1. Which one of the following is an example of a supply shock?
A. Government increases spending on education.
B. A dramatic increase in energy prices increases production costs for firms in the economy.
C. A surge in consumer optimism prompts increased buying of goods and services.
D. A surprise tax rebate from the government gives people more money to spend.

2. The two topics of primary concern in macroeconomics are
A. oil prices and housing markets.
B. short-run fluctuations in output and employment, and long-run economic growth.
C. monopoly power of corporations, and small business profitability.
D. unemployment, and wage rates in labor markets.

3. Which one of the following is used to measure directly the average standard of living across countries?
A. Purchasing power parity
B. Real GDP
C. Nominal GDP
D. GDP per person

4. Which one of the following statements about GDP is correct?
A. GDP excludes the market value of unpaid work in the home.
B. GDP excludes the production of services.
C. GDP excludes the production of nondurable goods.
D. GDP excludes positive changes in inventories.

5. Which one of the following economic regions has experienced the most growth in real GDP per capita since 1820?
A. United States
B. Japan
C. Latin America
D. Western Europe

6. Which one of the following would not be expected to increase labor productivity?
A. The acquisition of more education and training by the labor force
B. Technological advance
C. The realization of economies of scale
D. An increase in the size of the labor force

7. Which one of the following statements about demand shocks is correct?
A. Demand shocks always have a negative impact on the economy.
B. Demand shocks are unexpected changes in the desires of households and businesses to buy goods and services.
C. Demand shocks are unexpected changes in the ability of firms to produce and sell goods and services.
D. Demand shocks cause fewer short-run fluctuations than supply shocks.

8. In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?
A. Expansion
B. Recession
C. Peak
D. Trough

9. Prices tend to be sticky because
A. most firms have agreements with each other to fix prices at profit-maximizing levels.
B. government controls most prices.
C. firms are worried about frequent price changes that would annoy consumers.
D. foreign competition discourages domestic firms from price changes.

10. Which one of the following statements about Okun's law is correct?
A. Okun's law quantifies the relationship between nominal and real incomes.
B. Okun's law indicates the number of years it will take for a constant rate of inflation to double the price level.
C. Okun's law shows the relationship between the unemployment rate and the size of the negative GDP gap.
D. Okun's law measures the tradeoff between the rate of inflation and the rate of unemployment.

11. Inflation initiated by increases in wages or other resource prices is labeled _______ inflation.
A. cost-push
B. cost-pull
C. demand-push
D. demand-pull

12. The total amount of income earned by U.S. resource suppliers in a year, plus taxes on production and imports, is measured by
A. disposable income.
B. gross domestic product.
C. national income.
D. personal income.

13. Which one of the following is most closely related to recessions?
A. Rapid growth in the price level
B. Falling rates of unemployment
C. Positive long-run economic growth
D. Negative growth in output

14. The percentage of the working-age population in the labor force is called the
A. labor force participation rate.
B. employment-population ratio.
C. work-activity rate.
D. work-nonwork ratio.

15. Strong property rights are important for modern economic growth because
A. people are less likely to invest if they're fearful that others can take their returns on investment without compensation.
B. they allow governments to extract the gains from private citizens' investments.
C. they ensure an equitable distribution of income.
D. business cycle fluctuations will be smaller and less likely to disrupt investment patterns.

16. Melissa voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA
degree. With degree in hand, she's now searching for a position in management. At the present time,
Melissa is considered to be
A. cyclically unemployed.
B. not a member of the labor force.
C. structurally unemployed.
D. frictionally unemployed.

17. Innovations such as the microchip and the Internet lead to business cycle variations because
A. significant innovations occur irregularly and unexpectedly.
B. they cause prices to be flexible.
C. they cause prices to be sticky.
D. the central bank will often change the money supply in response.

18. If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
A. Real GDP would rise, but nominal GDP would be unchanged.
B. Nominal GDP would rise, but real GDP would be unchanged.
C. Nominal and real GDP would both be unchanged.
D. Nominal and real GDP would both rise.

19. Which one of the following statements about national income is correct?
A. National income is the before-tax income received by households.
B. National income is the market value of the annual output net of consumption of fixed capital.
C. National income is the income earned by U.S. resource suppliers plus taxes on production and imports.
D. National income is the income received by households less personal taxes.


20. Which one of the following best defines disposable income?
A. The market value of the annual output net of consumption of fixed capital
B. The before-tax income received by households
C. Income received by households less personal taxes
D. All income earned by resource suppliers for their current contributions to production