ECON 201
Updated: Aug 15, 2022
Refer to the figures. Which figure(s) represent(s) a situation where negative demand shocks can resultin a recession?
A. A only
B. B only
both A and B
neither A nor B
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-04 Describe why economists believe that shocks and sticky prices are responsible for short-run fluctuations in output and employment.
Test Bank: I Topic: Uncertainty, Expectations, and Shocks
Type: Graph
50.
Refer to the figures. Which of the following events would most likely result in higher unemployment?
a shift from D2 to D1 in Figure A
a shift from D2 to D3 in Figure A
C. a shift from D2 to D1 in FigureB
D. a shift from D2 to D3 in Figure B
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-04 Describe why economists believe that shocks and sticky prices are responsible for short-run fluctuations in output and employment.
Test Bank: I Topic: Uncertainty, Expectations, and Shocks
Type: Graph
51.
Refer to the figures. Which of the followingevents would most likely result in inflation?
A. a shift from D2 to D1 in Figure A
B. a shift from D2 to D3 in Figure A
a shift from D2 to D1 in Figure B
a shift from D2 to D3 in Figure B
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-04 Describe why economists believe that shocks and sticky prices are responsible for short-run fluctuations in output and employment.
Test Bank: I Topic: Uncertainty, Expectations, and Shocks
Type: Graph
52.
Refer to the figures. Which figure(s) represent(s) a situation where firms are likely to hold inventories to accommodate unexpected changes in demand?
A. A only
B. B only
both A and B
neither A nor B
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-04 Describe why economists believe that shocks and sticky prices are responsible for short-run fluctuations in output and employment.
Test Bank: I Topic: Uncertainty, Expectations, and Shocks
Type: Graph
Which of the following results from firms holding inventories?
The economy is much more susceptible to business cycle fluctuations.
Demand shocks occur with greater frequency.
Demand shocks occur less frequently.
D. Firms can maintain production levelsand adjust inventories in response to demand shocks.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-04 Describe why economists believe that shocks and sticky prices are responsible for short-run fluctuations in output and employment.
Test Bank: I Topic: Uncertainty, Expectations, and Shocks
Kara's Kittenstypically produces and sells at its optimal (lowest per-unit cost) levelof 30 scratching posts per week. Kara's also maintains an inventoryof 20 scratching posts. If prices are sticky and there is a positive demand shock this week resulting in demand for 40 scratching posts, we would expect Kara's to
sell the additional scratching posts out of its inventory and rebuild the inventorylater when a negative demandshock occurs.
permanently expand production to 40 scratching posts per week.
raise prices on scratching posts.
introduce a new line ofscratching posts.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-04 Describe why economists believe that shocks and sticky prices are responsible for short-run fluctuations in output and employment.
Test Bank: I Topic: Uncertainty, Expectations, and Shocks
In situations of sticky prices and negative demand shocks, we would expectfirms to
deplete inventories before increasing production.
reduce production before building up inventories.
C. build up inventories before reducing production.
D. lower prices before reducing production or building up inventories.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-04 Describe why economists believe that shocks and sticky prices are responsible for short-run fluctuations in output and employment.
Test Bank: I Topic: Uncertainty, Expectations, and Shocks
Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?
Firms respond to shorter-term demand shocks by adjusting production levels; more persistent changes in demand result in changes in inventories.
B. Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels.
Firms are reluctant to adjust inventory levels because the costs are higher than changingthe quantity of output produced.
Firms are quick to let go of workers when negative demand shocks occur.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-04 Describe why economists believe that shocks and sticky prices are responsible for short-run fluctuations in output and employment.
Test Bank: I Topic: Uncertainty, Expectations, and Shocks
For which of the following goods and services are prices most sticky?
taxi fares
beer
C. coin-operated laundry machines
D. airline tickets
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Test Bank: I Topic: How Sticky Are Prices?
For which of the following goods are services are pricesleast sticky?
taxi fares
haircuts
microwave ovens
D. airline tickets
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Test Bank: I Topic: How Sticky Are Prices?
The average number of months betweenprice changes for gasolineis A. 0.2.
B. 0.6.
C. 1.0.
D. 1.8.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Test Bank: I Topic: How Sticky Are Prices?
Prices for airline tickets change on averageabout once per month. This would suggest that airline ticket pricesare
stuck.
determined in a highly competitive market.
relatively sticky.
D. relatively flexible.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Test Bank: I Topic: How Sticky Are Prices?
Prices tend to be sticky because
firms are worried that frequent price changes would annoy consumers.
most firms have agreements with each other to fix prices at profit-maximizing levels.
government controls most prices.
foreign competition discourages domestic firms from price changes.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Test Bank: I Topic: How Sticky Are Prices?
