Test Bank For Macroeconomics 15th Canadian Edition Campbell R Mcconnell Stanley L Brue Sean Masaki Flynn Tom Barbiero

Test Bank for Macroeconomics, 15th Canadian Edition, Campbell R. McConnell, Stanley L.
Brue,
Test Bank for Macroeconomics, 15th Canadian

Edition, Campbell R. McConnell, Stanley L. Brue,
Sean Masaki Flynn, Tom Barbiero
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Chapter 06 - An Introduction to Macroeconomics
Chapter 06
An Introduction to Macroeconomics
True / False Questions
1. Unemployment occurs when a person cannot get a job despite being willing to work and
actively seeking work.
TRUE
Accessibility: Keyboard Navigation

Difficulty: Easy
Learning Objective: 06-01 Explain why economists focus on GDP; unemployment; and inflation when assessing the health of an entire
economy.
Topic: 06-01 Assessing the Health of the Economy: Performance and Policy
2. Modern economic growth in a country implies that output per person increases.
TRUE

Difficulty: Easy
economy.
3. Before the start of the Industrial Revolution in the late 1700s, living standards around the
world were quite different.
FALSE

Difficulty: Easy
economy.
6-1
4. Savings are generated when current consumption is less than current output.
TRUE

Difficulty: Easy
Learning Objective: 06-03 Identify why saving and investment are key factors in promoting rising living standards.
Topic: 06-03 Saving, Investment, and Choosing Between Present and Future Consumption
5. A well-functioning financial system helps to promote economic growth and stability.

TRUE

Difficulty: Easy
6. Demand shocks are the expected changes in the demand for goods and services.
FALSE

Difficulty: Easy
Learning Objective: 06-04 Describe why expectations; shocks; and sticky prices are responsible for short-run fluctuations in output and
employment.
Topic: 06-05 Uncertainty, Expectations, Shocks, and Short-Run Fluctuations
7. If prices are flexible, no matter what demand turns out to be, firms can continue selling
their optimal output.
TRUE

Difficulty: Medium
employment.
6-2
8. In reality, all the prices in the economy are inflexible and are not able to change rapidly
when demand changes unexpectedly.
FALSE

Difficulty: Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Topic: 06-10 Full Employment if There are No Shocks
9. Commodities such as airline tickets, and gasoline have sticky prices.

FALSE

Difficulty: Easy
Topic: 06-10 Full Employment if There are No Shocks
10. Sticky prices imply that some firms are afraid to cut their prices because they are afraid of
price wars.
TRUE

Difficulty: Easy
Learning Objective: 06-06 Explain why the greater flexibility of prices as time passes causes economists to use different macroeconomic
models for different time horizons.
Topic: 06-11 Price Changes if there are Demand Shocks and Flexible Prices
Multiple Choice Questions
6-3
11. To understand how the economy works, economists could look at various data including:
A. the number of new residential building permits.
B. the amount of new orders for capital goods.
C. the number of manufacturers' new orders for consumer goods.
D. all of the above.

Difficulty: Easy
economy.
12. To look at the health of the economy, economists would most probably look at indictors
such as:
A. real GDP, unemployment rate and, the inflation rate.
B. level of saving, nominal GDP and, the inflation rate.
C. nominal GDP, level of investment and, the general price level.
D. the general price level, employment rate and, level of saving.

Difficulty: Easy
economy.
13. The concept of "real GDP" refers to:

A. the value of nominal GDP after adjustments have been made for changes in the price level.
B. the value of nominal GDP minus the environmental pollution and changes in the
distribution of income.
C. the value of the current total output plus the value of intermediate goods.
D. GDP data which reflect changes in both physical output and environmental damage.

Difficulty: Easy
economy.
6-4
14. If current prices are used to calculate the value of total output produced by a country
during a specific period of time, the result is called:
A. real GDP.
B. nominal GDP.
C. full employment GDP.
D. constant dollar GDP.

Difficulty: Easy
economy.
15. Real GDP and nominal GDP differ because real GDP:
A. is adjusted for changes in the nation's distribution of income.
B. includes the economic effects of international trade.
C. is equal to the nominal GDP minus the total tax payments.
D. has been adjusted for changes in the price level.

