Ch. 12, 13, 14 study guide

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Gross domestic product constitutes
A) the total quantitative output in an economy.
B) the current market value of all goods and services produced in a given year.
C) the total spending in an economy.
D) the total monetary transactions in an economy.
E) the current market value of all final goods and services produced in a given year within a country's borders.

E) the current market value of all final goods and services produced in a given year within a country's borders.

GDP does not include
A) vegetables grown and consumed by a nonfarm family.
B) the purchase of a new Porsche.
C) the sale of meat at the local grocery store.
D) the government purchase of an F-14 fighter plane.
E) the salary paid to a company CEO.

vegetables grown and consumed by a nonfarm family.

Intermediate goods and services
A) are not included in calculating GDP using the value-added method.
B) are goods and services produced in the last year but sold in this year.
C) Are goods and services used as an input for the production of final goods and services.
D) are goods and services purchased for ultimate consumption.
E) are goods and services produced this year but not yet sold.

C) Are goods and services used as an input for the production of final goods and services.

Value added can be determined by
A) summing the market values of all intermediate goods.
B) calculating the percentage change in GDP from one year to the next.
C) adding the income of all consumers during the year.
D) subtracting the cost of all inputs from the price of the product at each stage of production.
E) dividing GDP by the GDP price deflator.

D) subtracting the cost of all inputs from the price of the product at each stage of production.

A soft-drink bottling company supplies six-packs of orange soda to retailers for a price of $2 each. If the components in each six-pack cost the bottling company $1.50, the value added to each six-pack by the bottling company is
A) $2.00.
B) $1.50.
C) $1.25.
D) $1.00.
E) $0.50.

E) $0.50.

Gross domestic product
A) is the equivalent of gross national product.
B) is different from gross national product because GDP includes domestically owned resources in foreign countries.
C) is different from gross national product in that GDP measures only output produced domestically.
D) counts all income received by foreign citizens.
E) is gross national product plus domestic income from abroad.

C) is different from gross national product in that GDP measures only output produced domestically.

Inventory can be defined as
A) the stock of capital outstanding.
B) the stock of unsold goods held by a firm.
C) the reservoir of inputs needed for production.
D) the system of accounts that uses double counting.
E) the characteristic that all successful inventions have.

B. the stock of unsold goods held by a firm.

Gross domestic product is the sum total of
A) consumption spending, investment spending, government purchases, and net exports.
B) the value of output produced at all stages of production, including intermediate goods.
C) consumption spending, saving, investment, and net exports.
D) consumption spending, saving, investment, government spending, taxes, and net exports.
E) the value of all monetary transactions in the economy.

Gross domestic product is the sum total of

Consider GDP calculated as expenditures. GDP would increase if
A) imports decreased.
B) consumption decreased.
C) exports decreased.
D) investment decreased.
E) government spending decreased.

A) imports decreased.

The price index for the current year is 180. This means that, on average, prices in the current year are
A) $0.80 higher than prices in the base year.
B) $1.80 higher than prices in the base year.
C) 80 percent of prices in the base year.
D) 180 percent higher than prices in the base year.
E) 80 percent higher than prices in the base year.

E) 80 percent higher than prices in the base year.

The price index most commonly used in the United States is
A) the CPI.
B) the PPF price index.
C) the PPI.
D) the WPI.
E) the COLA.

A) the CPI.

A price index can be defined as
A) a categorization of goods according to their price.
B) a measure of the value of output in some base year compared to the value of output in a particular year.
C) a measure of average price level in an economy.
D) a measure of the ratio of output in a particular year to the value of output in some base year.
E) a catalogue of the prices of different products published by the Federal Reserve.

C) a measure of average price level in an economy.

What is a consumer price index?
A) A measure of the price at which consumers sell their resources
B) A measure of the average price level in an economy
C) A measure of the highest price at which consumers sell their resources
D) A measure of the average price at which consumers sell their resources
E) A measure of the average price dispersion of all final goods

B) A measure of the average price level in an economy

Which of the following is counted in the GDP?
A) The value of homemaker services
B) Estimated illegal drug transactions
C) The value of NFL players' help to the community
D) The wages earned while working overtime
E) The sale of a used automatic dishwasher

D) The wages earned while working overtime

C + I + G + X equals
A) net national product.
B) disposable personal income.
C) national income.
D) personal income.
E) gross domestic product.

