Macroeconomics 9th Edition Test Bank

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1Copyright© 2017 Pearson Education, Inc.Macroeconomics, 9e(Abel/Bernanke/Croushore)Chapter 1Introduction to Macroeconomics1.1What Macroeconomics Is About1) The two major reasons for the tremendous growth in output in the U.S. economy over the last125 years areA) population growth and low inflation.B) population growth and increased productivity.C) low unemployment and low inflation.D) low inflation and low trade deficits.Answer: BDiff: 1Topic: Section: 1.1Question Status: Previous Edition2) The main reason that the United States has such a high standard of living isA) low unemployment.B) high average labor productivity.C) low inflation.D) high government budget deficits.Answer: BDiff: 1Topic: Section: 1.1Question Status: Previous Edition3) Which of the following factors are most important fordetermining the economic growth of acountry?A) The country's level of resourcesB) The independence of the country's central bankC) The country's rates of saving and investmentD) The level of sophistication of a country's financial marketsAnswer: CDiff: 1Topic: Section: 1.1Question Status: New4) Average labor productivity is theA) amount of workers per machine.B) amount of machines per worker.C) ratio of employed to unemployed workers.D) amount of output per worker.Answer: DDiff: 1Topic: Section: 1.1Question Status: Previous Edition

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2Copyright© 2017 Pearson Education, Inc.5) In analyzing macroeconomic data during the past year, you have discovered that average laborproductivity fell, but total output increased. What was most likely to have caused this?A) There is nothing unusual in this outcome because this is what normally occurs.B) The capital—output ratio probably rose.C) There was an increase in labor input.D) Unemployment probably increased.Answer: CDiff: 2Topic: Section: 1.1Question Status: Previous Edition6) In which of the following periods did average labor productivity in the United States grow thefastest?A) 1929 to 1935B) 1949 to 1973C) 1973 to 1995D) 1995 to 2008Answer: BDiff: 1Topic: Section: 1.1Question Status: Previous Edition7) The most direct effect of an increase in the growth rate of average labor productivity would bean increase inA) the inflation rate.B) the unemployment rate.C) the long-run economic growth rate.D) imported goods.Answer: CDiff: 1Topic: Section: 1.1Question Status: Previous Edition8) Short-run contractions and expansions in economic activity are calledA) recessions.B) expansions.C) deficits.D) the business cycle.Answer: DDiff: 1Topic: Section: 1.1Question Status: Previous Edition

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3Copyright© 2017 Pearson Education, Inc.9) When national output rises, the economy is said to be inA) an expansion.B) a deflation.C) an inflation.D) a recession.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition10) When national output declines, the economy is said to be inA) an expansion.B) a deflation.C) an inflation.D) a recession.Answer: DDiff: 1Topic: Section: 1.1Question Status: New11) Which of the following best describes a typical business cycle?A) Economic expansions are followed by economic contractions.B) Inflation is followed by unemployment.C) Trade surpluses are followed by trade deficits.D) Stagflation is followed by inflationary economic growth.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition12) During recessions, the unemployment rate ________ and output ________.A) rises; fallsB) rises; risesC) falls; risesD) falls; fallsAnswer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition

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4Copyright© 2017 Pearson Education, Inc.13) The number of unemployed divided by the labor force equalsA) the inflation rate.B) the labor force participation rate.C) the unemployment rate.D) the misery index.Answer: CDiff: 1Topic: Section: 1.1Question Status: Previous Edition14) The unemployment rate is theA) number of unemployed divided by the number of employed.B) number of employed divided by the number of unemployed.C) number of unemployed divided by the labor force.D) labor force divided by the number of unemployed.Answer: CDiff: 1Topic: Section: 1.1Question Status: Previous Edition15) The highest and most prolonged period of unemployment in the United States over the last125 years occurred duringA) World War II.B) the 1890s Depression.C) the 1990-1991 recession.D) the Great Depression of the 1930s.Answer: DDiff: 1Topic: Section: 1.1Question Status: Previous Edition16) During the Great Depression, the unemployment rate for the United States peaked atapproximatelyA) 10%.B) 70%.C) 45%.D) 25%.Answer: DDiff: 2Topic: Section: 1.1Question Status: Previous Edition

