MACROECONOMIC P R O B L E M S 1
Roman set numbers in parentheses refer to pages where the material is discussed in both
Introductory Economics, andlntroductory Macroeconomics.
1. According to Veseth, which of the following
situations is the most likely topic of discussion in
a class on "macroeconomics"? (6)
a. An increase in the price of hamburgers.
B. An increase in the unemployment rate.
c. An increase in the production of a particular company.
d. An increase in the number of producers of
a product.
e. An increase in the wage rate paid construction workers.
5. If real gross national product is used as a
measure of economic growth, during which of
the following decades was economic growth in
the United States the greatest? (12-13)
a. The 1930s.
b. The 1940s.
c. The 1950s.
D. The 1960s.
e. The 1970s.
6. During the decade of the 1960s, economists
observed the "Phillips curve phenomenon" in
the United States. Which of the following statements, if any, best describes the Phillips curve
relationship? (13-14)
a. Unemployment can only be reduced by
reducing inflation.
b. Employment increases as unemployment
falls.
c. Any policy that increases inflation also
increases unemployment.
d. As unemployment increases, there is no
change in the rate of inflation.
E. None of the other responses is correct.
2. According to Veseth, which of the following
situations is the most likely topic of discussion in
a class on "microeconomics"? (6)
a. An increase in governmental taxes.
b. An increase in governmental spending.
c. An increase in the unemployment rate.
D. An increase in the price of a resource used
to produce a particular product.
e. An increase in the rate of inflation.
3. According to Veseth, in which of the following
decades has unemployment been considered the
most serious problem? (8, 9)
a. The 1950s.
B. The 1930s.
c. The 1960s.
d. The 1940s.
e. The 1970s.
7. One explanation of the Phillips curve which has
been proposed is that of the "wage-lag" theory.
This theory maintains that inflation can temporarily reduce unemployment because inflation
tends to: (13, 14)
a. increase the supply of labor.
B. increase business profits.
c. cause productivity to lag behind wages.
d. increase the purchasing power of the dollar
in foreign markets.
e. increase the purchase of agricultural products where more workers are needed.
4. According to Veseth, during which of the following decades has inflation been considered the
most serious economic problem? (14-15)
a. The 1930s.
b. The 1940s.
c. The 1950s.
d. The 1960s.
E. The 1970s.
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8. According to Veseth, a major contributor to the
stagnation era of 1974-1975 was: (15-16)
a. the large increases in the exportation of
wheat to the Soviet Union.
b. the leftward movement of the Phillips
curve.
c. the manner in which the government "redefined" who was employed and who was
unemployed.
D. the embargo on oil shipments imposed by
the Organization of Petroleum Exporting
Countries (OPEC).
e. the manner in which the government "redefined" how the rate of inflation was
calculated.
9. There have been a number of theoretical attempts to explain the disappearance of the
Phillips curve during the 1970s. Which of the
following statements, if any, would not explain
the disappearance of the Phillips curve? (16-17)
A. Inflation is now more of a "demand-pull"
phenomenon than a "cost-push"phenomenon.
b. Expectations concerning the occurrence of
inflation have changed.
c. Inflation today is heavily influenced by
rising oil prices.
d. Consumers have become more sophisticated in the manner in which they anticipate inflation.
e. The increases in demand which led to
higher prices would, through the wage-lag
mechanism, cause employment to rise also.
10. Suppose that the Phillips curve works in the
manner which is described in the text. If this
relationship holds, an increase in the rate of
inflation will result in: (13-14)
a. an increase in the unemployment rate
b. an increase in the economic discomfort
index.
c. a decrease in the economic discomfort
index.
d. a decrease in the employment rate.
E. none of the other responses is correct.
11. Economics is the social science which examines
how society attempts to: (5)
a. fight inflation and unemployment while
achieving economic growth.
b. organize business and earn profits for
firms subject to governmental control.
C. produce and distribute goods and services
in a world of scarce resources.
d. allocate resources among the government,
industrial and international sectors of the
economy.
e. balance the budget and fight inflation
without sacrificing any governmental
services.
12. In a market economy, the decision-making unit
which organizes the resources to produce goods
and services is the: (5)
a. household
b. individual.
c. government.
D. firm.
e. congressional committee.
13. In a market economy, the majority of decisions
about the allocation of resources are made: (5)
a. by the military.
B. by households and firms operating in a
market supervised by the price system.
c. on the basis of tradition.
d. by congressional committees.
e. by central planners because of the lack of
governmental intervention.
