Please go over the assignment given in class. For further help, I have posted a study guide, with answers, to help study for the test.
The test will be a combination of multiple choice and short answers.
There are four Short Answer questions on the Quiz.
You will be expected to write a short paragraph, i.e., a short answer, for each one.
You will need to define macroeconomics and its variables, know the parts of the business cycle, the trendline, "micro" recessions, the simple circular flow model, apply the simple circular flow model based on figures provided in the problem, NIPA, the income approach calculating GDP, owners of factors of production, adjustments made to convert national income to GDP, compare the GDPs of more than one country, and related topics based on your notes from Ch. 15.
1. What is macroeconomics and what are some of the major variables it analyzes?
2. Describe the parts of a typical business cycle. How does the business cycle differ from the trendline?
3. Explain why some economists believe that the U.S. economy has been experiencing “micro” recessions. What are some reasons for this development?
4. Using the simple circular flow model, explain why the sum of income earned in an economy equals the sum of spending in the economy.
Answer Key
1. Macroeconomics looks at an economy as a whole rather than its individual industries and markets. It steps back and looks at the overall health of the economy. The major variables it tracks include gross domestic product, the unemployment rate, and inflation.
2. The business cycle has two main phases—contraction and expansion. Starting at the peak, economic activity contracts and the economy slides into a recession or downturn. Economic activity hits bottom at the trough and picks up as the economy goes into a recovery. The expansion continues until the economy reaches the peak. The trend is the long-term direction of an economy's growth while the business cycle focuses on the short-term ebbs and flows of economic activity.
3. Since the early 1980s, the periods of expansion have been getting longer and the recessions shorter and less severe. For example, in the 30 years prior to 1983, the economy had seven recessions lasting an average of eleven months. Since 1983 there have been two recessions lasting an average of eight months. A downside to this development is that recoveries have been getting weaker. Some reasons for the change is that businesses have used new technologies (such as computers) and management techniques (such as supply chain management) and have focused more on producing services.
4. The circular flow shows that households earn income, which is then used to purchase the goods and services firms produce. The cycle is complete when the sales revenue is used to pay labor and other resources for their productive services. Since the funds used by firms to pay income come from the funds used for the purchase of goods and services, aggregate income and expenditures are equal. A simple example would be the purchase of an automobile for $20,000. Expenditure (from the buyer's perspective) is $20,000 and income (from the seller's perspective) is $20,000.
1. An example of an indicator tracked by macroeconomists is:
A) the price of apples.
B) gross domestic product.
C) employment in the mining industry.
D) the production of laptops.
2. The Great Depression:
A) occurred in the period before World War I.
B) led economists to begin studying macroeconomic activity.
C) was caused by hyperinflation.
D) can be cured by administering Prozac to the entire population.
3. Major macroeconomic data in the early 1980s show:
A) high unemployment and high inflation.
B) high unemployment and low inflation.
C) low unemployment and high inflation.
D) low unemployment and low inflation.
4. A recession historically lasts between:
A) 6 and 16 months.
B) 2 and 4 years.
C) 1 and 11 years.
D) 2 and 3 months.
5. During a typical economic recovery:
A) inflation drops.
B) people become pessimistic.
C) unemployment drops.
D) incomes fall.
6. Which organization dates business cycles?
A) Federal Reserve
B) National Bureau of Economic Research
C) Bureau of Commerce and Labor Department
D) Bureau of Economic Analysis
20. Since 1983, the intensity of the business cycle has been reduced due to all but which of the following factors?
A) reduction in the size of the budget deficit relative to real GDP
B) better supply chain management
C) increasing shift to a service economy
D) technological improvements in computers and communications
7. In the last few decades, recessions have been becoming less pronounced. However, at the same time:
A) rising interest rates have reduced the strength of the expansions.
B) inflation has rapidly accelerated.
C) fewer jobs have been created during economic recoveries.
D) the unemployment rate has risen considerably during periods of expansion.
8. Which of the following changes is a reason for the recent change in the characteristics of business cycles?
A) innovations in supply chain management
B) shift to manufacturing in the GDP
C) increasing effectiveness of trade barriers
D) global warming
9. The event that stimulated the U.S. government's commitment to tracking the economy's health through a national income accounting system was the:
A) Civil War and Reconstruction.
B) Panic of 1907.
C) Great Depression.
D) Oil Embargo of 1973.
10. Simon Kuznets:
A) created the gross national product as a way of measuring a nation's economic output.
B) created the National Bureau of Economic Research.
C) was Secretary of Treasury during World War II.
D) created the hair net.
11. The two approaches used by government in estimating GDP are:
A) statistical and nonstatistical.
B) survey and nonsurvey.
C) income and earnings.
D) expenditure and income.
12. A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $180. The GDP would be:
A) $30.
B) $180.
C) $270.
D) zero, because wool suits are worthless.
13. Which of the following items would be a durable good?
A) college education
B) horseradish
C) refrigerator
D) Mohawk hair cut
14. Economists believe that changes in investment spending are important for forecasting the business cycle because:
A) increases in investment spending raise tax revenues, which allows government to spend more.
B) investment closely reflect consumer sentiment.
C) changes in inventory show where the economy has been.
D) investment is a key determinant of economic growth.
15. What component of American GDP is usually negative in boom years?
A) consumption
B) investment
C) government spending
D) net exports
16. Which equation summarizes the expenditures approach to measuring GDP?
A) Y = C + S
B) total spending = total income
C) GDP = C + I + G + (X – M)
D) GDP = NDP + depreciation
17. Which of the following statements does NOT describe an adjustment to national income to obtain GDP?
A) Net exports are added to national income.
B) A capital consumption allowance is added to national income.
C) Income payments from the rest of the world are added to national income.
D) Payments U.S. corporations and residents send to foreign residents are subtracted from national income.
18. Net domestic product measures:
A) C + I + G + (X – M).
B) GDP minus depreciation.
C) GDP plus income payments from the rest of the world minus income payments to the rest of the world.
D) national income plus income payments from the rest of the world minus income payments to the rest of the world.
19. Which of the following two things can people do with money received as disposable personal income?
A) pay taxes or put money into savings
B) pay taxes or spend the money
C) spend the money or put money into savings
D) pay taxes or buy government bonds
20. Schumpeter's term “creative destruction” describes the:
A) Luddite's destruction of machines.
B) innovative dynamism of capitalism.
C) working class movement of communism.
D) destruction of buildings.
Answer Key
1. B
2. B
3. A
4. A
5. C
6. B
7. A
8. A
9. C
10. A
11. D
12. B
13. C
14. D
15. D
16. C
17. A
18. B
19. C
20. B