Difficulty: Easy
economy.
16. The official unemployment rate:

A. reveals people over 21 years of age who are currently discouraged and are not looking for
a job.
B. is the percentage of the labour force which is unemployed.
C. is the percentage of the labour force which is working part-time.
D. is the percentage of the total population which is not working.

Difficulty: Easy
economy.
6-5
17. According to researchers, there is a direct link between unemployment and:

A. major social problems like higher crime rates, higher rate of depression, heart disease and
other illnesses.
B. major social problems such as high levels of education and, health services.
C. inflation.
D. characteristics of structural unemployment.

Difficulty: Medium
economy.
18. Inflation means:

A. an increase in individuals' real income.
B. that all prices are rising and at the same rate.
C. an increase in the overall price level.
D. a decrease in the overall level of prices.

Difficulty: Easy
economy.
19. The term "inflation" describes the situation where:

A. general price levels are declining.
B. stock market prices are increasing.
C. all prices are increasing at the same rate.
D. the overall price level is increasing.

Difficulty: Easy
economy.
6-6
20. Economic growth is defined as:

A. an increase in either real GDP or real GDP per capita.
B. an increase in the nominal GDP.
C. an increase in the overall general price level.
D. an increase in the level of consumption.

Difficulty: Easy
Learning Objective: 06-02 Discuss why sustained increases in living standards are historically recent phenomena.
Topic: 06-02 The Miracle of Modern Economic Growth
21. Economic growth is best defined as the:

A. increase in consumption level as a percentage of GDP over time.
B. percentage increase in real GDP over time.
C. percentage increase in nominal GDP over time.
D. percentage decrease in the overall price levels over time.

Difficulty: Easy
22. To keep track of long-run growth and short-run fluctuations, economists will look at
statistics such as:
A. interest rate and, stock market prices.
B. stock market prices only.
C. inflation, expected rate of returns on investments.
D. real and nominal GDP, unemployment and inflation rates.

Difficulty: Easy
6-7
23. In 2008-2009, the Canadian economy experienced:

A. a depression.
B. the Great Recession.
C. a decrease in the unemployment rate compared to 2007.
D. an increase in jobs.

Difficulty: Easy
24. Modern economic growth refers to the idea of experiencing:

A. an increase in output per person as compared to an increase in output.
B. an increase in output as compared to an increase in output per person.
C. an increase in population at a faster rate than an increase in output.
D. an increase in population at the same rate as the increase in output.

Difficulty: Easy
25. Modern economic growth refers to:

A. an increase in the general price level.
B. an increase in output per person.
C. an increase in the output.
D. an increase in percentage of the population which participates in the labour force.

Difficulty: Easy
6-8
26. If the economy's output and income double in 35 years, we can:

A. not say anything about the average annual rate of growth.
B. conclude that its average annual rate of growth is about 5.5 percent.
C. conclude that its average annual rate of growth is about 2 percent.
D. conclude that its average annual rate of growth is about 4 percent.

Difficulty: Medium
27. Today, the vast differences in the living standard between rich and poor countries are
mainly the result of:
A. small differences in per capita GDP levels around the world.
B. rich countries experiencing modern economic growth while poor countries do not.
C. small differences in nominal GDP levels around the world.
D. large differences in population levels around the world.

Difficulty: Easy
28. To facilitate the international comparisons of living standards around the world,
adjustments are supposed to be made to each country's GDP. These adjustments require:
A. calculating each country's GDP in terms of U.S. dollar, dividing it by the general price
level and, subtracting the previous year's value of the country's GDP from it.
B. converting each country's GDP to U.S. dollars, dividing it by the country's population and,
to adjust the resulting figure for the purchasing power parity.
C. each country's GDP should be multiplied by its general price level.
D. there is no need for any adjustments since, each country's GDP is the representative of its
standard of living.

Difficulty: Medium
6-9
29. In economics, the term "investment" includes:

A. the purchase of a Microsoft stock.
B. the purchase of gold by a businessman.
C. the addition of cash to a savings account.
D. any increase in business inventories.

Difficulty: Easy
30. Which of the following is not an economic investment?

A. the purchase of machinery by ABC Manufacturing Company
B. the purchase of 50 shares of Aliant by a retired business executive
C. construction of a housing project for the homeless
D. the increase in the inventory on a grocer's shelf

Difficulty: Easy
31. The Flamingo Corporation issued $30 million in new common stock in 2008. It used $22
million of the proceeds to replace obsolete equipment in its factory and $8 million to repay
bank loans. As a result, investment:
A. of $8 million has occurred.
B. of $22 million has occurred.
C. of $30 million has occurred.
D. has not occurred.

