Chapter10

Macroeconomists study

• decisions of households and firms
• economy-wide phenomena
• the interaction of households and firms
• regulations of firms and unions

Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

• Why do prices in general rise by more in some countries than others?
• Why do wages differ across industries?
• Why do production and income increase in some periods and not in others?
• Why has average income increased over time?

Macroeconomics includes the study of topics such as

• national output, the inflation rate, and the trade deficit
• the price of Cisco stock, wage differences between genders, and antitrust laws
• differences in market structure, and how consumers maximize utility
• None of the above are correct

Which of the following statistics is the best single measure of an economy’s well-being?

• the unemployment rate
• the inflation rate
• GDP
• the trade deficit

Which of the following is correct for an economy?

• Income is greater than production
• Production is greater than income
• Income always equals production
• Income equals production only when saving is zero

In a simple circular-flow diagram, total income and total expenditures in an economy are

• equal because firms are ultimately owned by households
• equal only if there is no saving
• equal because every transaction has a buyer and a seller
• never equal because some people’s income is not for production

Firms use the money they get from a sale for

• paying wages
• making a profit
• paying rents
• All of the above are correct

The simple circular-flow diagram illustrates that

• production generates income so that income and production are the same
• the economy’s income exceeds its production
• the production of an economy exceeds its income
• None of the above are necessarily correct

In an economy consisting of only households and firms, GDP can be computed by

• adding up the total expenditures of households
• adding up the total income paid by firms
• Either a or b are correct
• None of the above are correct

To compute GDP we

• simply sum the number of final goods and services
• sum the cost of producing final goods and services
• use weights determined by a survey regarding how much people value different sorts of goods and services to compute GDP as a weighted average
• sum the market values of final goods and services