Macroeconomics MCQs

Since the end of World War II, each president running for reelection when the economy was growing has won, and each president running for reelection w...

inflation
depreciation
the business cycle.
the underground economy.

In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This mea...

simply counts the total number of goods and services produced in the marketplace and then adds them up.
values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.
simply counts the total number of goods produced in the market place and then adds them up.
values goods at their market prices, multiplies them by the quantity produced, and then adds them up.

Suppose in 2020, you purchase a house built in 2014. Which of the following would be included in the gross domestic product for 2020?

the value of the house in 2020 minus depreciation
the value of the house in 2014
the value of the house in 2020
the value of the services of the real estate agent

Which of the following goods is directly counted in GDP?

the plastic bags that Subway purchases to wrap its sandwiches
the bread that Subway purchases for its sandwiches
a 12-inch Subway sandwich purchased by a student
the lettuce that Subway purchases for its sandwiches

PRODUCT QUANTITY PRICE Sweatshirts 50 35 Dental Exam 40 75 Coffee Drinks 1000 4 Coffee Beans 2000 .50 Suppose that a simple economy produces only...

3,090 units.
$7,250.
$8,750.
$9,750.

In the circular flow model, the value of total income for an economy ________ the value of total production.

is greater than
equals
is less than
may be greater than or less than

Which of the following is not an example of a transfer payment?

social security payments to disabled persons
unemployment insurance payments
health insurance payments to an army private
social security payments to retirees

Investment, as defined by economists, would include the purchase of a...

government bond.
share of stock in ExxonMobil.
computer by an accounting firm.
corporate bond.

The purchase of a new house is included in...

government purchases.
consumption expenditures.
investment expenditures.
net exports.

The purchase by a household in China of an automobile produced in the United States is included in U.S. ...

investment expenditures.
net exports.
consumption expenditures.
government purchases.

What is the largest component of spending in the United States?

net investment spending
government purchases
investment spending
consumption spending

In the second half of 2019, automobile sales in the United States were lower than they were in the second half of 2018. The decrease in auto sales imp...

investment; consumption
durable goods; nondurable goods
nondurable goods; durable goods
consumption; investment

Consumption expenditures $ 800 Investment expenditures 300 Government purchases 300 Government transfer payments 400 Exports 300 Imports 100 Con...

$2,200.
$2,100.
$1,600.
$1,400.

An example of an intermediate good would be...

a used car.
the rims on a new car.
new rims to replace old rims on a used car.
a new car.

Consumption expenditures do not include household purchases of...

durable goods.
education
new houses.
medical care.

Which of the following is considered a durable good?

food
clothing
a washing machine
medical care

Gross domestic product understates the total production of final goods and services because of the omission of...

inflation
intermediate goods.
household production.
exports

The size of the underground economy would tend to increase if the government of a country...

decreased government regulations on businesses.
increased income tax rates.
legalized marijuana.
legalized prostitution.

Which of the following is likely to increase measured GDP?

A greater number of women decide to stay at home and provide day care for their children under age 5.
Tax rates increase and more people attempt to underreport their income for tax purposes.
Marijuana becomes legal to grow and sell.
More people decide to do their own lawn maintenance and give up using a professional service.

A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements. This will...

decrease GDP and increase well-being in the economy.
increase GDP and decrease well-being in the economy.
increase GDP and increase well-being in the economy.
decrease GDP and decrease well-being in the economy.

GDP is not a perfect measure of well-being because...

GDP is adjusted for increases in drug addiction.
the value of leisure is included in GDP.
GDP is adjusted for changes in crime rates.
GDP is not adjusted for pollution.

Year Guns Produced Price of Guns Butter Produced Price of butter 2013 80 $5 40 $4 2020 90 6 60 10 Consider the following data for Tyrovia, a country ...

$1,140.
$880.
$690.
$560.

Year Guns Produced Price of Guns Butter Produced Price of butter 2013 80 $5 40 $4 2020 90 6 60 10 Consider the following data for Tyrovia, a country ...

$1,140.
$880.
$690.
$560.

To examine how the total production of an economy has changed over time, it would be better to examine

real GDP.
nominal GDP.
the GDP deflator.
GDP at current prices.

The GDP deflator is the...

ratio of nominal GDP to real GDP multiplied by 100.
ratio of real GDP to nominal GDP multiplied by 100.
difference between nominal GDP and real GDP divided by 100.
difference between real GDP and nominal GDP multiplied by 100.

