Test Bank for Macroeconomics, 10th Edition

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1Macroeconomics, 10e(Abel/Bernanke/Croushore)Chapter 1Introduction to Macroeconomics1.1What Macroeconomics Is About1) Which of the following isnota topic of macroeconomics?A) Why nations have different rates of growth.B) What causes inflation and what can be done about it.C) What factors contribute to the presence of monopolies in the economy.D) Why unemployment periodically reaches very high levels.Answer: CDiff: 1Topic: Section: 1.1Question Status: New2) 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 Edition3) 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 Edition4) 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: Previous Edition

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25) 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 Edition6) In analyzing macroeconomic data during the pastyear, 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 Edition7) 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 Edition8) 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 Edition

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39) 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 Edition10) 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 Edition11) 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: Previous Edition12) 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 Edition

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413) RecessionsA) are always followed by long periods of high rates of real economic growth.B) almost never last more than two consecutive quarters.C) cause the unemployment rate to increase.D) do not occur in developed countries, including the United States.Answer: CDiff: 1Topic: Section: 1.1Question Status: New14) During recessions, the unemployment rate ________ and output ________.A) rises; fallsB) rises; risesC) falls; risesD) falls; fallsAnswer: ADiff: 1Topic: Section: 1.1Question Status: Previous Edition15) 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 Edition16) 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 Edition

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517) Thehighest 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 Edition18) 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 Edition19) If acity 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: Previous Edition20) 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: Previous Edition

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621) 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 Edition22) 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 Edition23) BeforeWorld 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 Edition24) 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 Edition

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725) 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 Edition26) The inflation rate istheA) 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 Edition27) If the price level was 100 in 2017 and 102 in 2018, the inflation rate wasA) 102%.B) 20%.C) 2%.D) 0.2%.Answer: CDiff: 2Topic: Section: 1.1Question Status: Revised28) 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 Edition

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829) 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 Edition30) 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 Edition31) 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: Previous Edition32) 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 Edition

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933) 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 Edition34) 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 Edition35) 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 Edition36) 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 Edition

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1037) Data on exports and imports for the United States over the period from 1890 to 2018 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: Revised38) 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 Edition39) 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 Edition40) 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 Edition

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1141) 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 Edition42) 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 occurredin 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: PreviousEdition43) 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 Edition44)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 Edition

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1245) Starting from a year in which gross domestic product for the economy is $8,000 billion,calculate how muchoutput the national economy would produce in each of the next five years ifit continued to grow at its potential real growth rate of 3%.How much output would the economy produce in each year if it grew by 4% the first year, 2%the second year, 1% the third year,-1% the fourth year, and-3% the fifth year? (Note: Anegative growth rate means output is declining.)By the fifth year, how far is output below its potential level?Answer:Potential Output(billions)Actual Output (billions)Year 1: $8,000× 1.03 = $8,240$8,000 × 1.04 = $8,320Year 2: $8,240× 1.03 = $8,487$8,320 × 1.02 = $8,486Year 3: $8,487× 1.03 = $8,742$8,486 × 1.01 = $8,571Year 4: $8,742× 1.03 = $9,004$8,571 × 0.99 = $8,486Year 5: $9,004× 1.03 = $9,274$8,486 × 0.97 = $8,231[Note: Don't worry about rounding differences that arise in problems like this, because suchdifferences depend on how many digits you carry over from one calculation to the next.]Output is below potential output by [(9,274-8,231)/9,274] × 100% = 11.2%.Diff: 2Topic: Section: 1.1Question Status: New46) 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 Edition

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1347) Macroeconomic information forthe 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 Edition48) Using the CPI measure of the price level, which is 100 in the base year of 2015, calculate theannual inflation rates for(a)2016, when the index is 103.7.(b)2017, when the index is 105.5.(c)2018, when the index is 107.7.Answer:(a)Inflation in 2014 = (103.7-100.0)/100 × 100% = 3.7%.(b)Inflation in 2015 = (105.5-103.7)/103.7 × 100% = 1.7%.(c)Inflation in 2016 = (107.7-105.5)/105.5 × 100% =2.1%.Diff: 2Topic: Section: 1.1Question Status: Revised49) What is meant byaggregation? Why is aggregation important for macroeconomic analysis?Answer: Aggregation refers to the process of adding together individual economic variables toobtaineconomywide 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 Edition

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141.2What 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) Of these areas of macroeconomics, which employs the fewest economists?A) Macroeconomic forecastingB) Macroeconomic analysisC) Macroeconomic researchAnswer: ADiff: 1Topic: Section: 1.2Question Status: New3) The most difficult part of forecasting isA) lack of computing power.B) not enough theoretical models.C) insufficient data on the economy.D) the complexity of the economy.Answer: DDiff: 1Topic: Section: 1.2Question Status: New4) A macroeconomist who is employed at a university is most likely to be primarily engaged inwhich of these tasks?A) Macroeconomic forecastingB) Macroeconomic analysisC) Macroeconomic researchD) Macroeconomic data developmentAnswer: CDiff: 1Topic: Section: 1.2Question Status:New

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155) The main function of public-sector macroeconomic analysts is toA) assist in policymaking.B) find ways to increase corporate profits.C) engage in theoretical research.D) forecast the developments in industries.Answer: ADiff: 1Topic: Section: 1.2Question Status: New6) 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 Edition7) 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 Edition8) A simplified description of some aspect of the economy is calledA) empirical analysis.B) a methodology.C) an economic model.D) data development.Answer: CDiff: 1Topic: Section: 1.2Question Status: New

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