AP Econ Final
1) If intermediate goods and services were included in GDP, A) nominal GDP would exceed real GDP. B) the GDP would be overstated. C) the GDP would be understated. D) the GDP would then have to be deflated for changes in the price level.
b
1) If nominal GDP in some year is $280 and real GDP is $160, then the GDP price index for that year is A) 160. B) 175. C) 57. D) 280.
b
3) Which of the following is used to measure directly the average standard of living across countries? A) nominal GDP B) GDP per person C) purchasing power parity D) real GDP
b
3) Which of the following transactions would be included in GDP? A) Nick buys $5,000 worth of stock in Microsoft. B) Peter buys a newly constructed house. C) Mary buys a used book for $5 at a garage sale. D) Olivia receives a tax refund of $500.
b
Three types of resources
natural, human, capital
which of the following household purchases will be counted as part of gross private investment in a country's GDP government bond shares of company stock corporate bonds a new car for personal use newly constructed home
newly constructed home
Ceteris Paribus
other things being equal only change one thing (exact same school but tuition increases)
pure command economy
planned all qs answered by the gov less choice less variety less competition shortage and surpluses disaster (doesn't work) (North Korea)
a country's real GDP is the annual value of all final goods and services that are purchase and that company adjusted for changes in the price level produced in that country expressed in current prices produced in that country less than exports producing that country less depreciation produced in that country adjusted for changes in the price level
produced in that country adjusted for changes in the price level
which of the following best explains why transfer payments are not included in the calculation of GDP they are used to pay for intermediate goods and intermediate goods are excluded from the GDP they are government expenditures and government expenditures are excluded from the GDP recipients of transfer payments have not produced their supplied goods and services and exchange for these payments recipients of transfer payments are usually children and income earned by children is excluded in the GDP recipients of transfer payments are sometimes not citizens of the United States
recipients of transfer payments have not produced their supplied goods and services and exchange for these payments
mixed economy
antitrust monopoly laws (Apple can't buy out Motorola, Rockefeller standard oil) Public goods and services (roads, popo) Health and safety laws (seatbelt) "safety net" (all old/handicapped people get Medicare, poor people get Medicare, everyone has a social security number) property rights (land, car, bank account) exclusive rights ( patent, copyright, trademark) Zoning laws (can/can't do with property, no hooters) (USA)
Which of the following transactions will be included in the calculation of country X GDP and 2020 the sale of corporate stocks the exchange of a used automobile for a used boat the purchase of new construction equipment Social Security checks received by retirees carrots grown in a household backyard consumed by the family
the purchase of new construction equipment
price system
uses monetary prices as a message system to facilitate exchanges between buyers and sellers
3 Q's of econ
what to produce how to produce for whom to produce (who gets it)
opportunity cost (lost)
what you sacrifice when you make a choice (sleep lost for school)
Limitations of GDP
1. Excludes Non-Market Production 2. Excludes the Underground Economy 3. Excludes Leisure & Human Costs 4. Difficulties in measuring Quality Variation & Introduction of New Goods 5. Excludes Cost of Harmful Side Effects 6. health 7. negatives count as positive (pollution while mining oil) 8. distribution 9. quality
human resources
People who work to produce goods and services ( farmers grow wheat)
natural resources
Raw materials supplied by nature (cows make milk)
capital resources
TEM- tools equipment and machinery (butter churn)
1) Full-Time Employed = 80 Part-Time Employed = 25 Unemployed = 15 Discouraged Workers = 5 Members of Underground Economy = 6 Consumer Price Index = 110 Refer to the given information about a hypothetical economy. The unemployment rate is A) 12.5 percent. B) 18.8 percent. C) 16.7 percent. D) 25 percent.
a
1) If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP? A) Nominal GDP would rise, but real GDP would be unchanged. B) Real GDP would rise, but nominal GDP would be unchanged. C) Nominal and real GDP would both rise. D) Nominal and real GDP would both be unchanged.
a
1) In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? A) expansion B) trough C) recession D) peak
a
1) The largest component of total expenditures in the United States is A) consumption. B) net exports. C) gross investment. D) government purchases.
a
1) Why are economists concerned about inflation? A) Inflation lowers the standard of living for people whose income does not increase as fast as the price level. B) Inflation generally causes unemployment rates to rise. C) Inflation increases the value of people's savings and encourages overspending on goods and services. D) Real GDP is necessarily falling when there is inflation.
