Economics Test 2 fr

to close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to

decrease the aggregate expenditures schedule by $20 billion

a decrease in disposable income

decreases consumption by moving downward along a given consumption schedule

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

decrease in the real rate of interest will tend to increase the level of investment

if prices increased, we need to adjust nominal GDP values to give us measure of GDP for various years in constant-dollar terms. We refer to that adjustment as

deflating GDP

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

deflation of 3.33 percent

The phrase "too much money chasing too few goods" best describes:

demand-pull inflation

in an economy that is experiencing a shrinking production capacity

depreciation exceeds gross investment

which of the following is not a component of GDP in the expenditures approach

workers' wages and other compensation

when local police and fire departments buy new cars for their operations these are counted as part of

G

real GDP refers to

GDP data that have been adjusted for changes in the price level

in a private closed economy, there will be an unplanned increase in inventories when

GDP exceeds aggregate expenditures

value added by a firm is the market value of the firm's output minus the

value of inputs bought from other firms

19) Gamma has $30,000 of capital per worker, while Omega has $7,500 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will ________ in Omega compared to Gamma, holding other factors constant. A) have no effect on output C) increase output less B) increase output by the same amount D) increase output more

D

Which of the following would most likely occur during the expansionary phase of the business cycle?

Demand-pull inflation

Refer to above table. What was real GDP in Year 2?

$4,911

Refer to a the above data. If year 2 is the base year, then GDP in year 5 is

$60

Assume that the real output of a developing nation increases from $120 billion to $140 billion while its population expands from 100 to 110 million. As a result, real income per capita has increased by about

$72 per person

a nation's capital stock was valued at $300 billion at the start of the year and $350 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was

$75 billion

GDP in an economy is $111,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports are

$84 billion

Refer to above data. In year 4 nominal GDP would be

$90

a nation's captial stock was valued at $300 billion at the start of the year and $365 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was

$90 billion

GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports must be

-$84 billion

if the slope of the consumption schedule is 0.8, then the slope of the saving schedule is

0.20

an increase in spending of $20 billion increases real GDP from $600 billion to $700 billion. The marginal propensity to consume must be

0.80 and the multiplier is 5

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent

Refer to above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is

100 percent

Refer to the above table. What is the GDP price index in year 1?

108.3

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

11 percent

In an economy, the total expenditures for a market basket of goods in year 1 (the base year) was $5,000 billions. In year 2 the total expenditure for the same market basket of goods was $5,500 billion. What was the GDP price index for the economy in year 2?

110

Refer to above data. If year 2 is the base year, the price index for year 3 is

133

Suppose that new computer software for accounting and analysis at a business has a new useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is

25%

The country's real GDP declined between years

3 and 4

a nation's real GDP was $250 billion in 2013 and $265 billion in 2014. Its population was 122 billion in 2013 and 125 million in 2014. What is the growth rate of real GDP per capita in 2014

3.4%

If Fred's annual real income rises by 8 percent each year, his annual real income will double in about:

8-9 years

8) Which of the following would be likely to increase the doubling time for an economy's real GDP? A) the rate of population growth slows B) better education increases the productivity of workers C) an increase in the technology used for producing goods and services D) government policies improve the health of the population

A

9) The gross domestic product (GDP) concept accounts for society's valuation of the relative worth of goods and services by using a ________. A) monetary measure C) measure of volume B) utility measure D) measure of physical weigh

A

A recession is a decline in A) real GDP that lasts six months or longer. B) the inflation rate that lasts six months or longer. C) potential GDP that lasts six months or longer. D) the unemployment rate that lasts six months or longer.

A

If an economy produces 100 pencils and 100 pens, and pencils sell for twice as much as pens, A. Pencils are waited twice as important in the economy compared to pens B. Nothing can be said about the relative importance of pens and pencils in the economy C. Pencils are weighted as equally important in the economy as pens D. Pens are waited twice as important in the economy compared to pencils

A

Recently a teachers' union argued that the standard of living of teachers working for the school district was falling. The negotiating team for the school board replied that this was not true because the teachers had received significant increases in nominal income through collective bargaining. Could the union statement be correct? A) yes, because real income may fall if price increases are Proportionately greater than the increases in nominal income B) No, because real income may rise if price increases are proportionately greater than declines in nominal income C) no, because real income may rise if price increases are proportionately greater than the increases in nominal income D) yes, because real income may fall if price increases are proportionately smaller than the increases in nominal income

A

The IRS will be likely to collect more tax revenue if A. There is a shift in employment from black markets to formal markets B. Businesses hire more undocumented workers C. There is an increase in household production D. There is an increase in illegal sports betting

A

15) Economic growth can best be portrayed as a(n) A) movement from a point inside to a point outside of the production possibilities frontier. B) outward shift of the production possibilities frontier. C) movement from a point near the vertical axis to a point near the horizontal axis on the production possibilities frontier. D) inward shift of the production possibilities frontier.

B

16) In the year 2020, Alpha has a real GDP of $80 billion and Omega has a real GDP of $10 billion. If Alpha has a growth rate of 2% and Omega has a growth rate of 4%, in what year will Omega catch up to Alpha? A) 2092 B) 2108 C) 2024 D) 2018

B

5) GDP is $7 trillion. If consumption is $3.5 trillion, investment is $1.4 trillion, and government purchases are $2.1 trillion, then ________. A) net exports cannot be determined from the available information B) exports are equal to imports C) exports exceed imports D) imports exceed exports

B

Over a 10-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 72, we can say that the average annual rate of inflation over this period was approximately A) 10%. B) 7%. C) 5%. D) 9%.