Difficulty: Easy
6-10
32. Which would be considered an investment according to economists?

A. the buying of shares of Fidelity mutual funds
B. the purchase of a new machinery by McCain Food
C. the selling of Boeing stock by a businessman
D. the selling of GE corporate bonds

Difficulty: Easy
33. Which would be considered an investment according to economists?

A. the purchase of government bonds by the nation's central bank
B. the purchase of a laptop by a university student to prepare her class projects
C. the construction of a new factory by Intel
D. the purchase of shares of stock by Manulife, a mutual fund company

Difficulty: Medium
34. The higher is the current level of saving:

A. the higher is the current level of investment and higher the future level of consumption.
B. the lower is the current level of investment and lower the future level of consumption.
C. the higher is the current level of investment and lower the future level of consumption.
D. the lower is the current level of investment and higher the future level of consumption.

Difficulty: Medium
6-11
35. The inequality of saving and planned investment:

A. is attributable to a low level of consumption.
B. may be of considerable significance because of the subsequent changes in income,
employment, and the price level.
C. is of no consequence because a compensating inequality of tax collections and government
spending will always occur.
D. is of no consequence because saving and actual investment will always be equal.

Difficulty: Hard
36.
Refer to the above diagram. Curve (a) is the current production possibilities frontier for the
economy. Other things being equal, society's current choice of point P on curve (a) means:
A. more rapid economic growth compared to choosing point N.
B. a slower rate of economic growth compared to choosing point N.
C. the same rate of growth as would occur if point N were chosen.
D. it is unachievable because it exceeds the productive capacity of the economy.
Difficulty: Medium
6-12
37. The financial institutions play an important role in transferring the savings of the
individuals to the investments by businesses. Which of the following correctly states this
transfer?
A. banks collect the savings and invest it in the stock market.
B. banks collect the savings, rewarding the savings by interest and dividend payments and,
lend the funds to businesses who in turn buy equipment, factories and capital goods.
C. banks collect the savings and lend the funds to the government who in turn redistribute it
through different kinds of subsidies.
D. financial institutions do not have a major role in this process.

Difficulty: Medium
38. The decisions about savings and investments are complicated because:
A. it involves uncertainty about the future.
B. higher savings means higher levels of consumption for individuals.
C. the investment decisions are independent from the decisions about savings.
D. savings are taken by businesses while investments are done by households.

Difficulty: Easy
39. ________ shocks are unexpected changes in the demand for goods and services While,
_________ shocks are unexpected changes in the supply of goods and services.
A. Supply; demand.
B. Investment; savings.
C. Internal; external.
D. Demand; supply.

Difficulty: Easy
employment.
6-13
40. Economists believe that most short-run fluctuations are the result of:
A. supply shocks.
B. demand shocks.
C. unexpected changes in the availability of imported resources.
D. negative supply shocks.

Difficulty: Easy
employment.
41. When we say "Prices of many goods and services are inflexible in the short-run" it
means:
A. prices change too quickly in the short-run.
B. prices do not change in the long-run.
C. prices change too slowly in the short- run.
D. prices are not sticky in the short-run.

Difficulty: Easy
employment.
42. Because prices change too slowly in the short-run and as a result, they do not quickly
equalize the quantity demanded and quantity supplied of goods and services, the short-run
response of the economy to a demand shock is through:
A. changes in output and employment levels rather than through changes in prices.
B. changes in prices rather than through changes in employment.
C. changes in employment but not in output.
D. changes in output but not in the employment.