E) gross domestic product.

For a hypothetical economy in a given year, GDP was $10,000, consumption equaled $9,800, investment equaled $125, goods exported equaled $255, and goods imported equaled $500. What was government spending equal to?
A) $120
B) $380
C) $245
D) $200
E) $320

E) $320

To calculate GDP, we can sum
A) wages, rent, interest, and profits.
B) consumption, gross investment, depreciation, and net exports.
C) depreciation, net factor income from abroad, and indirect business taxes.
D) gross investment, wages, profits, rent, and indirect business taxes.
E) consumption, profits, interest, rent, and net exports.

A) wages, rent, interest, and profits.

C + I - G + X equals gross domestic product.
A) True
B) False

B) False

Real GDP
A) measures a nation's output in current-year price.
B) measures a nation's output in constant-year price.
C) measures how much change in price level has occurred.
D) measures the change in value of output.
E) All of the above.

B) measures a nation's output in constant-year price.

Historically, nominal GDP in the United States has been increasing faster than real GDP because
A) technology has been increasing, resulting in more efficient production.
B) the general price level has been decreasing.
C) indirect business taxes have been increasing.
D) the general price level has been increasing.
E) total output in the economy has been decreasing.

D) the general price level has been increasing.

Recession is another name given to a period in which unemployment rises.
A) True
B) False

A) True

The official unemployment rate is
A) the number of unemployed people divided by the number of employed people.
B) the number of unemployed people divided by the total size of the population.
C) the number of unemployed people divided by the size of the non-institutionalized population.
D) the number of unemployed people divided by the size of the labor force.
E) the number of unemployed people divided by the size of the non-institutionalized population, age 16 or older.

D) the number of unemployed people divided by the size of the labor force.

The Bureau of Labor Statistics defines a person as unemployed if he or she does not
A) work full time.
B) have a job but is actively seeking one.
C) earn a wage above the minimum wage rate.
D) earn enough income to be above the poverty level.
E) work as much as he or she desires.

B) have a job but is actively seeking one.

Which of the following persons would be considered unemployed?
A) A house wife/husband
B) A 15-year-old looking for summer employment
C) A person who worked more than 20 hours in a family-owned business
D) A recent college graduate looking for her first job
E) A full-time student

D) A recent college graduate looking for her first job

Which of the following would be considered a member of the U.S. labor force?
A) A carpenter who hasn't looked for work during the past year
B) An inmate in a state prison who makes license plates
C) A person in a mental institution
D) A 14-year-old boy who mows lawns for money on the weekends
E) An anthropologist whose search for a job has been unsuccessful

E) An anthropologist whose search for a job has been unsuccessful

Structural unemployment is the result of
A) business cycle fluctuations.
B) recurring changes in the hiring needs of certain industries.
C) short-term movement of workers between jobs.
D) job search for first-time job seekers.
E) technological change or permanent changes in industry demand.

E) technological change or permanent changes in industry demand.

Which of the following people is structurally unemployed?
A) "I quit my job last week and will start a new one next week."
B) "I lost my job because I was replaced by a robotic machine."
C) "I was laid off at the Ford plant because car sales are down due to a recession."
D) "I quit looking for work after unsuccessfully trying to find a job for two years."
E) "I quit my work at the farm after the harvest was over."

B) "I lost my job because I was replaced by a robotic machine."

Which of the following is an example of cyclical unemployment?
A) A recent college graduate still looking for her first job
B) A car salesman who loses his job because of a recession
C) A ski instructor who is out of work during the summer
D) An economics journalist who just quit her writing job in order to begin a new career as a college professor next month
E) A worker displaced from his factory job because of greater mechanization in the workplace

B) A car salesman who loses his job because of a recession

Frictional and structural unemployment are always present in a dynamic economy.
A) True
B) False

A) True

Shifts in consumer tastes, relocation of industries, and technological changes can all be contributing factors to structural unemployment.
A) True
B) False

A) True

A first-draft college basketball star who has a month off before reporting to his new NBA team is an example of
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) technological unemployment.
E) a rich, employed person.

A) frictional unemployment.

A steelworker who has been laid off during a recession is an example of
A) frictional unemployment.
B) seasonal unemployment.
C) cyclical unemployment.
D) search unemployment.
E) structural unemployment.

