Macroeconomics Test 2

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Practice Questions

c. gross domestic product

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit

b. is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being.

GDP
a. is used to monitor the performance of the overall economy but is not the single best measure of a society's economic well-being.
b. is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being.
c. is not used to monitor the performance of the overall economy but is the single best measure of a society's economic well-being.
d. is not used to monitor the performance of the overall economy and is not the single best measure of a society's economic well-being.

a. income and expenditures.

Gross domestic product measures

a. income and expenditures.
b. income but not expenditures.
c. expenditures but not income.
d. neither income nor expenditures.

c. income must equal expenditure.

For an economy as a whole,
a. wages must equal profit.
b. consumption must equal saving.
c. income must equal expenditure.
d. the number of buyers must equal the number of sellers.

b. income and saving both fall.

If an economy's GDP falls, then it must be the case that the economy's
a. income falls and saving rises.
b. income and saving both fall.
c. income falls and expenditure rises.
d. income and expenditure both fall.

d. All of the above are correct.

In a simple circular-flow diagram,
a. households spend all of their income.
b. all goods and services are bought by households.
c. expenditures flow through the markets for goods and services, while income flows through the markets for the factors of production.
d. All of the above are correct.

d. $22,000

. James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?
a. $0
b. $10,000
c. $12,000
d. $22,000

d. and most goods and services produced illegally are excluded from GDP.

Most goods and services produced at home
a. and most goods and services produced illegally are included in GDP.
b. are included in GDP while most goods and services produced illegally are excluded from GDP.
c. are excluded from GDP while most goods and services produced illegally are included in GDP
d. and most goods and services produced illegally are excluded from GDP.

a. Y represents the economy's total expenditure.

In the equation Y = C + I + G + NX,
a. Y represents the economy's total expenditure.
b. C represents household expenditures on services and durable goods.
c. all of the variables are always positive numbers.
d. All of the above are correct

c. either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.

If total spending rises from one year to the next, then
a. the economy must be producing a larger output of goods and services.
b. goods and services must be selling at higher prices.
c. either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.
d. employment or productivity must be rising.

b. real GDP.

When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study
a. nominal GDP.
b. real GDP.
c. the GDP deflator.
d. GNP.

b. only changes in the amounts being produced.

13. Changes in real GDP reflect
a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produced.
d. neither changes in prices nor changes in the amounts being produced.

a. 16.7%

A country's real GDP rose from 500 to 550 while its nominal GDP rose from 600 to 770. What was this country's inflation rate?
a. 16.7%
b. 20%
c. -14.3%
d. -20%

c. both changes in prices and changes in the amounts being produced.

Changes in nominal GDP reflect
a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produced.
d. neither changes in prices nor changes in the amounts being produced.

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