Macroeconomics Principles and Practice Australian 2nd Edition Littleboy Test Bank
Macroeconomics Principles and Practice Australian 2nd Edition Littleboy Test Bank
Macroeconomics Principles and Practice Australian 2nd Edition Littleboy Test Bank
1. GDP is
a. a measure of economic growth.
b. a measure of the economy’s potential.
c. another term for standard of living.
d. a measure of the total value of all goods and services produced in a country
during a specific period of time.
e. the total value of all goods and services produced during a specific period of time
adjusted for the general increase in prices.
ANS: D PTS: 1 DIF: basic
TOP: Real gross domestic product over time
2. Real GDP is
a. a measure of economic growth.
b. a measure of the economy’s potential to produce.
c. another term for standard of living.
d. a measure of the total value of all goods and services produced in a country
during a specific period of time.
e. the total value of all goods and services produced during a specific period of time
adjusted for the general increase in prices.
ANS: E PTS: 1 DIF: basic
TOP: Real gross domestic product over time
5. True or False. Economic growth and economic fluctuations can occur simultaneously.
ANS: T PTS: 1 DIF: basic
TOP: Real gross domestic product over time
6. True or False. GDP is the total value of all goods and services newly produced in the
economy during a specified period of time, adjusted for inflation.
ANS: F PTS: 1 DIF: moderate
TOP: Real gross domestic product over time
14. A fall in real GDP that lasts six months or more is called a(n)
a. expansion.
b. peak.
c. economic growth slowdown.
d. recession.
e. None of the listed options is correct.
ANS: D PTS: 1 DIF: basic
TOP: Real gross domestic product over time
15. The highest point in the business cycle before the start of a recession is called a(n)
a. trough.
b. peak.
c. recovery.
d. expansion.
e. None of the listed options is correct.
ANS: B PTS: 1 DIF: basic
TOP: Real gross domestic product over time
22. Which of the following is the best measure of how individuals benefit from economic
growth?
a. The rate of increase in GDP per capita
b. The rate of increase in GDP
c. The rate of increase in real GDP per capita
d. The rate of inflation
e. The rate of increase in real GDP
ANS: C PTS: 1 DIF: moderate
TOP: Australia’s economic growth record in context
Exhibit 2.1
23. The data in Exhibit 2.1 shows the values of real GDP and population for two countries, A
and B, for the years 2010 and 2011. Which of these two countries experienced a faster
increase in the standard of living between 2010 and 2011?
ANS:
For country A, real GDP per capita grew by 7.6 per cent (from $2424 to $2609 per person).
For country B, real GDP per capita grew by 7.6 per cent over the same period (from $8919 to
$9598). Therefore, both of these countries experienced the same rate of growth in the
standard of living.
PTS: 1 DIF: moderate TOP: Measuring the economy
28. Suppose a country’s real GDP increased 5 per cent between 2010 and 2011, while its
population increased 2 per cent. Between 2010 and 2011, real GDP per capita of this
country
a. increased by 7 per cent.
b. increased by 3 per cent.
c. decreased by 7 per cent.
d. decreased by 2 per cent.
e. remained the same.
ANS: A PTS: 1 DIF: moderate
TOP: Australia’s economic growth record in context
29. If real GDP and population are both growing at a positive rate,
a. real GDP must be growing slower than real GDP per capita.
b. real GDP must be growing faster than real GDP per capita.
c. real GDP per capita must be increasing.
d. real GDP per capita must be decreasing.
e. None of the listed options is correct.
ANS: B PTS: 1 DIF: challenging
TOP: Australia’s economic growth record in context
30. If real GDP is growing at a slower rate than the growth rate of population,
a. real GDP must be growing more slowly than real GDP per capita.
b. real GDP must be growing faster than real GDP per capita.
c. real GDP per capita must be negative.
d. real GDP per capita must be increasing.
e. None of the listed options is correct.
ANS: B PTS: 1 DIF: challenging
TOP: Australia’s economic growth record in context
Exhibit 2.2
38. True or False. To say that a recession is over is the same as saying the economy has
returned to normal.
ANS: F PTS: 1 DIF: moderate
TOP: Economic fluctuations: temporary setbacks and recoveries
39. True or False. After a recession, the economy often takes years to return to its pre-
recession state.
ANS: T PTS: 1 DIF: basic
TOP: Economic fluctuations: temporary setbacks and recoveries
40. What is meant by a recession? As a rule of thumb, when is the economy considered to
be in a recession?
ANS:
A recession occurs when real GDP falls. As a rule of thumb, this fall needs to last at least six
months.
PTS: 1 DIF: basic TOP: Economic fluctuations: temporary setbacks
and recoveries
Exhibit 2.3
41. The data in Exhibit 2.3 shows, for a certain country, real GDP and its growth trend from
March 2010 through December 2013. Identify when the peak occurred, when the
recession occurred, and when the economy reached its trough.
