Macroeconomics Chapter 6
Terms in this set (35)
Macroeconomics is mostly focused on:
the economy as a whole.
The business cycle depicts:
short-run fluctuations in output and employment.
The term "recession" describes a situation where:
output and living standards decline.
Which of the following is most closely related to recessions?
Negative real growth in output.
Which of the following statements is most accurate about advanced economies?
Economies experience a positive growth trend over the long run but experience significant variability in the short run.
Real GDP measures the:
value of final goods and services produced within the borders of a country, corrected for price changes.
If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
Nominal GDP would rise, but real GDP would be unchanged.
Real GDP is preferred to nominal GDP as a measure of economic performance because:
nominal GDP uses current prices and thus may over- or understate true changes in output.
Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information we can conclude that Harry's production of large pepperoni pizzas this year:
increased nominal GDP by $20,000 but left real GDP unchanged.
Why are high rates of unemployment of concern to economists?
There is lost output that could have been produced if the unemployed had been working.
Unemployment describes the condition where:
a person cannot get a job but is willing to work and is actively seeking work.
Higher rates of unemployment are linked with:
higher crime rates as the unemployed seek to replace lost income.
Inflation is defined as:
an increase in the overall level of prices.
Why are economists concerned about inflation?
Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
The three statistics that are the main focus for those measuring macroeconomic health are:
real GDP, inflation, and unemployment.
Modern economic growth refers to countries that have experienced an increase in:
real output per person.
Before the period of modern economic growth:
rates of population growth virtually matched rates of output growth.
Which of the following countries would economists say definitively is achieving modern economic growth?
Nigeria experiences a 2.7 percent increase in real GDP per person.
Which of the following is used to measure directly the average standard of living across countries?
GDP per person.
Savings are generated whenever:
current income exceeds current spending.
When economists refer to "investment," they are describing a situation where:
resources are devoted to increasing future output.
Which of the following would an economist consider to be investment?
Boeing building a new factory.
If an economy wants to increase its current level of investment, it must:
sacrifice current consumption.
Increased present saving:
comes at the expense of reduced current consumption.
Banks and other financial institutions:
promote economic growth by helping to direct household saving to businesses that want to invest.
Shocks to the economy occur:
when expectations are unmet.
refer to unexpected changes in the desires of households and businesses to buy goods and services.
Which of the following is an example of a demand shock?
Consumers become worried about job loss and buy fewer goods and services than expected.
occur when sellers face unexpected changes in the availability and/or prices of key inputs.
Which of the following is an example of a supply shock?
A dramatic increase in energy prices increases production costs for firms in the economy.
The figure depicts a situation where:
prices are sticky, but output is flexible.
Refer to the figures. Which figure(s) represent(s) a situation where prices are flexible?
Refer to the figures. Which figure(s) represent(s) a situation where prices are sticky?
Which of the following best explains why prices tend to be inflexible even when demand changes?
Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.
Which of the following statements best describes price flexibility in the economy?
Prices tend to be sticky in the short run but become more flexible over time.