Gross Domestic Product and Growth

A

What stage of the business cycle would be most appropriate to describe the years from 1929 to 1933? (A) A contraction (B) A peak (C) An expansion (D) A trough

C

Which of the following is an example of a durable good? (A) A box of cereal (B) A pack of baseball cards (C) A used car (D) A paperback book

A

Which of the following is not a reason that capital deepening is an important source of economic growth? (A) More investment funds are made available to businesses. (B) Investment in human capital causes workers to be more valuable to employers. (C) Enhanced training programs improve the productivity of workers. (D) More physical capital improves efficiency and productivity.

D

Which of the following is not a situation involving external shock? (A) Consumers reduce spending on expensive goods because the country has gone to war. (B) Consumers use more gasoline because of lower prices due to the discovery of large deposits of oil. (C) Consumers pay high prices for corn because of a severe drought. (D) Consumers reduce spending because they fear that their nation is going to war.

B

Which of the following may not be indicated by low long-term interest rates? (A) That the economy is expected to contract in coming years. (B) That consumers want to borrow money to invest. (C) The future health of the economy. (D) That businesses do not want to borrow money to invest.

A

Which of the following measures does not help promote technological progress? (A) Reducing the scale of the market for a new product. (B) Training programs for workers. (C) Increased wages for researchers. (D) Issuing a patent to a company that invents a new product.

Depression.

A recession that is especially long and severe:

Aggregate demand.

Amount of goods and services in the economy that will be purchased at all possible price levels:

A

An economy that experiences decreasing real GDP and increasing prices is said to suffer from _____. (A) Stagflation (B) A depression (C) A recession (D) A business cycle

Technological progress.

An increase in efficiency gained by producing more output without using more inputs:

C

As you move from left to right, the aggregate demand curve _____. (A) May slope upward or downward (B) Slopes upward (C) Slopes downward (D) Is horizontal

Price level.

Average of all prices in the economy:

Stagflation.

Decline in real GDP combined with a rise in the price level:

A

In a typical business cycle, what stage immediately follows a peak? (A) Contraction (B) Expansion (C) Growth (D) Trough

C

Going from left to right on the aggregate demand curve, real GDP _____. (A) Falls as price level falls (B) Rises as price level rises (C) Rises as price level falls (D) Falls as price level rises

Nondurable goods.

Goods that last a short period of time, such as food, light bulbs, and sneakers:

Durable goods.

Goods that last for a relatively long time, such as refrigerators, cars, and DVD players:

Intermediate goods.

Goods used in the production of final goods:

Real GDP.

Gross domestic product expressed in constant, or unchanging, prices:

Nominal GDP.

Gross domestic product measured in current prices:

Peak.

Height of an economic expansion, when real GDP stops rising:

C

If economists calculate the GDP for 2009, using current prices of year 2009, what are they estimating? (A) Net national product (B) Real GDP (C) Nominal GDP (D) Depreciation

D

In the long run, potential growth in the economy and a rise in real GDP per capita might occur from all of the following except _____. (A) An increase in savings. (B) An achievement in technological progress. (C) An increase in government spending on public goods. (D) Growth in population.

Saving.

Income not used for consumption:

Leading indicators.

Key economic variables that economists use to predict a new phase of the business cycle:

Contraction.

Period of economic decline marked by falling real GDP:

Expansion.

Period of economic growth as measured by a rise in real GDP:

Economic growth.

Steady, long-term increase in real GDP:

Gross national product.

The annual income earned by U.S.-owned firms and U.S. residents:

Depreciation.

The loss of the value of capital equipment that results from normal wear and tear; also, a decrease in the value of a currency:

Trough.

The lowest point in an economic contraction, when real gross domestic product stops falling:

Savings rate.

The proportion of disposable income that is saved:

Gross domestic product.

The total value of all final goods and services produced in a particular economy; the dollar value of all final goods and services produced within a country's borders in a given year:

C

To calculate disposable personal income, you take personal income and subtract which of the following? (A) Depreciation on your home. (B) Monthly household expenditures. (C) Individual income taxes. (D) Annual expenditure on food and clothing.

D

Which of the following actions does not promote capital deepening? (A) Raising taxes to pay for building roads. (B) A low population growth rate at the same time that capital stock expands. (C) Borrowing money from foreign nations to invest in building infrastructure in this country. (D) Saving less and spending more of one's disposable income.