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5Copyright© 2017 Pearson Education, Inc.17) If a city has 3293 unemployed people and 73,177 in its labor force, then the city'sunemployment rate equalsA) 45.0%.B) 4.5%.C) 4.3%.D) 0.45%.Answer: BDiff: 2Topic: Section: 1.1Question Status: New18) If a city has 3293 unemployed people and 69,884 employed people, then the city'sunemployment rate equalsA) 45.0%.B) 4.5%.C) 4.3%.D) 0.45%.Answer: BDiff: 2Topic: Section: 1.1Question Status: New19) A country is said to be experiencing inflation whenA) prices of most goods and services are rising over time.B) prices of most goods and services are falling over time.C) total output is rising over time.D) total output is falling over time.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition20) From 1800 to 1940, the price level in the United StatesA) trended neither upward nor downward.B) fluctuated wildly.C) declined slowly.D) increased slowly.Answer: ADiff: 2Topic: Section: 1.1Question Status: Previous Edition

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6Copyright© 2017 Pearson Education, Inc.21) Before World War II, the average level of prices in the United States usuallyA) fell during wartime and rose during peacetime.B) fell during wartime and fell during peacetime.C) rose during wartime and fell during peacetime.D) rose during wartime and rose during peacetime.Answer: CDiff: 1Topic: Section: 1.1Question Status: Previous Edition22) A country is said to be experiencing inflation whenA) prices of most goods and services are rising over time.B) prices of most goods and services are falling over time.C) total output is rising over time.D) total output is falling over time.Answer: ADiff: 1Topic: Section: 1.1Question Status: New23) A country is said to be experiencing deflation whenA) prices of most goods and services are rising over time.B) prices of most goods and services are falling over time.C) total output is rising over time.D) total output is falling over time.Answer: BDiff: 1Topic: Section: 1.1Question Status: Previous Edition24) The inflation rate is theA) percent increase in the average level of prices over a year.B) percent increase in output over a year.C) percent increase in the unemployment rate over a year.D) price level divided by the level of output.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition

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7Copyright© 2017 Pearson Education, Inc.25) If the price level was 100 in 2014 and 102 in 2015, the inflation rate wasA) 102%.B) 20%.C) 2%.D) 0.2%.Answer: CDiff: 2Topic: Section: 1.1Question Status: Previous Edition26) A closed economy is a national economy thatA) doesn't interact economically with the rest of the world.B) has a stock market that is not open to traders from outside the country.C) has extensive trading and financial relationships with other national economies.D) has not established diplomatic relations with other national economies.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition27) An open economy is a national economy thatA) doesn't interact economically with the rest of the world.B) has a stock market that is open to traders from anywhere in the world.C) has extensive trading and financial relationships with other national economies.D) has established diplomatic relations with most other national economies.Answer: CDiff: 1Topic: Section: 1.1Question Status: Previous Edition28) An economy that doesn't interact economically with the rest of the world is called ________economy.A) a closedB) an openC) a surplusD) an authoritarianAnswer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition

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8Copyright© 2017 Pearson Education, Inc.29) U.S. exports are goods and servicesA) produced abroad and sold to Americans.B) produced in the United States and sold to Americans.C) produced abroad and sold to foreigners.D) produced in the United States and sold to foreigners.Answer: DDiff: 1Topic: Section: 1.1Question Status: New30) U.S. imports are goods and servicesA) produced abroad and sold to Americans.B) produced in the United States and sold to Americans.C) produced abroad and sold to foreigners.D) produced in the United States and sold to foreigners.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition31) Following World War I and World War II, the United States had aA) small trade surplus.B) small trade deficit.C) large trade deficit.D) large trade surplus.Answer: DDiff: 1Topic: Section: 1.1Question Status: Previous Edition32) In the 1980s, 1990s, and 2000s, the United States has had aA) small trade surplus.B) small trade deficit.C) large trade deficit.D) large trade surplus.Answer: CDiff: 1Topic: Section: 1.1Question Status: Previous Edition

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9Copyright© 2017 Pearson Education, Inc.33) A country has a trade surplus whenA) imports exceed exports.B) imports equal exports.C) exports exceed imports.D) imports equal zero.Answer: CDiff: 1Topic: Section: 1.1Question Status: Previous Edition34) A country has a trade deficit whenA) imports exceed exports.B) imports equal exports.C) exports exceed imports.D) exports are zero.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition35) Data on exports and imports for the United States over the period from 1890 to 2008 showthatA) the United States had large trade deficits throughout this entire period.B) the United States had large trade surpluses throughout this entire period.C) the percentage of total output exported by U.S. firms fell dramatically during World War Iand World War II.D) a higher percentage of U.S. goods was exported in recent years than in earlier years.Answer: DDiff: 2Topic: Section: 1.1Question Status: Previous Edition36) A central bank is an institution thatA) pays for government expenditures.B) controls a nation's monetary policy.C) runs a country's stock market.D) determines a nation's fiscal policy.Answer: BDiff: 1Topic: Section: 1.1Question Status: Previous Edition

