Macroeconomics Practice Questions

Recessions are periods of

Falling incomes

The unemployment rate measures the fraction of

The labor force that is not working

In U.S. history, deflation

Is rare now but has occurred at times in the past

Economists use models because they

All of the above

Market-clearing models assume that prices are ___ and are best applied to understand the economy in the ___ run

Sticky, long

Microeconomics is

Useful for understanding the decisions behind macroeconomic relationships

__ GDP measures the value of the economy’s output at current prices and is a __ variable

Nominal, flow

The largest component of GDP is

Consumption

The Ford Motor Company makes a car in 2020 and sells it to the Jones family in 2021. This event increases

Consumption in 2021 and real GDP in 2020

If nominal GDP and real GDP both rise by 10%, then the GDP deflator

Is unchanged

Which of the following events would affect the CPI but not the GDP deflator

Volvo, the Swedish auto maker, raises the prices of the cars it sells in the US

If a person quits his job to become a stay-at-home parent, the labor-force participation rate __, and the unemployment rate __

Falls, rises

A manager of a perfectly competitive firm observes that the marginal product of labor id 5 units per hour, the marginal product of capital is 40 units per machine, the wage is $20 per hour, the rental price of capital is $120 per machine, and the price of output is $5 per unit. To maximize profit, the manager should hire labor and rent cpaital

More, more

An economy has the Cobb-Douglas production function Y = 10(K^1/3)(L²/3). If the economy’s stock of capital doubles, the share of total income paid to the owners of capital will

Stay the same

If immigration increases the labor force in an economy decribed by a Cobb-Douglas production function, the wage __ and the rental price of capital _

Decreases, increases

An increase in the __ interest rate __ investment

Real, decreases

If national income is $1200, consumption is $600, taxes are $200, and government purchases are $300, then national savings is

$300

A decrease in government purchases of goods and services, holding taxes, constant, will __ the equilibrium real interest rate and _ investment

Decrease, increase