macro ch 6

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Question 1

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Question Which of the following statements is true? Answer The concept of supply and demand can answer macroeconomic questions as well as it can answer microeconomic questions. Macroeconomics explains the behavior of large firms; microeconomics explains the behavior of small ones. The paradox of thrift refers to the fact that those who save money will lose it by making poor investment decisions. Macroeconomists study variables such as the overall levels of prices and output. Correct Feedback Incorrect Feedback

Correct: The key word here is "overall." While microeconomics focuses on how decisions are made by individuals and firms, macroeconomics examines the actions of all the individuals and firms in the economy. Incorrect: Review the definition of macroeconomics and the subject matter of its focus. Add Question Here

Question 2

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Question Most economists agree that government intervention in the economy is beneficial Answer in smoothing out short-term economic fluctuations. in stabilizing individual product markets. in stabilizing individual labor markets. when consumers are uncertain about the benefits of a product. Correct Feedback Incorrect Feedback

Correct: Stabilization policy is aimed at lessening the severity of recessions. Incorrect: Most economists favor largely unrestricted actions by consumers and producers in individual markets, but they see a role for government intervention in the macroeconomy in combating the business cycle. Add Question Here

Question 3

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Question Which of the following is a microeconomic variable? Answer the overall level of prices the price of coffee the overall level of employment the current account Correct Feedback Correct: Prices and quantities in individual markets are microeconomic variables. Incorrect Feedback Incorrect: Overall measures are macroeconomic variables, not microeconomic variables. Add Question Here

Question 4

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Question Which of the following is a macroeconomic variable? Answer the overall level of output the price of legal services the price of medical services the seasonal fluctuation in rental prices for vacation homes Correct Feedback Correct: The overall level of output, known as gross domestic product, is a key macroeconomic variable. Incorrect Feedback Incorrect: Prices in individual markets are microeconomic variables. Add Question Here

Question 5

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Question The long-run effect of macroeconomic growth is to Answer allow for a higher standard of living. discourage people from saving. contribute to inflation. eliminate the business cycle. Correct Feedback Incorrect Feedback

Correct: Long-run growth occurs when the economy is more productive with the resources it has or when it expands the amount of resources available. Incorrect: Macroeconomic growth is the process of improving the productive capabilities of the economy. Add Question Here

Question 6

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Question The widely-held view that the government should take an active role in the macroeconomy dates back to Answer the American Revolution. the Great Depression. the Civil War. the drafting of the U.S. Constitution.

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Correct: It was during the Great Depression that policymakers decided to take actions to lessen the severity of swings in the business cycle. Incorrect: Consider the circumstances that would most likely give rise to policy implemented to change what is happening in the macroeconomy. Add Question Here

Question 7

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Question The tools of fiscal policy are Answer control over the interest rate and the level of investment spending. control over the interest rate and the quantity of money. price controls and export subsidies. government spending and taxation. Correct Feedback Correct: Fiscal policy is incorporated in the process of creating the government budget. Incorrect Feedback Incorrect: An example of a fiscal policy measure would be Congress enacting a cut in personal income tax rates. Add Question Here

Question 8

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Question The tools of monetary policy are Answer control over the interest rate and the quantity of money. government spending and taxation. controlling the level of the minimum wage. export subsidies and job training. Correct Feedback Correct: These policy measures can affect the overall level of spending. Incorrect Incorrect: Think about policy actions that would affect the way consumers and firms make decisions about handling Feedback money. Add Question Here

Question 9

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Question Microeconomics addresses the question of Answer how government intervention can eliminate the business cycle. how to keep prices stable. how to use a given set of resources as efficiently as possible. how to establish the optimal tax rate. Correct Feedback Incorrect Feedback

Correct: Microeconomics examines how resources are allocated by the market mechanism, and then seeks to find remedies for those circumstances in which the market alone will not create an efficient outcome. Incorrect: Recall that microeconomics looks at the way resources are allocated in individual markets. Add Question Here

Question 10

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Question Macroeconomics addresses the question of Answer why shortages arise temporarily. how to invest wisely. why some prices rise more quickly than others. how society can increase its total amount of productive resources. Correct Feedback Correct: Macroeconomics looks at the performance of the economy as a whole. Incorrect Feedback Incorrect: The key variable in macroeconomics is the overall level of output. Add Question Here

Question 11

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Question The most important effect of a recession is its effect on Answer the overall level of prices. the ability of workers to find jobs. the trade balance. the percentage of Americans without health insurance coverage. Correct Feedback Correct: These are important variables for macroeconomists. Incorrect Feedback Incorrect: Consult the definitions for key terms in this chapter. Add Question Here

Question 12

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Question In recent years, the United States has mostly experienced Answer balanced trade. trade surpluses. trade deficits. no trade with other nations. Correct Feedback Incorrect Feedback

Correct: In recent years, the value of the goods and services residents of the United States bought from the rest of the world was larger than the value of the goods and services American producers sold to customers abroad. So in recent years, the United States has had trade deficits. Incorrect: In recent years, the value of the goods and services residents of the United States bought from the rest of the world was larger than the value of the goods and services American producers sold to customers abroad. So in recent years, the United States has had trade deficits. Add Question Here

Question 13

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Question The business cycle is Answer the length of time it takes for a new product to be developed. the length of time it takes for an unemployed person to get a job.

