Macro Chapter 5

Personal consumption expenditures $900 Personal taxes $180 Government expenditures $300 Exports $40 Imports $75 Interest income $60 Depreciation $50 Gross private domestic investment $200 According to the table, what is this country's GDP? A) $1,225 B) $1,305 C) $1,365 D) $1,440

C) $1,365

Services constitute approximately ______ of GDP. A) 70% B) 25% C) 50% D) 10%

C) 50%

John earns $2,000. His taxes are $250 and he spends $1,500. Therefore, his savings must be: A) $1,500. B) $500. C) $250. D) His savings cannot be calculated from the data given.

C) $250.

Which of the following is NOT a concern regarding GDP as a measure of economic activity? A) the value of investments in the stock and bond markets B) the value of nonmarket natural resources C) the value of nonmarket work D) the value of investments in human capital

A) the value of investments in the stock and bond markets

GDP Expenditures for 2010 Expenditure Billions Personal consumption $10,353.5 Gross private domestic investment 1,769.1 Exports 1,746.1 Imports 2,251.5 Government purchases 2,975.1 Capital consumption allowance 1,030.2 According to the table, GDP for 2010 was: A) $15,603.1 billion. B) $16,843.8 billion. C) $14,592.3 billion. D) $13,562.1 billion.

C) $14,592.3 billion.

The U.S. median household income in 2013 was about: A) $20,000. B) $35,000. C) $55,000. D) $85,000.

C) $55,000.

The event that stimulated the U.S. government's commitment to tracking the economy's health through a national income accounting system was the: A) Civil War and Reconstruction. B) Panic of 1907. C) Great Depression. D) Oil embargo of 1973.

C) Great Depression.

Which of the following is a nondurable good? A) a Toyota sedan B) a movie ticket C) a six-pack of beer D) an hour with a masseuse

C) a six-pack of beer

Income payments to the rest of the world are: A) zero. B) added to the GDP. C) subtracted from the GDP. D) not included in the GDP.

C) subtracted from the GDP.

We are most likely to see a recession if interest rates on long-term bonds are __________ and interest rates on short-term bonds are _________. A) 8%; 6% B) 5%; 5% C) 7%; 7% D) 2%; 4%

D) 2%; 4%

The high point of a business cycle is called the: A) trough. B) expansion. C) recession. D) peak.

D) peak.

The _____ is a weighted average of 85 indicators of aggregate economic performance, designed to pinpoint signs of a recession in a reasonable time frame. A) consumer price index B) National Activity Index C) producer price index D) Dow Jones Industrial Index

B) National Activity Index

Gross domestic product measures the output produced by ____________________ using resources in this country, while gross national product measures output produced by resources supplied by ______________. A) foreign citizens only; U.S. citizens B) U.S. citizens only; foreign citizens C) U.S. or foreign citizens; foreign citizens D) U.S. or foreign citizens; U.S. citizens

D) U.S. or foreign citizens; U.S. citizens

What component of GDP includes college tuition? A) durable goods B) nondurable goods C) services D) private domestic investment

C) services

At the peak of the business cycle, the economy is typically operating: A) at its capacity. B) above capacity. C) below capacity. D) at its highest level ever.

A) at its capacity.

What event was a major influence on the development of macroeconomics? A) the Great Depression B) the Employment Act of 1946 C) the establishment of the Federal Reserve System in the United States D)the U.S. entry into World War II

A) the Great Depression

Which of the following is TRUE within the circular flow of economic activity? A) Households are buyers of products and sellers of production factors. B) Business firms are buyers and sellers of production factors. C) Households are sellers of products and buyers of production factors. D) Business firms are buyers of products and sellers of production factors.

A) Households are buyers of products and sellers of production factors.

Which of the following statements is CORRECT? A) Households supply both labor and nonlabor resources. B) In the circular flow model, incomes and resources flow in the same direction. C) The four main factors of production are water, land, entrepreneurial ability, and energy. D) Owners of factors of production pay income to firms.

A) Households supply both labor and nonlabor resources.

