Download Multiple Choice Questions

Multiple Choice Questions
Chapter 1
1. (page 1) Roughly how much richer are we now than our parents were back when
they were our age?
a. 10%
b. 50%**
c. 100%
d. 200%
2. (page 1) If current rates of economic growth continue, about how much richer will
our children be than our grandparents were?
a. Not at all
b. 50%
c. 400%**
d. 1000%
3. (page 1) What economic variable determines whether we find it easy to change
jobs, or find it hard to change jobs and feel pretty much trapped doing whatever we
are doing?
a. The inflation rate
b. The real interest rate
c. The nominal interest rate
d. The unemployment rate
4. (page 1) An unexpected rise in inflation is likely to…
a. …make debtors wealthier, and creditors poorer**
b. …make debtors wealthier, and creditors wealthier
c. …make debtors poorer, and creditors poorer
c. …make debtors poorer, and creditors wealthier
5. (page 2) Macroeconomics tries principally to figure out…
a. …the causes of increases or decreases in measures of total economic
activity**
b. …the price of macros
c. …the determinants of the price level and inflation only: the level of
economic activity is determined by microeconomic supply and demand
d. …what determines the level of the stock market and of interest rates
6. (page 2) The inflation rate is…
a. …the speed with which the universe flattened out very early after its
creation in the Big Bang
b. …the absolute rate of increase in the price level
c. …the proportional rate of increase of the price level**
d. …the change in the price of gold, the principal monetary metal throughout
human history
7. (page 3) The three reasons to care about macroeconomics do NOT include:
a. A knowledge of macroeconomics helps you to be culturally literate
b. A knowledge of macroeconomics helps you to understand the factors
affecting your economic destiny
c. A knowledge of macroeconomics makes you a more informed voter and a
better citizen
d. A knowledge of macroeconomics helps you make money by guessing
which way the stock market is going to move**
8. (page 7) Richard Nixon believed that he lost the election of 1960 because…
a. …John F. Kennedy made a better President
b. …the Eisenhower administration--in which Nixon was Vice-President-refused to take steps to generate good economic news in the months
immediately before the 1960 election**
c. …stagflation--rising inflation and rising unemployment--set in the early
1970s
d. …Nixon took steps that harmed the long-run health of the economy in order
to try to produce good economic numbers in the months just before the 1960
election
9. (page 12) Business cycles are…
a. …fluctuations in employment and production, unconnected with
fluctuations in prices and interest rates
b. …fluctuations in prices and interest rates, unconnected with fluctuations in
employment and production
c. …fluctuations in employment and production accompanied by fluctuations
in prices, interest rates, and stock market values**
d. …changes in the long-run economic destinies of nations--like that which
has made Sweden today so much richer than Argentina
10. (page 10) Depressions are to be…
a. …feared because they bring high unemployment, low production, and low
incomes**
b. …welcomed because they lead to the bankruptcy of inefficient firms; more
efficient producers can then use the idle labor and capital to expand
production in the next upswing
c. …welcomed because they bring lower prices: when prices are lower, your
income can buy more things
d. …welcomed because they bring a high-pressure economy with low rates of
unemployment and high rates of real income growth
11. (page 14) One key difference between macroeconomics and microeconomics is
that…
a. …macroeconomics assumes that decision makers react first by changing
prices, and only then by changing quantities
b. …macroeconomics assumes that total incomes are constant
c. ….macroeconomics does not worry about how expectations are formed
d. …macroeconomics considers the possibility that decision makers in the
economy react first by changing the quantities they produce, and only later by
changing the prices they charge**
12. (page 14) Another key difference between macroeconomics and microeconomics
is that…
a. …microeconomics focuses on the economy as a whole
b. …microeconomics spends a great deal of time and energy investigating
how expectations are formed
c. …microeconomics focuses on how changes in total economy-wide incomes
change economic behavior
d. …microeconomics focuses on the markets for individual commodities and
the decisions of individual households and firms**
13. (page 15) The failure to fully integrate microeconomics and macroeconomics is…
a. …a horrible flaw in the fabric of economics that needs to be fixed as soon
as possible
b. …an annoyance, but one that is not terribly relevant
c. …no longer the case: microeconomics and macroeconomics were woven
together into the Unified Field Theory of Economics in the mid-1990s
d. …either a horrible flaw or an irrelevant annoyance, but economists disagree
vehemently about which**
14. (page 16) The principal source of data about the state and direction of the
economy comes from the…
a. …National Income and Product Accounts**
b. … International Financial Statistics
c. …IMF-WTO International Surveillance Documents
d. …Labor Department Employment and Earnings Reports
15. (page 17) The most important and useful economic statistics tend to be reported
a. annually
b. quarterly or monthly**
c. daily
d. weekly
16. (page 18) The economic variables that are most directly and immediately
connected to our material well-being are:
a. The interest rate and the exchange rate
b. Real GDP and the unemployment rate**
c. The inflation rate and the price level
d. The level of the stock market and the real interest rate
17. (page 19) Real GDP counts the production of
a. consumption goods, investment goods, and goods and services the
government purchases**
b. consumption goods, exports, and intermediate goods
