Chapter 6 Check Your Understanding

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Macroeconomics The Big Picture
gtgt
Krugman/Wells
CHECK YOUR UNDERSTANDING
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Check Your Understanding 6-1Question 1
Which of the following questions involve
microeconomics and which involve macroeconomics?
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1a) Why did consumers switch to smaller cars in
2008?

1. microeconomics
2. macroeconomics

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1b) Why did overall consumer spending slow down
in 2008?

1. microeconomics
2. macroeconomics

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1c) Why did the standard of living rise more
rapidly in the first generation after World War
II than in the second?

1. microeconomics
2. macroeconomics

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1d) Why have starting salaries for students with
geology degrees risen sharply of late?

1. microeconomics
2. macroeconomics

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1e) What determines the choice between rail and
road transportation?

1. microeconomics
2. macroeconomics

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1f) Why has salmon gotten cheaper over the past
20 years?

1. microeconomics
2. macroeconomics

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1g) Why did inflation fall in the 1990s?

1. microeconomics
2. macroeconomics

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Check Your Understanding 6-1Question 1
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1a) Monetary policy involves

1. changing government spending and taxes.
2. changing the money supply and interest rates.

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1a) Fiscal policy involves

1. changing government spending and taxes.
2. changing the money supply and interest rates.

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Check Your Understanding 6-1Question 2

In 2008 problems in the financial sector led to a
drying up of credit around the country
homebuyers were unable to get mortgages, students
were unable to get loans, car buyers were unable
to get car loans, etc.
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2a) Drying up of credit usually has little impact
on the economy beyond the financial sector.

1. True
2. False

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2b) If you believed the economy was
self-regulating, then you would advocate
decreasing taxes in response to the slump.

1. True
2. False

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2c) If you believed in Keynesian economics, you
would advocate monetary and/or fiscal policy in
response to the slump.

1. True
2. False

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Check Your Understanding 6-2Questions 1 and 2

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1. We usually talk about business cycles for the
whole economy rather than as ups and downs of
particular industries.

1. True
2. False

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2. Inflation is the most harmful effect of a
recession.

1. True
2. False

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Check Your Understanding 6-3Questions 1 and 2

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1. Countries with a high population growth rate

1. typically have low unemployment rates.
2. benefit from an increase in the work force.
3. must experience above average output growth in
   order to increase the standard of living.
4. experience unprecedented rises in living
   standards.

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2. Argentina used to be as rich as Canada.
Because Argentina is poorer than Canada now,
Argentina is poorer now than it was in the past.

1. True
2. False

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Check Your Understanding 6-4Question 1

Which of these sound like inflation, which sound
like deflation, and which are ambiguous?
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1a) Gasoline prices are up 10, food prices are
down 20, and the prices of most services are up
1-2.

1. inflation
2. deflation
3. ambiguous

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1b) Gas prices have doubled, food prices are up
50, and most services seem to be up 5 or 10.

1. inflation
2. deflation
3. ambiguous

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1c) Gas prices havent changed, food prices are
way down, and services have gotten cheaper, too.

1. inflation
2. deflation
3. ambiguous

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Check Your Understanding 6-5Question 1

Which of the following reflect comparative
advantage, and which reflect macroeconomic forces?
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1a) Thanks to the discovery of huge oil sands in
Alberta, Canada, it has become an exporter of oil
and an importer of manufactured goods.

1. comparative advantage
2. macroeconomic forces

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1b) Like many consumer goods, the Apple iPod is
assembled in China, although many of the
components are made in other countries.

1. comparative advantage
2. macroeconomic forces

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1c) Since 2002, China has been running huge trade
surpluses, exporting much more than it imports.

1. comparative advantage
2. macroeconomic forces

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1d) The United States, which had roughly balanced
trade in the early 1990s, began running large
trade deficits later in the decade, as the
technology boom took off.

1. comparative advantage
2. macroeconomic forces