Which of the following best explainswhy prices tend to be inflexible even when demand changes?
Government regulations limit the number of times a firm can change prices in a year.
In most industries the profit-maximizing price does not change even when demand changes.
Production costs do not tend to change when a firm varies its level of output.
D. Firms may be reluctant to change pricesfor fear of settingoff a price war or losing customers to rivals.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Test Bank: I Topic: How Sticky Are Prices?
Prices are particularly sticky
when there are widespread macroeconomic and monetarydisturbances in the economy.
in the long run.
when markets are highly competitive.
when the economy is at full employment and positive demand shocksare occurring.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Test Bank: I Topic: How Sticky Are Prices?
Which of the following statements best describes price flexibility in the economy?
Prices tend to be sticky in the short run and stuck in the long run.
Prices tend to be just as sticky in the short run as in the long run.
C. Prices tend to be sticky in the short run but becomemore flexible overtime.
D. Prices tend to beflexible in the short run but become more sticky overtime.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-05 Characterize the degree to which various prices in the economy are sticky.
Test Bank: I Topic: How Sticky Are Prices?
65.
Refer to the figures. As the economy moves from the very short run to the longerrun, we would expect
A. the representation of the economy to move from Figure A to Figure B.
B. the representation of the economy to move from Figure B to Figure A.
demand shocks to be eliminated.
the economy to gravitate to P1.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-06 Explain why the greater flexibilityofprices as time passes causes economists to utilize different macroeconomicmodels for different time horizons.
Test Bank: I Topic: Categorizing Macroeconomic Models Using Price Stickiness
Type: Graph
66.
Refer to the figures. In terms of representing the economy,
neither Figure A nor Figure B consistently represents either the very short run or the longerrun.
demand shocks affect levels of output and employment in Figure A; demand shocks have no effect in Figure B.
Figure A represents the very short run, where output is fixed, and Figure B represents the longerrun.
D. Figure B represents the very short run, where prices are sticky, and Figure A represents the longer run.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-06 Explain why the greater flexibilityofprices as time passes causes economists to utilize different macroeconomicmodels for different time horizons.
Test Bank: I Topic: Categorizing Macroeconomic Models Using Price Stickiness
Type: Graph
67.
Refer to the figures. If government policy can be used to affectthe level of demand in the economy, these figures suggest that government policy
A. can affect the levelof output in the very short run, when prices are stuck.
can affect the level of output in the longer run, when pricesare flexible.
cannot affect output in either the very short run or the longerrun.
can be used to simultaneously affect the levels of output and prices.
AACSB: Knowledge Application
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-06 Explain why the greater flexibilityofprices as time passes causes economists to utilize different macroeconomicmodels for different time horizons.
Test Bank: I Topic: Categorizing Macroeconomic Models Using Price Stickiness
Type: Graph
The overall behavior of the economy
is remarkably stable over time.
B. differs over time as prices become increasingly flexible in the months and years followinga shock.
differs over time as pricesbecome increasingly sticky in the months and years following a shock.
is easily controlled and stabilized by governmentpolicy.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium
Learning Objective: 06-06 Explain why the greater flexibilityofprices as time passes causes economists to utilize different macroeconomicmodels for different time horizons.
Test Bank: I Topic: Categorizing Macroeconomic Models Using Price Stickiness
(Consider This) What is the difference between financial investment and economic investment?
There is no difference between the two.
Financial investment refers to the purchase of financial assets only; economic investment refers to the purchase of any new or used capital goods.
Economic investment is adjusted for inflation; financial investmentis not.
D. Financial investment refers to the purchase of assets for financialgain; economic investment refers to the purchaseof newly createdcapital goods.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 06-03 Identify why saving and investment are key factors in promoting rising living standards.
Test Bank: I Topic: Saving, Investment, and Choosing between Present and Future Consumption
(Consider This) Which of the following is an example of economic investment?
Volvo buys an old factorybuilding from GeneralMotors.
B. Nike buys a new machine that increases shoe production.
Bill Gates buys shares of stock in IBM.
Warren Buffet buys U.S. savings bonds.
AACSB: Knowledge Application Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy
Learning Objective: 06-03 Identify why saving and investment are key factors in promoting rising living standards.
Test Bank: I Topic: Saving, Investment, and Choosing between Present and Future Consumption
(Consider This) Suppose that Toyota buys a factory previously owned by Chrysler Motors. Economists would
consider this to be an economic investment.
not consider this to be an economic investment, because Toyota is less efficientthan Chrysler.
C. not consider this to be an economic investment, because no new capital is created throughthe purchase.
D. not consider this to be an economic investment, because there is no way to know how it will affect stock holdings in the two companies.
AACSB: Knowledge Application Accessibility: Keyboard Navigation