Difficulty: Easy
employment.
6-14
43. Refer to the diagram given below. The diagram has two panels: (a) and (b).
Panel (a) represents the demand for and the supply of a brand of automobile (Turbo car) for
Fancy Auto, a car manufacturing company. Assume that DL represents the demand for Turbo
cars when demand is low, DM represents the demand for Turbo cars when demand is medium,
and DH represents the demand for Turbo cars when demand is high. If Fancy Auto's optimal
output level is 900 cars per week and the price of Turbo cars is flexible, Fancy Auto:
A. can continue to sell its optimal output regardless of the demand level.
B. can produce at its optimal output level only if the level of demand is DL.
C. can produce at its optimal output level only if the level of demand is at DM.
D. can sell more than its optimal output when the level of demand is DH.
Difficulty: Easy
employment.
Topic: 06-09 Setting Expectations
6-15
44.
Refer to the above diagram (b), assume that DL represents low demand for the Turbo-car, DM
represents the medium level of demand and, DH represents the high level of demand for
Turbo-car and, Fancy Auto's optimal output level is 900 cars per week. If the Fancy Auto
Company has a fixed price policy of $37,000 per vehicle:
A. the quantity demanded will be 900 cars per week if the demand is DL.
B. the quantity demanded will be 700 cars per week if the demand is DL.
C. the quantity demanded will be 1150 cars per week if the demand is DL.
D. the quantity demanded will be 1150 cars per week if the demand is DM.
Difficulty: Easy
employment.
6-16
45.
Refer to the above diagrams, one can conclude that if expectations are always fulfilled, Fancy
Auto Company:
A. will never have to adjust the optimal output and employment levels accordingly.
B. has to adjust the employment level but not the optimal output.
C. has to adjust the optimal output level but not the employment.
D. has to adjust both optimal output level and employment accordingly.
Difficulty: Easy
employment.
46. The short-run fluctuations in output and unemployment that we see in the real world are
the result of:
A. shocks and events that are going according to the plans.
B. shocks and events that are not going according to the plans.
C. the actual demand to be exactly what the firms were expecting.
D. the actual supply to be exactly what the firms were planning.

Difficulty: Easy
employment.
6-17
47. In response to an unexpected change in demand, if the prices are free to adjust quickly:
A. a firm could always operate at its optimal output level.
B. a firm would experience a decline in its output and employment.
C. a firm would not be able to adjust its output according to the plan.
D. a firm would not be able to change its employment accordingly.

Difficulty: Medium
employment.
48. In response to some unexpected changes in demand:

A. the economy could always adjust its production level if the prices are inflexible.
B. the economy would always produce less than what was expected if the prices of goods and
services are inflexible.
C. the economy could always produce at its optimal capacity if the prices of goods and
services are inflexible.
D. the economy could always produce at its optimal capacity if the prices of goods and
services are fully flexible.

Difficulty: Medium
employment.
49. Knowing that in the real world, the demand for goods and services could change
unexpectedly, firms would attempt to deal with it by:
A. producing different levels of goods and services according to the changes in demand.
B. switching to the production of another product in the short-run.
C. maintaining an inventory.
D. closing down the production in the short-run with the hope that the situation would change
in the future.

Difficulty: Medium
employment.
Topic: 06-07 Demand Shocks and Sticky Prices
6-18
50. To explain the short-run fluctuations in the real-world economies, economists refer to:
A. the combination of unexpected changes in demand and inflexible prices.
B. the combination of unexpected changes in demand and flexible prices.
C. the combination of fully expected changes in demand and inflexible prices.
D. the combination of flexible prices and changes in the inventories.

Difficulty: Medium
employment.
51. Assuming inflexible prices, if the demand for many goods and services falls across the
entire economy and for an extended period of time:
A. many firms will face a constant reduction in their inventories.
B. many firms will face with an inventory pile up and will be forced to cut production.
C. many firms will face with an inventory pile up and will be forced to hire more workers.
D. many firms will face a constant reduction in their inventories and will be forced to hire
more workers.

Difficulty: Medium
employment.
52. Assume that the demand for goods and services falls across the entire economy and for an
extended period of time. If the prices are inflexible, the unintended increase in business
inventories would force:
A. businesses to keep the production at the existing level.
B. businesses to increase the level of production.
C. businesses to lower the level of production.
D. businesses to increase the level of employment.

Difficulty: Medium
employment.
6-19
53. Which of the following have the most flexible prices?

A. airline tickets, gasoline and, electricity.
B. haircuts, newspapers and, taxi fares.
C. computer software and, veterinary services.
D. coin-operated laundry machines, restaurant menus and, magazines.

Difficulty: Easy
employment.
54. Several factors contribute to short-run price stickiness. These include:

A. consumer preference for lower prices and the quality of the product.
B. durability and the quality of the product.
C. frequent sales and, inventory pile ups.
D. consumer preference for predictable prices and, the fear of price war.

