Macro Quiz (chapter 6 & 7)
How can national income accountants can avoid multiple counting?
only counting final goods
The term "recession" describes a situation where...
output and living standards decline
When demand shocks lead to recessions, it is mainly due to...
price inflexibility
Tom Atoe grows fruits and vegetables for home consumption. This activity is...
productive but is excluded from GDP because no market transaction occurs
Banks and other financial institutions...
promote economic growth by helping to direct household savings to businesses that want to invest
When economists refer to "investment," they are describing a situation where...
resources are devoted to increasing future output
Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Other things equal, the information suggests that the production capacity in economy...
C is growing more rapidly than that in economy B
In national income accounting, the consumption category of expenditures includes purchases of...
automobiles for personal use but not houses
Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Based on this information, positive net investment is occurring in...
economy C only
Transfer payments are...
excluded when calculating GDP because they do not reflect current production
Net exports are...
exports less imports
Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is...
$30
What is an example of a supply shock?
A dramatic increase in energy prices increases production costs for firms in the economy
What would an economist consider to be investment?
Boeing building a new factory
what agency is responsible for compiling the National Income Product Accounts for the U.S. economy?
Bureau of Economic Analysis
What is an example of a demand shock?
Consumers become worried about job loss and buy fewer goods and services than expected
Which of the following best explains why prices tend to be inflexible even when demand changes?
Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals
Which of the following statements best describes how firms respond to demand shocks under conditions of inflexible prices?
Firms respond to shorter-term demand shocks by adjusting inventories; more persistent changes in demand result in changes in production levels
Real GDP refers to...
GDP data that have been adjusted for changes in the price level
What is used to measure directly the average standard of living across countries?
GDP per person
Why are economists concerned about inflation?
Inflation lowers the standard of living for people whose income does not increase as fast as the price level
Which of the following explanations argues that the Great Recession resulted from asset-price bubbles caused by euphoria and debt-fueled speculation?
Minsky explanation
What is the difference between national income and personal income?
National income represents income earned by American-owned resources, while personal income measures received income, whether earned or unearned
If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
Nominal GDP would rise, but real GDP would be unchanged
Which of the following transactions would be included in GDP?
Peter buys a newly constructed house
Which of the following statements best describes price flexibility in the economy?
Prices tend to be sticky in the short run but become more flexible over time
Why are high rates of unemployment of concern to economists?
There is lost output that could have been produced if the unemployed had been working
A price index is...
a comparison of the current price of a market basket to a fixed point of reference
Which of the following is a final good or service?
a haircut purchased by a father for his 12-year-old son
Unemployment describes the condition where...
a person cannot get a job but is willing to work and is actively seeking work
Suppose that inventories were $40 billion in 2015 and $50 billion in 2016. In 2016, national income accountants would...
add $10 billion to other elements of investment in calculating total investment
Inflation is defined as...
an increase in the overall level of prices
A nation's gross domestic product (GDP)
can be found by summing C + Ig + G + Xn
Increased present saving...
comes at the expense of reduced current consumption
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
The amount of after-tax income received by households is measured by...
disposable income
The National Income and Product Accounts (NIPA) help economists and policymakers to...
follow the long-run course of the economy to determine whether it has grown or stagnated
Final goods and services refers to...
goods and services purchased by ultimate users, rather than for resale or further processing
Economists were sharply divided over how to best fight the Great Recession. The majority of economists favored the "Stimulus Solution," which involves...
government actions to increase the total demand for output in the economy
Government purchases include government spending on...
government consumption goods and public capital good
When an economy's production capacity is expanding...
gross domestic investment exceeds depreciation
what are higher rates of unemployment are linked with?
higher crime rates, as the unemployed seek to replace lost income
For an economy to increase investment, it must...
increase saving
Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas...
increased nominal GDP from last year, but real GDP was unaffected
According to the Austrian School, the best explanation for what caused the Great Recession was that...
interest rates that were too low induced excessive borrowing
GDP
monetary value of all final goods and services produced within the borders of a nation in a particular year
The system that measures the economy's overall performance is formally known as...
national income accounting
What is most closely related to recessions?
negative real growth in output
If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that...
net investment is negative
why is real GDP is preferred to nominal GDP as a measure of economic performance?
nominal GDP uses current prices and thus may over or understate true changes in output
Supply shocks...
occur when sellers face unexpected changes in the availability and/or prices of key inputs
The ZZZ Corporation issued $25 million in new common stock in 2016. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment...
of $18 million occurred
What are the three statistics that are the main focus for those measuring macroeconomic health?
real GDP, inflation, and unemployment
Suppose that Techno TV produces LCD televisions. At a price of $2,000 per television, Techno determines that its optimal output is 3,000 television sets per week. If prices are sticky and fears of a recession reduce demand for LCD televisions, we would expect Techno to...
reduce output in the short run
Demand shocks...
refer to unexpected changes in the desires of households and businesses to buy goods and services
Economists were sharply divided over how to best fight the Great Recession. A vocal minority of economists favored the "Structural Solution," arguing that the economy needs to undergo some structural adjustments and that government should, therefore,...
rely on the invisible hand of the market to reallocate resources, by letting weak firms die out quickly
What does the business cycle depict?
short-run fluctuations in output and employment
What are the two topics of primary concern in macroeconomics?
short-run fluctuations in output and employment and long-run economic growth
The fact that nominal GDP has risen faster than real GDP...
suggests that the general price level has risen
Nominal GDP is adjusted for price changes through the use of...
the GDP price index
If intermediate goods and services were included in GDP,
the GDP would be overstated
Value added refers to...
the difference between the value of a firm's output and the value of the inputs it has purchased from others
GDP excludes...
the market value of unpaid work in the home
Which of the following is not economic investment?
the purchase of 100 shares of AT&T by a retired business executive
Which of the following do national income accountants consider to be investment?
the purchase of a new house
Nominal GDP
the sum of all monetary transactions involving final goods and services that occur in the economy in a year
National income measures...
the total of all sources of private income plus government revenue from taxes on production and imports
The concept of net domestic investment refers to...
total investment less the amount of investment goods used up in producing the year's output
The GDP tends to...
understate economic welfare because it does not take into account increases in leisure
A large underground economy results in an...
understated GDP
When do shocks to the economy occur?
whenever expectations are unmet
