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Macroeconomic Concepts - True and Fales & Multiple Choice

True/False

Supply is not a consideration for short term analysis.
Inflation includes increases and decreases in prices.
A recession is defined as at least four consecutive declines in real growth.
GDP includes the money paid to the neighbor's child to mow our lawn.
Wealth is a stock concept.
The underground economy excludes most tips.
Keynesians argue that economic growth is limited due to declining marginal productivity.
Say's law allows focus on aggregate supply.
Rule of 72 suggests growth of 8% per year will double income in 9 years.
Social Security payments are adjusted for inflation.

Multiple Choice

1. Fluctuations around the long-term growth rate are called:

A) recessions.

B) depressions.

C) expansions.

D) business cycles.

2. After the Great Depression, business cycles:

A) disappeared.

B) became more severe.

C) became less severe.

D) continued more or less as they had prior to the depression.

3. Japan can produce cars at a lower opportunity cost than firms in the United States. Some firms, in the face of this competition, had to close their plants and let go their workers. Many workers could not find new jobs right away. What type of unemployment describes the workers' situation?

A) Cyclical unemployment.

B) Full unemployment.

C) Structural unemployment.

D) Frictional unemployment.

4. Okun's rule of thumb states that a:

A) 2 percentage point change in unemployment will cause income to change in the opposite direction by 1 percent.

B) 2 percentage point change in unemployment will cause income to change in the same direction by 1 percent.

C) 1 percentage point change in unemployment will cause income to change in the opposite direction by 2 percent.

D) 1 percentage point change in unemployment will cause income to change in the same direction by 2 percent.

5. In constructing the CPI, it is assumed that:

A) the quality of the goods purchased remained constant between the base year and the year in question.

B) the prices of the goods purchased remained constant between the base year and the year in question.

C) the incomes of consumers remained constant between the base year and the year in question.

D) real output remained constant between the base year and the year in question.

6. The reason economists include only the value of final goods and services when they calculate GDP is that intermediate goods:

A) do not create value added.

B) do not add to economic welfare.

C) have no social value.

D) would be double counted otherwise.

GDP is:
Accurate
Grossly inaccurate
Somewhat inaccurate
None of the above

8. Markets help to promote growth by:

A) increasing specialization and the division of labor.

B) reducing specialization and the division of labor.

C) encouraging self-sufficiency.

D) reducing a nation's comparative advantage.

9. Specialization increases economic growth because:

A) it makes it possible for countries to trade for goods for which they have a comparative advantage.

B) it makes it possible for countries to trade for goods for which they do not have a comparative advantage.

C) it forces countries to become more self-sufficient.

D) it forces countries to consume more of the goods for which they have a comparative advantage and less of the goods for which they do not have a comparative advantage.

10. Real-world firms often meet workers' demands for higher wages because:

A) the majority of American workers belong to a labor union.

B) the labor market is highly competitive.

C) the government requires them to do so.

D) it helps maintain morale and prevents turnover of key workers.

11. Let's assume that your company CEO asked you to prepare a summary of the outlook for economic activity in the U.S. for 2006. He/She gives no guidelines for what to show except that you will have fifteen minutes to cover the material. What indicators would you include?

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