Nominal GDP will increase...

only if the quantity of final goods and services produced rises.
only if the price level rises.
only if the price level falls.
if either the price level or the quantity of goods and services produced rises.

Year Nominal GDP Real GDP 2019 14,078 13,254 2020 14,441 13,312 Consider the following data on nominal GDP and real GDP (values are in billions of do...

92.2.
102.6.
108.5.
109.1.

The unemployment rate is an important economic statistic that can tell us about the health of the economy. If the unemployment rate turns out to be hi...

it is more likely that an incumbent president will be re-elected.
that stock prices are more likely to fall.
that investors will be more optimistic about the economy.
that jobs are less difficult to find.

The Bureau of Labor Statistics would categorize a retiree who is not working as...

a discouraged worker.
employed
unemployed
out of the labor force.

Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would...

decrease the number of persons in the labor force.
increase the measured unemployment rate.
increase the measured labor force participation rate.
decrease the number of persons in the working-age population.

Total population 20,000 Working-age population 15,000 Employment 1,000 Unemployment 100 Consider the data above for a simple economy.The unemploym...

(100/1,000) Ã— 100.
(100/20,000) Ã— 100.
(100/15,000) Ã— 100.
(100/1,100) Ã— 100.

Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become empl...

increase
decrease
remain constant.
not change in a way that can be predicted.

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?

inflation
discouraged workers
unemployed persons falsely report themselves to be actively looking for a job
counting people as employed who are working part time, although they would prefer to be working full time

An advantage of the establishment survey over the household survey of the labor market is that the establishment survey...

is based on actual payrolls, rather than on unverified answers.
includes persons employed at newly opened firms.
includes the number of self-employed persons.
provides an estimate of the number of persons unemployed.

Discouraged workers are classified by the BLS as...

employed
unemployed
part-time employees.
not in the labor force.

The advice to "keep searching, there are plenty of jobs around here for which you are qualified," would be most appropriate for which of the following...

cyclical unemployment
frictional unemployment
seasonal unemployment
structural unemployment

According to the text, economists consider full employment to occur when...

the unemployment rate consists of only frictional and structural unemployment.
the sum of frictional unemployment and structural unemployment equals zero.
everyone who wants a job has a job.
frictional unemployment equals zero.

A lumberjack loses his job because timber cutting restrictions were imposed by the EPA to protect the spotted owl habitat. This lumberjack would be......

frictionally unemployed.
seasonally unemployed.
structurally unemployed.
cyclically unemployed.

Most of the unemployment that occurred during the Great Depression was...

frictional unemployment.
cyclical unemployment.
core unemployment.
structural unemployment.

Jack just told his boss that he thinks his boss is an idiot. It is likely that Jack will be experiencing ________ unemployment in the near future.

cyclical
permanent
frictional
structural

An increase in unemployment insurance payments would, in effect, the amount of time spent searching for a job, which would increase ...

increase; frictional
decrease; cyclical
decrease; frictional
increase; cyclical

If the minimum wage is set above the market wage...

unemployment will rise.
highly-skilled workers will have a harder time finding jobs.
the quantity of labor supplied will be below the quantity of labor demanded.
All of the above are correct.

Efficiency wages cause unemployment because...

firms pay wages that are below the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied.
firms pay wages that are above the market wage, causing the quantity of labor demanded to be greater than the quantity of labor supplied.
firms pay wages that are above the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.
firms pay wages that are below the market wage, causing the quantity of labor demanded to be less than the quantity of labor supplied.

By offering training to workers whose firms laid them off because of competition from foreign firms, the federal government is attempting to reduce......

seasonal unemployment.
frictional unemployment.
cyclical unemployment.
structural unemployment.

Which of the following explains why many European countries have unemployment rates that are higher than in the United States?

Firms in European countries offer employees higher wages and higher benefits than do firms in the United States.
The minimum wage in Europe is lower than it is in the United States.
European countries offer higher unemployment benefits than the United States.
Technological change occurs at a faster rate in Europe, so structural unemployment is higher in Europe.

If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would...

increase
equal 20%.
remain the same.
decrease

Which of the following is true about the consumer price index?