Which of the following statements does NOT describe an adjustment to national income to obtain GDP? A) Net exports are added to national income. B) A capital consumption allowance is added to national income. C) Income payments from the rest of the world are added to national income. D) Payments U.S. corporations and residents send to foreign residents are subtracted from national income.

A) Net exports are added to national income.

Gross domestic product is a measure of: A) an economy's total output. B) household production. C) the total weight of all goods produced. D) production by owners of labor and capital only.

A) an economy's total output.

Which of the following is an example of an economic investment? A) building a new sales force training facility B) putting funds in a certificate of deposit C) purchasing a share of Google stock D) trading a bond certificate

A) building a new sales force training facility

An economy has historically grown at a rate of 2.25%. Currently, this economy is growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle. A) expansion B) recovery C) contraction D) trough

A) expansion

Gross domestic product is the total market value of all: A) final goods and services produced in the United States by labor and property. B) final and intermediate goods and services produced in the United States by labor and property. C) intermediate goods produced in the United States by labor and property. D) final goods and services sold in the United States.

A) final goods and services produced in the United States by labor and property.

When a recession gets under way: A) firms start to lay off workers to reduce costs. B) consumer confidence rises because people expect the eventual recovery. C) inflation always rises because the government prints more money. D) inflation falls because the government reduces its budget deficit.

A) firms start to lay off workers to reduce costs.

In the simple circular flow model: A) income is equal to spending. B) saving is equal to consumer spending. C) factor payments are equal to goods and services. D) goods and services are equal to consumer spending.

A) income is equal to spending.

Which of the following values is an example of a nonmarket transaction NOT included in the national income and product accounts? A) mowing your own lawn B) your lawn service C) a meal at a restaurant D) taking your car to a carwash

A) mowing your own lawn

GNP includes outputs produced _____ but it does not include outputs produced _____. A) outside the United States by U.S. citizens; inside the United States by foreign citizens B) outside the United States by U.S. citizens; inside the United States by U.S. citizens C) inside the United States by foreign citizens; outside the United States by U.S. citizens D) The GNP only includes output (goods and services) produced by U.S. citizens within the United States.

A) outside the United States by U.S. citizens; inside the United States by foreign citizens

In the national income accounts, which of the following is NOT classified as government spending? A) payments to Social Security recipients B) services provided by police officers C) purchases of military hardware D) services provided by U.S. Senators

A) payments to Social Security recipients

Expenditures by individuals for durable goods, nondurable goods, and services is known as: A) personal consumption expenditure. B) total spending. C) personal calculated expenditure. D) personal computed expenditure.

A) personal consumption expenditure.

Holding other expenditures constant, if imports fall by $20 billion and exports fall by $10 billion, then GDP: A) rises by $10 billion. B) falls by $10 billion. C) falls by $30 billion. D) rises by $30 billion.

A) rises by $10 billion.

The "business cycle" refers to: A) short-run fluctuations in macroeconomic activity. B) the long-run increase in GDP. C) changes in the economy over the course of the four seasons. D) changes in the economy between winter and summer.

A) short-run fluctuations in macroeconomic activity.

The simple circular flow diagram shows that economic aggregates can be calculated either by the _____________ flows in the product market or by the ______________ flowing to households in the resource market. A) spending; income B) income; spending C) output; spending D) spending; output

A) spending; income

Macroeconomics was developed to explain: A) the Great Depression. B) jobless recoveries. C) the Industrial Revolution. D) the Internet boom.

A) the Great Depression.

A business cycle is: A) the periodic fluctuation of economic activity. B) the engine of economic growth. C) a period lasting about 50 years. D) identical to the consumption life cycle.

A) the periodic fluctuation of economic activity.

The main reason the national income and product accounts were devised was to: A) provide businesses with data on the economy. B) help government manage the business cycle. C) provide employment for statisticians during the Great Depression. D) test out accounting theory developed during the early 20th century.

B) help government manage the business cycle.

Which component of GDP includes inventory changes? A) consumption B) investment C) government spending D) Inventory changes are not included in GDP.

