5 percentage points. |
e. | did not change. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
- Which of the following statements is ?
a. | There is no relationship between real GDP and the unemployment rate over a business cycle. |
b. | During a business cycle, the unemployment rate declines at the same time real GDP declines. |
c. | During a business cycle, the unemployment rate increases at the same time real GDP declines. |
d. | During a business cycle, the unemployment rate increases at the same time real GDP increases. |
e. | During a business cycle, the unemployment rate increases only if real GDP is below potential GDP. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Analysis | AACSB: Analytic
/
- The unemployment rate in the United States is zero unless the economy is in a recession.
Moderate
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
Multiple Choice
- The average inflation rate in the United States in the 1990s was in the range of
a. | 2 to 3 percent. |
b. | 3 to 2 percent. |
c. | 4 to 5 percent. |
d. | 0 to 1 percent. |
e. | 9 to 10 percent. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
- An increase in the overall price level is called
a. | an expansion. |
b. | economic growth. |
c. | deflation. |
d. | a recession. |
e. | inflation. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
- Which of the following statements about the recessions that have occurred over the past 50 years is ?
a. | During a recession, the price level increases, and the rate of inflation declines. |
b. | The price level usually declines during a recession. |
c. | The rate of inflation usually increases during a recession. |
d. | The rate of inflation usually stays constant during a recession. |
e. | During a recession, both the price level and the rate of inflation decline. |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge | AACSB: Analytic
- Which of the following statements is about the U.S. rate of inflation between 1973 and 2004?
a. | The rate of inflation trended upward during this period. |
b. | The rate of inflation trended downward during this period. |
c. | The rate of inflation fluctuated between 2 and 3 percent during this period. |
d. | Until 1980 the rate of inflation trended upward, and after 1980 the rate of inflation trended downward. |
e. | Until 1980 the rate of inflation trended downward, and after 1980 the rate of inflation trended upward. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge | AACSB: Analytic
- Which of the following statements is the most accurate?
a. | Deflation is when the rate of inflation declines. |
b. | Disinflation only occurs when the price level declines. |
c. | The end of the Great Inflation in 1980 was followed by deflation. |
d. | Disinflation is when the rate of inflation declines. |
e. | Deflation and disinflation always happen at the same time. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Disinflation and Deflation
MSC: Bloom's: Knowledge
- The period referred to in the text as the Great Inflation occurred
a. | during the 1980s. |
b. | from the mid-1960s through 1980. |
c. | during the Revolutionary War. |
d. | during the Korean War. |
e. | during the Civil War. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
- Which of the following statements is ?
a. | In the 1980s, the rate of inflation became negative. |
b. | The average rate of inflation has been close to zero over the past 50 years. |
c. | Over the past 50 years, the United States has not experienced a low and stable rate of inflation. |
d. | The inflation rate usually increases during a recession. |
e. | The rate of inflation usually falls to zero during a recession. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
/
- The rate of inflation has no effect on the economy.
Basic
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
- The U.S. economy moved closer to deflation at the end of 2008; this was the first time in 40 years that deflation seemed a possibility.
Moderate
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
- A low and stable inflation rate has been a key feature of the U.S. economy for the past 40 years.
Basic
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
- A decline in the rate of inflation is referred to as deflation.
Basic
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
- Based on the experience of the previous 50 years, there is good reason to expect the rate of inflation to equal zero, on average.
Basic
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge
Multiple Choice
- If you borrow $100 from a friend and you pay her back $105 at the end of the year, the interest rate is
a. | 5 percent. |
b. | $105. |
c. | 5 percent. |
d. | $5. |
e. | $95. |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Application
- Suppose you owe $1,000 on your credit card and you are charged a 2 percent monthly interest rate on the balance. How much in interest will be generated on that balance after the first month?
a. | $20 |
b. | $40 |
c. | $200 |
d. | $400 |
e. | $2 |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Knowledge
- Which of the following statements is ?