a
2) A large underground economy results in an A) understated GDP. B) overstated GDP. C) overstated GDP price index. D) understated GDP price index.
a
2) Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is A) not in the labor force. B) in the labor force. C) employed. D) unemployed.
a
2) If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is A) 3 percent. B) 8 percent. C) 5 percent. D) 2 percent.
a
3) If both the real interest rate and the nominal interest rate are 3 percent, then the A) inflation premium is zero. B) real GDP must exceed the nominal GDP. C) inflation premium also is 3 percent. D) nominal GDP must exceed the real GDP.
a
3) The largest component of national income is A) compensation of employees. B) interest. C) corporate profits. D) rents.
a
4) Inflation is defined as A) an increase in the overall level of prices. B) a situation where all prices in the economy rise simultaneously. C) the rate of growth in nominal GDP. D) the growth phase of the business cycle
a
4) The presence of discouraged workers A) may cause the official unemployment rate to understate the true amount of unemployment. B) may cause the official unemployment rate to overstate the true amount of unemployment. C) reduces the size of the labor force but does not affect the unemployment rate. D) increases the size of the labor force but does not affect the unemployment rate.
a
5) Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is A) 6 percent. B) 3 percent. C) 7 percent. D) 53 percent.
a
6) Suppose the total monetary value of all final goods and services produced in a particular country in 2015 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that A) GDP in 2015 is $500 billion. B) inventories in 2015 fell by $50 billion. C) NDP in 2015 is $450 billion. D) GDP in 2015 is $450 billion.
a
7) National income accountants can avoid multiple counting by A) only counting final goods. B) counting both intermediate and final goods. C) only counting intermediate goods. D) including transfer payments in their calculations.
a
8) Which of the following constitute the types of unemployment occurring at the natural rate of unemployment? A) structural and frictional unemployment B) frictional and cyclical unemployment C) cyclical and structural unemployment D) frictional, structural, and cyclical unemployment
a
A rightward shift of the AD curve in the very flat part of the short-run AS curve will A) increase real output by more than the price level. B) reduce the price level by more than real output. C) increase the price level by more than real output. D) reduce real output by more than the price level.
a
Discretionary fiscal policy refers to A) intentional changes in taxes and government expenditures made by Congress to stabilize the economy. B) any change in government spending or taxes that destabilizes the economy. C) the changes in taxes and transfers that occur as GDP changes. D) the authority that the president has to change personal income tax rates.
a
Graphically, cost-push inflation is shown as a A) leftward shift of the AS curve. B) leftward shift of the AD curve. C) rightward shift of the AS curve. D) rightward shift of the AD curve.
a
identify two methods of calculating GDP for this economy
expenditure and income approach
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to A) increase aggregate demand. B) reduce aggregate demand. C) affect neither aggregate supply nor aggregate demand. D) reduce aggregate supply.
a
Other things equal, an improvement in productivity will A) shift the aggregate supply curve to the right. B) increase the price level. C) shift the aggregate demand curve to the left. D) shift the aggregate supply curve to the left.
a
The determinants of aggregate supply A) include resource prices and resource productivity. B) explain why real domestic output and the price level are directly related. C) are consumption, investment, government, and net export spending. D) explain the three distinct ranges of the aggregate supply curve.
a
Which of the following represents the most contractionary fiscal policy? A) a $30 billion decrease in government spending. B) a $30 billion tax cut C) a $30 billion tax increase D) a $30 billion increase in government spending
a
Circular flow of economic activity
a model that shows the relationship between households and businesses in a market economy
Rationing System
a process used to determine who gets what; used when resources or goods are scarce
4) A nation's gross domestic product (GDP) A) is the dollar value of all final output produced by its citizens, regardless of where they are living. B) is the dollar value of all final output produced within the borders of the nation during a specific period of time. C) can be found by summing C + In + S + Xn. D) is always some amount less than C + Ig + G + Xn.
b
4) Suppose that lenders want to receive a real rate of interest of 5 percent and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of A) 3 percent. B) 7 percent. C) 5 percent. D) 2 percent.
b
5) A recession is a decline in A) the unemployment rate that lasts six months or longer. B) potential GDP that lasts six months or longer. C) the inflation rate that lasts six months or longer. D) real GDP that lasts six months or longer.