14. In a command economy, the mix of goods and
services produced is decided by: (5)
a. a market mechanism.
B. a central planning agency.
c. tradition.
d. the economic resources provided.
e. congressional committees.
15. The principal difference between a "market"
economy and a "command" economy is: (5)
a. scarcity is greater in a command economy,
making economic policies more difficult to
carry out.
b. command economies are more concerned
with macroeconomics, while market
economies are more concerned with
microeconomics.
c. market economies suffer more from inflation than do command economies.
d. command economies are more efficient in
producing goods and services than are
market economies.
E. different groups are responsible for the
production and distribution decisions in
the two types of economies.
MACROECONOMIC PROBLEMS
16. Ina market economy, the allocation of resources
is made by: (5)
a. central planners because of the absence of
governmental intervention.
B. individual consumers and producers operating in an environment supervised by
the price system.
c. governmental intervention because of the
absence of central planners.
d. governmental intervention because of the
absence of an effective price system.
e. central planners because of their control
over both markets and prices.
17. A good economic model: (6)
a. involves such a great deal of distortion of
reality as to be worthless.
b. will include all factors affecting changes in
the economy.
c. is useful only if it involves no simplification
of reality.
d. is impossible because of the inability of
economists to construct a "controlled"
experiment.
E. will involve some simplification of reality.
18. "Microeconomics" is concerned with: (6)
a. establishing an overall view of the operation of the economic system.
b. concealing detailed information about
specific segments of the economy.
C. a detailed examination of specific economic units which make up the economic
system.
d. the total levels of income, employment and
inflation in the economy.
e. the economic goals expressed in The Employment Act of 1946.
19. The study of "microeconomics" focuses upon:
(6)
a. t h e m o s t i m p o r t a n t q u e s t i o n s of
economics.
B. the individual household and business
units which make up the economy.
c. the broad issues of the national economy,
such as inflation and unemployment.
d. the economic goals expressed in The
Employment Act of 1946.
e. the establishment of a model of the operation of the economic system.
20. The study of "macroeconomics" focuses upon:
(6)
a. the individual household and business
units which make up the economy.
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b. individual markets and the pattern of
competition which characterizes the firms
in the industry.
c. the manner in which a business determines
the best level of output to produce.
D. the broad issues of the national economy,
such as inflation, and unemployment.
e. a detailed examination of specific economic units which make up the economic
system.
21. According to Veseth, the principal difference
between microeconomics and macroeconomics
is that: (6)
A. they view the same economic activities
from different perspectives; that is, "micro"
looks at individual decisions and "macro"
looks at these decisions taken together.
b. they represent different theories of the
economy; that is, "micro" maintains that
individual prices and quantities are more
important and "macro" says that inflation
and unemployment are the more important things.
c. they give us different prescriptions for
economic policy; that is, "micro" says to let
markets work while "macro" holds that
wage and price controls are more effective.
d. there is no difference between microeconomics and macroeconomics.
e. they represent different theories of the
economy; that is, "micro" deals with the
economic goals expressed in The Employment Act of 1946 while "macro" deals with
the manner in which firms determine their
best level of output.
22. The economic goals outlined in The Employment Act of 1946 are observed to be: (7)
a. price stability, economic growth and the
equalization of incomes.
b. the equalization of incomes, full employment and price stability.
C. economic growth, price stability and full
employment.
d. full employment, the equalization of incomes and economic growth.
e. a balanced budget, price stability and
economic growth.
23. The Employment Act of 1946 established three
macroeconomic goals for the economy. Which
of the following goals are contained in that Act?
(7)
(#) full employment
($) price stability
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(%)
(Φ)
(*)
(+)
a.
B.
c.
d.
e.
equitable distribution of income
economic growth
fair taxation
balanced budget
Only goals (#), ($) and (%) are contained in
the Act.
Only goals (#), ($) and (+) are contained in
the Act.
Only goals ($), (%) and (+) are contained
in the Act.
Only goals (%), (Φ) and (*) are contained in
the Act.
Only goals (%), (*) and (+) are contained
in the Act.
24. The Employment Act of 1946 established three
macroeconomic goals for the economy. Which
of the following are not contained in that Act?
(7)
(#) full employment
($) fair taxation
(%) balanced budget
(Φ) price stability
(*) economic growth
(+) equitable distribution of income
a. Only (#), ($) and (%) are not contained in
the Act.
b. Only (#), (%) and (+) are not contained in
the Act.
c. Only ($), (*) and (+) are not contained in
the Act.