a. | Interest rates decline before each recession. |
b. | Interest rates rise before each recession. |
c. | Changes in interest rates are not correlated with the ups and downs of the economy. |
d. | There are no long-term trends in interest rates. |
e. | There is only one interest rate. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Analysis | AACSB: Analytic
- The real interest rate is
a. | the difference between the stated, or nominal, interest rate and the expected rate of inflation. |
b. | the difference between the stated, or nominal, interest rate and the rate of growth of real GDP. |
c. | the sum of the stated, or nominal, interest rate plus the expected inflation rate. |
d. | the rate of interest on Treasury bills. |
e. | the same as the prime rate. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Knowledge
- Suppose that the hypothetical country of Malova experienced in 2017 a negative real interest rate of 2 percent, with a corresponding inflation rate of 12 percent. What must have been the prevalent nominal interest in Malova during 2017?
a. | 14 percent |
b. | 12 percent |
c. | 14 percent |
d. | 10 percent |
e. | None of these |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Real Interest Rate
MSC: Bloom's: Application | AACSB: Analytic
- Suppose that at a given point in time the rate of inflation in the economy is equal to 2 percent and the nominal interest rate is 5 percent. What is the real interest rate consistent with this situation?
a. | 2 percent |
b. | 3 percent |
c. | 3 percent |
d. | 7 percent |
e. | None of these |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Real Interest Rate
MSC: Bloom's: Application
- Suppose people expect there to be a substantial increase in the rate of inflation over the next few years. Which of the following would you predict?
a. | An increase in the real interest rate and a decrease in the nominal interest rate |
b. | No increase or decrease in the nominal and real interest rates |
c. | A constant nominal interest rate and a higher real interest rate |
d. | A higher nominal interest rate |
e. | A decline in the nominal interest rate |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Analysis | AACSB: Analytic
- Trends and fluctuations in nominal interest rates
a. | are closely connected with real GDP and the rate of inflation. |
b. | are not closely connected with any economic variable. |
c. | are closely connected with real GDP and not with the rate of inflation. |
d. | are closely connected only with trends and fluctuations in the rate of inflation. |
e. | depend on the exchange rate. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
/
- The interest rate is positively correlated with the inflation rate.
Basic
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Knowledge
- There is evidence from recent U.S. economic trends that inflation and interest rates rise before a recession and fall in the aftermath.
Moderate
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation; Interest Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
- Throughout the 1980s and 1990s there was an upward trend in the interest rate.
Basic
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Knowledge
- Over the last 50 years, interest rates have risen before each recession and have fallen during and after each recession.
Basic
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Knowledge
- Because of how it is defined, the real interest rate can never be negative.
Moderate
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Real Interest Rate
MSC: Bloom's: Analysis | AACSB: Analytic
- To keep the real interest rate from changing by a large amount as inflation rises, the nominal interest rate has to increase with inflation.
Challenging
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Interest Rate
MSC: Bloom's: Analysis | AACSB: Analytic
Short Answer
- What is the difference between the nominal and the real interest rate? If you go into the bank to borrow money, which rate would the bank quote you?
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Real and Nominal Interest Rate
MSC: Bloom's: Knowledge
- Discuss the relationship between each of the following variables based on the experience of the U.S. economy over the past 40 years.
(A) | GDP and the unemployment rate |
(B) | The interest rate and the inflation rate |
(C) | GDP and the inflation rate |
(A) | When the economy is in an expansion, the unemployment rate declines, and when the economy is in a recession, the unemployment rate increases. GDP and the unemployment rate are negatively correlated. |
(B) | When the inflation rate rises, so does the interest rate. Lenders tend to increase the nominal interest rate when inflation is rising to compensate for the decline in the value of the dollars they will be paid back for the loan. The two are positively correlated. |
(C) | Inflation has increased prior to every recession and has decreased during and after every recession over the past 40 years. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Unemployment, Inflation, and the Interest Rate
MSC: Bloom's: Knowledge | AACSB: Analytic
- Name three important characteristics of the inflation experience of the past 40 years.
(A) | Inflation is closely correlated with fluctuations in real GDP. |
(B) | There are long-term trends in inflation. For example, the period from the mid-1960s through 1980 was called the Great Inflation. The 1980s are sometimes referred to as the Great Deflation. |
(C) | Inflation has never gone to zero. |
OBJ: factual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge | AACSB: Analytic
- Suppose at the beginning of 2017, I loaned out $100 and at the end of the year was paid back $108. The inflation rate during the year was 3 percent.
