(Test Bank) Macroeconomics

Williamson, 6

Business

Test Bank

6th Edition

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1–1 © 2021 Pearson Canada Inc. Macroeconomics, 6th Canadian Edition (Williamson) Chapter 1 Introduction 1.1 What is Microeconomics? 1) Which of the following topics is a primary concern of macro economists? A) standards of living of individuals B) choices of individual consumers and firms C) short-run growth models D) relative wages of skilled and unskilled workers E) fluctuations in the level of aggregate economic activity Answer: E Diff: 1 Type: MC LO: 1.1 State the two focuses of study in macroeconomics, the key differences between microeconomics and macroeconomics, and the similarities between microeconomics and macroeconomics. 2) Primarily, macroeconomists use microeconomic principles to study A) business cycles and trends in the stock market. B) long-run economic growth and business cycles. C) trends in the stock market and long-term economic growth. D) long-run economic growth and employment policies. E) short-run and long-run economic growth. Answer: B Diff: 2 Type: MC LO: 1.1 State the two focuses of study in macroeconomics, the key differences between microeconomics and macroeconomics, and the similarities between microeconomics and macroeconomics. 3) Which of the following is a fundamental question of macroeconomics? A) What causes sustained economic growth? B) How should a labour contract be structured? C) How should governments be elected? D) What causes the health care industry to prosper? E) What is the effect of penalties on crime? Answer: A Diff: 3 Type: MC LO: 1.1 State the two focuses of study in macroeconomics, the key differences between microeconomics and macroeconomics, and the similarities between microeconomics and macroeconomics. 1–2 © 2021 Pearson Canada Inc. 4) Which of the following is a fundamental question of macroeconomics? A) What is the impact of government provided health care? B) How should governments be elected? C) What mechanism could force people to pollute less? D) Where is the stock market heading? E) Should governments act to smooth business cycles? Answer: E Diff: 2 Type: MC LO: 1.1 State the two focuses of study in macroeconomics, the key differences between microeconomics and macroeconomics, and the similarities between microeconomics and macroeconomics. 1.2 Gross Domestic Product, Economic Growth, and Business Cycles 1) Gross Domestic Product is A) the quantity of goods and services produced within a country's borders during some specified period of time. B) the quantity of goods produced by Canadian residents domestically and abroad during some specific period of time. C) the quantity of goods produced within a country's borders during some specific period of time. D) the aggregate quantity of income earned by consumers who have jobs during some specified period of time. E) the quantity of goods and services produced by Canadian residents domestically and abroad during some specific period of time. Answer: A Diff: 1 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 2) Since 1870 in Canada, there has been A) sustained economic growth until the Great Depression followed by little growth since. B) sustained economic growth. C) too many business cycles to sustain economic growth. D) GDP measured in 2012 dollars is largely unchanged. E) only small growth in average incomes. Answer: B Diff: 1 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 1–3 © 2021 Pearson Canada Inc. 3) Business cycles in macroeconomics are A) the increase in a nation's productive capacity over a long period of time. B) the economic interrelationships among nations. C) changes in the average standard of living over time. D) short-run ups and downs in aggregate economic activity. E) profits and losses of firms. Answer: D Diff: 3 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 4) Since 1870, the typical Canadian A) became ten-times as rich. B) remained equally as rich. C) remained as rich as the typical American. D) became twice as rich. E) became more than sixteen-times as rich. Answer: E Diff: 1 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 5) The two key business cycle events in Canadian economic history were A) government budget deficits and World War II. B) the Great Depression and government budget deficits. C) World War II and the Great Depression. D) the Great Depression and stagflation. E) the productivity slowdown and the Great Depression. Answer: C Diff: 2 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 6) The relationship between the level of growth of an economic variable, gt, and its level, yt, is best approximated as A) gt = . B) gt = log yt + log yt - 1. C) log gt = yt - yt - 1. D) gt = log yt - log yt - 1. E) yt = log gt - log gt - 1. Answer: D Diff: 3 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 1–4 © 2021 Pearson Canada Inc. 7) The business cycle component of the log of real per capita GDP is equal to A) log of trend GDP divided by log of actual real GDP. B) log of trend per capita GDP - log of actual real per capita GDP. C) log of actual real GDP divided by log of trend GDP. D) log of trend GDP - log of actual real GDP. E) log of actual real per capita GDP - log of trend per capita GDP. Answer: E Diff: 3 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 8) Sometimes it is useful to separate economic movements into A) short-run growth and business cycle fluctuations. B) short-run growth and income movements. C) employment growth and business cycle fluctuations. D) long-run growth and income movements. E) long-run growth and business cycle fluctuations. Answer: E Diff: 2 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 9) For the study of economic growth, it is most helpful to examine movements in ________; for the study of business cycles, it is most helpful to examine movements in ________. A) trend GDP; deviations from trend in GDP B) deviations from trend in GDP; deviations from trend in GDP C) trend GDP; trend GDP D) trend income; deviation from trend in income E) deviations from trend in GDP; trend GDP Answer: A Diff: 2 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 10) Since World War II, deviations from trend real GDP per-capita are A) typically larger than ± 5%. B) at most ± 5%. C) at most ± 1%. D) at least ± 10%. E) typically < 0. Answer: B Diff: 1 Type: MC LO: 1.2 Explain the key features of trend growth and deviations from trend in per capita gross domestic product in Canada from 1870 to 2017. 