B) investment

The National Bureau of Economic Research: A) is a government agency that dates business cycles in the United States. B) is a nonprofit research organization that dates business cycles in the United States. C) consists of elected officials from the U.S. Senate. D) is a nonprofit research organization that only determines when recessions begin.

B) is a nonprofit research organization that dates business cycles in the United States.

The value of the cars that the Ford Motor Company produces in a German plant: A) is a part of U.S. GDP. B) is a part of U.S. GNP. C) is a part of German GNP. D) is not a part of German GDP.

B) is a part of U.S. GNP.

One important reason economists track business investment is that: A) it helps them decide which stocks to purchase. B) it is a leading indicator of the business cycle. C) business investment is an excellent proxy for government investment. D) it shows them where the economy has been.

B) it is a leading indicator of the business cycle.

If I hire a lawn service to mow my grass, the monies I pay the service are included in the GDP, whereas if I mow my own lawn, the value of this service is not included in the GDP. This fact represents a criticism of the GDP's focus on: A) avoidance of double counting. B) market-produced goods and services. C) domestic versus national product. D) final values of goods and services.

B) market-produced goods and services.

A criticism of GDP per capita is that it: A) is hard to calculate. B) might not fully reflect the standard of living of the typical citizen. C) reduces the effect of outliers skewing the averages. D) is only a hypothetical concept that cannot be measured.

B) might not fully reflect the standard of living of the typical citizen.

Disposable personal income can be either __________ or __________. A) spent; used to pay income taxes B) spent; saved C) saved; used to pay income taxes D) spent; used to pay Social Security taxes

B) spent; saved

The National Activity Index was developed by: A) the National Bureau of Economic Research. B) the Federal Reserve Bank of Chicago. C) the U.S. Treasury. D) the Conference Board.

B) the Federal Reserve Bank of Chicago.

Which of the following is included in personal consumption expenditures? A) highway construction B) the purchase of a new TV by a household C) construction of residential housing D) purchases of common stock by an investor

B) the purchase of a new TV by a household

Which is NOT a main use of the national income and product accounts? A) to compare U.S. economic performance with that of other countries B) to support the macroeconomic theory of the political party in power C) to track the success of macroeconomic policy D) to gauge the economy's position in the business cycle

B) to support the macroeconomic theory of the political party in power

Suppose a loaf of bread goes through the following stages of production, with the values noted at the end of each stage: Stage Value 1. Farmer's wheat $0.65 2. Miller's flour $1.20 3. Baker's bread $1.80 4. Grocer's Bread $2.65 The sale of the loaf of bread adds _______ to GDP. A) $4.45 B) $5.65 C) $2.65 D) $6.30

C) $2.65

Which equation summarizes the expenditures approach to measuring GDP? A) Y = C + S B) total spending = total income C) GDP = C + I + G + (X - M) D) GDP = net domestic product + depreciation

C) GDP = C + I + G + (X - M)

Which of the following is TRUE in the case of the simple circular flow model with no saving? A) Total spending is greater than total income. B) Total spending equals total income only at full employment. C) Total spending equals total income. D) Total spending is less than total income.

C) Total spending equals total income.

What is an example of a final good? A) tartar sauce purchased by a fish restaurant B) corn purchased by a hog farmer C) bacon purchased at a grocery store D) rubber purchased by a bicycle company

C) bacon purchased at a grocery store

The major item that must be added to national income to obtain GDP is: A) individual income taxes. B) property taxes. C) capital consumption allowance. D) Social Security payments.

C) capital consumption allowance.

The diagram that illustrates how households and businesses interact through product and resource markets is called the: A) product-resource diagram. B) economic agents graph. C) circular flow diagram. D) economic interactivity diagram.

C) circular flow diagram.

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the: A) production possibilities frontier. B) supply and demand model. C) circular flow diagram. D) classical model.

C) circular flow diagram.