C

Which of the following finally brought the U.S. economy out of the Great Depression? (A) World War I (B) The Korean War (C) World War II (D) The Vietnam War

B

Which of the following is an accurate statement about the Great Depression? (A) It was a recession that became a depression because of World War II. (B) It was the most severe economic downturn in the history of industrial capitalism. (C) It was set off because of a sharp and unexpected rise in interest rates. (D) Its effects and duration would have been even worse if it weren't for a strong economy in Japan and Europe at the time.

D

A patent is an exclusive right to produce and sell a product for how long? (A) 30 years (B) 40 years (C) 15 years (D) 20 years

Business cycle.

A period of macroeconomic expansion followed by a period of contraction:

A

Compared with the expenditure approach to calculating GDP, the income approach is _____. (A) More accurate (B) Connected more strongly to stock market performance. (C) Preferred by the average consumer (D) More practical

B

How can a trade deficit actually increase the productivity of an economy? (A) By causing people to save. (B) By importing investment goods used for capital deepening. (C) By importing goods for short-term use. (D) By building up a large amount owed.

Instead of assuming that the macroeconomy would automatically recover from a recession, economists began to consider the possibility that modern market economies could fall into prolonged contractions and that government assistance would be necessary to pull them out.

How did the Great Depression affect economists' beliefs about the macroeconomy?

B

How is nominal GDP converted into real GDP? (A) By adding all incomes earned to total expenditures by consumers, businesses, and government. (B) By eliminating the effects of price increases on GDP growth. (C) By adding the contributions of American-owned factories in foreign countries. (D) By adding up all of the real purchases made in the economy.

A

How is nominal GDP converted into real GDP? (A) By eliminating the effects of price increases on GDP growth. (B) By adding up all of the real purchases made in the economy. (C) By adding the contributions of American-owned factories in foreign countries. (D) By adding all incomes earned to total expenditures by consumers, businesses, and government.

C

If a consumer goes to the store and purchases a DVD player, the shopper is buying both a _____. (A) Durable and intermediate good. (B) Nondurable and final good. (C) Durable and final good. (D) Nondurable and intermediate good.

Capital deepening.

Process of increasing the amount of capital per worker:

Recession.

Prolonged economic contraction:

Real GDP per capita.

Real gross domestic product divided by the total population:

A

Technological progress leads to which of the following? (A) An increase in efficiency. (B) Lower savings rates. (C) A decrease in efficiency. (D) A loss of interest in human capital.

Aggregate supply.

Total amount of goods and services in the economy available at all possible price levels:

B

Which of the following is the basic measure of a nation's economic growth rate? (A) Nonmarket activities over a given period of time. (B) Percentage change of real GDP over a given period of time. (C) Standard of living over a given period of time. (D) Leading indicators over a given period of time.

A

Which of these is an example of depreciation? (A) A worker's truck breaks down more often after 80,000 miles of driving. (B) An employer fires a worker for repeatedly arriving late to work. (C) A share of stock declines in value over several months. (D) A clothing store owner reduces the price of a belt by $10 to encourage sales.

Contraction.

What phase of a business cycle can lead an economy into recession?

D

According to the aggregate supply curve, what happens as the price level increases? (A) Consumers increase their spending. (B) Profits decrease. (C) Real GDP falls. (D) Firms have more of an incentive to increase output.

B

Concern about an international crisis has caused consumers to save their money and postpone big purchases. What is the effect on aggregate demand and aggregate supply? (A) Both aggregate demand and aggregate supply will decrease, leading to lower real GDP. (B) Aggregate demand will decrease, lowering both real GDP and the price level. (C) Aggregate supply will decrease, raising the price level and lowering real GDP. (D) No change on aggregate demand and aggregate supply.

C

Concern about an international crisis has caused consumers to save their money and postpone big purchases. What is the effect on aggregate demand and aggregate supply? (A) No change on aggregate demand and aggregate supply. (B) Aggregate supply will decrease, raising the price level and lowering real GDP. (C) Aggregate demand will decrease, lowering both real GDP and the price level. (D) Both aggregate demand and aggregate supply will decrease, leading to lower real GDP.

D

How do fears of future economic problems affect GDP? (A) Government will spend less and save money for a future economic contraction; GDP will be reduced. (B) Consumers will spend more money in the short term to prevent future economic problems; GDP will be pushed up. (C) Businesses will invest more money in the short term to ensure higher profits in the future; GDP will be pushed up. (D) Consumers will spend less and save money in case future economic problems affect them; GDP will be reduced.

B

How does a higher level of saving lead to higher GDP in the future? (A) Because increased savings will divert money that would be spent on imported goods in the current year. (B) Because more capital is available for investment, leading to higher output through capital deepening. (C) Because a higher national savings rate encourages immigration and expands the labor force. (D) Because the government taxes savings accounts to pay for education.