(A) | What was the stated interest rate? |
(B) | What was the real interest rate? |
(A) | The stated rate of interest was 8 percent |
(B) | The real rate of interest was 8 percent 3 percent = 5 percent. |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Real Interest Rate
MSC: Bloom's: Application
Multiple Choice
- The two branches of macroeconomic theory are
a. | inflation and growth theory. |
b. | inflation and economic fluctuations theory. |
c. | economic fluctuations and unemployment theory. |
d. | inflation and unemployment theory. |
e. | economic fluctuations and economic growth theory. |
OBJ: factual
SEC: Understanding and applying economic models
TOP: Growth and Economic Fluctuations Theory
MSC: Bloom's: Knowledge
- Economic growth theory
a. | explains the difference between long-run growth and the growth trend. |
b. | explains the long-term upward rise in real GDP. |
c. | explains the difference between real and nominal GDP. |
d. | determines the maximum amount that GDP can be. |
e. | tries to explain the shorter-term fluctuations in real GDP. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Growth Theory
MSC: Bloom's: Knowledge
- Which of the following is the best description of what economic fluctuations theory aims to explain?
a. | The short-term fluctuations in real GDP |
b. | The long-term upward rise of real GDP over time |
c. | The long-term financial collapses of developing economies |
d. | None of these |
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Economic Fluctuations Theory
MSC: Bloom's: Knowledge
/
- Economic growth theory aims to explain the short-term fluctuations in real GDP.
Basic
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Growth and Economic Fluctuations Theory
MSC: Bloom's: Knowledge
- Potential real GDP is the GDP that economists would expect to observe when the unemployment rate is zero.
Basic
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Potential Real GDP
MSC: Bloom's: Knowledge
Multiple Choice
- Which of the following statements about potential GDP is ?
a. | Potential GDP is not equal to the maximum level of real GDP. |
b. | Potential GDP is equal to the downward trend in real GDP. |
c. | Potential GDP represents the GDP a country will experience when the real interest rate is equal to zero. |
d. | Potential GDP represents the long-run tendency of the economy to grow. |
e. | Potential GDP is equal to the average level of real GDP. |
OBJ: factual
SEC: 1. Measuring the “Size” of an Economy
TOP: Potential GDP
MSC: Bloom's: Knowledge
- Potential GDP is
a. | a measure of short-term movements in GDP. |
b. | another name for GDP. |
c. | the upward trend line in real GDP. |
d. | another name for real GDP. |
e. | another name for aggregate demand. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Potential GDP
MSC: Bloom's: Knowledge
- Which of the following statements is ?
a. | Real GDP fluctuates around potential GDP. |
b. | Potential GDP fluctuates around real GDP. |
c. | Real GDP is something like an average of GDP. |
d. | The growth rate of potential GDP is well known and generally agreed upon. |
e. | Real GDP cannot be any greater than potential GDP. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Potential GDP
MSC: Bloom's: Knowledge | AACSB: Analytic
- Another name for potential GDP is
a. | GDP. |
b. | real GDP per capita. |
c. | aggregate demand. |
d. | real GDP. |
e. | aggregate supply. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Potential GDP
MSC: Bloom's: Knowledge
- Which of the following is not a determinant of aggregate supply capability?
a. | The supply of labor |
b. | Computers |
c. | Aggregate demand |
d. | The amount of factories in the economy |
e. | Available know-how |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Aggregate Supply
MSC: Bloom's: Knowledge
- The three determinants of the supply of real GDP are
a. | labor, capital, and potential GDP. |
b. | labor, capital, and households. |
c. | labor, capital, and technology. |
d. | labor, capital, and markets. |
e. | labor, capital, and government. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Production Function
MSC: Bloom's: Knowledge
- The production function shows the relationship between
a. | real GDP and the combination of labor, capital, and technological inputs. |
b. | potential and real GDP. |
c. | inflation and potential GDP. |
d. | GDP and real GDP. |
e. | a country's GDP and GDP in the rest of the world. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Production Function
MSC: Bloom's: Knowledge
/
- Capital, as defined in the text, is the total amount of money available to produce the goods and services.