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10Copyright© 2017 Pearson Education, Inc.37) In the United States, monetary policy is determined byA) the Federal Reserve.B) the president.C) private citizens.D) the Treasury Department.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition38) The peak in U.S. government spending as a percent of GDP occurred duringA) World War II.B) the 1960s war on poverty.C) the Great Depression.D) the war against Iraq in the 2000s.Answer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition39) Why were the U.S. government budget deficits of the 1980s and early 1990s so unusual froma historical point of view?A) It was the first time the U.S. government had ever run deficits.B) In the past, deficits were usually that large only in wartime.C) It was the first time that deficits were accompanied by very high rates of inflation.D) It was the first time that deficits diverted funds from other productive uses, such asinvestment in modern equipment.Answer: BDiff: 1Topic: Section: 1.1Question Status: Previous Edition40) Critics of the government's fiscal policies argued that government deficitsA) prevented capital from flowing into the United States.B) were linked to the excess of imports over exports that occurred in the 1980s.C) caused the level of unemployment in the United States to increase during the 1980s.D) had directly contributed to a decline in the level of demand in the American economy.Answer: BDiff: 2Topic: Section: 1.1Question Status: Previous Edition

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11Copyright© 2017 Pearson Education, Inc.41) The difference between microeconomics and macroeconomics is thatA) microeconomics looks at supply and demand for goods, macroeconomics looks at supply anddemand for services.B) microeconomics looks at prices, macroeconomics looks at inflation.C) microeconomics looks at individual consumers, macroeconomics looks at national totals.D) microeconomics looks at national issues, macroeconomics looks at global issues.Answer: CDiff: 1Topic: Section: 1.1Question Status: Previous Edition42) Aggregation is the process ofA) calculating real GDP based on nominal GDP and the price index.B) summing individual economic variables to obtain economywide totals.C) forecasting the components of GDP.D) predicting when recessions will occur.Answer: BDiff: 1Topic: Section: 1.1Question Status: Previous Edition43) What are the major factors affecting the long-term growth of the economy's output?Answer: The major factors are population growth and average labor productivity.Diff: 1Topic: Section: 1.1Question Status: Previous Edition44) Macroeconomic information for the economy of Anchovy is given below.(a)What was the growth rate of average labor productivity in Anchovy between Year 1 andYear 2?(b)What was the inflation rate in Anchovy between Year 1 and Year 2?(c)What was the unemployment rate in Year 1? In Year 2?Answer:(a)Average labor productivity: Year 1: 8000/700 = 80/7; Year 2: 9000/800 = 90/8; growth rate =[(90/8)/(80/7)]-1 =-0.016 =-1.6%(b)Inflation rate: (9/8)-1 = 0.125 = 12.5%(c)Unemployment rates: Year 1: 70/770 = 0.091 = 9.1%; Year 2: 100/900 = 0.111 = 11.1%Diff: 2Topic: Section: 1.1Question Status: Previous Edition

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12Copyright© 2017 Pearson Education, Inc.45) Using the CPI measure of the price level, which is 100 in the base year of 2007, calculate theannual inflation rates for(a)2013, when the index is 103.7.(b)2014, when the index is 105.5.(c)2015, when the index is 107.7.Answer:(a)Inflation in 2013 = (103.7-100)/100 × 100% = 3.7%.(b)Inflation in 2014 = (105.5-103.7)/100 × 100% = 1.7%.(c)Inflation in 2015 = (107.7-105.5)/100 × 100% = 2.1%.Diff: 2Topic: Section: 1.1Question Status: Revised46) What is meant byaggregation? Why is aggregation important for macroeconomic analysis?Answer: Aggregation refers to the process of adding together individual economic variables toobtain economywide totals. Aggregation distinguishes microeconomics from macroeconomics. Itallows us to study the economy as a whole, rather than looking at its individual parts.Diff: 1Topic: Section: 1.1Question Status: Previous Edition1.2What Macroeconomists Do1) Many people perceive erroneously that most macroeconomists spend a lot of time engaged inA) forecasting.B) macroeconomic research.C) macroeconomic analysis.D) data development.Answer: ADiff: 1Topic: Section: 1.2Question Status: Previous Edition2) The main goal of macroeconomic research is toA) predict how the macroeconomy will perform in the future.B) analyze current macroeconomic data.C) develop new data that can be used to understand better the operation of the economy.D) make general statements about how the economy works.Answer: DDiff: 1Topic: Section: 1.2Question Status: Previous Edition