Which of the following is NOT a problem in using GDP to measure standard of living? A) failure to include environmental impacts B) failure to include the value of nonmarket work C) failure to include exports and imports D) failure to include the value of investments in human capital

C) failure to include exports and imports

In the circular flow diagram, the clockwise direction shows the flow of _____, where households supply _____ and businesses supply _____. A) money; purchases of goods and services; income to households B) money; labor; goods and services C) goods and services; labor; goods and services D) goods and services; purchases of goods and services; income to households

C) goods and services; labor; goods and services

When the National Activity Index is at zero, the economy is growing at _____ rates. Negative values imply _____ trends. Positive values imply that growth is _____ the long-term trend. A) rapidly; slowing; equal to B) slowly; accelerating; equal to C) historical; slowing; faster than D) historical; accelerating; slower than

C) historical; slowing; faster than

GDP includes outputs produced _____ but it does not include outputs produced _____. A) outside the United States by U.S. citizens; inside the United States by foreign citizens B) outside the United States by U.S. citizens; inside the United States by U.S. citizens C) inside the United States by foreign citizens; outside the United States by U.S. citizens D) The GDP includes only goods and services produced by U.S. citizens within the United States.

C) inside the United States by foreign citizens; outside the United States by U.S. citizens

An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n): A) unemployment trap. B) recession. C) jobless recovery. D) microeconomic problem.

C) jobless recovery.

The sum of all income, including wages, salaries and benefits, profits, rental income, and interest, is called: A) labor income. B) gross domestic income. C) national income. D) pretax income.

C) national income.

The expenditure category that accounts for the largest share of GDP is: A) gross private domestic investment. B) government purchases of goods and services. C) personal consumption expenditures. D) net exports.

C) personal consumption expenditures.

Total spending in an economy is the sum of: A) durable goods plus nondurable goods plus services. B) imports minus exports. C) personal consumption plus gross private investment plus government spending plus net exports. D) food plus housing plus business plus government spending.

C) personal consumption plus gross private investment plus government spending plus net exports.

Which of the following items is NOT included in gross private domestic investment? A) residential housing B) new equipment purchased by businesses C) purchases of common stock D) increases in business inventories

C) purchases of common stock

Which of the following items is NOT a category of personal consumption expenditures? A) durable goods B) nondurable goods C) residential housing D) services

C) residential housing

Which of the following two things can people do with money received as disposable personal income? A) pay taxes or save the money B) pay taxes or spend the money C) spend the money or put it into savings D) pay taxes or buy government bonds

C) spend the money or put it into savings

A benefit of using GDP per capita instead of GDP is that it: A) takes into account the differences in wealth between rich and poor within a country. B) measures the effects of outliers skewing the averages. C) takes into account the size of the population when measuring the value of the goods and services a country produces. D) takes into account the environmental benefits or harm of economic activity.

C) takes into account the size of the population when measuring the value of the goods and services a country produces.

During a typical economic recovery: A) inflation drops. B) people become pessimistic. C) unemployment drops. D) incomes fall.

C) unemployment drops.

Which of the following items would be included in the GDP accounts? A) personal time spent learning how to use accounting software B) personally rotating the tires on your neighbor's car C) caring for your aged grandmother at home D) $50 consultation on the phone with a psychic adviser

D) $50 consultation on the phone with a psychic adviser

Which of the following is TRUE within the circular flow of economic activity? A) Households are sellers of products and sellers of production factors. B) Business firms are buyers and sellers of production factors. C) Households are sellers of products and buyers of production factors. D) Business firms are sellers of products and buyers of production factors.

D) Business firms are sellers of products and buyers of production factors.

If in the past you have always painted your own house but now you hire a painting contractor to do the work, what is the effect on GDP? A) GDP is unaffected by this change. B) GDP falls as a result of this change. C) GDP at first rises but then falls. D) GDP rises as a result of this change.

D) GDP rises as a result of this change.

Which of the following statements is TRUE about the National Activity Index? A) When the index has a zero value, the economy has reached a trough. B) Negative values always mean the economy is in a recession. C) Positive values indicate the economy may face a period of increasing inflation. D) Negative values mean the economy is growing more slowly than its long-term trend.

D) Negative values mean the economy is growing more slowly than its long-term trend.