B

11) GDP measured using base year prices is called ________. A) nominal GDP C) real GDP B) constant GDP D) deflated GDP

C

12) GDP measured using current prices is called ________. A) real GDP B) deflated GDP C) nominal GDP D) constant GDP

C

14) Which of the following is not an example of a final good or service perspective of the national income accounts)? A) New lawn mowers sold to consumers by Cut-Rite Lawn Equipment & Supplies in their retail store B) A new string trimmer purchased by Green Grass Lawn Care Services, which employees will use to maintain customer's yards C) Seedlings and saplings purchased for resale by Wendy's Garden Center D) Flowers and pots purchased by homeowner Joe Smith for his garden

C

18) Society can increase its output and income by increasing its A) markets and prices. B) spending and taxes. C) resources and/or the productivity of the resources. D) private and public sectors of the economy.

C

A principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital any use the A. Les is produced B. Less production is wasted C. The less and additional unit of capital adds to production D. The more an additional unit of capital adds to production

C

10) Nominal GDP is the market value of ________. A) all consumption and investment spending in an economy in a given year B) all output produced and accumulated over the years C) resources (land, labor, capital, and entrepreneurship) in an economy in a given year D) all final goods and services produced in an economy in a given year

D

13) To increase future living standards by pursuing higher current rates of investment spending, an economy must A) reduce the current capital stock. B) decrease the amount of future research and development spending. C) allow higher rates of current consumption. D) reduce current rates of consumption spending.

D

17) One common measure of the "standard of living" in a nation is ________. A) population size B) the unemployment rate C) real GDP D) real GDP per capita

D

if the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the

MPC has increased

GDP measured using current price is called

Nominal GDP

Refer to above data. If year 2 is the base year, then in determining real GDP for year 1

Nominal GDP in year 1 should be inflated, and the value of real GDP is larger than nominal

the sale of a used automobile would not be included in GDP of the current year because it is a

Non production transaction

a price index

a comparison of real GDP in one period relative to another

Cost-push inflation may be caused by:

a negative supply shock

other things being equal, an increase in an economy's exports will

decrease domestic aggregate expenditures and the equilibrium level of GDP

GDP is the market value of

all final goods and services produced in an economy in a given year

Adding the market value of all final and intermediate goods and serves in an economy in a given year would result in

an amount greater than GDP for that year

adding the market value of all final and intermediate goods and services in an economy in a given year would result in

an amount greater than GDP for that year

the amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as

an inflationary expenditure gap

which of the following will not increase a nation's real GDP

average price level

Recurring upswings and downswings in an economy's real GDP over time are called:

business cycles

Refer to the above information. The rate of inflation:

cannot be determined from the data

in national income accounting, the consumption category of expenditures includes purchases of

consumer durable goods, consumer nondurable goods, and services

GDP can be calculated by summing

consumption, investment, government purchases, and net exports

Inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation

real GDP measures

current output at base year prices

in an economy that has stationary production capacity

net investment is zero

As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by:

dividing the annual rate of inflation into "70"

as the consumption and saving schedules relate to real GDP, and increase in taxes will shift

downward both the consumption and saving schedules

saving is $25 billion at the $125 billion equilibrium level of output in a closed, private economy. Actual investment must be

equal to $25 billion

two basic determinants of investment spending are

expected returns and real interest rates

in the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a decrease in

government spending or an increase in taxes

in an inflationary expenditure gap, the equilibrium level of real GDP is

greater than full-employment income

suppose the GDP is in equilibrium at full employment and the MPC is .80. If government wants to increase its purchase of goods and services by $16 billion without changing equilibrium GDP, taxes should be

increased by $20 billion

in November 2009, Econland Motors produced an automobile that was delivered to a local dealership in 2009. The auto was then sold to Sharon Smith for personal use in Feb of 2010. Following national income accounting practices, this auto would be counted as part of

investment in 2009 and negative investment in 2010

Gordon James is a person who sells narcotics "on the street". This type of illegal activity

is excluded from GDP figures

The annual rate of inflation can be found by subtracting:

last year's price index from this year's price index and dividing the difference by last year's price index.

The following are examples of final goods in national income accounting except

lumber and steel beams of purchased by construction company

Demand-pull inflation:

occurs when total spending exceeds the economy's ability to provide output at the existing price level.

To avoid multiple counting in nations income accounts

only final goods and services should be counted

if GDP exceeds aggregate expenditures in a private closed economy

planned investment will exceed saving

the aggregate expenditures model is built upon which of the following assumptions

prices are fixed

a GDP price index of 130 in year A means that

prices in year A are on average 30 percent higher than in the base year

Inflation means that:

prices on average are rising, although some particular prices may be falling.

for a nation's real GDP per capita to rise during a year

real GDP must increase more rapidly than population

nominal GDP differs from real GDP because

real GDP results from adjusting for changes in the price level

A recession is defined as a period in which:

real domestic output falls

economic growth can best be portrayed as

rightward shift of the production possibilities curve

nominal GDP is adjusted for price changes through the use of

the GDP price index

which of the following do national income accountants consider to be investment?

the purchase of a new house

the slope of the consumption schedule between 2 points on the schedule is

the ratio of the change in consumption to the change in disposable income between those 2 points

Nominal GDP is

the sum of all monetary transactions that occur in the economy in a year

GDP tends to underestimate the productive activity in the economy because it excludes the value of output from

the underground economy

GDP excludes most nonmarket transaction. Therefore, GDP tends to

underestimate the amount of production in the economy