MBA 641 Survey of Macroeconomics

Fall 2006, Quiz 1

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.

1) John Maynard Keynes

1)
A) is known for his recommendations for increasing long-run economic growth. B)
wrote about macroeconomics in the 1700s.
C) recommended that government decrease its spending.
D) believed the Great Depression was caused by insufficient private spending.

2) Economic growth is measured by increases in

2)
A) employment and unemployment. B) real GDP.
C) resource use. D) satisfaction.

3)
3) Which of the following is the best definition of potential gross domestic product? A)
the value of total production that grows at 2 percent per year
B) the value of total production
C) the value of total production when the economy's resources are fully employed
D) None of the above is correct.

4)
4) The business cycle refers to
A) changes in the level of the stock market.
B) changes in the level of nominal GDP.
C) fluctuations in the level of real GDP around potential GDP.
D) changes in the level of employment.

5) Which of the following is not a phase or turning point of the business cycle?
5)
A) shutdown B) trough C) expansion D) recession

6) The unemployment rate measures the number of unemployed

6)
A) as a percentage of the labor force. B) including discouraged workers. C) who lost their jobs
in the current year. D) as a percentage of the whole population.

7)
7) Deflation is defined as a situation in which
A) the rate of inflation is below 2 percent.
B) the GDP's growth rate is less for a given quarter than it was for the prior quarter.
C) the government is running a budget surplus.
D) the price level is falling.

8)
8) A government incurs a budget deficit when
A) taxes are greater than government spending.
B) taxes are less than government spending.
C) exports are less than imports.
D) exports are greater than imports.
 9) When U.S. imports exceed U.S. exports, the United States experiences
9)
A) an international deficit. B) inflation.
C) a decrease in potential GDP. D) a government budget deficit. 1

10)
10) Macroeconomic policy tools include
A) monetary policy and fiscal policy.
B) unemployment policy and inflation policy.
C) fiscal policy and unemployment policy.
D) monetary policy and unemployment policy.

11)
11) Fiscal policy involves
A) the use of tax and money policies by government to influence the level of interest rates.
B) decreasing the role of the Federal Reserve in the everyday life of the economy. C) the
use of interest rates to influence the level of GDP.
D) the use of tax and spending policies by the government.

12)
12) Gross domestic product (GDP) measures the
A) market value of old and new final goods and services sold in the economy in a given time
period.
B) number of final goods and services produced in the economy in a given time period. C)
market value of final goods and services produced in the economy in a given time period. D)
number of final goods and services sold in the economy in a given time period.

13)
13) The word final in the definition of GDP refers to
A) the time period when production took place.
B) valuing production at market prices.
C) not counting intermediate goods or services.
D) counting the intermediate goods and services used to produce GDP.

14)
14) The calculation of the final goods and services sold in an economy would NOT include
A) the purchase of a lawnmower by a household.
B) the purchase of a service by a household.
C) Ford Motor Company's purchase of a new industrial robot to be used to produce cars.
D) General Motors' purchases of tires for new automobiles.

15)
15) The circular flow model shows that consumer goods and services produced by business firms
are sold in the
A) goods market. B) financial market.
C) labor market. D) factor market.

16) According to the circular flow diagram, the dollar value of a nation's output is equal to
16)
A) total income. B) wages.
C) profits. D) net income minus taxes.

17)
17) Gross domestic product can be calculated
A) by adding up the value of all intermediate goods used in the economy.
B) by adding up the personal consumption of all members of the society.
 C) by adding up the income tax returns of all members of the society.
D) either by valuing the nation's output of goods and services or by valuing the income
generated in the production process.

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18)
18) GDP is a
A) flow because dollar values are used.
B) stock because it measures wealth at a distinct point in time.
C) stock because it measures income for the entire country.
D) flow because it measures production over a period of time.

19) Saving
19)
A) decreases wealth. B) increases wealth.
C) equals capital consumption. D) Both answers B and C are correct.

20)
20) Economists define investment as the
A) purchase of stocks and bonds.
B) purchase of raw land for later resale.
C) purchase of equipment, plants, and inventories.
D) difference between people's income and their spending.

21)
21) Depreciation is defined as the
A) increase in the stock of capital due to wear and tear.
B) increase in the stock of capital due to investment by firms.
C) decrease in the stock of capital due to investment by firms.
D) decrease in the stock of capital due to wear and tear.

22)
22) Gross investment equals
A) net investment + depreciation.
B) net investment - depreciation + change in inventories.
C) net investment + change in inventories.
D) depreciation + change in inventories.

23)
23) When gross investment equals depreciation, then the nation's capital stock
A) did not changed.
B) increased.
C) decreased.
D) might have changed, but more information is necessary.

24)
24) Two methods of measuring GDP are
A) the saving approach and the investment approach.
B) the goods approach and the services approach.
C) the income approach and the expenditure approach.
D) the income approach and the receipts approach.
 25)
25) Of the following, which is correct?
A) Nominal GDP is not affected by changes in prices of goods and services.
B) Real GDP changes only when the prices of goods and services really change.
C) Nominal GDP does not change when the production of goods and services increases.
D) Nominal GDP increases when the prices of goods and services increase.

26) When real GDP is less than potential GDP

26)
A) people work longer hours than usual. B) some capital equipment is underused. C) some
labor is unemployed. D) Both answers B and C are correct.

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Answer Key
Testname: MACRO QUIZ1

1) D
2) B
3) C
4) C
5) A
6) A
7) D
8) B
9) A
10) A
11) D
12) C
13) C
14) D
15) A
16) A
17) D
18) D
19) B
20) C
21) D
22) A
23) A
24) C
25) D
26) D
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