D. Only ($), (%) and (+) are not contained in
the Act.
d. Only ($), (%) and (Φ) are not contained in
the Act.
25. According to Veseth, a good measure of the
economic growth of the economy is the:
A. real gross national product.
b. economic discomfort index.
c. Phillips curve.
d. unemployment rate.
e. business cycle.
26. According to Veseth, the stock market crash of
1929 was important because it: (8-10)
a. directly caused unemployment rates to
rise.
b. brought about higher rates of inflation
which put people out of work.
c. signalled the start of the Great Depression.
D. destroyed peoples' savings and resulted in
their spending less.
e. resulted in the passage of The Employment
Act by Congress.
27. According to Veseth, which of the following
statements best describes the economic conditions in the 1930s in the United States? (8-10)
a. Falling prices and falling unemployment.
b. Rising prices and falling unemployment.
C. Falling prices and falling employment.
d. Cyclical fluctuations but no general trend
for prices and employment.
e. Stable prices and rising employment.
28. According to Veseth, which of the following
statements best describes the economic conditions in the 1940s in the United States? (10)
a. Falling prices and falling unemployment.
B. Rising prices and falling unemployment.
c. Falling prices and falling employment.
d. Cyclical fluctuations but no general trend
for prices and employment.
e. Stable prices and rising employment.
29. According to Veseth, governmental spending
increased dramatically during the decade of the
1940s. This policy: (10)
a. was an attempt to lower unemployment
rates which were still high from the period
of the Great Depression.
B. resulted in inflation and the need for wage
and price controls.
c. reduced inflationary pressures because
most of the spending was for war materials
which left the country.
d. had no significant effect upon the
economy.
e. resulted in the decade of the 1940s having
the longest period of economic growth in
our history.
30. According to Veseth, which of the following
statements best describes the economic conditions in the 1950s in the United States? (10-11)
a. Falling prices and falling unemployment.
b. Rising prices and falling unemployment.
c. Falling prices and falling employment.
D. Cyclical fluctuations but no general trend
for price and employment.
e. Stable prices and rising employment.
31. According to Veseth, the "economic discomfort
index" is calculated by adding the: (11)
a. interest rate and the rate of inflation.
b. interest rate and the change in the real
gross national product (RGNP).
C. rate of inflation and the unemployment
rate.
d. unemployment rate and the interest rate.
MACROECONOMIC PROBLEMS
e. rate of inflation and the change in the real
gross national product (RGNP).
32. According to Veseth, which of the following
statements best describes the economic conditions in the 1960s in the United States? (12-13)
a. Falling prices and falling unemployment.
B. Rising prices and falling unemployment.
c. Falling prices and falling employment.
d. Cyclical fluctuations but no general trend
for prices and employment.
e. Stable prices and rising employment.
33. The decade of the 1960s saw a "trade-off
between inflation and unemployment. This
trade-off is often called the: (13)
a. economic discomfort index.
B. Phillips curve.
c. Kennedy-Johnson curve.
d. index of leading economic indicators.
e. business cycle.
34. The statement that "the cost of reducing the rate
of inflation is that people must lose their jobs"
depicts a relationship that is known as: (13)
a. real gross national product (RGNP).
b. the economic discomfort index.
c. the stagflation index.
d. the Employment Act of 1946.
E. the Phillips curve.
35. The Phillips curve discussed in the text suggests
a "trade-off between the economic goals of: ( 13)
a. low levels of unemployment and economic
growth.
b. economic growth and price level stability.
c. price level stability and income equality.
D. low levels of unemployment and price level
stability.
e. fair taxation and a balanced budget.
36. The Phillips curve discussed in the text relates
the: (13)
a. rate of inflation and the rate of growth in
real gross national product (RGNP).
b. rate of interest and the rate of inflation.
C. rate of inflation and the percentage of the
labor force unemployed.
d. rate of growth in real gross national product (RGNP) and the rate of unemployment.
e. rate of inflation and the employment rate.
37. One explanation for the phenomenon known as
the Phillips curve is the "wage-lag" theory. This
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theory holds that inflation can cause the unemployment rate to decline because inflation: (13)
A. temporarily increases business profits.
b. temporarily increases worker productivity.
c. increases the number of workers.
d. forces workers' wages to lag behind
salaried workers.
e. temporarily decreases the economic discomfort index.
38. According to Veseth, in using a Phillips curve to
portray the United States economy in the 1960s,
an economist would depict the rate of inflation
and the level of unemployment as being: (12-14)
A. inversely related.
b. unrelated until full employment is reached
and then directly related.
c. unrelated until full employment is reached
and then inversely related.
d. directly related.
e. not reflecting any relationship during this
period.
