Test Bank For Macroeconomics, 13e
Chapter 1 Introduction
Chapter 1 Introduction
1) Which of the following is NOT a central issue in macroeconomics?
A) How should the central bank of a country fight inflation?
B) What is responsible for high and persistent unemployment?
C) How do tax changes influence consumers' choices of what to buy?
D) What factors determine economic growth?
E) What can or should the government do to stabilize the economy?
2) Macroeconomics does NOT focus on
A) policies that affect consumption and saving.
B) policies that affect the performance of health care providers.
C) the determination of changes in wages and prices.
D) the determination of interest rates.
E) none of the above, all of them are macroeconomic issues.
3) Which of the following is NOT dealt with in microeconomics?
A) the effect of agricultural subsidies on the price of milk
B) differences between the market for skilled labor versus the market for unskilled labor
C) issues related to the structure and performance of the health care sector
D) policies that affect the level of aggregate consumption
E) issues related to the deregulation of the telecommunications industry
4) Which of the economists below most likely advocated activist government policies?
A) Milton Friedman
B) John Maynard Keynes
C) Robert Lucas
D) Thomas Sargent
E) Adam Smith
5) In studying growth theory, we
A) assume that labor, capital, and raw materials are all used efficiently
B) assume that increased use of inputs cannot lead to a higher living standard
C) assume that technological advances cannot affect living standards
D) try to explain the reasons for recessions and booms
E) all of the above
6) Which of the following factors does NOT contribute to economic growth?
A) the availability of resources such as labor and capital
B) increases in the size of the population
C) the availability of new and better technology
D) increased knowledge gained through education or work experience
E) all of the above can increase economic growth
1
,Test Bank For Macroeconomics, 13e
Chapter 1 Introduction
7) Which of the following is a FALSE statement?
A) the very long run focuses on the growth of productive capacity
B) in the very long run, the productive capacity is assumed to be given
C) in the very short run, shifts in aggregate demand determine how much output is produced
D) fluctuations in the rates of inflation and unemployment are important long-run issues
E) at the full-employment level of output, capital is not used 100 percent
8) Government intervention into economic activity will NOT lead to a change in the price level
A) in the very short-run model
B) in the medium-run model
C) in the very long-run model
D) in the classical model
E) assuming a macro-model that focuses on the growth of productive capacity
9) In the very short run, the level of
A) output is determined by both aggregate demand and aggregate supply
B) output is determined by aggregate demand alone
C) prices will change if aggregate supply shifts
D) prices is determined by aggregate demand alone
E) both A and C
10) In the simple macro model of this chapter, the long-run AS-curve is
A) horizontal
B) vertical
C) upward-sloping
D) assumed to be completely price elastic
E) either B or C, depending on how fast prices adjust
11) In the very long-run AD-AS model, if the AD-curve shifts to the left, then
A) prices and output will both decrease
B) prices and output will both increase
C) prices will decrease but output will remain the same
D) output will decrease but prices will remain the same
E) output will increase but prices will decrease
12) If an increase in aggregate demand causes prices to increase slightly but output to increase
significantly, then
A) the AS-curve must be very flat
B) the AD-curve must be very steep
C) the AD- and AS-curves must both be very steep
D) we must be looking at the very long-run AD-AS model
E) we must be looking at the very short-run AD-AS model
2
,Test Bank For Macroeconomics, 13e
Chapter 1 Introduction
13) In the very long-run AD-AS model,
A) only fiscal policy can affect both output and prices
B) only monetary policy can affect both output and prices
C) monetary policy can affect output but not prices
D) active stabilization policy is ineffective in changing output
E) the unemployment rate is always assumed to be zero
14) If a shift in the AD-curve has no impact on the price level, then
A) the unemployment rate must be extremely low
B) the AD-curve must be vertical
C) the AS-curve must be horizontal
D) the AS-curve must be vertical
E) both A and D
15) In the medium run, if GDP goes down but the price level goes up,
A) the AD-curve must have shifted to the right
B) the AD-curve must have shifted to the left
C) the AS-curve must have shifted to the right
D) the AS-curve must have shifted to the left
E) the AD-curve and the AS-curve must have both shifted to the right
16) Which of the following is FALSE in the medium run?