b
6) A college graduate using the summer following graduation to search for a job would best be classified as A) cyclically unemployed. B) frictionally unemployed. C) not officially a member of the labor force. D) structurally unemployed.
b
6) A price index is A) the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period. B) a comparison of the current price of a market basket to a fixed point of reference. C) a ratio of real GDP to nominal GDP. D) a comparison of real GDP in one period relative to another.
b
6) The phase of the business cycle in which real GDP declines is called A) the peak. B) a recession. C) an expansion. D) the trough.
b
6) Which of the following do national income accountants consider to be investment? A) the purchase of gold coins B) the purchase of a new house C) the purchase of corporate bonds D) the purchase of an automobile for private, nonbusiness use
b
7) In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are A) counted as government spending. B) not counted. C) counted as investment spending. D) counted as consumption spending.
b
7) The phase of the business cycle in which real GDP is at a minimum is called A) the underside. B) the trough. C) the peak. D) a recession.
b
An expansionary fiscal policy is shown as a A) movement along an existing aggregate demand curve. B) rightward shift in the economy's aggregate demand curve. C) leftward shift in the economy's aggregate demand curve. D) leftward shift in the economy's aggregate supply curve.
b
Graphically, demand-pull inflation is shown as a A) leftward shift of the AS curve along an upsloping AD curve. B) rightward shift of the AD curve along an upsloping AS curve. C) leftward shift of the AS curve along a downsloping AD curve. D) rightward shift of the AD curve along a downsloping AS curve.
b
If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift A) leftward by $40 billion at each price level. B) rightward by $50 billion at each price level. C) rightward by $10 billion at each price level. D) leftward by $50 billion at each price level.
b
If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by A) increasing government spending by $80 billion. B) decreasing taxes by $25 billion. C) decreasing taxes by $100 billion. D) increasing government spending by $25 billion.
b
In the diagram, a shift from AS1 to AS2 might be caused by A) an increase in business taxes. B) a decrease in the prices of domestic resources. C) stricter government regulations. D) an increase in the prices of imported resources.
b
Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to A) reduce taxes on businesses to shift the aggregate supply curve leftward. B) reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2. C) do nothing since the economy appears to be achieving full-employment real GDP. D) increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD2.
b
The diagram illustrates the pattern of A) wage movements over time. B) business cycles. C) economic growth patterns. D) price level movements.
b
Which of the following best describes the built-in stabilizers as they function in the United States? A) Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. B) Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises. C) The size of the multiplier varies inversely with the level of GDP. D) Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP.
b
Which of the following is considered a legitimate concern of a large public debt? A) collapse of the financial system B) crowding out of private investment C) burdening future generations D) bankruptcy of the federal government
b
macro
big picture; entire country/world (inflation)
consumers- pay money
businesses- goods and services (product market)
consumers- give land ad labor
businesses- pay rent, gives wages/salary (resource market)
1) Inflation means that A) all prices are rising at approximately the same rate. B) all prices are rising, but at different rates. C) prices on average are rising, although some particular prices may be falling. D) real incomes are rising.
c
1) Kevin has lost his job in an automobile plant because the company switched to robots for its welding step in the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is A) cyclical. B) natural. C) structural. D) frictional.
c
1) The labor force includes A) permanent employees but excludes temporary employees. B) full-time workers but excludes part-time workers. C) employed workers and persons who are officially unemployed. D) employed workers but excludes persons who are officially unemployed.
c
2) In national income accounting, government purchases include A) purchases of goods for consumption but not public capital goods. B) government transfer payments. C) purchases by federal, state, and local governments. D) purchases by the federal government only.
c
2) The three statistics that are the main focus for those measuring macroeconomic health are A) real GDP, nominal GDP, and unemployment. B) real GDP, nominal GDP, and inflation. C) real GDP, inflation, and unemployment. D) nominal GDP, unemployment, and inflation.
c
2) Tom Atoe grows fruits and vegetables for home consumption. This activity is A) excluded from GDP because an intermediate good is involved. B) included in GDP because it reflects production. C) productive but is excluded from GDP because no market transaction occurs. D) excluded from GDP in order to avoid double counting.
c
3) If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the A) cyclical unemployment rate and the frictional unemployment rate together are 5 percent. B) natural rate of unemployment will eventually increase. C) cyclical unemployment rate is 4 percent. D) frictional unemployment rate is 5 percent.