ANS:
Recall the rule of thumb that a fall in real GDP must last at least six months (two quarters)
before it is considered a recession. The peak occurred in December 2010. The recession
lasted from December 2010 through September 2011. The trough occurred in September
2011.
PTS: 1 DIF: moderate TOP: Economic fluctuations: temporary setbacks
and recoveries
45. Which of the following is not considered to be scarce and limiting the ability to supply for
an economy as a whole?
a. Money
b. Workers
c. Land
d. Machinery
e. Factories
ANS: A PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
49. True or False. Choices are necessary only for individuals but not for the economy as a
whole.
ANS: F PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
50. Which of the following does a production possibilities schedule best illustrate?
a. The concept of achieving an impossible goal
b. The concept of unlimited possibilities
c. The concept of opportunity cost
d. The elimination of scarcity
e. The concept that more is better than less
ANS: C PTS: 1 DIF: basic
TOP: Production possibilities: a simple model of aggregate supply
51. True or False. The production possibilities curve shows how an economy increases its
output with more resources.
ANS: F PTS: 1 DIF: moderate
TOP: Why the PPC shifts
54. Which of the following does a production possibilities schedule best illustrate?
a. The concept of achieving an impossible goal
b. The concept of unlimited possibilities
c. The concept of minimising opportunity cost
d. The elimination of scarcity
e. The concept of producing at efficient capacity
ANS: E PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
55. When an economy is operating on its production possibilities curve, more production of
one good means less production of another because
a. wants are unlimited.
b. resources are limited.
c. some resources are not employed.
d. wants are limited.
e. resources are not perfectly adaptable to alternative uses.
ANS: B PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
56. Which of the following is held constant when constructing a production possibilities curve
for the economy?
a. The opportunity cost
b. The price level
c. The amount of resources
d. The combination of goods produced
e. The amount of goods produced
ANS: C PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
60. Josie has two classes: English and maths. She finds out that the grades for both classes
have improved without spending more time studying. Using the production possibilities
curve, Josie’s situation can be represented by
a. moving from a point on the production possibilities curve to a point inside the
curve.
b. a movement along the curve from the axis for English to the axis for maths.
c. a movement along the curve from the axis for maths to the axis for English.
d. an inward shift of the curve.
e. an outward shift of the curve.
ANS: E PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
61. Given a production possibilities curve for defence goods and non-defence goods, if a
nation is producing at a point inside the production possibilities curve, then
a. too many resources are being used for non-defence goods.
b. only new technology will increase the production of defence or non-defence
goods.
c. too many resources are being used for defence goods.
d. society is maximising output from the limited number of resources.
e. it is possible to increase defence goods production without sacrificing non-
defence goods production.
ANS: E PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
62. True or False. The production possibilities curve is immovable, meaning that it is fixed
regardless of the availability of resources.
ANS: F PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
63. True or False. Economic growth in the future can be encouraged by trade-offs made
today.
ANS: T PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
64. Is it possible for an economy to make trade-offs in the present in order to attain what is
currently unattainable? Explain.
ANS:
Yes, it is possible for an economy to make trade-offs today in order to attain what is currently
unattainable. If an economy wants to grow, it might want to increase output of machinery
and/or education at the expense of current consumption in order to have more resources in
the future.
PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
66. Suppose an economy can produce either radios or airplanes. The production possibilities
for this economy are shown in the table below. Show that this production possibilities
schedule depicts increasing opportunity costs.
ANS:
A chart such as the one below shows that for each additional airplane produced, the amount
of radios that needs to be given up increases as airplane production increases.
a. With this graph, depict the point that would show the combination of 30 radios
and 1 airplane.
b. With this graph, depict the point that would show the combination of 25 radios
and 5 airplanes.
c. With this graph, depict the point that would show the combination of 25 radios
and 3 airplanes.
ANS:
A production possibilities curve that is bowed out should be drawn. The answer to part (a)
should show a point inside the curve. The answer to part (b) should show a point outside the
curve. The answer to part (c) should show a point along the curve.
PTS: 1 DIF: moderate TOP: Increasing opportunity costs
68. If an economy produces only movies and computers, then the opportunity cost of
producing more movies is
a. the value of forgone computer production.
b. the value of more computer production.
c. the value of movie production minus the value of computer production.
d. the total value of movie and computer production.
e. zero because computers and movies are unrelated goods.
ANS: A PTS: 1 DIF: basic
TOP: Increasing opportunity costs
69. If an economy produces only movies and computers, then producing more and more
computers will most likely require
a. giving up a decreasing amount of the production of movies.
b. giving up an increasing amount of the production of movies.
c. gaining an increasing amount of the production of movies.
d. gaining a decreasing amount of the production of movies.
e. no change in movie production.