39. According to Veseth, the basic problem which is
portrayed in the Phillips curve is that of: (13-14)
a. price level stability and economic growth.
b. income equality and price level stability.
c. low levels of unemployment and economic
growth.
D. price level stability and low levels of
unemployment.
e. a balanced budget and low levels of
unemployment.
40. According to Veseth, the Phillips curve in the
decade of the 1970s: (14-15)
a. allowed the economic policymakers to
formulate better policies.
b. described most of the period accurately.
C. was no longer accurately described by the
data.
d. appeared to move towards the origin.
e. s h o w e d h i g h i n f l a t i o n a n d l o w
unemployment.
41. According to the Phillips curve, actions taken by
the government to reduce inflation will result in:
(13)
a. rising interest rates.
B. rising unemployment.
c. falling prices.
d. rising employment.
e. a more equitable distribution of income.
42. According to Veseth, which of the following
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statements best describes the economic conditions in the 1970s in the United States? (14-15)
a. Rising prices and falling unemployment.
b. Stable prices and rising employment.
C. Rising prices and rising unemployment.
d. Cyclical fluctuations but no general trend
for prices and employment.
e. Falling prices and falling unemployment.
43. The phenomenon known as "stagflation" is the
combination of high inflation and: (15)
a. high employment.
b. high taxes.
c. high interest rates.
D. high unemployment.
e. high business profits.
44. The principal difference between the economic
conditions in the 1960s and the 1970s was:
(16-17)
a. higher inflation but lower unemployment
in the 1960s than in the 1970s.
b. lower inflation but higher unemployment
in the 1960s than in the 1970s.
c. stable prices in both decades but higher
unemployment in the 1970s.
d. higher inflation and higher unemployment
in the 1960s than in the 1970s.
E. lower inflation and lower unemployment
in the 1960s than in the 1970s.
45. According to Veseth, which of the following
statements accurately describes why the Phillips
curve is inapplicable to the decade of the 1970s?
(16-17)
(#) The inflation of the 1960s was of a
"demand-pull" type while the inflation of
the 1970s was a "cost-push" type.
($) Workers became more sophisticated about
inflation and adjusted their expectations of
future price increases.
(%) Inflation began to reduce business profits
through the "wage-lag" process.
A. Only statements (#) and ($) are accurate.
b. Only statements ($) and (%) are accurate.
c. Only statements (#) and (%) are accurate.
d. All of the statements are correct.
e. Only statement (%) is accurate.
46. Which of the following statements accurately
portrays the discussion of the Phillips curve in
the text by Veseth? (13-17)
(#) The Phillips curve has been extremely
unstable in portraying the United States
economy for the 1970s.
($) The Phillips curve illustrates the direct
relationship between the rate of inflation
and the level of unemployment.
(%) The Phillips curve has been extremely
stable in portraying the United States
economy during the 1960s.
a. Only statements (#) and ($) are accurate.
b. Only statements ($) and (%) are accurate.
c. All of the statements are accurate.
D. Only statements (#) and (%) are accurate.
e. Only statement (#) is accurate.
47. According to Veseth, the stagflation of the 19741975 period was the result of which of the
following events? (15)
a. The OPEC oil embargo.
b. The devaluation of the dollar.
c. Agricultural problems.
D. All of the responses are correct.
e. Declining consumer purchasing power.
48. According to Veseth, which of the following
events was a major contributing factor in the
1974-1975 period of stagflation? (15)
(#) the OPEC oil embargo
($) the devaluation of the dollar
(%) problems in the agricultural sector of the
economy
a. Only events (#) and ($) were major factors
affecting stagflation.
B. All of the events were major factors affecting stagflation.
c. Only events (#) and (%) were major factors
affecting stagflation.
d. Only events ($) and (%) were major factors
affecting stagflation.
e. Only event (#) was a major factor affecting
stagflation.
49. According to Veseth, "stagflation" is the occurrence of a (high/low) rate of inflation accompanied with a (high/low) rate of unemployment. (15)
A. High; high.
b. High; low.
c. Low; high.
d. Low; low.
e. None of the responses is correct.
50. When economists are concerned with "stagflation," they are responding to: (15)
a. low levels of unemployment and low rates
of inflation.
b. high levels of unemployment and low rates
of inflation.
c. none of the responses is correct.
D. high levels of unemployment and high
rates of inflation.
e. low levels of unemployment and high rates
of inflation.