Moderate
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Capital
MSC: Bloom's: Knowledge
- Changes in know-how have very little effect on economic growth.
Moderate
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Technology
MSC: Bloom's: Knowledge | AACSB: Analytic
Multiple Choice
- Economic policies that focus on long-term growth are referred to as
a. | demand-side policies. |
b. | supply-side policies. |
c. | regional policies. |
d. | fiscal policies. |
e. | monetary policies. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Supply-Side Policies
MSC: Bloom's: Knowledge
- Fiscal policy affects economic growth by
a. | controlling strategic industries. |
b. | developing new government agencies. |
c. | funding higher education. |
d. | providing unemployment compensation. |
e. | affecting incentives to invest, work, hire workers, and develop new technologies. |
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Fiscal Policy and Growth
MSC: Bloom's: Knowledge
- Monetary policy
a. | affects growth by keeping interest rates high. |
b. | affects growth by keeping interest rates low. |
c. | affects growth by keeping inflation low and stable. |
d. | has no effect on economic growth. |
e. | affects growth by printing money. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Monetary Policy and Growth
MSC: Bloom's: Knowledge
- Low and stable inflation
a. | is important in order to have economic growth, since inflation and growth are positively correlated. |
b. | is important in order to have economic growth, since inflation and growth are negatively correlated. |
c. | is not important in order to have economic growth. |
d. | is important in order to have economic growth, since economic growth and inflation are not correlated. |
e. | is not important in order to have economic growth because there is a positive correlation between economic growth and inflation. |
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Inflation and Economic Growth
MSC: Bloom's: Knowledge
- The negative correlation that occurs between inflation and economic growth can best be explained by
a. | inflation increasing uncertainty. |
b. | inflation decreasing uncertainty. |
c. | inflation making everything cheaper. |
d. | inflation making everything too expensive. |
e. | None of these |
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Inflation and Economic Growth
MSC: Bloom's: Knowledge | AACSB: Analytic
/
- Government policy concerning taxing, spending, and borrowing is called monetary policy.
Basic
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Fiscal Policy
MSC: Bloom's: Knowledge
- Inflation and economic growth are positively correlated.
Basic
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Inflation and Economic Growth
MSC: Bloom's: Knowledge
Multiple Choice
- The theory of economic fluctuations emphasizes fluctuations in
a. | the growth rate of potential GDP. |
b. | aggregate supply. |
c. | aggregate demand. |
d. | technology. |
e. | potential GDP. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Theory of Economic Fluctuations
MSC: Bloom's: Knowledge
- The sum of the demands from the four groups that contribute to demand in the whole economy is called
a. | aggregate supply. |
b. | real GDP. |
c. | potential GDP. |
d. | aggregate demand. |
e. | demand. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Aggregate Demand
MSC: Bloom's: Knowledge
- According to the theory of economic fluctuations, which of the following explains the relationship between aggregate demand and employment during a recession?
a. | A fall in output causes potential GDP to increase. This causes employment to decline. |
b. | A fall in real GDP causes aggregate demand to fall. As a result, firms lay off workers. |
c. | A fall in aggregate demand causes real GDP to fall as firms adjust their production. Workers are laid off as a result. |
d. | A fall in aggregate demand causes potential GDP to fall. The resulting decline in output causes employment to fall. |
e. | Workers decide they would rather have more leisure time and decide not to work as much. As a result, there is less labor employed and less is produced. |
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Theory of Economic Fluctuations
MSC: Bloom's: Analysis | AACSB: Analytic
- According to the theory of economic fluctuations, which of the following explains the relationship between aggregate demand and employment during an economic expansion?