It assumes that consumers purchase the same amount of each product in the market basket each month.
It frequently updates the price changes of new products added to the market basket, as these have a tendency to fall.
It accounts for people switching to goods whose prices have fallen.
It filters out the part of price increases that occurs because of quality improvements in products.

Which of the following price indices comes closest to measuring the cost of living of the typical household?

household price index
consumer price index
producer price index
GDP deflator

Product Quantity Price (2015) Price (2022) Milk 50 $1.20 $1.50 Bread 100 1.00 1.10 Assume the market basket for the consumer price index has two pr...

116
86
118
85

The percent increase in the CPI from one year to the next is a measure of the...

GDP deflator.
real interest rate.
unemployment rate.
inflation rate.

Year CPI 2021 207 2022 215 Consider the following values of the consumer price index for 2021 and 2022. The inflation rate for 2022 was equal to

8.0 percent.
215 percent.
3.9 percent.
21.5 percent.

Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2022. You know that average...

less than 5 times as much as your grandfather in terms of real income.
5 times as much as your grandfather in terms of real income.
less than 5 times as much as your grandfather in terms of nominal income.
more than 5 times as much as your grandfather in terms of real income.

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, a...

change; underestimates
do not change; overestimates
do not change; underestimates
change; overestimates

Which of the following would be a consequence of substitution bias in the CPI?

Social Security payments would not adequately compensate retired workers for inflation.
Judges would award child support payments that would not adequately keep up with the true cost of inflation.
The inflation rate based on the CPI would underestimate the true level of inflation.
Businesses would overcompensate employees for inflation when giving cost of living raises.

To reduce the bias in the consumer price index, the Bureau of Labor Statistics...

incorporates substitutions by consumers when prices of specific products fall rapidly.
incorporates substitutions by consumers when prices of specific products rise rapidly.
updates the market basket every 10 years, rather than every two years.
updates the market basket every two years, rather than every 10 years.

The broadest measure of the price level that includes all final goods and services is...

the GDP deflator.
the consumer price index.
the producer price index.
the wholesale price index.

The CPI is also referred to as...

the inflation-consumption index.
the GDP deflator.
the producer price index.
the cost-of-living index.

If your nominal wage rises faster than the price level, we can say your real wage has and the purchasing power of your income has .

fallen; risen
risen; risen
fallen; fallen
risen; fallen

The real interest rate equals the nominal interest rate ________ the inflation rate.

times
plus
minus
divided by

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what ...

6 percent
16 percent
8 percent
12 percent

Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upco...

greater than 7 percent.
equal to 0 percent.
equal to 7 percent.
less than 7 percent.

During a deflationary period...

the nominal interest rate does not change.
the real interest rate is less than the nominal interest rate.
the price level rises.
the nominal interest rate is less than the real interest rate.

If you want to earn a real interest rate of 4% on money you lend and you expect that inflation will be 4%, what nominal rate of interest should you ch...

-4%
8%
0%
4%

Suppose that in 2020, all prices in the economy double and that all wages and salaries also double. In 2020 you...

cannot determine whether you are better off or worse off than you were in 2021, because the purchasing power of your salary cannot be determined.
are worse off than you were in 2021 as you can no longer afford to buy as many goods and services.
are better off than you were in 2021 as your salary is higher than it was in 2021 and you can now buy more goods and services.
are no better off or worse off than you were in 2021 as the purchasing power of your salary has remained the same.

The cost to firms of changing prices...

is small even when there is rapid inflation.
is called a menu cost.
does not exist if inflation is perfectly anticipated.
all of the above

Which of the following individuals would be most negatively affected by anticipated inflation?

a full-time employee at a pizza parlor who makes more than the minimum wage
a union contractor whose pay is adjusted based on changes in the CPI
a retired railroad engineer who receives a fixed income payment every month
a student who borrows $10,000 at a nominal interest rate of 5% to finance educational expenses

If inflation increases unexpectedly, then...

neither borrowers nor lenders lose.
borrowers pay a higher real interest rate than they expected.
lenders gain and borrowers gain.
lenders receive a lower real interest rate than they expected.

