ECON-Chapter 5

A business cycle is:

the periodic fluctuation of economic activity.

The largest component of GDP is:

consumption expenditure.

The four types of spending in GDP are personal consumer spending, _____ private domestic investment, government spending, and _____.

gross; net exports

According to By the Numbers, the personal savings rate trended upward during the last five economic recessions. What is a possible reason for an increase in savings during this period?

high unemployment and income anxiety

GDP can be found either by adding up all of the _____ or all of the _____ in the economy.

spending; income

All of the following are phases of the business cycle EXCEPT:

stagflationAll of the following are phases of the business cycle EXCEPT:

Simon Kuznets:

devised the gross national product as a way of measuring a nation's economic output.

What event was a major influence on the development of macroeconomics?

the Great Depression

Which organization determines the beginning and end dates of a recession?

the National Bureau of Economic Research

(Table) According to the table, the GDP for 2010 was:

$14,592.3 billion.

The value of cars that the Ford Motor Company produces in a German plant:

is a part of U.S. GNP.

According to By the Numbers, in what year since 2005 was the difference between the unemployment rate and the real GDP growth rate the largest?

2009

Which statement regarding the recovery phase of the business cycle is true?

An economy in the recovery phase of the business cycle can have a lower GDP and a higher unemployment rate.

Which of the following statements is CORRECT regarding the calculation of GDP?

If GDP is calculated using the expenditures method, the result will be the same as if it is calculated using the income method.

For much of the last 20 years, China's GDP has grown around 10% per year, but in recent years, it has fallen to around 6% per year, which is still much higher than the average U.S. growth rate of about 2% per year. If prices of goods and services fall in China due to slower growth, does this help or hurt U.S. GDP?

Slower growth in China will reduce the price of imported goods, causing more Americans to purchase imported goods instead of domestic goods, which decreases the GDP of the United States.

Which statement correctly describes the key problem with the way the National Bureau of Economic Research (NBER) dates recessions and recoveries?

The dating of recessions and recoveries is done after the events have started.

Which of the following items would be included in the GDP accounts?

paying $50 consultation fee over the phone with a psychic adviser

Which of the following describes the informal economy?

It is largely unmeasured.

U.S. business cycles since 1950 have shown:

expansions to be longer than recessions.

The U.S. gross domestic product is equal to the total market value of all:

final goods and services produced by resources in the United States.

Gross domestic product (GDP) accounting includes:

final goods only.

The table lists gross domestic product (GDP), consumption (C), gross private domestic investment (I), government spending (G), and net exports (X - M). Compute each as a percentage of GDP for the five years presented. Which category has been the most volatile in terms of changes as a percentage of GDP?

net exports

Which of the following is NOT included in gross private domestic investment?

purchases of common stock by investors

Which of the following correctly depicts GDP per capita?

total output divided by the population

Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

trough

When Mr. Wilson worked full time, he paid a service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP?

GDP falls as a result of this change.

According to the CIA's World Factbook, in 2015 the tiny country of Equatorial Guinea had the highest GDP per capita in Africa (over $20,000 per year), higher than more developed countries such as Morocco, Egypt, and South Africa. But despite having higher significant overall income from the sale of its natural resources, Equatorial Guinea has extreme poverty, with half of its population lacking clean drinking water and one of the highest infant mortality rates in the world. How can a country that has the highest GDP per capita be one of the least desirable places to live on the planet for the average citizen?

Income is not spread evenly across the country and its leaders may participate in corrupt activities.

Gross private domestic investment (GPDI) includes new residential construction as investment. How would the sale of an existing house be treated in the GDP accounts?

It would not be included in GDP accounts.

As a percentage of GDP, government spending tends to increase during recessions and decrease during times of economic expansion. Why does government spending tend to change depending on the phase of the business cycle?

More people seek government benefits during recessions, causing the government to spend more money during recessions.

Gross domestic product and its related statistics are published quarterly and are often revised in the following quarter. Do you think quarterly publication and revision in the next quarter would present problems for policymakers trying to control the business cycle?

No; the information is not enough to help economists accurately predict the state of the economy.

Critics of the National Income and Product Accounts (NIPA) argue that the accounts are outdated and fail to account for "intangibles" in our new knowledge-based economy. For example, many firms create copyrighted materials (movies, books, etc.) that, when completed, are much more valuable than just the value of the marketplace inputs that went into their production. What might be some of the problems associated with trying to include these intangibles in the NIPA?

The NIPA finds it difficult to place a value on something that is intangible.