A) a change in monetary policy can shift the AD-curve
B) a change in fiscal policy can shift the AD-curve
C) a change in fiscal policy can change output and prices
D) a change in monetary policy can change prices but not output
E) a change in labor productivity can shift the AS-curve
17) A change in which of the following will shift the AD-curve?
A) monetary or fiscal policy
B) the level of consumer confidence
C) the productive capacity of our economy
D) all of the above
E) only A and B
18) The position of the AS-curve depends on
A) fiscal policy
B) monetary policy
C) consumer confidence
D) the productive capacity of the economy
E) all of the above
3
, Test Bank For Macroeconomics, 13e
Chapter 1 Introduction
19) Assume an economy that is currently at the full-employment level of output. If aggregate
demand decreases, what should we expect in the medium run?
A) a decrease in potential GDP and the price level
B) an increase in unemployment and the price level
C) a decrease in unemployment and the price level
D) an increase in unemployment and a decrease in the price level
E) a decrease in potential GDP and an increase in unemployment
20) Potential GDP is the value of GDP that can be calculated if we assume that
A) there are no measurement errors
B) the unemployment rate is zero
C) the inflation rate is zero
D) GDP has been adjusted for inflation
E) the capital stock is working at full capacity and we have full employment
21) The full-employment level of output is defined as
A) actual output plus the output gap
B) potential output plus the output gap
C) potential output minus the output gap
D) the level of output at a zero unemployment rate
E) both A and D
22) Real GDP can grow over time because of
A) an increase in the amount of labor used in the production process
B) an increase in the capital stock
C) efficiency improvements
D) all of the above
E) only A and B
23) The trend path of GDP can change because of efficiency improvements, which can result from
A) decreases in the unemployment rate
B) increases in the rate of capacity utilization
C) changes in knowledge
D) decreases in waste
E) all of the above
24) The output gap shows the deviation of actual output from potential output and it
A) may be either positive or negative
B) will always be positive
C) increases as the unemployment rate decreases
D) becomes negative if the labor force grows faster than actual output
E) increases if inflation increases
4
Chapter 1 Introduction
Chapter 1 Introduction
1) Which of the following is NOT a central issue in macroeconomics?
A) How should the central bank of a country fight inflation?
B) What is responsible for high and persistent unemployment?
C) How do tax changes influence consumers' choices of what to buy?
D) What factors determine economic growth?
E) What can or should the government do to stabilize the economy?
2) Macroeconomics does NOT focus on
A) policies that affect consumption and saving.
B) policies that affect the performance of health care providers.
C) the determination of changes in wages and prices.
D) the determination of interest rates.
E) none of the above, all of them are macroeconomic issues.
3) Which of the following is NOT dealt with in microeconomics?
A) the effect of agricultural subsidies on the price of milk
B) differences between the market for skilled labor versus the market for unskilled labor
C) issues related to the structure and performance of the health care sector
D) policies that affect the level of aggregate consumption
E) issues related to the deregulation of the telecommunications industry
4) Which of the economists below most likely advocated activist government policies?
A) Milton Friedman
B) John Maynard Keynes
C) Robert Lucas
D) Thomas Sargent
E) Adam Smith
5) In studying growth theory, we
A) assume that labor, capital, and raw materials are all used efficiently
B) assume that increased use of inputs cannot lead to a higher living standard
C) assume that technological advances cannot affect living standards
D) try to explain the reasons for recessions and booms
E) all of the above
6) Which of the following factors does NOT contribute to economic growth?
A) the availability of resources such as labor and capital
B) increases in the size of the population
C) the availability of new and better technology
D) increased knowledge gained through education or work experience
E) all of the above can increase economic growth
1
,Test Bank For Macroeconomics, 13e
Chapter 1 Introduction
7) Which of the following is a FALSE statement?