c
4) GDP can be calculated by summing A) consumption, investment, government purchases, and imports. B) consumption, investment, wages, and rents. C) consumption, investment, government purchases, and net exports. D) consumption, investment, government purchases, exports, and imports.
c
4) GDP excludes A) the production of nondurable goods. B) positive changes in inventories. C) the market value of unpaid work in the home. D) the production of services.
c
4) Real GDP refers to A) the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. B) GDP data that do not reflect changes in both physical output and the price level. C) GDP data that have been adjusted for changes in the price level. D) GDP data that embody changes in the price level but not changes in physical output.
c
5) Real GDP measures A) current output at current prices. B) base year output at current prices. C) current output at base year prices. D) base year output at current exchange rates.
c
A major advantage of the built-in or automatic stabilizers is that they A) automatically produce surpluses during recessions and deficits during inflations. B) guarantee that the federal budget will be balanced over the course of the business cycle. C) require no legislative action by Congress to be made effective. D) simultaneously stabilize the economy and reduce the absolute size of the public debt.
c
An appropriate fiscal policy for a severe recession is A) a decrease in government spending. B) an increase in interest rates. C) a decrease in tax rates. D) appreciation of the dollar.
c
An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the A) real-balances effect. B) wealth effect. C) multiplier effect. D) net export effect.
c
Contractionary fiscal policy is so named because it A) necessarily reduces the size of government. B) involves a contraction of the nation's money supply. C) is aimed at reducing aggregate demand and thus achieving price stability. D) is expressly designed to expand real GDP.
c
Given a fixed upsloping AS curve, a rightward shift of the AD curve will A) increase the price level but not real output. B) increase real output but not the price level. C) increase both the price level and real output. D) cause cost-push inflation.
c
If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift A) rightward by $40 billion at each price level. B) leftward by $20 billion at each price level. C) leftward by $40 billion at each price level. D) rightward by $20 billion at each price level.
c
Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should A) reduce taxes by $40 billion. B) increase government expenditures by $80 billion. C) reduce taxes by $80 billion. D) reduce government expenditures by $40 billion.
c
In the diagram, a shift from AS2 to AS3 might be caused by a(n) A) decrease in interest rates. B) decrease in the prices of domestic resources. C) decrease in the price level. D) increase in business taxes and costly government regulation.
d
The crowding-out effect of expansionary fiscal policy suggests that A) consumer and investment spending always vary inversely. B) it is very difficult to have excessive aggregate spending in the U.S. economy. C) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. D) tax increases are paid primarily out of saving and therefore are not an effective fiscal device.
c
The economy's long-run aggregate supply curve A) slopes downward and to the right. B) is horizontal. C) is vertical. D) slopes upward and to the right.
c
The table contains information about the hypothetical economy of Scoob. All figures are in millions. If the natural rate of unemployment in Scoob is 5 percent, then A) frictional unemployment is about 2 percent. B) hidden unemployment is about 5 percent. C) cyclical unemployment is about 2 percent. D) structural unemployment is about 3 percent.
c
1) A lender need not be penalized by inflation if the A) short-term rate of inflation is less than the long-term rate of inflation. B) inflation is unanticipated by both borrower and lender. C) long-term rate of inflation is less than the short-term rate of inflation. D) lender correctly anticipates inflation and increases the nominal interest rate accordingly.
d
2) If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation was approximately A) 5.5 percent. B) 6.3 percent. C) 7.2 percent. D) 5.9 percent.
d
2) Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is A) structurally unemployed. B) not a member of the labor force. C) cyclically unemployed. D) frictionally unemployed.
d
2) Real GDP measures the A) total dollar value of all goods and services produced within the borders of a country using current prices. B) total dollar value of all goods and services consumed within the borders of a country, adjusted for price changes. C) value of all goods and services produced in the world, using current prices. D) value of final goods and services produced within the borders of a country, corrected for price changes.
d
2) The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about A) 4.1 percent. B) 2.8 percent. C) 3.4 percent. D) 1.6 percent.
d
3) If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is A) 33 percent. B) 91 percent. C) 10 percent. D) 11 percent.
