ECO Chap 26

Question 1

If demand is unexpectedly high for many goods and services across the economy for a prolonged period of time, then firms will increase production for those goods and services and as firms’ output increases

Answer 1

real GDP will increase and unemployment will fall.

Question 2

Unemployment describes the condition where

Answer 2

a person cannot get a job but is willing to work and is actively seeking work.

Question 3

Camille’s Cakes produced 500 cakes one year that sold for $20 each. The next year Camille’s again produced 500 cakes (identical to the previous year’s cakes) but sold them for $25 each. Based on this information, we can conclude that Camille’s production of cakes for the next year

Answer 3

increased nominal GDP by $2,500 but left real GDP unchanged.

Question 4

If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

Answer 4

Nominal GDP would rise, but real GDP would be unchanged.

Question 5

Higher unemployment rates are linked with higher crime rates and higher rates of physical and mental illness.
True or False

Answer 5

True

Question 6

Flexible prices are

Answer 6

product prices that move freely upward or downward when product demand or supply changes.

Question 7

Which of the following is most closely related to recessions?

Answer 7

negative real growth in output

Question 8

Why do economists consider unemployment to be undesirable?

Answer 8

Unemployment is wasteful because we lose all the goods and services that unemployed workers could have produced if they had been working.

Question 9

Real GDP measures the change in the price level over time.
True or False

Answer 9

False

Question 10

For an economy to increase investment, it must

Answer 10

increase saving.

Question 11

All the following statements about financial institutions are true except

Answer 11

financial institutions are responsible for channeling business saving to households.

Question 12

Economists refer to purchases of stocks and bonds as “investment.”
True or False

Answer 12

False

Question 13

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

Answer 13

increased nominal GDP from last year, but real GDP was unaffected.

Question 14

The three statistics that are the main focus for those measuring macroeconomic health are

Answer 14

real GDP, inflation, and unemployment.

Question 15

Which of the following results from firms holding inventories?

Answer 15

Firms can maintain production levels and adjust inventories in response to demand shocks.

Question 16

The average amount of time between price changes for gasoline is

Answer 16

two to three weeks.

Question 17

A factory is experiencing a reduction in sales that has lasted an extended period of time due to a recession. With inventory piling up in the warehouse, the factory should

Answer 17

lay off the same percent of its labor force as the percent decline in sales.

Question 18

Macroeconomics is mostly focused on

Answer 18

the economy as a whole.