ANS: B PTS: 1 DIF: moderate
TOP: Increasing opportunity costs
Exhibit 2.4
70. Refer to Exhibit 2.4. The opportunity cost of producing the first television set is
a. 15 units of computers.
b. 5 units of computers.
c. 43 units of computers.
d. 42 units of computers.
e. 1 unit of computers.
ANS: E PTS: 1 DIF: moderate
TOP: Increasing opportunity costs
71. Refer to Exhibit 2.4. The opportunity cost of producing the sixth television set is
a. 15 units of computers.
b. 5 units of computers.
c. 43 units of computers.
d. 42 units of computers.
e. 1 unit of computers.
ANS: A PTS: 1 DIF: moderate
TOP: Increasing opportunity costs
72. True or False. The typical production possibilities schedule shows that the opportunity
cost for producing more of one good requires giving up an increasing amount of
production of another good.
ANS: T PTS: 1 DIF: moderate
TOP: Increasing opportunity costs
Exhibit 2.5
73. Refer to Exhibit 2.5. The production possibilities curve representing the given schedule
would be a
a. negatively sloped curve that bows outward.
b. negatively sloped straight line.
c. positively sloped curve that bows outward.
d. positively sloped curve that bows inward.
e. positively sloped straight line.
ANS: A PTS: 1 DIF: moderate
TOP: Increasing opportunity costs
76. True or False. Real GDP can be greater than potential GDP.
ANS: T PTS: 1 DIF: basic
TOP: Production possibilities: a simple model of aggregate supply
77. True or False. The theory of economic fluctuations emphasises fluctuations in the supply
of goods and services as the reason for the ups and downs in the economy.
ANS: F PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
78. If resources are being used efficiently,
a. a society can increase the production of something only by decreasing the
production of something else.
b. society need no longer worry about trade-offs.
c. production of one good can rise only by increasing the production of some other
good.
d. resources are used to the fullest extent that is physically possible.
e. scarcity is zero.
ANS: A PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
79. Suppose a financial crisis prevents many companies from getting loans so that their
production levels fall as they are unable to purchase the same amount of inputs as
before. We can conclude that the economy is
a. moving efficiently along the initial production possibility curve.
b. operating outside the production possibility curve.
c. operating inside the initial production possibility curve.
d. more efficient.
e. experiencing economic growth.
ANS: C PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
82. Given a production possibilities curve for defence goods and non-defence goods, a
production point outside the curve
a. cannot be attained with the current level of resources and technology.
b. may be attained by shifting resources to defence goods.
c. may be attained by acquiring new technology.
d. may be attained if new resources are discovered.
e. may be attained by acquiring both new technology and greater resources.
ANS: B PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
Exhibit 2.6
83. Refer to the production possibilities schedule in Exhibit 2.6. A combination of 20 units of
computers and 2 television sets
a. requires an infusion of technological know-how.
b. illustrates underemployment of resources.
c. is possible only with full and efficient use of all resources.
d. is unattainable because it requires resources that are not available.
e. cannot be produced with the current supply of resources.
ANS: B PTS: 1 DIF: challenging
TOP: Production possibilities: a simple model of aggregate supply
84. Refer to the production possibilities schedule in Exhibit 2.6. A combination of 40 units of
computers and 4 television sets
a. cannot be produced with the current supply of resources.
b. is possible only with full and efficient use of all resources.
c. has never been and never will be produced.
d. illustrates underemployment of resources.
e. will not satisfy the consumers’ demands.
ANS: A PTS: 1 DIF: challenging
TOP: Production possibilities: a simple model of aggregate supply
Exhibit 2.7
86. Refer to Exhibit 2.7. The production possibilities curve indicates that
a. it is possible to produce more of one good without sacrificing some of the other
good only if production occurs at a point inside the production possibilities curve.
b. Good X is an input in the production of Good Y.
c. producing an additional unit of Good X requires producing an additional unit of
Good Y.
d. more resources exist than the economy can efficiently use.
e. the economy is experiencing decreasing opportunity costs.
ANS: A PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
87. Refer to Exhibit 2.7. Assume the economy is operating at point C. This indicates that
a. the only way the economy could move toward a point such as D is by discovering
new resources.
b. the economy is efficiently using all its resources.
c. there is no excess resource capacity in the economy.
d. it is possible for the economy to produce more of Good X and Good Y with the
given resources.
e. it is possible for the economy to produce more of Good X only if it produces less
of Good Y.
ANS: D PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
88. Refer to Exhibit 2.7. Point C
a. occurs when resources are not efficiently allocated.
b. may be attained with a sufficient improvement in technology.
c. can be obtained with existing resources.
d. is impossible to attain, even in the future.
e. shows the most efficient use of valuable resources.