Difficulty: Easy
employment.
55. If the unexpected short-run fluctuations in demand begin to look permanent:

A. the firms would allow their prices to change accordingly.
B. the firms would be hesitant to allow their prices to change accordingly.
C. the firms would not allow their prices to change.
D. the firms would change the quality of their products but not the prices.

Difficulty: Easy
employment.
6-20
56. To study macroeconomics, one needs various models with different assumptions about the
flexibility and/or stickiness of price levels. This is because:
A. the economy behaves similarly to demand shocks regardless of the length of time.
B. the price flexibility is a short-run phenomenon while, the price stickiness is a long-run
phenomenon.
C. the economy behaves so differently depending on how much time has passed after a
demand shock.
D. various government policies are useless to eliminate the effects of an unexpected demand
shock.

Difficulty: Easy
employment.
57. One major difference between the short-run and long run macroeconomic analysis is that:
A. in the short run prices are fully flexible while in long run they are not.
B. in the short run prices are sticky while in long run they are fully flexible.
C. in the short run stickiness of prices would guarantee the long run price inflexibility.
D. the price stickiness in the long run guarantees the flexibility of prices in the short-run.

Difficulty: Easy
employment.
58. During the Great Recession, Canada lost:

A. 250,000 jobs.
B. 300,000 jobs.
C. 400,000 jobs.
D. 550,000 jobs.

Difficulty: Easy
economy.
6-21
59. During the Great Recession, Canada's unemployment rate rose by:
A. 1 percent.
B. 1.5 percent.
C. 2.2 percent.
D. 3.5 percent.

Difficulty: Easy
economy.
60. Which of the following countries had the highest GDP per capita in 2016?
A. China
B. France
C. Russia
D. Japan

Difficulty: Medium
61. When consumption is less than output what is this called?

A. Savings
B. Deficit
C. Shortage
D. Waste

Difficulty: Medium
6-22
62. What is it called when a firm is forced to cope with a situation different than the one they
were expecting?
A. Risk
B. Uncertainty
C. Shock
D. Upheaval

Difficulty: Medium
employment.
Topic: 06-06 The Importance of Expectations and Shocks
63. In the short run, the prices of goods and services are:
A. sticky.
B. flexible.
C. higher than those in the long run.
D. lower than those in the long run.

Difficulty: Easy
employment.
64. Which of the following industries is likely to have the least frequent price change?
A. Coin-operated laundry machines
B. Newspapers
C. Taxi fares
D. Haircuts

Difficulty: Medium
Topic: 06-14 How Sticky Are Prices?
6-23
Test Bank for Macroeconomics, 15th Canadian Edition, Campbell R. McConnell, Stanley L. Brue,
65. Which of the following industries is likely to have the most frequent price change?
A. Electricity
B. Magazines
C. Beer
D. Milk

Difficulty: Medium
Topic: 06-14 How Sticky Are Prices?
6-24
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True / False Questions

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

5. A well-functioning financial system helps to promote economic growth and stability.

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

9. Commodities such as airline tickets, and gasoline have sticky prices.

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Accessibility: Keyboard Navigation

Multiple Choice Questions

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Accessibility: Keyboard Navigation

13. The concept of "real GDP" refers to:

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

16. The official unemployment rate:

Accessibility: Keyboard Navigation

17. According to researchers, there is a direct link between unemployment and:

Accessibility: Keyboard Navigation

18. Inflation means:

Accessibility: Keyboard Navigation

19. The term "inflation" describes the situation where:

Accessibility: Keyboard Navigation

20. Economic growth is defined as:

Accessibility: Keyboard Navigation

21. Economic growth is best defined as the:

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

23. In 2008-2009, the Canadian economy experienced:

Accessibility: Keyboard Navigation

24. Modern economic growth refers to the idea of experiencing:

Accessibility: Keyboard Navigation

25. Modern economic growth refers to:

Accessibility: Keyboard Navigation

26. If the economy's output and income double in 35 years, we can:

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

Accessibility: Keyboard Navigation

29. In economics, the term "investment" includes:

Accessibility: Keyboard Navigation

30. Which of the following is not an economic investment?

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Accessibility: Keyboard Navigation

32. Which would be considered an investment according to economists?

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33. Which would be considered an investment according to economists?

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34. The higher is the current level of saving:

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35. The inequality of saving and planned investment:

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