question
Which is the proper order for the business cycle?
answer
Peak, recession, trough, expansion
question
Real GDP rose in all four quarters of 2003. Thus, 2003 was most likely a year:
answer
Of expansion
question
The unemployment rate generally rises during:
answer
A recession
question
The unemployment rate:
a) is lower in most Western European countries than it is in the United States
b) is zero in countries that are not in recession
c) was higher in the Great Depression than it has been since then
d) all of the above
e) none of the above.
a) is lower in most Western European countries than it is in the United States
b) is zero in countries that are not in recession
c) was higher in the Great Depression than it has been since then
d) all of the above
e) none of the above.
answer
C: Was higher in the Great Depression than it has been since then
question
In the United States, the average inflation rate was highest over the decade of the:
a) 1960's
b) 1970's
c) 1980's
d) 1990's
a) 1960's
b) 1970's
c) 1980's
d) 1990's
answer
B) The 1970's
question
Which of the following is an example of monetary policy?
a) changing the level of interest rates in the economy
b) changing government spending
c) changing tax rates
d) both (b) and (c)
e) none of the above
a) changing the level of interest rates in the economy
b) changing government spending
c) changing tax rates
d) both (b) and (c)
e) none of the above
answer
A) Changing the level of interest rates in the economy
question
Consumer Price Inflation in the United States over the last 200 years:
answer
Was on average close to zero for the majority of the period
question
If this year's price level exceeds last year's:
answer
The inflation rate between these years has been positive
question
The unemployment rate is best described as:
answer
The proportion of the nation's population that wants a job, but can't find one
question
Gross domestic product is the total ____ produced within a country in a given
time period.
a) market value of all final and intermediate goods and services
b) market value of all final and intermediate goods and services plus investment
and depreciation
c) amount of final and intermediate goods and services
d) market value of all final goods and services
e) none of the above
time period.
a) market value of all final and intermediate goods and services
b) market value of all final and intermediate goods and services plus investment
and depreciation
c) amount of final and intermediate goods and services
d) market value of all final goods and services
e) none of the above
answer
D) Market value of all final goods and services (not intermediate!!!)
question
To measure GDP using the expenditure approach you must collect data on
a) inflation.
b) exports.
c) wages.
d) saving.
e) none of the above
a) inflation.
b) exports.
c) wages.
d) saving.
e) none of the above
answer
B) Exports
question
GDP includes all of the following, EXCEPT
a) consumption of food.
b) purchases of intermediate goods.
c) purchases of a piece of capital equipment.
d) purchases of guns by the government.
e) none of the above
a) consumption of food.
b) purchases of intermediate goods.
c) purchases of a piece of capital equipment.
d) purchases of guns by the government.
e) none of the above
answer
B) Purchases of intermediate goods
question
All of the following household expenditures are included in personal consumption
expenditure EXCEPT
a) payment to a dentist for filling a tooth.
b) purchase of a new house.
c) purchase of a new purse.
d) purchase of hair style
expenditure EXCEPT
a) payment to a dentist for filling a tooth.
b) purchase of a new house.
c) purchase of a new purse.
d) purchase of hair style
answer
B) Purchase of a new house
question
An example of "Gross private domestic investment" is the purchase of:
a) a new taxicab.
b) 100 shares of IBM stock on the New York Stock Exchange.
c) a 100-year-old house that was just put on the protected historic sites list in the
year in question.
d) a U.S. government bond.
a) a new taxicab.
b) 100 shares of IBM stock on the New York Stock Exchange.
c) a 100-year-old house that was just put on the protected historic sites list in the
year in question.
d) a U.S. government bond.
answer
A) A taxicab
question
The largest income component of GDP is:
answer
Compensation of employees
question
In years with inflation, nominal GDP increases ____ real GDP.
answer
Faster than
question
Two factors that both directly change the stock of capital goods are:
answer
Depreciation and investment
question
In the calculation of GDP using the expenditure approach, the category "Government
Expenditure on Goods and Services" excludes:
Expenditure on Goods and Services" excludes:
answer
Transfer payments
question
Real GDP is:
answer
The market value of final goods and services using fixed prices from some base year
question
Which component of GDP has been negative in recent years?
answer
Net exports
question
Comparing gross domestic product and net domestic product we see that:
answer
Net domestic product is smaller than gross domestic product because it subtracts depreciation
question
Formula for calculating nominal GDP:
answer
Nominal GDP = C (Personal Consumption Expenditures) + I (Gross Private Domestic Investment) + G (Government Expenditure on Goods and Services) + Exports
question
Which of the following is NOT included in GDP?
a) Production of services, such as the services of doctors.
