ch 14.1-14.5

Real GDP is most commonly used to monitor short-run changes in

• the price index from the preceding period.

• economic activity.

• the income distribution over time.

• the rate at which a person can trade the currency of one country for the currency of another.

Answer explanation

Real GDP is the variable most commonly used to monitor short-run changes in the economy because it is the most comprehensive measure of economic activity.

During expansions

• sales and profits fall.

• sales and profits rise.

• sales rise, but profits fall.

• sales fall, but profits rise.

Answer explanation

During periods of economic expansion, most firms find that sales to customers are plentiful and that profits are growing.

Most macroeconomic variables that measure some type of income, spending, or production fluctuate far apart from each other.

• True

• False

Answer explanation

Most macroeconomic variables that measure some type of income, spending, or production fluctuate closely together.

Which of the following is NOT correct?

• Short-run fluctuations in economic activity can happen in developed countries such as Canada.

• During economic contractions most firms experience dwindling profits.

• When real GDP expands, the rate of unemployment rises.

• Recessions come at irregular intervals and are almost impossible to predict.

Answer explanation

When real GDP expands, rate of unemployment falls, because economic growth leads to more jobs created

Which of the following macroeconomic variables is a small part of real GDP, yet accounts for a large share of the fluctuation in real GDP?

• investment

• unemployment

• auto sales

• consumer spending

Answer explanation

Even though investment averages about 1/7 of GDP, fluctuations in investment account for more than 1/7th of the fluctuations in GDP. Investment fluctuates much more than real GDP.

Recessions occur at ________ intervals and are ________ to predict with much accuracy.

• irregular; quite possible

• regular; quite possible

• regular; almost impossible

• irregular; almost impossible

Answer explanation

Economic fluctuations are not at all regular, and they are almost impossible to predict with much accuracy.

Which of the following occurs during a recession?

• an increase in unemployment and a decrease in real output and real income

• an increase in unemployment and an increase in real output and real income

• a decrease in unemployment and an increase in real output and real income

• a decrease in unemployment and a decrease in real output and real income

Answer explanation

During a recession, unemployment rises while real output and real income fall.

Which of the following is correct?

• Economic fluctuations are easily predicted by competent economists.

• Sometimes recessions are close together.

• Recessions have never occurred very close together.

• Spending, income, and production do not fluctuate closely with real GDP.

Answer explanation

The recessions of 1980 and 1982 are examples of recessions that were close together.

The recessions associated with the business cycle come at irregular intervals.

• True

• False

When output rises, unemployment also rises

• True

• False

Answer explanation

When a recession ends and real GDP starts to expand, the unemployment rate gradually declines.