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Chapter 17
Macroeconomics:
The Big Picture
Question
Which of the following is not a macroeconomic
topic?
a) The current unemployment rates in Europe
b) The rising costs in the US health-care
industry
c) Unemployment during the Great Depression
d) US inflation rates during a recession
e) Economic growth of countries in Latin
America
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17 | 2
Answer
Which of the following is not a macroeconomic
topic?
a) The current unemployment rates in Europe
b) The rising costs in the US health-care
industry (Correct)
c) Unemployment during the Great Depression
d) US inflation rates during a recession
e) Economic growth of countries in Latin
America
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17 | 3
Question
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
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17 | 4
Answer
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 (Correct)
d) The rate of inflation
e) The rate of increase in real GDP
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17 | 5
Question
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.
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Answer
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. (Correct)
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.
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Question
When a recession ends , the economy usually
experiences
a) immediate growth and prosperity.
b) a depression.
c) a period of recovery back to its
pre-recession state.
d) rising inflation and unemployment rates.
e) no ill effects from the recession.
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Answer
When a recession ends , the economy usually
experiences
a) immediate growth and prosperity.
b) a depression.
c) a period of recovery back to its
pre-recession state. (Correct)
d) rising inflation and unemployment rates.
e) no ill effects from the recession.
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17 | 9
Question
The unemployment rate
a) has increased steadily over the last 30 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.
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Answer
The unemployment rate
a) has increased steadily over the last 30 years.
b) is never equal to zero. (Correct)
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.
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17 | 11
Question
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.
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Answer
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. (Correct)
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17 | 13
Question
The three determinants of the supply of real GDP
are
a) labor, capital, and money.
b) labor, capital, and households.
c) labor, capital, and technology.
d) labor, capital, and markets.
e) labor, capital, and government.
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Answer
The three determinants of the supply of real GDP
are
a) labor, capital, and money.
b) labor, capital, and households.
c) labor, capital, and technology. (Correct)
d) labor, capital, and markets.
e) labor, capital, and government.
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17 | 15
Question
Which of the following best explains how fiscal
policy affects economic growth?
a) By controlling strategic industries
b) By developing new government agencies
c) By funding higher education
d) By providing unemployment compensation
e) By affecting incentives to invest, work, hire
workers, and develop new technologies
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17 | 16
Answer
Which of the following best explains how fiscal
policy affects economic growth?
a) By controlling strategic industries
b) By developing new government agencies
c) By funding higher education
d) By providing unemployment compensation
e) By affecting incentives to invest, work, hire
workers, and develop new technologies
(Correct)
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Question
Monetary policy
a) affects long-term economic growth by
keeping interest rates high.
b) affects long-term economic growth by
keeping interest rates low.
c) affects long-term economic growth by
keeping inflation rates low and stable.
d) has no effect on long-term economic growth.
e) affects long-term economic growth by
keeping the US national debt low.
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Answer
Monetary policy
a) affects long-term economic growth by
keeping interest rates high.
b) affects long-term economic growth by
keeping interest rates low.
c) affects long-term economic growth by
keeping inflation rates low and stable. (Correct)
d) has no effect on long-term economic growth.
e) affects long-term economic growth by
keeping the US national debt low.
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17 | 19
Question
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, causing
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.
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Answer
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, causing
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. (Correct)
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.
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17 | 21
Question
If the economy is heading towards a recession, the
Federal Reserve is likely to
a) raise interest rates in order to increase
aggregate demand.
b) raise interest rates in order to reduce
aggregate demand.
c) lower interest rates in order to increase
aggregate demand.
d) lower interest rates in order to reduce
aggregate demand.
e) do nothing because it is not clear what effect
interest rates have on aggregate demand.
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17 | 22
Answer
If the economy is heading towards a recession, the
Federal Reserve is likely to
a) raise interest rates in order to increase
aggregate demand.
b) raise interest rates in order to reduce
aggregate demand.
c) lower interest rates in order to increase
aggregate demand. (Correct)
d) lower interest rates in order to reduce
aggregate demand.
e) do nothing because it is not clear what effect
interest rates have on aggregate demand.
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