C) cyclical unemployment.

The term fiscal policy refers to
A) the use of fines to penalize unfair business practices.
B) the purchase and sale of U.S. government securities to regulate the money supply.
C) the adjustment of the GDP for inflation.
D) a policy action by Congress to overrule unpopular budget cuts by the president.
E) the use of government spending and taxation to influence the level of economic growth and inflation.

E) the use of government spending and taxation to influence the level of economic growth and inflation.

By law, the United States government is responsible for the macroeconomic health of the nation.
A) True
B) False

A) True

Which of the following is not related to fiscal policy?
A) Foreign exchange market intervention
B) Increasing taxes
C) Balancing the budget deficit
D) Welfare
E) All of these; that is, none is related to fiscal policy.

A) Foreign exchange market intervention

Which of the following can be considered part of fiscal policy?
A) A decrease in the discount rate
B) Open-market operations
C) Increases in the money supply
D) Decreases in government spending
E) Changing the reserve requirement

D) Decreases in government spending

Government spending
A) affects aggregate demand directly.
B) has no impact on the economy.
C) affects aggregate demand indirectly.
D) has no effect on net exports.
E) None of the above.

A) affects aggregate demand directly.

Fiscal policy is the most important tool used by the government to achieve economic growth.
A) True
B) False

A) True

When the government uses taxes and spending to affect national economy, it is engaging in
A) fiscal policy.
B) monetary policy.
C) income policy.
D) trade policy.
E) All of the above.

A) fiscal policy.

Fiscal policy affects which two components of aggregate demand either directly or indirectly?
A) Government spending and consumption
B) Net exports and saving
C) Investment and net exports
D) Consumption and investment
E) Taxes and consumption

A) Government spending and consumption

If the federal government of the United States decided to cut its spending by 200 million dollars, what would happen, all else equal, to aggregate expenditures (AE)?
A) AE would increase.
B) AE would decrease.
C) AE would remain constant.
D) AE would equal potential real GDP.
E) We cannot tell what would happen to AE from the information given.

B) AE would decrease.

The federal budget
A) is solely determined by politics.
B) is solely determined by economics.
C) reflects equal contributions by politics and economics.
D) is determined by the Federal Reserve.
E) is determined by the Treasury Department.

A) is solely determined by politics.

Economic growth is measured as
A) the quarterly percentage change in nominal GDP.
B) total output per year divided by the inflation rate.
C) total nominal GDP at the end of each year.
D) the percentage change in population growth per year.
E) the annual percentage change in real GDP.

E) the annual percentage change in real GDP.

If real GDP for Mexico was 19.8 trillion pesos at the end of 1999 and 21.3 trillion pesos at the end of 2000, then Mexico's economy grew at an annual rate of
A) 21.3 percent.
B) 4.8 percent.
C) 7.0 percent.
D) 7.6 percent.
E) It cannot be determined from the information given.

D) 7.6 percent.

What is the annual rate of economic growth in Japan if real GDP at the beginning of the year is 11.9 trillion yen and real GDP at the end of the year is 11.1 trillion yen?
A) 0.65 percent
B) 6.7 percent
C) 1.9 percent
D) 0.059 percent
E) 6.25 percent

B) 6.7 percent

If a country's population growth exceeds the annual growth in real GDP,
A) per capita real GDP will rise.
B) real GDP will fall.
C) nominal output will fall.
D) economic growth will be greater than zero.
E) per capita real GDP will fall.

E) per capita real GDP will fall.

Government spending equals the sum of what three components?
A) Taxes, changes in federal reserves, and changes in net exports
B) Taxes, change in government debt, and change in government-issued money
C) Taxes, public expenditures, and private deductible expenditures
D) Public expenditures, private related deductions, and change in government debt
E) Public education, welfare, and social security expenditures

B) Taxes, change in government debt, and change in government-issued money

If the government wants to close a GDP gap, it should
A) raise government spending, thereby shifting the aggregate demand curve to the left.
B) lower taxes, thereby shifting the aggregate demand curve to the right.
C) lower government spending, thereby shifting the aggregate supply curve to the left.
D) raise taxes, thereby shifting the aggregate supply curve to the right.
E) raise both government spending and taxes by the same amount, thereby shifting the aggregate demand curve to the left.

B) lower taxes, thereby shifting the aggregate demand curve to the right.

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