c. final goods except for those that the government purchases
d. intermediate goods plus net imports
18. (page 20) Real GDP is
a. a statistic rarely used any more
b. the best readily-available indicator of how well the economy considered as
a mechanism for producing necessities, conveniences, and luxuries is
performing**
c. a major conceptual improvement over its predecessor, real GNP
d. the single most important measure of the overall price level
19. (page 20) Real GDP is not a direct measure of consumer utility or material wellbeing because
a. it values goods by their market prices, not by how much consumer
satisfaction they provide on average**
b. consumers purchase not the goods that enhance their well-being but the
goods that advertisers tell them to purchase
c. real GDP does not count so-called "intermediate goods"
d. real GDP includes goods purchased by the government
20. (page 21) An event which was NOT one of the major macroeconomic events of
the twentieth century in the U.S. was
a. the Great Depression of the 1930s
b. the productivity slowdown--the period of stagnation following the 1973 oil
price increase
c. the boom during World War II in the 1940s
d. the assassination of John F. Kennedy in 1963**
21. (page 23) An economy in which each business filled a vacancy with the first
applicant and in which each unemployed person searching for a job took the first one
offered would be
a. a high-productivity economy because there would be next to no
unemployment
b. an economy with inflation because the low level of unemployment would
put upward pressure on prices
c. a relatively low-productivity economy because workers would be poorly
matched to jobs and jobs would be poorly matched to workers**
d. a high-unemployment economy because often businesses would find that
the first applicant for a job doesn't work out, and fire them
22. (page 24) During a Depression, a large proportion of unemployment
a. is not "frictional" but is "cyclical"*
b. is not "cyclical" but is "frictional"
c. is neither "cyclical" nor "frictional" but "structural"
d. is neither "cyclical," "frictional," nor "structural"
23. (page 24) When unemployment is high because a depression has created a large
amount of cyclical unemployment, then
a. workers are being choosy about which jobs they take and so the economy is
doing good well at matching workers to jobs and jobs to workers
b. the market economy is not working well, because a large amount of cyclical
unemployment means that production is far below the level of potential
output**
c. the high unemployment rate indicates that real GDP is above potential
output
d. workers' skills and labor-power are being used to make useful goods and
services in the most efficient manner possible
24. (page 25) Since World War II the highest peak of the unemployment rate in the
U.S. has been
a. nearly ten percent in 1982**
b. nearly eight percent in 1979
c. some twenty-five percent in 1933
d. today, as rapid improvements in computers create mass technological
unemployment
25. (page 25) Over the past century the highest peak of the unemployment rate in the
U.S. has been
a. nearly ten percent in 1982
b. nearly eight percent in 1979
c. some twenty-five percent in 1933**
d. today, as rapid improvements in computers create mass technological
unemployment
26. (page 26) If the inflation rate this year is ten percent, then
a. the average good's price in dollars this year is ten percent higher than the
average good's price in dollars was last year**
b. every good and service costs ten percent more in dollars than it cost last
year
c. the average good costs ten percent more in terms of how many other goods
need to be sold in order to get the money to buy it
d. the overall price level is ten percent more than it was in the base year of
1962
27. (page 26) A very high inflation rate of more than twenty percent per month
usually
a. causes a boom as too much money chases too few goods, and production
expands.
b. causes massive economic destruction as the price system breaks down and
businesses find that they can no longer use prices and costs to make rational
economic decisions**
c. means that you should lend your money out as fast as possible in order to
earn the high real interest rates that accompany hyperinflation
d. means that everyone needs to buy a wheelbarrow to carry their money
28. (page 27) In modern industrial nations, voters
a. love moderate inflation, and reelect politicians who preside over eras of
inflation with high majorities
b. dislike moderate inflation, and usually reject candidates--like Jimmy Carter
or James Callaghan in the 1970s--who preside over eras of inflation**
c. are confused during times of inflation because they cannot figure out the
best use of their financial resources
d. put their trust in mutual fund managers to determine how best to guard
against inflation
29. (page 27) The highest rates of inflation in the U.S. in the twentieth century came
a. In the 1970s, when Jimmy Carter was President
b. In the 1980s, when Ronald Reagan was President
c. During World Wars I and II**
d. During World War I, but not during World War II
30. (page 28) The last year in which the U.S. saw deflation--a falling price level-came
a. In the 1970s, when Jimmy Carter was President
b. In the 1980s, when Ronald Reagan was President
c. In the 1990s, when Bill Clinton was President
d. Back in the late 1940s, when Harry Truman was President**
31. (page 29) Inflation during the 1950s and 1960s was
a. "creeping" inflation, too small and too slow for anyone to pay much
attention to it**
b. "trotting" inflation, large enough to cause concern but too small to
significantly distort the economy
c. "galloping" inflation, causing great damage to the price system's ability to
coordinate economic activity
d. hyperinflation, causing the Great Depression of the 1970s
32. (page 29) Inflation during the 1970s was
a. "creeping" inflation, too small and too slow for anyone to pay much
attention to it
b. "trotting" inflation, large enough to cause concern but too small to