a. | Workers decide they have more leisure time than they prefer. As a result they decide to work more, causing more labor to be employed. This causes an increase in production. |
b. | An increase in aggregate demand causes real GDP to increase as firms adjust their production. More workers are hired as a result. |
c. | An increase in output causes potential GDP to decrease. This causes employment to increase. |
d. | A decrease in real GDP causes aggregate demand to increase. As a result, firms hire more workers. |
e. | An increase in aggregate demand causes potential GDP to increase. The resulting increase in output causes employment to increase. |
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Theory of Economic Fluctuations
MSC: Bloom's: Analysis | AACSB: Analytic
- Policies used to influence economic fluctuations are often called
a. | supply-side policies. |
b. | normative policies. |
c. | positive policies. |
d. | demand-side policies. |
e. | recessionary policies. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Role for Macroeconomic Policy
MSC: Bloom's: Knowledge
- Fiscal policy is
a. | often used to stabilize economic expansions. |
b. | often used to counter the negative impact other factors may have on aggregate demand. |
c. | often used to counter the positive impact other factors may have on aggregate demand. |
d. | of no use in countering economic fluctuations. |
e. | mainly used to keep inflation low and stable. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Role for Macroeconomic Policy
MSC: Bloom's: Knowledge
- The primary tools that the Federal Reserve uses to influence private spending are
a. | changes in taxes. |
b. | changes in government purchases. |
c. | changes in financial regulations. |
d. | changes in interest rates. |
e. | changes in stock prices. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Role for Macroeconomic Policy
MSC: Bloom's: Knowledge
- If aggregated demand is growing faster than potential output, then the Federal Reserve is likely to
a. | lower interest rates because the rate of inflation is falling or is likely to fall. |
b. | raise interest rates because the rate of inflation is rising or is likely to rise. |
c. | raise interest rates because the rate of inflation is falling or is likely to fall. |
d. | lower interest rates because the rate of inflation is rising or is likely to rise. |
e. | do nothing because it is not clear how the rate of inflation will be affected. |
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
- If the economy is going into a recession, the Federal Reserve is likely to
a. | raise interest rates to increase aggregate demand. |
b. | raise interest rates to decrease aggregate demand. |
c. | lower interest rates to increase aggregate demand. |
d. | lower interest rates to reduce aggregate demand. |
e. | do nothing because it is not clear what effect interest rates have on aggregate demand. |
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Monetary Policy
MSC: Bloom's: Analysis | AACSB: Analytic
- Which of the following statements is ?
a. | Fiscal and monetary policy influence only economic growth. |
b. | Fiscal policy influences only economic fluctuations, and monetary policy influences only economic growth. |
c. | Fiscal and monetary policy influence only economic fluctuations. |
d. | Fiscal policy influences only economic growth, and monetary policy influences only economic fluctuations. |
e. | Fiscal and monetary policy influence both economic growth and economic fluctuations. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Policy for Economic Fluctuations
MSC: Bloom's: Analysis | AACSB: Analytic
/
- A key assumption of the theory of economic fluctuations is that real GDP fluctuates around potential GDP.
Moderate
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Economic Fluctuations
MSC: Bloom's: Knowledge | AACSB: Analytic
- Aggregate demand can be greater than potential GDP.
Basic
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Aggregate Demand
MSC: Bloom's: Knowledge
- The theory of economic fluctuations emphasizes fluctuations in the supply of goods and services as the reason for the ups and downs in the economy.
Moderate
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Aggregate Demand
MSC: Bloom's: Knowledge | AACSB: Analytic
Short Answer
- What is potential GDP? What are its determinants? What is meant by a production function?
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Potential GDP
MSC: Bloom's: Comprehension
- What is economic growth theory? What does it seek to distinguish, and why is it difficult to do this?
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Growth Theory
MSC: Bloom's: Knowledge | AACSB: Analytic
- How do fiscal policy and monetary policy influence economic growth?
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Economic Policy and Growth
MSC: Bloom's: Analysis | AACSB: Analytic
- Answer the questions below:
(A) | According to the economic fluctuations theory, what is the major cause of economic fluctuations? |
(B) | What observation supports the economic fluctuations perspective? |
(A) | The main source of economic fluctuations is fluctuations in aggregate demand. |
(B) | The observation that labor, factories, equipment, and technology grow smoothly over time and are not subject to sudden jumps supports the economic fluctuations perspective. |
OBJ: factual
SEC: 3. Macroeconomic Theory and Policy
TOP: Fluctuations Theory
MSC: Bloom's: Analysis | AACSB: Analytic
- How might the economic fluctuations theory explain the movement of the unemployment rate over the business cycle?