ANS: A PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
Exhibit 2.8
90. Refer to Exhibit 2.8. The optimal point for the economy is
a. E.
b. B.
c. C.
d. D.
e. impossible to determine from the given information.
ANS: A PTS: 1 DIF: challenging
TOP: Production possibilities: a simple model of aggregate supply
91. Refer to Exhibit 2.8. Point C is more efficient than point ____.
a. A
b. B
c. D
d. G
e. Ranking efficiency of two points is impossible using the given information.
ANS: D PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
92. If society begins by producing 3 units of X and 4 units of Y and then alters production so
that it is now producing 4 units of X and 4 units of Y, and we know that the quantity and
quality of resources were unchanged and that technology did not change, then
a. society has moved along the production possibilities curve.
b. the combination of 3 units of X and 4 units of Y is best represented by a point
inside the production possibilities curve.
c. the combination of 3 units of X and 4 units of Y is best represented by a point
outside the production possibilities curve.
d. resources were being fully utilised at 3 units of X and 4 units of Y.
e. resources were being efficiently utilised at 3 units of X and 4 units of Y.
ANS: B PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
Exhibit 2.9
97. Refer to Exhibit 2.9. The trade-off that will enable the economy to reach point A from
anywhere along the curve
a. will be either a win–win or lose–lose situation.
b. occurs when everyone can win.
c. cannot occur.
d. occurs when some people win only if others lose.
e. occurs when everyone loses.
ANS: B PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
98. True or False. Moving from a point on the production possibilities curve to another point
on the same curve implies a gain in production efficiency.
ANS: F PTS: 1 DIF: moderate
TOP: Production possibilities: a simple model of aggregate supply
100. The purpose of using a ratio scale (or a log scale) on an axis of a graph is
a. to show the absolute variation in a variable.
b. to make equal percentage changes in a variable have the same vertical distance.
c. to make equal percentage changes in a variable have the same horizontal
distance.
d. to make equal absolute changes in a variable have the same vertical distance.
e. to show how a variable is divided among its factors.
ANS: B PTS: 1 DIF: moderate
TOP: Real gross domestic product over time
101. Why would it be a good idea to plot time-series data on a ratio scale (or log scale)
instead of a regular scale in absolute units? What is the difference between the two types
of graphs?
ANS:
On a ratio-scale graph, the vertical scale shrinks as the economic variable being plotted gets
bigger. Equal percentage changes in the variable will have the same vertical distance instead
of equal absolute differences having the same vertical distance. With a ratio-scale graph, a
variable that grows at a constant rate will be shown as a straight line. On a regular graph, the
same variable would look as if it were increasing at an exponential rate, which is misleading.
If the line steepens, the variable is growing faster. Macroeconomists are often interested in
growth rates, especially of prices (the rate inflation) and output.
PTS: 1 DIF: moderate
TOP: Real gross domestic product over time
102. Is it a good idea for the government to encourage workers to retire early and give
them incentives to do so? How would this policy affect the economy’s potential GDP?
ANS:
If the government encourages workers to retire early, potential GDP will fall. Unless there is
some known market imperfection, any interference by the government is likely to reduce
national welfare.
PTS: 1 DIF: moderate TOP: Explaining the long-term trend and short-term
fluctuations
103. True or False. The movement from a point inside a production possibilities curve to a
point outside the curve is likely to result in no change in an economy’s total production.
ANS: F PTS: 1 DIF: moderate
TOP: Explaining the long-term trend and short-term fluctuations
104. The book that marked the beginning of the Keynesian revolution was entitled
a. The Wealth of Nations.
b. A Monetary History of the United States.
c. Money, Credit, and Finance.
d. The General Theory of Employment, Interest and Money.
e. Money, Interest and Prices.
ANS: D PTS: 1 DIF: basic
TOP: Explaining the long-term trend and short-term fluctuations
105. According to Keynes, the prolonged slump of the 1930s was due to a decline in
a. potential GDP.
b. willingness to supply.
c. private sector spending.
d. interest rates.
e. the size of the capital stock.
ANS: C PTS: 1 DIF: challenging
TOP: Explaining the long-term trend and short-term fluctuations
106. Which of the following statements about mainstream macroeconomics is true,
according to the textbook?
a. Classical theory validly explains long-term macroeconomic behaviour.
b. Keynesian theory validly explains short-term macroeconomic fluctuations.
c. It is a blend of classical and Keynesian economics.
d. The invisible hand does not keep the economy on the production possibilities
curve during the short term.
e. All of the listed options are correct.
ANS: E PTS: 1 DIF: moderate
TOP: Explaining the long-term trend and short-term fluctuations