Which of the following is included in gross private domestic investment? A) highway construction by a government contractor B) the purchase of a new TV by a household C) purchases of common stock by investors D) an increase in business inventories

D) an increase in business inventories

Everything else the same, if investment expenditures rise by $300 billion and imports increase by $300 billion, then GDP: A) increases by $600 billion. B) increases by $300 billion. C) decreases by $600 billion. D) does not change.

D) does not change.

The two approaches used by government in estimating GDP are: A) statistical and nonstatistical. B) survey and nonsurvey. C) income and earnings. D) expenditure and income.

D) expenditure and income.

Net exports equal: A) all of the goods and services produced minus those exported. B) all of the goods and services produced plus imports. C) exports plus imports. D) exports minus imports.

D) exports minus imports.

Economists believe that changes in investment spending are important for forecasting the business cycle because: A) increases in investment spending raise tax revenues, which allows government to spend more. B) investment closely reflects consumer sentiment. C) changes in investment show where the economy has been. D) investment is a key determinant of economic growth.

D) investment is a key determinant of economic growth.

The value of the cars that the Ford Motor Company produces in a German plant: A) is a part of U.S. GDP. B) is not a part of U.S. GNP. C) is a part of German GNP. D) is a part of German GDP.

D) is a part of German GDP.

We are most likely to see a recession if interest rates on long-term bonds are: A) higher than interest rates on short-term bonds. B) the same as interest rates on short-term bonds. C) rising. D) lower than interest rates on short-term bonds.

D) lower than interest rates on short-term bonds.

The _____ let(s) economists judge our nation's economic performance, compare U.S. income and output to that of other nations, and track the economy's condition over the course of the business cycle. A) National Bureau of Economic Research B) National Activity Index C) Census Bureau D) national income and product accounts

D) national income and product accounts

Which of the following events has significantly influenced the development of macroeconomic ideas? A) World War II B) the development of the modern corporation C) the Industrial Revolution D) the Great Depression

D) the Great Depression

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, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle. A) expansion B) recovery C) contraction D) trough

D) trough

Business cycles: A) are always the same duration. B) are always the same magnitude. C) are always the same duration and magnitude. D) vary in duration and magnitude.

D) vary in duration and magnitude.

If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in ______ GDP, and its value should be counted in ________________. A) 2013's; inventory changes B) 2013's; durable goods C) 2014's; durable goods D) 2014's; personal consumption expenditures

A) 2013's; inventory changes

Investment in structures, equipment, software, and net inventory is known as: A) total business spending. B) gross private domestic investment. C) net business spending. D) net investment in durables.

B) gross private domestic investment.

Category Billions of Dollars Proprietors' income 300 Capital consumption allowance 440 Federal government purchases of goods and services 200 Compensation of employees 800 Personal consumption expenditures 950 Corporate profits 90 Exports 60 Gross private domestic investment 500 Rental income 30 State and local government purchases of goods and services 150 Net interest 100 Federal government deficit 250 Imports 90 According to the table, net domestic product is: A) $1,770 billion. B) $1,330 billion. C) $1,080 billion. D) $1,580 billion.

B) $1,330 billion.

Use the following to answer question: Category Billions of Dollars Proprietors' income 300 Capital consumption allowance 440 Federal government purchases of goods and services 200 Compensation of employees 800 Personal consumption expenditures 950 Corporate profits 90 Exports 60 Gross private domestic investment 500 Rental income 30 State and local government purchases of goods and services 150 Net interest 100 Federal government deficit 250 Imports 90 According to the table, with the income approach, national income is: A) $1,320 billion. B) $1,330 billion. C) $1,570 billion. D) $1,070 billion.

B) $1,330 billion.

According to the table, when using the expenditure approach, GDP is: Category Billions of Dollars Proprietors' income 300 Capital consumption allowance 440 Federal government purchases of goods and services 200 Compensation of employees 800 Personal consumption expenditures 950 Corporate profits 90 Exports 60 Gross private domestic investment 500 Rental income 30 State and local government purchases of goods and services 150 Net interest 100 Federal government deficit 250 Imports 90 A) $1,320 billion. B) $1,770 billion. C) $1,330 billion. D) $2,020 billion.

B) $1,770 billion.