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: The Theory of Economic Fluctuations
MSC: Bloom's: Analysis | AACSB: Analytic
- State and define as best you can the three determinants of the aggregate supply of real GDP.
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Aggregate Supply
MSC: Bloom's: Comprehension | AACSB: Analytic
- What explains the uneven effect a recession has on the U.S. economy? Why would this matter?
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Regional Effects of Economic Fluctuations
MSC: Bloom's: Knowledge | AACSB: Analytic
Exhibit 17-5
- Exhibit 17-5 shows real GDP from March 2015 through December 2017 for country A. Explain whether the following statement is or "Economic fluctuations theory explains the move from point A to point B, and economic growth theory explains the move from point B to point C."
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Economic Fluctuations Theory
MSC: Bloom's: Analysis | AACSB: Analytic
- Exhibit 17-5 shows real GDP from March 2015 through December 2017 for country A. Would the move from point A to point B be officially labeled a recession? Explain briefly.
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Economic Fluctuations
MSC: Bloom's: Application | AACSB: Analytic
- Exhibit 17-5 shows real GDP from March 2010 through September 2012 for a certain country. Of points A, B, and C, indicate where the rate of inflation is rising, staying constant, and declining.
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Fluctuations in Inflation
MSC: Bloom's: Application | AACSB: Analytic
- The following table shows real GDP from 2005 through 2016 for a hypothetical economy. On a graph that measures real GDP on the vertical axis and time on the horizontal axis, plot real GDP using the data in the table. Draw in potential GDP and show the peak, recession, trough, and recovery phases of this business cycle.
Year | Real GDP (billions of dollars) |
2005 | 284 |
2006 | 287 |
2007 | 290 |
2008 | 291 |
2009 | 287 |
2010 | 286 |
2011 | 284 |
2012 | 287 |
2013 | 292 |
2014 | 296 |
2015 | 302 |
2016 | 312 |
OBJ: conceptual
SEC: 1. Measuring the “Size” of an Economy
TOP: Economic Fluctuations
MSC: Bloom's: Application | AACSB: Analytic
- The following table gives some recent data on rates of inflation for two hypothetical countries. How does the inflation rate in the United States over this same time period compare with the inflation rate in these two countries?
Year | Country A | Country B |
1975 | 3% | 8% |
1980 | 2% | 20% |
1985 | 3% | 25% |
1990 | 3% | 9% |
1995 | 2% | 10% |
2000 | 3% | 5% |
2005 | 2% | 4% |
2010 | 2% | 3% |
2015 | 3% | 1% |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Analysis | AACSB: Analytic
- Describe the behavior of real GDP, the unemployment rate, and the inflation rate over the long term and the short term for the U.S. economy during the past 50 years. In what ways are movements in the three variables related?
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Inflation
MSC: Bloom's: Knowledge | AACSB: Analytic
- Suppose you have savings deposited in an account at an interest rate of 4 percent and your father tells you he earned 8 percent 10 years ago. Use the concept of the real interest rate to answer the following questions.
(A) | Which of you got a better return? Is this all the information you need? |
(B) | Suppose the rate of inflation was 5 percent 10 years ago and it is now 3 percent. Does this information change your answer? |
(A) | This answer cannot be determined without knowing the rate of inflation 10 years ago, as well as the current rate of inflation. |
(B) | Yes. The real rate of interest was 3 percent 10 years ago. Now it is 1 percent. Your father got a better return because the return on savings deposits was higher 10 years ago. |
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Real Interest Rate
MSC: Bloom's: Application | AACSB: Analytic
- Suppose you have $1,000, which you can put in two different types of accounts at a bank. One account pays interest of 9 percent per year; the other pays an interest rate of 3 percent per year plus the rate of inflation. Calculate the amount of money you will have at the end of one year if the inflation rate is 5 percent. What is the real rate of return in each case? Which account would you prefer if you expected inflation to be 8 percent?
