Question 1

Banks and other ﬁnancial institutions

Accepted Answer

A)   are the primary investors in equipment, factories, and other capital goods.
B)   lack relevance in the modern economy because they focus primarily on ﬁnancial assets and generally do not engage in real investment activity.
C)   promote economic growth by helping to direct household savings to businesses that want to invest.
D)   often hinder economic activity by creating barriers between household savers and ﬁrms wanting to invest in capital goods.E) A) and C)
F) A) and B)

Question 2

Savings are transferred from savers to borrowers through the following intermediaries, except

Accepted Answer

A)   mutual funds.
B)   pension funds.
C)   real estate brokers.
D)   insurance companies.E) B) and D)
F) C) and D)

Question 3

Increased present saving

Accepted Answer

A)   comes at the expense of reduced current investment.
B)   comes at the expense of reduced current consumption.
C)   can only occur if the government increases the amount of money in circulation.
D)   is only possible if the economy is experiencing positive growth in real GDP.E) B) and D)
F) None of the above

Question 4

Shocks occur when actual events do not match expectations.

Accepted Answer

A) True 
 B)False

Question 5

The overall behavior of the economy

Accepted Answer

A)   is remarkably stable over time.
B)   differs over time as prices become increasingly ﬂexible in the months and years following a shock.
C)   differs over time as prices become increasingly sticky in the months and years following a shock.
D)   is easily controlled and stabilized by government policy.E) A) and C)
F) B) and C)

Question 6

Real gross domestic product is a measure of the

Accepted Answer

A)   average price level in the economy.
B)   value of ﬁnal output produced within a country in one year, using current prices.
C)   value of ﬁnal output produced within a country in one year, adjusted for changing prices.
D)   total value of available resources in a nation.E) C) and D)
F) A) and B)

Question 7

An unexpected negative demand shock would lead to a decrease in inventories.

Accepted Answer

A) True 
 B)False

Question 8

The opportunity cost of investment is a reduction in future consumption.

Accepted Answer

A) True 
 B)False

Question 9

When prices are inﬂexible, the economy will respond to demand shocks through short-run changes
in output and unemployment.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following would an economist consider to be investment?

Accepted Answer

A)   Boeing builds a new factory
B)   Oprah buys a $10 million home from a fellow celebrity
C)   a stockbroker buys 10,000 shares of Starbucks stock
D)   All of these choices are correct.E) A) and B)
F) A) and C)

Question 11

Real GDP measures the

Accepted Answer

A)   total dollar value of all goods and services produced within the borders of a country using current prices.
B)   value of ﬁnal goods and services produced within the borders of a country, adjusted for price changes.
C)   total dollar value of all goods and services consumed within the borders of a country, corrected for price changes.
D)   value of all goods and services produced in the world, using current prices.E) B) and D)
F) A) and D)

Question 12

Suppose that real GDP increases by 5 percent while the population of a country increases by 7 percent. In this situation,

Accepted Answer

A)   output per person necessarily increases.
B)   output per person necessarily decreases.
C)   output per person necessarily remains unchanged.
D)   there is not enough information to determine what happens to output per person.E) B) and C)
F) A) and D)

Question 13

Inﬂation refers to an increase in the overall level of prices.

Accepted Answer

A) True 
 B)False

Question 14

The average amount of time between price changes for gasoline is

Accepted Answer

A)   two to three days.
B)   two to three weeks.
C)   two to three months.
D)   two to three years.E) None of the above
F) B) and C)

Question 15

Real GDP is preferred to nominal GDP as a measure of economic performance because

Accepted Answer

A)   nominal GDP uses current prices and thus may over or understate true changes in output.
B)   nominal GDP only includes goods and excludes services.
C)   nominal GDP is not adjusted for population changes.
D)   real GDP accounts for changes in the quality of goods and services produced.E) C) and D)
F) B) and D)

Question 16

Refer to the ﬁgure. Assuming this market is representative of the economy as a whole, a positive demand shock will

Accepted Answer

A)   increase both the price level and the quantity of output produced.
B)   increase output but leave prices unchanged.
C)   lower the price level but leave output unchanged.
D)   raise the price level but leave output unchanged.E) C) and D)
F) None of the above

Question 17

Higher unemployment rates are linked with higher crime rates and higher rates of physical and
mental illness.

Accepted Answer

A) True 
 B)False

Question 18

One major reason for sticky prices could be that ﬁrms selling ﬁnal goods and services do not want
to annoy customers with frequently changing prices.

Accepted Answer

A) True 
 B)False

Question 19

Prices tend to be sticky partially because sellers know that consumers prefer stable prices.

Accepted Answer

A) True 
 B)False

Question 20

Economists need different models of the economy because

Accepted Answer

A)   the economy behaves differently depending on how much time has passed after a demand shock.
B)   we need a different model to analyze a positive demand shock than we need to analyze a negative demand shock.
C)   the way economic performance is measured changes over time.
D)   prices tend to be less ﬂexible over time.E) All of the above
F) B) and C)

Exam 6: An Introduction to Macroeconomics

When prices are inﬂexible, the economy will respond to demand shocks through short-run changes in output and unemployment.

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Real gross domestic product is a measure of the

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Suppose that real GDP increases by 5 percent while the population of a country increases by 7 percent. In this situation,

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Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.

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Refer to the ﬁgure. Assuming this market is representative of the economy as a whole, a positive demand shock will

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The average amount of time between price changes for gasoline is

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Which of the following would an economist consider to be investment?

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Increased present saving

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Real GDP is preferred to nominal GDP as a measure of economic performance because

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Shocks occur when actual events do not match expectations.

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Prices tend to be sticky partially because sellers know that consumers prefer stable prices.

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Banks and other ﬁnancial institutions

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The opportunity cost of investment is a reduction in future consumption.

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An unexpected negative demand shock would lead to a decrease in inventories.

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Economists need different models of the economy because

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Real GDP measures the

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Savings are transferred from savers to borrowers through the following intermediaries, except

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One major reason for sticky prices could be that ﬁrms selling ﬁnal goods and services do not want to annoy customers with frequently changing prices.

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Inﬂation refers to an increase in the overall level of prices.

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The overall behavior of the economy

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