A) the very long run focuses on the growth of productive capacity
B) in the very long run, the productive capacity is assumed to be given
C) in the very short run, shifts in aggregate demand determine how much output is produced
D) fluctuations in the rates of inflation and unemployment are important long-run issues
E) at the full-employment level of output, capital is not used 100 percent
8) Government intervention into economic activity will NOT lead to a change in the price level
A) in the very short-run model
B) in the medium-run model
C) in the very long-run model
D) in the classical model
E) assuming a macro-model that focuses on the growth of productive capacity
9) In the very short run, the level of
A) output is determined by both aggregate demand and aggregate supply
B) output is determined by aggregate demand alone
C) prices will change if aggregate supply shifts
D) prices is determined by aggregate demand alone
E) both A and C
10) In the simple macro model of this chapter, the long-run AS-curve is
A) horizontal
B) vertical
C) upward-sloping
D) assumed to be completely price elastic
E) either B or C, depending on how fast prices adjust
11) In the very long-run AD-AS model, if the AD-curve shifts to the left, then
A) prices and output will both decrease
B) prices and output will both increase
C) prices will decrease but output will remain the same
D) output will decrease but prices will remain the same
E) output will increase but prices will decrease
12) If an increase in aggregate demand causes prices to increase slightly but output to increase
significantly, then
A) the AS-curve must be very flat
B) the AD-curve must be very steep
C) the AD- and AS-curves must both be very steep
D) we must be looking at the very long-run AD-AS model
E) we must be looking at the very short-run AD-AS model
2
,Test Bank For Macroeconomics, 13e
Chapter 1 Introduction
13) In the very long-run AD-AS model,
A) only fiscal policy can affect both output and prices
B) only monetary policy can affect both output and prices
C) monetary policy can affect output but not prices
D) active stabilization policy is ineffective in changing output
E) the unemployment rate is always assumed to be zero
14) If a shift in the AD-curve has no impact on the price level, then
A) the unemployment rate must be extremely low
B) the AD-curve must be vertical
C) the AS-curve must be horizontal
D) the AS-curve must be vertical
E) both A and D
15) In the medium run, if GDP goes down but the price level goes up,
A) the AD-curve must have shifted to the right
B) the AD-curve must have shifted to the left
C) the AS-curve must have shifted to the right
D) the AS-curve must have shifted to the left
E) the AD-curve and the AS-curve must have both shifted to the right
16) Which of the following is FALSE in the medium run?
A) a change in monetary policy can shift the AD-curve
B) a change in fiscal policy can shift the AD-curve
C) a change in fiscal policy can change output and prices
D) a change in monetary policy can change prices but not output
E) a change in labor productivity can shift the AS-curve
17) A change in which of the following will shift the AD-curve?
A) monetary or fiscal policy
B) the level of consumer confidence
C) the productive capacity of our economy
D) all of the above
E) only A and B
18) The position of the AS-curve depends on
A) fiscal policy
B) monetary policy
C) consumer confidence
D) the productive capacity of the economy
E) all of the above
3
, Test Bank For Macroeconomics, 13e
Chapter 1 Introduction
19) Assume an economy that is currently at the full-employment level of output. If aggregate
demand decreases, what should we expect in the medium run?
A) a decrease in potential GDP and the price level
B) an increase in unemployment and the price level
C) a decrease in unemployment and the price level
D) an increase in unemployment and a decrease in the price level
E) a decrease in potential GDP and an increase in unemployment
20) Potential GDP is the value of GDP that can be calculated if we assume that
A) there are no measurement errors
B) the unemployment rate is zero
C) the inflation rate is zero
D) GDP has been adjusted for inflation
E) the capital stock is working at full capacity and we have full employment
21) The full-employment level of output is defined as
A) actual output plus the output gap
B) potential output plus the output gap
C) potential output minus the output gap
D) the level of output at a zero unemployment rate
E) both A and D
22) Real GDP can grow over time because of
A) an increase in the amount of labor used in the production process
B) an increase in the capital stock
C) efficiency improvements
D) all of the above
E) only A and B
23) The trend path of GDP can change because of efficiency improvements, which can result from
A) decreases in the unemployment rate
B) increases in the rate of capacity utilization
C) changes in knowledge
D) decreases in waste
E) all of the above
24) The output gap shows the deviation of actual output from potential output and it
A) may be either positive or negative
B) will always be positive
C) increases as the unemployment rate decreases
D) becomes negative if the labor force grows faster than actual output
E) increases if inflation increases
4
