Unit 2

GDP does NOT account for which of the following? A) The value added by all firms in the economy B) The depletion of natural resources C) Wages, rent, profit, and interest payments D) The value of final goods and services produced domestically E) Imports from foreign countries

B) The depletion of natural resources

The table below shows labor market statistics for a nation. Number of Workers Structurally Unemployed 3 million Number of Workers Cyclically Unemployed 4 million Number of Workers Frictionally Unemployed 2 million Number of Workers Officially Classified as Employed 91 million Working-age Population 150 million What is the nation's unemployment rate? A) 4% B) 5% C) 6% D) 9% E) 66.7%

D) 9%

The table below shows labor market statistics for a nation. Number of Workers Structurally Unemployed 3 million Number of Workers Cyclically Unemployed 4 million Number of Workers Frictionally Unemployed 2 million Number of Workers Officially Classified as Employed 91 million Working-age Population 150 million Based on the above table which of the following is most likely correct? A) The natural rate of unemployment is 5 percent. B) The labor force participation rate is 91 percent. C) Discouraged workers are 4 percent of the labor force. D) There are 9 million discouraged workers in the nation E) There are 95 million people in the labor force

A) The natural rate of unemployment is 5 percent.

The circular flow model illustrates the equality of which of the following? A) Total expenditure and total income B) Savings and consumption C) Total income and government spending D) Total expenditure and wages E) Exports and imports

A) Total expenditure and total income

The table below shows the sales and intermediate purchases of automobile manufacturers, glass manufacturers, and steel manufacturers in a country. Automobiles Glass Steel Sales $100 million $20 million $40 million to final users to automobile to automobile manufacturers manufacturers Intermediate purchases $60 $0 $0 from other million manufacturers Assuming these are the only three manufacturers in the country, which of the following is true? A) The total value added of the glass, steel, and automobile manufacturers is $160 million. B) The total value added of the glass, steel, and automobile manufacturers is $100 million. C) The contribution of the automobile manufacturer to the country's GDPGDP is $100 million. D) The contribution of automobile manufacturers to the country's GDPGDP is $60 million. E) The contribution of the three manufacturers to the country's GDPGDP is $220 million.

B) The total value added of the glass, steel, and automobile manufacturers is $100 million.

If an economy is at the peak of the business cycle, then which of the following is true about the state of the economy? A) There is a recessionary gap. B) There is an inflationary gap. C) The economy is producing at its potential output level. D) The economy is producing below its potential output level. E) The unemployment rate is higher than the natural rate of unemployment.

B) There is an inflationary gap.

The business cycle diagram below shows the cyclical movement of actual real GDP relative to potential real GDP over time for the nation of Galactica. The economy of Galactica is expanding and the actual unemployment rate exceeds the natural rate of unemployment for which year in the above diagram? A) 1992 B) 1996 C) 2002 D) 2007 E) 2011

C) 2002

Which of the following transactions will be included in the calculation of Country X's Gross Domestic Product (GDP) in 2020? A) The sale of corporate stocks B) The exchange of a used automobile for a used boat C) The purchase of new construction equipment D) Social Security checks received by retirees E) Carrots grown in a household's backyard and consumed by the family

C) The purchase of new construction equipment

Gross domestic product is equal to which of the following? A) Total consumer spending on final goods B) The total value of production of all firms C) The sum of income paid to all the factors of production D) The total value of production of domestic firms E) The sum of values added of all foreign firms located domestically

C) The sum of income paid to all the factors of production

Which of the following will happen if the actual inflation rate is greater than the expected inflation rate? A) Lenders of fixed interest rate loans will be better off. B) Lenders of variable interest rate loans will be worse off. C) Borrowers of fixed interest rate loans will be worse off. D) Borrowers of fixed interest rate loans will be better off. E) Borrowers of variable interest rate loans will be better off.

D) Borrowers of fixed interest rate loans will be better off.

As a measure of economic performance, GDP accounts for which of the following? A) Used books donated to a local library B) Depletion of durable consumer goods C) Increased leisure time D) Souvenir gifts purchased by tourists domestically E) Cash transactions in the underground economy

D) Souvenir gifts purchased by tourists domestically

If a nation's actual real GDP is less than potential real GDP, which of the following must be true? A) The economy is in expansion B) The economy is in recession. C) There is no cyclical unemployment. D) There is no frictional unemployment. E) The actual rate of unemployment exceeds the natural rate of unemployment.

E) The actual rate of unemployment exceeds the natural rate of unemployment.