Last year, Marian earned $25,000, paid $2,000 in taxes, and saved $5,000. Marian's personal income is ______, disposable personal income is ______, and consumption spending is ______. A) $20,000; $18,000; $13,000 B) $25,000; $23,000; $18,000 C) $25,000; $18,000; $13,000 D) $23,000; $21,000; $18,000

B) $25,000; $23,000; $18,000

Company DEF produces gizmos. One particular batch cost $50,000 to produce. Because market conditions were bad at the time of sale, they were sold at a loss for $40,000. The value of the gizmos included in the GDP is: A) $10,000. B) $40,000. C) $50,000. D) impossible to compute because there is negative profit.

B) $40,000.

GDP Expenditures for 2010 Expenditure Billions Personal consumption $10,353.5 Gross private domestic investment 1,769.1 Exports 1,746.1 Imports 2,251.5 Government purchases 2,975.1 Capital consumption allowance 1,030.2 According to the table, net exports of goods and services are equal to: A) $505.4 billion. B) -$505.4 billion. C) -$738.9 billion. D) $738.9 billion.

B) -$505.4 billion.

Suppose the National Bureau of Economic Research announces that the economy has been in a recession for the past year. What effect might this announcement have on the economy? A) The Federal Reserve will probably increase interest rates to fight the recession. B) Employers will probably trim payrolls in an effort to cut costs in the face of decreased demand for their products. C) Businesses will invest heavily in plant and equipment. D) Businesses will add shifts to prepare for the upcoming recovery.

B) Employers will probably trim payrolls in an effort to cut costs in the face of decreased demand for their products.

Net domestic product measures: A) C + I + G + (X - M). B) GDP minus depreciation. C) GDP plus income payments from the rest of the world minus income payments to the rest of the world. D) national income plus income payments from the rest of the world minus income payments to the rest of the world

B) GDP minus depreciation.

The study of macroeconomics as a specific discipline is due primarily to: A) Adam Smith. B) John Maynard Keynes. C) Milton Friedman. D) Joseph Schumpeter.

B) John Maynard Keynes.

_____ are almost 70% of GDP, while _____ are about 15% of GDP. A) Personal consumption expenditures; government expenditures B) Personal consumption expenditures; gross private domestic investments C) Government expenditures; gross private domestic investments D) Government expenditures; net exports

B) Personal consumption expenditures; gross private domestic investments

Which ONE of the following would be included in the GDP calculations? A) a windshield purchased by General Motors B) a hamburger purchased by a hungry restaurant patron C) petroleum purchased by a refiner from the company that drilled it D) nails purchased by a building contractor

B) a hamburger purchased by a hungry restaurant patron

National income and product accounts came about in the United States during the 1930s as a result of: A) the theories of John Maynard Keynes. B) a lack of reliable economic data. C) the work of the Council of Economic Advisers. D) the work of the Federal Reserve.

B) a lack of reliable economic data.

Alternating periods of macroeconomic expansion and contraction are known as: A) hyperinflations. B) business cycles. C) budget surpluses and deficits. D) trade surpluses and deficits.

B) business cycles.

In using the income approach to GDP, the largest category is: A) corporate profits. B) compensation of employees. C) rental income. D) proprietors' income.

B) compensation of employees.

The largest component of national income is: A) corporate profits. B) compensation of employees. C) proprietors' income. D) rental income.

B) compensation of employees.

The three types of consumption are: A) compulsive, impulsive, and deliberate. B) durables, nondurables, and services. C) investments, nondurables, and services. D) investments, durables, and services.

B) durables, nondurables, and services.

U.S. business cycles since 1950 have shown: A) expansions to be just as lengthy as recessions. B) expansions to be longer than recessions. C) expansions to be shorter than recessions. D) stable unemployment rates.

B) expansions to be longer than recessions.

The U.S. gross domestic product is equal to the total market value of all: A) intermediate goods and services produced by resources in the United States. B) final goods and services produced by resources in the United States. C) final goods and services produced by U.S. citizens in the United States. D) intermediate goods and services produced by U.S. citizens in the United States.

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