significantly distort the economy**
c. "galloping" inflation, causing great damage to the price system's ability to
coordinate economic activity
d. hyperinflation, causing the Great Depression of the 1980s
33. (page 29) The sharp fall in inflation in the early 1980s was caused by
a. a sharp decline in oil prices
b. Federal Reserve Chair Paul Volcker's decision to raise interest rates to
reduce the growth of real GDP and to keep real GDP from growing until
inflation had fallen**
c. a natural bounce-back from the "trotting" inflation of the 1970s
d. the workings of the gold standard, which prohibit one country on the gold
standard from long maintaining an inflation rate different from the world
average
34. (page 29) The interest rate is
a. the price (in terms of extra purchasing power you must pay in the future in
interest) of moving purchasing power from the future forward in time to the
present**
b. the higher price that goods in the future have relative to goods in the present
c. a technical expression for how interested voters are in the economy
d. a variable chiefly of interest to microeconomists
35. (page 30) Interest rates on long-term debt are
a. almost always lower than interest rates on short-term debt--a phenomenon
called the upward-sloping yield curve
b. usually higher than interest rates on short-term debt--a phenomenon called
the upward-sloping yield curve**
c. sometimes higher and sometimes lower than interest rates on short-term
debt in no particular pattern
d. kept by law from falling below six percent per year
36. (page 31) Since the Volcker disinflation of the early 1980s, real interest rates
have been
a. lower than they were in the 1960s and 1970s
b. higher than they were in the 1960s and 1970s**
c. on average the same as in the 1960s and 1970s, but more volatile
d. on average the same as in the 1960s and 1970s, but less volatile
37. (page 32) The level of the stock market is
a. the economic quantity that you hear most often in newscasts**
b. an economic quantity about which information is scarce and hard to find
c. something of relevance for understanding the sources of previous economic
fluctuations
d. not important for macroeconomists
38. (page 32) A high level of the stock market indicates that
a. investors think that economic growth will be slow in the future, so they are
eager to buy stocks now
b. investors think that the economic future will be bright**
c. investors have confused real with nominal prices, and are willing to pay
high prices just because they think that average opinion expects average
opinion to be willing to pay high prices for stocks
d. investors think that economic growth will be slow, but that the share of
profits in total income will be low as well--so justifying a high valuation of
the stock market
39. (page 32) On average over the past century, an average share of stock has traded
for about
a. fifteen times its previous year's "trailing" earnings--half the value stocks
had at the end of the second millennium**
b. thirty times its previous year's "trailing" earnings--about equal to the value
stocks had at the end of the second millennium
c. fifteen times its previous year's "trailing" earnings--about equal to the value
stocks had at the end of the second millennium
d. thirty times its previous year's "trailing" earnings--about twice the value
stocks had at the end of the second millennium
40. (page 34) The nominal exchange rate is
a. the price at which goods exchange for services
b. the price at which the money of one country can be exchanged for the
money of another**
c. a poor measure of the prices at which commodities move across national
borders, for most shipments occur within multinational corporations
d. the price at which not monies but goods made in one country exchange for
not monies but goods made in another
41. (page 35) The U.S. nominal exchange rate
a. has been remarkably constant since 1973, never moving more than ten
percent above or ten percent below its 1973 value
b. has been extremely volatile since 1973, falling by more than 1/3 between
1979 and 1985**
c. has been extremely volatile since 1973, rising by more than 1/3 between
1979 and 1985
d. had been constant from 1973 to 1995, but has then been extremely volatile
42. (page 35) When the dollar becomes worth more in terms of foreign currencies, we
say that
a. the dollar has appreciated and the value of the exchange rate has declined**
b. the dollar has appreciated and the value of the exchange rate has risen
c. the dollar has depreciated and the value of the exchange rate has declined
d. the dollar has depreciated and the value of the exchange rate has risen
43. (page 35) When the dollar becomes worth less in terms of foreign currencies, we
say that
a. the dollar has appreciated and the value of the exchange rate has declined
b. the dollar has appreciated and the value of the exchange rate has risen
c. the dollar has depreciated and the value of the exchange rate has declined
d. the dollar has depreciated and the value of the exchange rate has risen**
44. (page 36) Before 1973, the U.S.'s exchange rate was
a. fixed according to the rules of the Bretton Woods system**
b. floating--free to move up and down according to supply and demand in the
foreign-exchange market--according to the rules of the Bretton Woods system
c. free to appreciate but not depreciate, according to the rules of the Bretton
Woods system
d. neither fixed nor floating
45. (page 36) Since 1973, the U.S.'s exchange rate has been
a. fixed
b. floating--free to move up and down according to supply and demand in the
foreign-exchange market**
c. free to appreciate but not depreciate, according to the rules of the Bretton
Woods system
d. neither fixed nor floating
46. (page 36) When interest rates in the U.S. increase, the value of the exchange rate
is likely to
a. fall, and the dollar to appreciate**
b. fall, and the dollar to depreciate
c. rise, and the dollar to appreciate
d. rise, and the dollar to depreciate