d
3) The natural rate of unemployment is A) higher than the full-employment rate of unemployment. B) found by dividing total unemployment by the size of the labor force. C) lower than the full-employment rate of unemployment. D) that rate of unemployment occurring when the economy is at its potential output.
d
3) Unemployment describes the condition where A) equipment and machinery are going unused. B) a person does not have a job, regardless of whether or not he or she wants one. C) any resource sits idle. D) a person cannot get a job but is willing to work and is actively seeking work.
d
3) Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being? A) government expenditures on military equipment B) the services of used-car dealers C) the construction of new houses D) the child-care services provided by stay-at-home parents
d
4) Recently, a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been receiving increases in the nominal incomes of its members through collective bargaining. Is the critic correct? A) Yes, because real income may fall if prices increase less proportionately than the increases in nominal income. B) Yes, because when you have a large nominal income, your standard of living automatically increases. C) No, because real income may fall if prices increase less proportionately than the increases in nominal income. D) No, because real income may fall if prices increase more proportionately than the increase in nominal income.
d
5) Net exports are A) imports less exports. B) exports plus imports. C) that portion of consumption and investment goods sent to other countries. D) exports less imports.
d
5) Recurring upswings and downswings in an economy's real GDP over time are called A) total product oscillations. B) recessions. C) output yo-yos. D) business cycles.
d
5) Suppose Smith pays $100 to Jones. A) We can say with certainty that the GDP has increased, but we cannot determine the amount. B) We can say with certainty that the GDP has increased by $100. C) We can say with certainty that the nominal GDP has increased, but we can't say whether real GDP has increased or decreased. D) We need more information to determine whether GDP has changed.
d
7) Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called A) compositional unemployment. B) cyclical unemployment. C) frictional unemployment. D) structural unemployment.
d
An increase in personal income taxes would shift AD to the A) right because G will increase. B) right because C will increase. C) left because G will decrease. D) left because C will decrease.
d
Expansionary fiscal policy is so named because it A) involves an expansion of the nation's money supply. B) is aimed at achieving greater price stability. C) necessarily expands the size of government. D) is designed to expand real GDP.
d
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by A) increasing taxes by $4 billion. B) decreasing taxes by $4 billion. C) increasing government spending by $40 billion. D) increasing government spending by $4 billion.
d
Other things equal, a decrease in the real interest rate will A) reduce investment and shift the AD curve to the right. B) expand investment and shift the AD curve to the left. C) reduce investment and shift the AD curve to the left. D) expand investment and shift the AD curve to the right.
d
Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S. A) aggregate demand curve would shift to the left. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the right.
d
The determinants of aggregate demand A) explain why the aggregate demand curve is downsloping. B) include input prices and resource productivity. C) demonstrate why real output and the price level are inversely related. D) explain shifts in the aggregate demand curve.
d
explain why the two methods must yield the same value of GDP
every dollar spent goes into someone's pay check
which of the following will lead to an increase in the United States GDP more individuals prepare their own personal income tax forms some citizens begin working abroad as computer programmers the government prohibits the sale of alcoholic beverages foreign companies build new assembly plants in the United States a million United States household sell their used cars to their children
foreign companies build new assembly plants in the United States
pure market economy
free interaction of consumers and produces run by the people/ citizens limited gov involvement (lazziefaire) choice variety competition= better price + better quality private property and profit winners and losers (pizza places)
businesses- pay taxes
gov- gives publics good and service
businesses- give goods and services
gov- pays money
consumer- does labor
gov- pays wages
Consumers- pay taxes
gov- public goods and services
identify tow piecies of information as to why living standard increased/decreased
inflation real GDP per capita GDP
fundamental econ problem
scarcity
choice
scarcity leads to choice and leads to OC
micro
small picture; individual/small group decisions (notre dame tuition)
which of the following transactions would represent an addition to a nation's current GDP MS smith purchases a share of stock in an automobile company a retailer increases her stock of imported shoes the government increases its domestic purchases of food for the military a corporation sells shoes from last years inventory a mother sells her car to her daughter
the government increases its domestic purchases of food for the military
nominal GDP is best defined as
the market value of final goods and services produced in a nation in a given year
if real GDP is increasing at 3% per year and nominal GDP is increasing at 7% per year, which of the following is necessarily true unemployment is increasing the price level is increasing exports exceed imports the economy is in a recession the gov is running a budget deficit
the price level is increasing