1–5 © 2021 Pearson Canada Inc. 1.3 Macroeconomic Models 1) To be useful, macroeconomic models A) must be complete, accurate descriptions of the world. B) never generate testable hypothesis. C) must be simple. D) provides a lot of intricate details. E) must be extremely realistic. Answer: C Diff: 2 Type: MC LO: 1.3 Explain why models are useful in macroeconomics. 2) The basic structure of a macroeconomic model includes the description of this feature A) isotherms. B) average annual rainfall. C) consumers' preferences over goods. D) a herd of cows. E) the density of cities. Answer: C Diff: 2 Type: MC LO: 1.3 Explain why models are useful in macroeconomics. 3) What do we assume about households and firms? A) Their interests are rarely aligned. B) They look after each other. C) They act irrationally. D) They optimize. E) They do what the government tells them to do. Answer: D Diff: 3 Type: MC LO: 1.3 Explain why models are useful in macroeconomics. 4) In a macroeconomic model, equilibrium is when A) the government has achieved an efficient allocation of resources. B) the actions of consumers and firms are consistent. C) everyone in the economy is happy. D) nothing is changing. Answer: B Diff: 3 Type: MC LO: 1.3 Explain why models are useful in macroeconomics. 1–6 © 2021 Pearson Canada Inc. 5) In a competitive equilibrium, we assume that markets are such that A) consumers are price takers while firms set prices. B) firms are price takers while consumers set prices. C) both consumers and firms are price takers. D) firms behave strategically in setting their prices. E) consumers behave strategically in setting their prices. Answer: C Diff: 2 Type: MC LO: 1.3 Explain why models are useful in macroeconomics. 6) Explain why macroeconomists tend to use models to understand how economies work, rather than doing experiments. Answer: In contrast to what occurs in some of the natural sciences—chemistry or biology, for example—it is difficult or impossible to conduct the experiments we would like to. For example, a macroeconomic experiment that engineers a recession to see what will happen will cause hardship for many people. Therefore, a typical approach in macroeconomics is to build a working model of the economy, fit the model to fit the data, and then run experiments on the model at low cost. Basically, the experiment uses up the researcher's time and some electricity to keep his or her computer running. Diff: 3 Type: ES LO: 1.3 Explain why models are useful in macroeconomics. 1.4 Microeconomic Principles 1) The development most responsible for the wide-spread introduction of macroeconomic models built upon solid microeconomic foundations was the A) development of the Keynesian coordination failure model. B) the work of Milton Friedman. C) work of John Maynard Keynes. D) popularization of the Solow growth model. E) rational expectations revolution. Answer: E Diff: 1 Type: MC LO: 1.4 Discuss how microeconomic principles are important in constructing useful macroeconomic models. 2) According to the Lucas critique, the effects of changes in economic policy A) can be determined by looking at macroeconomic data. B) cannot always be predicted by looking at historical macroeconomic relationships. C) are easy to predict. D) do not require macroeconomic theory. E) are known to the government. Answer: B Diff: 2 Type: MC LO: 1.4 Discuss how microeconomic principles are important in constructing useful macroeconomic models. 1–7 © 2021 Pearson Canada Inc. 1.5 Disagreement in Macroeconomics 1) Macroeconomists tend to agree on A) the usefulness of Keynesian models. B) approaches to constructing models of economic growth. C) the implications of real business cycle theory for government policy. D) that all business cycles are due to self-fulfilling optimism and pessimism. E) nothing. Answer: B Diff: 3 Type: MC LO: 1.5 Explain why there is disagreement among macroeconomists, and what they disagree about. 2) According to real business cycle theory, the primary causes of business cycles are A) shocks to aggregate demand. B) monetary factors. C) waves of self-fulfilling optimism and pessimism. D) fiscal shocks. E) technology shocks. Answer: E Diff: 2 Type: MC LO: 1.5 Explain why there is disagreement among macroeconomists, and what they disagree about. 3) New Keynesian Theory A) specifies financial markets as the primary cause of business cycles. B) includes microeconomic foundations and does not rely on sticky wages or prices. C) relies on sticky wages and prices but does not include microeconomic foundations. D) uses the same microeconomic foundations as other macro models. E) specifies shocks to technology cause business cycles. Answer: D Diff: 2 Type: MC LO: 1.5 Explain why there is disagreement among macroeconomists, and what they disagree about. 1.6 What Do We Learn from Macroeconomic Analysis? 