b) Production of goods that last more than one year, such as television sets.
c) Production of goods that do not last more than one year, such as gasoline.
d) Household production, such as childcare provided by a parent.
e) None of the above
a) Production of services, such as the services of doctors.
b) Production of goods that last more than one year, such as television sets.
c) Production of goods that do not last more than one year, such as gasoline.
d) Household production, such as childcare provided by a parent.
e) None of the above
answer
D) Household production, such as childcare provided by a parent
question
Which of the following are reasons that real GDP might be an inaccurate measure of
a nation's economic standard of living?
a) Real GDP omits measures of the distribution of income.
b) Real GDP does not take into account the value of people's leisure time.
c) Real GDP does not include the underground economy.
d) Real GDP undervalues household production.
e) all of the above
a nation's economic standard of living?
a) Real GDP omits measures of the distribution of income.
b) Real GDP does not take into account the value of people's leisure time.
c) Real GDP does not include the underground economy.
d) Real GDP undervalues household production.
e) all of the above
answer
E) All of the above
question
The largest category in the CPI basket of goods and services is:
answer
Housing
question
If the basket of goods and services used to calculate the CPI costs $200 in the base
year and $450 in a later year, the CPI for the later year equals:
year and $450 in a later year, the CPI for the later year equals:
answer
225; (450/200) X 100
question
Which of the following is not a factor of production discussed in class?
a) land
b) financial assets
c) capital equipment
d) labor
e) both (a) and (c)
a) land
b) financial assets
c) capital equipment
d) labor
e) both (a) and (c)
answer
B) Financial assets
question
If the CPI this year is 120, this means that:
answer
Prices are 20 percent higher this year than in the reference base period
question
Suppose the CPI in 2004 = 121 and the CPI in 2005 = 137. The correct method to
calculate the inflation rate is:
calculate the inflation rate is:
answer
[(137 - 121)/121] x 100 = 13.2
question
Which of the following relationships is correct?
a) Nominal GDP = (GDP Deflator ÷ Real GDP) × 100
b) Real GDP = (Nominal GDP x GDP Deflator) ÷ 100
c) GDP Deflator = (Nominal GDP ÷ Real GDP) × 100
d) Real GDP = Nominal GDP × 100
e) none of the above
a) Nominal GDP = (GDP Deflator ÷ Real GDP) × 100
b) Real GDP = (Nominal GDP x GDP Deflator) ÷ 100
c) GDP Deflator = (Nominal GDP ÷ Real GDP) × 100
d) Real GDP = Nominal GDP × 100
e) none of the above
answer
C) GDP Deflator = (Nominal GDP/Real GDP) X 100; alternatively: (total cost of GDP in current prices/total cost of GDP in base year prices) X 100
question
Assume that one year after the base year, the price level rises. In this year, nominal
GDP is ____ real GDP, and the GDP deflator is ____.
GDP is ____ real GDP, and the GDP deflator is ____.
answer
Greater than; greater than 100
question
What is the value of real GDP if the value of the GDP deflator is 122.5 and nominal
GDP is $825 billion?
GDP is $825 billion?
answer
$673.5 billion; 122.5 = ($825 billion/Real GDP) X 100
question
Suppose the working age population in Tiny Town is 100 people. If 25 of these people
are NOT in the labor force, the ____ equals ____.
are NOT in the labor force, the ____ equals ____.
answer
Labor force; 75
question
Which of the following people is not considered unemployed in the Current
Population Survey?
a) The person has just finished school and has entered the labor force to look for
work.
b) The person has been laid off and is looking for a new job.
c) The person is looking for work after not doing so for a time.
d) The person is discouraged about finding a job and so does not search for work.
e) none of the above.
Population Survey?
a) The person has just finished school and has entered the labor force to look for
work.
b) The person has been laid off and is looking for a new job.
c) The person is looking for work after not doing so for a time.
d) The person is discouraged about finding a job and so does not search for work.
e) none of the above.
answer
D) The person is discouraged about finding a job and so does not search for work
question
The population of Tiny Town is 100 people and the labor force is made up of 75
people. If 5 of these people are unemployed, the unemployment rate is:
people. If 5 of these people are unemployed, the unemployment rate is:
answer
(5/75) x 100
question
If the labor force participation rate is rising and the working-age population is not
changing, then the:
changing, then the:
answer
Size of the labor force is rising
question
Equation for calculating unemployment rate:
answer
Unemployment rate = (Number of Unemployed/Labor Force) X 100
question
Equation for calculating the labor force participation rate:
answer
Labor force participation rate = (Labor Force/Working Age Population) X 100
question
Frictional unemployment is the result of:
answer
Normal labor market turnover
question
Structural unemployment is:
answer
Associated with the general decline of specific industries
question
Cyclical unemployment:
answer
Fluctuates over the business cycle
question
The natural rate of unemployment is
A) not a fixed percentage of the labor force.