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13Copyright© 2017 Pearson Education, Inc.3) A set of ideas about the economy that have been organized in a logical framework is calledA) empirical analysis.B) a methodology.C) economic theory.D) data development.Answer: CDiff: 1Topic: Section: 1.2Question Status: Previous Edition4) Assumptions for economic theories and models should beA) rejected if they are not totally realistic.B) logical rather than empirically testable.C) simple and reasonable rather than complex.D) maintained until overwhelming evidence to the contrary occurs.Answer: CDiff: 1Topic: Section: 1.2Question Status: Previous Edition5) Testing a theory by comparing the theory's implications with data obtained in the real world iscalledA) empirical analysis.B) descriptive calibration.C) historical variance analysis.D) univariate analysis.Answer: ADiff: 1Topic: Section: 1.2Question Status: Previous Edition6) If the theory behind an economic model fits the data poorly, you would probably want toA) use the theory to predict what would happen if the economic setting or economic policieschange.B) start from scratch with a new model.C) enrich the model with additional assumptions.D) restate the research question.Answer: BDiff: 2Topic: Section: 1.2Question Status: Previous Edition

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14Copyright© 2017 Pearson Education, Inc.7) Why is macroeconomic forecasting so difficult? Does this difficulty mean economics is aworthless field of study?Answer: Forecasting is difficult because our understanding of how the economy works isimperfect and because it's impossible to take into account all the factors that might affect futureeconomic trends. This just means the field of economics is difficult and complex, not that it'sworthless.Diff: 1Topic: Section: 1.2Question Status: Previous Edition8) Match each of the following jobs to its major area: forecasting, analysis, research, or datadevelopment. Explain your answers.(a)Economist at university, testing theories about the efficient allocation of resources in theforeign exchange market(b)Economist at Wall Street firm trying to predict the rate of inflation next year using past data(c)Economist at auto firm looking at demand for new automobiles(d)Economist at the International Trade Commission trying to determine whether foreign firmsare dumping goods in the United States(e)Economist at the Commerce Department developing new methods for calculating priceindexes(f)Economist consulting in Eastern Europe about how to set up free-market financial systemsAnswer:(a)Research(b)Forecasting(c)Analysis(d)Analysis(e)Data development(f)AnalysisDiff: 2Topic: Section: 1.2Question Status: Previous Edition

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15Copyright© 2017 Pearson Education, Inc.9) Briefly describe the following tasks of macroeconomists: forecasting; analysis; research; anddata development.Answer:(a)Forecasting. Macroeconomists develop models to predict the future values ofmacroeconomic variables in one or more markets. These models are usually based on economictheory but are statistical in form and estimated using macroeconomic data.(b)Analysis. Macroeconomists analyze changes in macroeconomic policies as well as otherchanges in macroeconomic market conditions. This analysis is based on economic theory, usesanalytic reasoning techniques, and may rely on forecasting models.(c)Research. The goal of macroeconomic research is to make general statements about how theeconomy works. Research economists formulate and test theories.(d)Data development. Macroeconomic data development provides the data needed inmacroeconomic research, analysis, and forecasting. Most macroeconomic data are collected andpublished by the government.Diff: 1Topic: Section: 1.2Question Status: Previous Edition1.3Why Macroeconomists Disagree1) Positive analysis of economic policyA) examines the economic consequences of policies but does not address the question of whetherthose consequences are desirable.B) examines the economic consequences of policies and addresses the question of whether thoseconsequences are desirable.C) generates less agreement among economists than normative analysis.D) is rare in questions of economic policy.Answer: ADiff: 1Topic: Section: 1.3Question Status: Previous Edition2) Which of the statements below is primarily normative in nature?A) There is an unequal distribution of income in the United States.B) The distribution of income is more unequal in the United States than it is in Japan.C) The inequality of income that exists in the United States is partly caused by an unequaldistribution of wealth.D) The distribution of income in the United States should be more equal than it is.Answer: DDiff: 2Topic: Section: 1.3Question Status: Previous Edition

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