1) Adam Smith's Wealth of Nations emphasized A) how free markets produce socially efficient outcomes. B) that Scotland produced several key technological innovations. C) that the government should intervene to smooth business cycles. D) the existence of externalities. E) mercantilism. Answer: A Diff: 1 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 1–8 © 2021 Pearson Canada Inc. 2) What is produced and consumed in the economy is determined jointly by A) standards of living and business cycles. B) the economy's productive capacity and the preferences of consumers. C) the behaviour of business managers and government policies. D) government policies and the economy's productive capacity. E) the preferences of consumers and the behaviour of business managers. Answer: B Diff: 3 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 3) Unemployment, at the aggregate level A) is zero in a perfect world. B) is a sign of market failures. C) is avoidable. D) can be prevented with sound government policy. E) is consistent with a well-functioning economy. Answer: E Diff: 1 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 4) Tax cuts A) may have no effect, if people take account of future taxes. B) always stimulate economic activity. C) will surely make the government default on its debts. D) cause the government to borrow less. E) cause unemployment. Answer: A Diff: 2 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 5) Improvements in a country's standard of living are brought about in the long run by A) immigration policy. B) technological progress. C) taxes. D) growth in the population. E) constructing more machines and buildings. Answer: B Diff: 1 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 1–9 © 2021 Pearson Canada Inc. 6) Countries gain from A) trading goods and assets with each other. B) inflation. C) long-run tradeoffs between aggregate output and inflation. D) taxes. E) productivity slowdown. Answer: A Diff: 1 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 7) Monetary policy in Canada is determined by A) the Prime Minister of Canada. B) the Finance Minister. C) the Bank of Montreal. D) the Bank of Canada. E) the Royal Canadian Mint. Answer: D Diff: 1 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 8) Money is differentiated from other assets due to A) its value as a medium of exchange. B) its value of facilitating government spending. C) its value as a unit of account. D) its invulnerability to inflation. E) its value as smoothing out business cycles. Answer: A Diff: 2 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 9) Business cycles are A) similar, but they can have many causes. B) each unique, but all have a single cause. C) similar, and all are created from external forces. D) each unique, and they can have many causes. E) similar, and they all have a single cause. Answer: A Diff: 3 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 1–10 © 2021 Pearson Canada Inc. 10) In the long run, inflation is caused by A) global warming. B) greedy monopolists. C) the tradeoff between aggregate output and inflation. D) aggressive labour unions. E) growth in the money supply. Answer: E Diff: 2 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 11) The Fisher relation is A) the negative relationship between unemployment and vacancies. B) trend growth in real GDP. C) a positive relationship between the nominal interest rate and inflation. D) the Phillips curve. E) of no interest to economists. Answer: C Diff: 2 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 12) A trade-off between aggregate output and inflation A) is theoretically possible, but has never been observed in practice. B) sometimes exists, but is unstable. C) sometimes exists, and is stable. D) is not theoretically possible, and is not observed in practice. E) is the basis for fiscal policy. Answer: B Diff: 3 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 13) Neo-Fisherism says A) the central bank should increase inflation by lowering nominal interest rates. B) the central bank should increase inflation by lowering the money supply. C) the central bank should increase inflation by raising the nominal interest rate. D) the central bank should increase inflation by lowering the real interest rate. E) that Fisherism is wrong. Answer: C Diff: 3 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 1–11 © 2021 Pearson Canada Inc. 14) The government surplus is the same as A) government saving. B) private saving. C) outlays less income. D) government deficit less government saving. E) investment income. Answer: A Diff: 1 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 15) One consequence of government deficits is A) lower interest rates. B) lower taxes. C) reduced government borrowing. D) reduced consumer spending. E) redistribution of the tax burden from one group to another. Answer: E Diff: 2 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 16) The idea that government budget deficits do NOT matter under certain circumstances is A) called the Friedman-Lucas theory. B) preposterous. C) called the Ricardian equivalence theorem. D) called the Milton Friedman theory. E) attributed to Edward Prescott and Finn Kydland. Answer: C Diff: 2 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 17) More government spending A) can compete with private spending and cause crowding out. B) is always beneficial. C) lowers the government deficit. D) increases the government surplus. E) reduces the current account deficit. Answer: A Diff: 3 Type: MC LO: 1.6 List the 12 key ideas that will be covered in this text. 1–12 © 2021 Pearson Canada Inc. 1.7 Understanding Recent and Current Macroeconomic Events 1) In the 2008–09 recession, the government deficit A) stayed roughly constant. B) decreased. C) increased. D) would