B) occurs when there is no cyclical unemployment present.
C) the unemployment rate when the economy is at potential GDP.
D) all of the above answers are correct.
E) none of the above answers are correct.
A) not a fixed percentage of the labor force.
B) occurs when there is no cyclical unemployment present.
C) the unemployment rate when the economy is at potential GDP.
D) all of the above answers are correct.
E) none of the above answers are correct.
answer
D) All of the above answers are correct
question
When a woman reenters the labor force and looks for a job after spending time at
home raising a child:
home raising a child:
answer
Frictional unemployment increases
question
When the economy moves into and out of recessions and expansions, the
unemployment rate fluctuates around the
A) level of potential GDP.
B) structural unemployment rate.
C) cyclical unemployment.
D) frictional unemployment rate.
E) none of the above.
unemployment rate fluctuates around the
A) level of potential GDP.
B) structural unemployment rate.
C) cyclical unemployment.
D) frictional unemployment rate.
E) none of the above.
answer
E) None of the above; it fluctuates around the business cycle
question
Suppose the country of Tiny Town decided to open its borders to free trade. As a
result, a number of its workers lost their jobs to international competition and can't find
new jobs because their skills don't match what is required for job openings. The workers
who lost their jobs would best be considered part of:
result, a number of its workers lost their jobs to international competition and can't find
new jobs because their skills don't match what is required for job openings. The workers
who lost their jobs would best be considered part of:
answer
Structural unemployment
question
Suppose the economy is experiencing frictional unemployment of 1 percent of the
labor force, structural unemployment of 3 percent of the labor force and cyclical
unemployment of 4 percent of the labor force. What is the natural rate of unemployment?
A) 3 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.
E) none of the above.
labor force, structural unemployment of 3 percent of the labor force and cyclical
unemployment of 4 percent of the labor force. What is the natural rate of unemployment?
A) 3 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.
E) none of the above.
answer
E) None of the above; there is no natural unemployment rate when there is cyclical unemployment
question
The natural rate of unemployment:
answer
Rises with an increase in structural unemployment
question
Full employment exists when:
A) The economy is at the natural unemployment rate
B) There is no cyclical unemployment
C) There is only frictional and structural unemployment
D) All of the above answers are correct
A) The economy is at the natural unemployment rate
B) There is no cyclical unemployment
C) There is only frictional and structural unemployment
D) All of the above answers are correct
answer
D) All of the above answers are correct
question
When real GDP is ______ potential real GDP, the unemployment rate is _____ the
natural unemployment rate.
natural unemployment rate.
answer
Greater than; less than
question
Gross investment:
answer
The purchase of new capital
question
An expansion ends when the economy:
answer
Hits a peak and then enters a recession
question
The business cycle creates a difference between:
answer
Real GDP and real potential GDP
question
When real GDP is above potential real GDP:
answer
The output gap is positive and the unemployment rate is below the natural unemployment rate
question
When real GDP is below potential real GDP (more common):
answer
The output gap is negative and the unemployment rate is above the natural unemployment rate
question
If the inflation rate is positive, the price level in an economy is:
answer
Rising
question
In the United States, the inflation rate has:
answer
Risen and fallen since the 1960's
question
If Nike, an American corporation, produces sneakers in Thailand this would:
answer
Add to Thailand's GDP but not US GDP
question
A loaf of bread purchased by one of your instructors would be best described as:
answer
A final good
question
Which of the following expenditures associated with the production of a new high performance
SUV will be included in GDP?
A) the sale of bonds to finance the construction of the assembly plant.
B) the purchase of used welding robots to assemble the vehicle.
C) the purchase of new tires to be installed on the new vehicle.
D) the purchase of new machine tools to manufacture the engine.
SUV will be included in GDP?
A) the sale of bonds to finance the construction of the assembly plant.
B) the purchase of used welding robots to assemble the vehicle.
C) the purchase of new tires to be installed on the new vehicle.
D) the purchase of new machine tools to manufacture the engine.
answer
D) The purchase of a new machine tools to manufacture the engine
question
A capital good is:
answer
A good that is used to make other goods and services
question
Investment, as defined in class, refers to the purchase of:
answer
New capital goods
question
In the equation, GDP = C + I + G + NX, G refers to:
answer
Local, state, and federal government purchases of goods and services (including spending on national defense)
question
Which of the following is a component of U.S. consumption? __________
A) Clothing produced in the U.S. and exported abroad.
