ECO TEST 2

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about (CPI2-CPI/CPIx100) : A. 2.8 percent. B. 3.4 percent. C. 1.6 percent. D. 4.1 percent

C

If nominal GDP rises: A. real GDP may either rise or fall. B. we can be certain that the price level has risen. C. real GDP must fall. D. real GDP must also rise.

A

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates? A. expansion B. recession C. peak D. trough

A

A competitive market system: A. encourages growth by allowing producers to make profitable investment decisions based on market signals. B. encourages growth by ensuring that everyone in society will receive a decent standard of living. C. discourages growth because firms busy competing have no time to innovate or invest. D. discourages growth unless government protects domestic firms from foreign competition.

A

A nation's gross domestic product (GDP): A. can be found by summing C + Ig + G + Xn. B. is the dollar value of the total output produced by its citizens, regardless of where they are living. C. can be found by summing C + S + G + Xn. D. is always some amount less than its NDP.

A

A nation's gross domestic product (GDP): A. is the dollar value of all final output produced within the borders of the nation. B. is the dollar value of all final output produced by its citizens, regardless of where they are living. C. can be found by summing C + In + S + Xn. D. is always some amount less than C + Ig + G + Xn.

A

Economic growth can be portrayed as: A. an outward shift of the production possibilities curve. B. an inward shift of the production possibilities curve. C. a movement from a point on to a point inside a production possibilities curve. D. a movement from one point to another point on a fixed production possibilities curve.

A

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is (Potential GDP gap= actual GDPp+negative GDP gap): A. $510 billion. B. $490 billion. C. $10 billion. D. $990 billion.

A

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of: A. Taylor's rule. B. Okun's law. C. Say's law. D. the Coase theorem.

B

Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is (Actual rate-natural rate/natural rate): A. 4 percent. B. 8 percent. C. 10 percent. D. 2 percent.

B

At an annual growth rate of 7 percent, real GDP will double in about (Rule of 70/annual growth rate): A. 11 ½ years. B. 10 years. C. 13 ½ years. D. 9 years.

B

National income accountants can avoid multiple counting by: A. including transfer payments in their calculations. B. only counting final goods. C. counting both intermediate and final goods. D. only counting intermediate goods.

B

Nominal GDP is: A. the sum of all monetary transactions that occur in the economy in a year. B. the sum of all monetary transactions involving final goods and services that occur in the economy in a year. C. the amount of production that occurs when the economy is operating at full employment. D. money GDP adjusted for inflation.

B

Official unemployment statistics: A. understate unemployment because individuals receiving unemployment compensation are counted as employed. B. understate unemployment because discouraged workers are not counted as unemployed. C. include cyclical and structural unemployment, but not frictional unemployment. D. overstate unemployment because workers who are involuntarily working part time are counted as being employed.

B

Real GDP measures: A. current output at current prices. B. current output at base year prices. C. base year output at current prices. D. base year output at current exchange rates.

B

Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.

B

The aggregate cost of unemployment can be measured by the: A. amount by which actual GDP exceeds potential GDP. B. amount by which potential GDP exceeds actual GDP. C. excess of real GDP over nominal GDP. D. excess of nominal GDP over real GDP.

B

Transfer payments are: A. excluded when calculating GDP because they only reflect inflation. B. excluded when calculating GDP because they do not reflect current production. C. included when calculating GDP because they are a category of investment spending. D. included when calculating GDP because they increase the spending of recipients.

B

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. compositional unemployment.

B

A large negative GDP gap implies: A. an excess of imports over exports. B. a low rate of unemployment. C. a high rate of unemployment. D. a sharply rising price level

C

Final goods and services refer to: A. goods and services that are unsold and therefore added to inventories. B. goods and services whose value has been adjusted for changes in the price level. C. goods and services purchased by ultimate users, rather than for resale or further processing. D. the excess of U.S. exports over U.S. imports.

C

Given the annual rate of economic growth, the "rule of 70" allows one to: A. determine the accompanying rate of inflation. B. calculate the size of the GDP gap. C. calculate the number of years required for real GDP to double. D. determine the growth rate of per capita GDP.

C

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the (natural rate-actual rate): A. frictional unemployment rate is 5 percent. B. cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C. cyclical unemployment rate is 4 percent. D. natural rate of unemployment will eventually increase.

C

Net exports are: A. that portion of consumption and investment goods sent to other countries. B. exports plus imports. C. exports less imports. D. imports less exports.

C

Nominal GDP is adjusted for price changes through the use of: A. the Consumer Price Index (CPI). B. the Producer Price Index (PPI). C. the GDP price index. D. exchange rates.

C

Real GDP per capita is found by: A. adding real GDP and population. B. subtracting population from real GDP. C. dividing real GDP by population. D. dividing population by real GDP.

C

The GDP gap measures the difference between: A. NDP and GDP. B. NI and PI. C. actual GDP and potential GDP. D. nominal GDP and real GDP.

C

The natural rate of unemployment is: A. higher than the full-employment rate of unemployment. B. lower than the full-employment rate of unemployment. C. that rate of unemployment occurring when the economy is at its potential output. D. found by dividing total unemployment by the size of the labor force.

C

The number of years required for real GDP to double can be found by: A. dividing the annual growth rate by .07. B. multiplying the annual growth rate by 70. C. dividing 70 by the annual growth rate. D. adding 14 to annual growth rate.

C

The phase of the business cycle in which real GDP declines is called: A. the peak. B. an expansion. C. a recession. D. the trough.

C

The phase of the business cycle in which real GDP is at a minimum is called: A. the peak. B. a recession. C. the trough. D. the underside.

C

The type of unemployment associated with recessions is called: A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. seasonal unemployment.

C

The unemployment rate is the: A. ratio of unemployed to employed workers. B. number of employed workers minus the number of workers who are not in the labor force. C. percentage of the labor force that is unemployed. D. percentage of the total population that is unemployed.

C

A recession is defined as a period in which: A. cost-push inflation is present. B. nominal domestic output falls. C. demand-pull inflation is present. D. real domestic output falls.

D

Given the annual rate of inflation, the "rule of 70" allows one to: A. determine whether the inflation is demand-pull or cost-push. B. calculate the accompanying rate of unemployment. C. determine when the value of a real asset will approach zero. D. calculate the number of years required for the price level to double.

D

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is (GDP price index= nominal GDP/real GDP x 100): A. 100. B. 200. C. 240. D. 300.

D

Net exports are negative when: A. a nation's imports exceed its exports. B. the economy's stock of capital goods is declining. C. depreciation exceeds domestic investment. D. a nation's exports exceed its imports.

D

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 embody changes in the price level, but not changes in physical output. C. GDP data that reflect changes in both physical output and the price level. D. GDP data that have been adjusted for changes in the price level

D

P0=25 P1=80 P2=135 Calculate inflation CPI= P1/P0x100 CPI2= P2/P0x100 (CPI2-CPI/CPI)x100= Inflation

Inflation= 68.75%

B

Refer to the above diagram. Realized economic growth is best represented by a: A. a move from Z to X along AB. B. move from X on AB to Y on CD. C. shift in the production possibilities curve from CD to AB. D. move from X to Z along AB.

A

Refer to the above graph. Growth of production capacity is shown by the: A. shift from AB to CD. B. shift from CD to AB. C. movement away from point A and toward point B. D. movement away from point B and toward point A.

Y= C + I + G + (X-M) Y= GDP C= consumer spending I= investments G= government spending X=Exports M= Imports Private consumption=$304 Gross Investment=$156 Government Spending=$124 Imports-Exports=$18

Y= $602