have increased if the government had intervened. E) was reduced by the Bank of Canada. Answer: C Diff: 1 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 2) The unemployment rate in 2018 A) was at its peak for the period 2008–2018. B) was higher than the unemployment rate in the United States. C) was lower than the unemployment rate in the United States. D) was higher than in 2009. E) was at about the average peak in the previous three recessions. Answer: B Diff: 2 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 3) One possible explanation of the higher unemployment rate in Canada relative to the United States before the 2008–2009 recession is A) less generous unemployment benefits in Canada. B) more generous unemployment benefits in Canada. C) U.S. government policy was more effective in managing business cycles. D) a larger population in the United States. E) more job training programs in Canada. Answer: B Diff: 3 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 4) Which of the following best describes the unemployment rate in Canada compared to the United States? A) It was higher in Canada before the 2008–2009 recession, then lower after. B) It was lower in Canada before the 2008–2009 recession, then higher after. C) They are generally equal. D) They were equal before the 2008–2009 recession, then higher in Canada after. E) It has been consistently lower in the United States, before and after the 2008–2009 recession. Answer: A Diff: 1 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 1–13 © 2021 Pearson Canada Inc. 5) The inflation rate has been low in Canada since 1991 because A) the Bank of Canada has a 2% inflation target. B) oil prices have been low. C) Canada is trading more with the rest of the world. D) the government's budget deficit was brought under control. E) employment insurance became less generous. Answer: A Diff: 2 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 6) What explains the trends in nominal interest rates? A) inflation rates B) aggregate economic activity C) standards of living D) wages E) consumer incomes Answer: A Diff: 3 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 7) The real interest rate is A) equal to the rate of inflation minus the nominal rate of interest. B) always equal to the pure rate of time preference. C) equal to the nominal rate of interest minus the rate of inflation. D) less important for decision making than the nominal rate of interest. E) the market interest rate. Answer: C Diff: 2 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 8) Reductions in the real interest rate caused by monetary policy A) are temporary. B) are permanent. C) are always harmful. D) never happen. E) do not occur during recessions. Answer: A Diff: 2 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 1–14 © 2021 Pearson Canada Inc. 9) Since 1980, the real interest rate A) has declined only in Canada. B) has increased worldwide. C) has been roughly constant. D) has decreased worldwide. E) has decreased only in Canada. Answer: D Diff: 3 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 10) When there is high inflation A) interest rates fall due to government policy. B) the real interest rate is always greater than the nominal interest rate. C) the nominal interest rate is always greater than the real interest rate. D) the real interest rate is always negative. E) the nominal interest rate is approximately equal to the real interest rate. Answer: C Diff: 2 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 11) During the 2008—2009 recession in Canada A) exports decreased. B) inflation increased. C) unemployment decreased. D) exports increased. E) the real interest rate increased. Answer: A Diff: 1 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 12) Canada has become a more open economy because A) it is cheaper to ship goods between countries, and there are fewer trade restrictions. B) greater trade restrictions elsewhere in the world make trade with Canada attractive. C) the United States has a fragile financial sector. D) the Bank of Canada promotes international trade. E) of the European Union. Answer: A Diff: 3 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 1–15 © 2021 Pearson Canada Inc. 13) When a country has a current account deficit, the country A) always has a large government budget deficit. B) is always borrowing from abroad. C) is always lending abroad. D) always has a large government budget surplus. E) is always borrowing from domestic residents. Answer: B Diff: 2 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 14) When a country has a current account surplus, the country A) always has a large government budget deficit. B) is always lending abroad. C) is always borrowing from abroad. D) always has a large government budget surplus. E) is always borrowing from domestic residents. Answer: B Diff: 2 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 15) Persistent current account deficits make sense if A) the capital account surplus is reduced. B) government interest rates go down accordingly. C) the associated foreign borrowing is used to finance increased productive capacity. D) personal income taxes are reduced. E) the government budgetary debt is not growing. Answer: C Diff: 3 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text. 16) Business cycles A) have a single cause, and unpredictable comovements. B) have potentially many causes, but regular comovements. C) cannot be prevented, according to the consensus among macroeconomists. D) occur every five years in Canada. E) are always caused by the central bank. Answer: B Diff: 1 Type: MC LO: 1.7 List the key observations that motivate questions we will try to answer in this text.