B) Clothing produced in the U.S. that is not sold.
C) The purchase of a new home
D) Office supplies purchased by a business
E) None of the above
A) Clothing produced in the U.S. and exported abroad.
B) Clothing produced in the U.S. that is not sold.
C) The purchase of a new home
D) Office supplies purchased by a business
E) None of the above
answer
E) None of the above
question
In recent years, net exports in the U.S. have been:
answer
Negative
question
If an American firm produces goods that are sold to a German household, then:
answer
The transaction is considered an import in the German GDP accounts.
question
If consumption expenditures are $500 million, net investment is $100 million,
depreciation equals $5 million, imports are $50 million, exports are $55 million,
government purchases of goods and services is $220 million, and government transfer
payments are $20 million, then GDP is:
depreciation equals $5 million, imports are $50 million, exports are $55 million,
government purchases of goods and services is $220 million, and government transfer
payments are $20 million, then GDP is:
answer
$830 million
question
Four types of income used in the income approach to the measurement of GDP are:
answer
Employee compensation (53.9%), corporate profits (9.7%), proprietor's income (7.6%) and rent (2.9%)
question
Of the following, which is correct?
A) Nominal GDP does not change when the production of goods and services
increases.
B) Nominal GDP is not affected by changes in prices of goods and services.
C) Nominal GDP increases when the prices of goods and services increase.
D) Real GDP changes only when the prices of goods and services really change.
E) none of the above.
A) Nominal GDP does not change when the production of goods and services
increases.
B) Nominal GDP is not affected by changes in prices of goods and services.
C) Nominal GDP increases when the prices of goods and services increase.
D) Real GDP changes only when the prices of goods and services really change.
E) none of the above.
answer
C) Nominal GDP increases when the prices of goods and services increase
question
Which of the following changes would cause reported GDP to increase when, in fact,
actual production is unchanged?
A) An increase in the amount of leisure time enjoyed by citizens of the economy.
B) The legalization of previously illegal activities.
C) An increase in home production.
D) None of the above will cause reported GDP to increase
E) Both answers B and C are correct.
actual production is unchanged?
A) An increase in the amount of leisure time enjoyed by citizens of the economy.
B) The legalization of previously illegal activities.
C) An increase in home production.
D) None of the above will cause reported GDP to increase
E) Both answers B and C are correct.
answer
B) The legalization of previously illegal activities
question
If nominal GDP in the United States is $9.2 trillion in 2000 and 2000 is the base year,
then real GDP is:
then real GDP is:
answer
Real GDP in 2000 will be $9.2 trillion because 2000 is the base year
question
In 2004 the CPI was 105; in 2005 it was 112. The inflation rate between 2004 and
2005 was:
2005 was:
answer
6.7 percent; inflation rate = (current CPI-last year's CPI/last year's CPI) X 100
question
The GDP deflator is:
answer
A measure of the price level of goods and services included in GDP
question
Two equations for calculating inflation rate:
answer
The Inflation Rate = (Price Level This Year - Price Level Last Year/Price Level Last Year) X 100 OR (CPI This Year - CPI Last Year/CPI Last Year) X 100
question
Equation for calculating real variable:
answer
Real Variable = (Nominal Variable/Price Level) X 100
question
Equation for calculating real wage:
answer
Real Wage = (Nominal Wage/Price Level) X 100
question
Nominal GDP:
answer
The market value of all final goods and services produced within a country in a given time period
question
Personal Consumption Expenditures:
answer
C (71% of GDP); spending by domestic households on consumer goods and services
question
Gross Private Domestic Investment:
answer
I (13% of GDP); spending by domestic firms on new capital goods and additions to inventories
question
Capital goods:
answer
Goods that are used to produce other goods and services, but aren't completely used up in the production of these other goods and services. Businesses buy capital goods. Ex) tools, instruments, machines, buildings, housing
question
Additions to inventories:
answer
Goods that are produced but are not sold to their final user inside of the period we are measuring GDP
question
Government Expenditure on Goods and Services:
answer
G (20% of GDP); purchases of goods and services by the domestic federal, state and local governments (excluding transfer and interest payments)
question
Transfer payments:
answer
Cash transfers from governments to households and firms such as social security benefits, unemployment compensation and subsidies
question
Net Exports
answer
Exports - Imports (X-M) (4% of GDP); when negative it's called a trade deficit (we export more than we import), when positive it's called a trade surplus (we import more than we export)
question
Gross Private Domestic Investment
answer
Includes new purchases of capital goods AND deprecation; new private domestic investment excludes depreciation
question
Real GDP:
answer
A measure of the total production of goods and services that strips out the effects of inflation
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