OBJ: conceptual
SEC: 2. Unemployment, Inflation, and Interest Rates
TOP: Nominal Interest Rate
MSC: Bloom's: Application | AACSB: Analytic
- Suppose the U.S. economy is currently recovering from a recession. What is the relationship between real and potential GDP? Is it likely that real GDP will stay in this position for a long period of time, say, 10 years? Briefly explain.
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Real and Potential GDP
MSC: Bloom's: Analysis | AACSB: Analytic
- Is it a good idea for the government to encourage workers to retire early and give them incentives to do so? How would this policy affect the economy's potential GDP?
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Macroeconomic Policy
MSC: Bloom's: Analysis | AACSB: Analytic
- Suppose you read in the newspaper that a large decline in business spending has occurred. Explain how this could cause real GDP to fall. Could the decline in business spending also cause potential GDP to decline? Explain.
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Aggregate Demand and Aggregate Supply
MSC: Bloom's: Application | AACSB: Analytic
- Suppose there is a permanent decrease in capital in a particular country. How does this change affect that economy's potential GDP? What economic policies can the government use to offset this decline?
OBJ: conceptual
SEC: 3. Macroeconomic Theory and Policy
TOP: Production Function
MSC: Bloom's: Analysis | AACSB: Analytic
Chapter 5 (17) Appendix
The Miracle of Compound Growth
Multiple Choice
- Suppose you deposit $100 in the bank and leave it there for 10 years. At the end of 10 years, how much will be in my account if the annual rate of interest is 5 percent?
a. | $150 |
b. | $163 |
c. | $105 |
d. | $200 |
e. | $175 |
OBJ: conceptual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Compound Interest
MSC: Bloom's: Application | AACSB: Analytic
- Suppose the CPI in 2015 was 188.9. In 1985, it was 49.3. What was the average annual rate of inflation over this 30-year period?
a. | 397 percent |
b. | 10.21 percent |
c. | 2.04 percent |
d. | 5.54 percent |
e. | 4.58 percent |
OBJ: conceptual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Growth Rates
MSC: Bloom's: Application | AACSB: Analytic
- How long will it take a $100 deposit to increase to $200 if the rate of interest is 2 percent?
a. | 10 years |
b. | 18 years |
c. | 25 years |
d. | 36 years |
e. | 72 years |
OBJ: conceptual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Interest Rate
MSC: Bloom's: Application | AACSB: Analytic
- The purpose of a ratio scale is
a. | to show the absolute variation in a variable. |
b. | to make equal percentage changes in a variable have the same vertical distance. |
c. | to make equal percentage changes in a variable have the same horizontal distance. |
d. | to make equal absolute changes in a variable have the same vertical distance. |
e. | to show how a variable is divided amongst its factors. |
OBJ: factual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Ratio Scale
MSC: Bloom's: Knowledge
Short Answer
- Between 1980 and 2000, China's GDP grew at an annual rate of 9.7 percent. China's GDP in 2006 was estimated to be $2.5 trillion. If China continues to grow at the same rate as it did between 1980 and 2000, what will its GDP be in 2026? How many years will it take for China's GDP to be twice as large as it was in 2006?
OBJ: conceptual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Compound Growth
MSC: Bloom's: Application | AACSB: Analytic
- Suppose real GDP per capita grows at a rate of 3 percent. How many years will it take for it to double? What if the growth in real GDP per capita were 2 percent?
OBJ: conceptual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Years to Double
MSC: Bloom's: Application | AACSB: Analytic
/
- You will earn more interest from a given amount of bank saving deposit after 10 years with the compounding effect than without the compounding effect.
Moderate
OBJ: conceptual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Compound Growth
MSC: Bloom's: Knowledge | AACSB: Analytic
- The rule of 72 is a rule of thumb to determine how something increases over time in a linear or simple growth fashion.
Moderate;
OBJ: conceptual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Rule of 72
MSC: Bloom's: Application | AACSB: Analytic
Short Answer
- Why would it be a good idea to plot time-series data on a ratio scale instead of a regular scale? What is the difference between the two types of graphs?
OBJ: conceptual
SEC: 4. Appendix: The Miracle of Compound Growth
TOP: Ratio Scale
MSC: Bloom's: Analysis | AACSB: Analytic
Document Information
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