The deflation of the 1930s impacted the U.S. economy because it led some consumers to and because it .

postpone purchases while they waited for prices to fall even lower; increased the burden on borrowers
demand higher wages in anticipation of prices eventually rising again; increased manufacturing since firms could afford to hire more labor
increase purchases to take advantage of the falling prices; increased the burden on lenders
borrow more money since money was now cheap; reduced the amount of money consumers would have to pay back on their outstanding loans

In economics, money is defined as...

the total amount of salary, interest, and rental income earned during a year.
the total value of one's assets minus the total value of one's debts, in current prices.
any asset people generally accept in exchange for goods and services.
the total value of one's assets in current prices

The major shortcoming of a barter economy is...

that goods and services are not traded.
the requirement of a double coincidence of wants.
the requirement of specialization and exchange.
that money loses value from inflation.

Allied soldiers in a World War II prisoner-of-war camp...

used cowrie shells as money.
used U.S. dollars as a commodity money.
used gold as a fiat money.
used cigarettes as money.

In an economy with , there are more prices than in an economy with .

fiat money; barter
barter; money
money; barter
fiat money; commodity money

The statement, "My iPhone is worth $700" represents money's function as...

a store of value.
a unit of account.
a standard of deferred payment.
a medium of exchange.

People hold money as opposed to financial assets because money...

earns no interest.
is perfectly liquid.
earns interest.
earns a higher return than other financial assets.

Fiat money has...

little to no intrinsic value but is backed by the quantity of gold held by the central bank.
a great intrinsic value that is independent of its use as money.
little to no intrinsic value and is authorized by the central bank or governmental body.
value, because it can be redeemed for gold by the central bank.

farm worker gets paid today in money, but plans to spend the money next week. This illustrates which function of money?

unit of account
standard of deferred payment
medium of exchange
store of value

The Federal Reserve's narrowest definition of the money supply is...

M2.
M0.
M3.
M1.

If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will and M2 will .

not change; not change
increase; decrease
not change; increase
increase; not change

Currency $1,000 Checking Account Balances 2,000 Savings Account Balances 5,000 Small-Denomination Time Deposits 6,000 Noninstitutional Money Marke...

$8,000.
$21,000.
$3,000.
$14,000.

A person's wealth...

is a measure of how much money the person has.
All of the above are correct.
equals the value of the personâ€™s assets minus his or her liabilities.
is a measure of only his or her current and expected future income.

Banks keep of checking deposits as reserves because on a typical day withdrawals deposits.

exactly 100%; are about the same as
less than 100%; are about the same as
more than 100%; are much greater than
exactly 100%; are much greater than

A central bank like the Federal Reserve in the United States can help banks survive a bank run by...

raising the discount rate.
increasing the required reserve ratio.
acting as a lender of last resort.
printing money.

The Federal Open Market Committee consists of the seven members of the , the president of the Federal Reserve Bank of New York, and .

Council of Economic Advisors; four members of the U.S. Banking Committee
Federal Reserve's Board of Governors; four members of the Council of Economic Advisors
Council of Economic Advisors; four presidents from the 11 Federal Reserve banks
Federal Reserveâ€™s Board of Governors; four presidents from the other 11 Federal Reserve banks

The purchase of Treasury securities by the Federal Reserve will, in general...

decrease the quantity of reserves held by banks.
not change the quantity of reserves held by banks.
not change the money supply.
increase the quantity of reserves held by banks.

If a bank receives a $1 million discount loan from the Federal Reserve, then the bank's reserves will...

not change.
increase by more than $1 million.
increase by $1 million.
increase by less than $1 million.

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Rese...

$20 million.
$15 million.
$5 million.
$0

As was demonstrated in 2007, firms in the shadow banking system...

were more insulated from the financial crisis than were commercial banks.
were very vulnerable to bank runs.
were protected from financial ruin by federal deposit insurance.
were well insulated from bank runs.

Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then ...

15 percent.
6 percent.
11 percent.
19 percent.

The quantity theory of money predicts that, in the long run, inflation results from the...

velocity of money growing at a lower rate than real GDP.
velocity of money growing at a faster rate than real GDP.
money supply growing at a faster rate than real GDP.
money supply growing at a lower rate than real GDP

The German Hyperinflation of the early 1920s was caused by...

rising oil prices after World War I caused a severe stagflation and hyperinflation.
large deficits resulting from the high levels of war spending and falling taxes.
the German government raising funds for expenditures by selling bonds to the central bank.
an overly aggressive monetary policy implemented to combat a severe recession.

Hyperinflations occur because governments want to spend more than they raise in taxes, and they pay for the extra purchases by printing money or selli...

True
False

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Macroeconomics MCQs