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the length of time it takes for an entrepreneur to start a new business. the short-run alternation between economic recessions and expansions. Correct Feedback Correct: Among macroeconomists, questions about the business cycle and economic growth are of primary importance. Incorrect Incorrect: The business cycle is the fluctuation in the overall level of economic activity. Feedback Add Question Here

Question 14

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Question Which of the following statements is true? Answer Over the business cycle, the economy's level of output and its unemployment rate move in opposite directions. During recessions, the unemployment rate typically falls. During expansions, aggregate output typically declines. Because unemployment is a microeconomic variable, it does not have any correlation with the business cycle. Correct Feedback Incorrect Feedback

Correct: Increases in output are typically accompanied by decreases in the unemployment rate. Incorrect: Unemployment and aggregate output are both macroeconomic variables. Consider how they would fluctuate along with phases of the business cycle. Add Question Here

Question 15

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Question Overall output Answer typically declines as employment rises. typically declines during recessions. typically increases during recessions. is a microeconomic variable. Correct Feedback Incorrect Feedback

Correct: While there is no exact definition of a recession, most economists examine overall output and other economic variables to assess the state of the macroeconomy. Incorrect: Overall output is a macroeconomic variable. Think about the conditions that would prevail as it is decreasing. Add Question Here

Question 16

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Question Modern policy makers Answer take actions only when the economy appears to be going into a slump. try to "smooth out" the business cycle. take actions only to rein in booms in the economy. tend to let business cycles run their natural course without interference. Correct Feedback

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Correct: The work of John Maynard Keynes suggested that fiscal and monetary policies could be used to mitigate the effects of recessions; later work (especially by Milton Friedman) led to a consensus that it's important to rein in booms as well as to fight slumps. Modern policy makers try to "smooth out" the business cycle by addressing both slumps and booms. Incorrect: The work of John Maynard Keynes suggested that fiscal and monetary policies could be used to mitigate the effects of recessions; later work (especially by Milton Friedman) led to a consensus that it's important to rein in booms as well as to fight slumps. Modern policy makers try to "smooth out" the business cycle by addressing both slumps and booms. Add Question Here

Question 17

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Question Fiscal policy attempts to Answer forecast the timing of recessions. forecast the severity of recessions. stabilize the economy through changes in the interest rate. stabilize the economy through changes in taxation and government spending. Correct Feedback Correct: It's important to recognize the political issues that are entwined with the process of using fiscal policy for economic stabilization. Incorrect Incorrect: What are the tools of fiscal policy? Feedback Add Question Here

Question 18

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Question Long-run growth refers to Answer the expansion phase of the business cycle. the recession phase of the business cycle. the growth of the economy over several decades. the stimulative effect of spending on health care. Correct Feedback Correct: The steadily increasing standard of living in the United States is due to the strength of our long-run growth. Incorrect Feedback Incorrect: Long-run growth is independent of temporary fluctuations in output. Add Question Here

Question 19

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Question Which of the following statements is true? Answer Deflation can worsen a recession by giving people an incentive to hold cash rather than to make productive investments. Price stability is not a desirable goal in a market economy, because prices need to be flexible to reflect changes in supply and demand. Economic growth is the term used to describe those periods in which the overall price level is rising. Deflation is the term used to describe those situations in which shortages arise because the prices of goods are legally restricted to levels below equilibrium.

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Correct: When cash increases in value over time, people have more of an incentive to hold it. Incorrect: This is a good opportunity to review the key terms of macroeconomics and to improve your understanding of how they are related. Add Question Here

Question 20

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Question Which of the following statements is true? Answer Trade deficits and trade surpluses are microeconomic phenomena. Open-economy macroeconomics is based on the assumption that there is no business cycle. Open-economy macroeconomics is based on the assumption that there is no trade between countries. There's no simple relationship between the success of an economy and whether it runs trade surpluses or deficits. Correct Feedback Incorrect Feedback

Correct: The determinants of the overall balance between exports and imports lie in decisions about savings and investment spending. Incorrect: In open-economy macroeconomics, there is beneficial trade between countries. The theory looks at how both the business cycle and long-run growth are affected by the exchange of resources across national borders. Trade deficits and trade surpluses are both macroeconomic phenomena; the determinants of the overall balance between exports and imports lie in decisions about savings and investment spending. Add Question Here