D

How does an economist compare the standard of living in two different countries? (A) By measuring physical capital. (B) By looking at the quality of life. (C) By seeing how the GDP is distributed. (D) By comparing real GDP per capita.

D

If no foreign companies produce in a country, but many of the country's companies build products in foreign countries, then it is safe to say that _____. (A) The country's GDP and GNP are equal. (B) The country's GDP is greater than its GNP. (C) The country's GDP is equal to its national income. (D) The country's GNP is greater than its GDP.

C

If the government uses tax money to pay for long-term investments such as roads or other infrastructure, what happens to the economy? (A) Taxes decrease (B) Investment decreases (C) Investment increases (D) Taxes increase

A

If there is a fall in the interest rate, _____. (A) Businesses will be more likely to expand their facilities. (B) The unemployment rate will most likely rise. (C) Consumers will be less likely to buy more expensive items. (D) There will be a downturn in the economy.

C

Short-term interest rates show the cost of borrowing money for how long? (A) Between 10 and 30 years. (B) For no more than a month. (C) For a few days or months. (D) Between a few months and two years.

D

Suppose an economy's entire output is cars. In Year 1, all manufacturers produce cars at $15,000 each; the real GDP is $300,000. In Year 2, 20 cars are produced at $16,000 each. What is the real GDP in Year 2? (A) $280,000 (B) $20,000 (C) $320,000 (D) $300,000

A

Suppose the savings rate is 15 percent. For every dollar the government collects in tax revenue and spends on public goods and infrastructure, the net result will be _____. (A) An increase in total investment by 85 cents. (B) A decrease in total investment by 15 cents. (C) An increase in total investment by 15 cents. (D) No change in the total investment.

National income accounting.

System that collects macroeconomic statistics on production, income, investment, and savings:

D

What are key economic variables that economists use to predict a new phase of a business cycle referred to as? (A) Economic growth (B) A recession (C) A contraction (D) Leading indicators

B

What are the four main limitations of GDP accuracy? (D) Depreciation, price level, distortion, and underground economy. (B) Nonmarket activities, underground economy, negative externalities, and quality of life. (C) Durable good, nondurable good, black market, and negative externalities. (D) Trough, peak, recession, and depression.

A

What are the leading economic indicators supposed to predict? (A) Business cycles (B) Nonmarket activities (C) Consumer expectations (D) Stagflation

D

What do most economists believe about the future of business cycles? (A) Business cycles will grow more extreme, with higher peaks and deeper troughs. (B) Economists have made no predictions about future business cycles. (C) Advances in technology have brought business cycles to an end. (D) Business cycles will continue to drive our economy.

D

What is GDP expressed in constant, or unchanging, prices called? (A) Price level (B) Real GDP (C) Net national product (D) Nominal GDP

A

What is a period of economic growth as measured by a rise in real GDP called? (A) An expansion (B) A contraction (C) A peak (D) A business cycle

C

What is a recession? (A) A very mild and short expansion. (B) A period when the economy is neither expanding nor contracting. (C) A period when real GDP falls for at least six months. (D) A long and severe depression.

C

What is an example of a positive external shock to aggregate supply? (A) China announces that it will import 50 percent more corn from the United States. (B) Demand for new suburban houses increases the value of farmland. (C) Good weather leads to an unusually productive harvest for corn farmers. (D) A popular new diet encourages consumers to buy more corn flakes.

C

What is one way to measure technological progress? (A) Any increases in labor minus increases in capital. (B) Total growth plus increases in capital and labor. (C) Total growth minus increases in capital and labor. (D) Any increases in capital minus increases in labor.

A

What is the amount of money a person has left of his or her income after taxes called? (A) Disposable personal income (B) National income (C) Personal income (D) Aggregate income

C

What is the difference between a recession and a depression? (A) Unlike a recession, a depression includes high levels of inflation. (B) A recession is more severe than a depression and lasts longer. (C) A depression is a particularly deep recession with high levels of unemployment. (D) A recession is a period of economic growth while a depression is a period of economic contraction.

C

What is the difference between real GDP and nominal GDP? (A) Real GDP includes nonmarket activities; nominal GDP has no nonmarket activities. (B) Real GDP allows for depreciation; nominal GDP allows for no depreciation. (C) Real GDP is based on constant prices; nominal GDP is based on the current year's prices. (D) Real GDP is accurate to hundreds of dollars; nominal GDP is accurate to thousands of dollars.

C

What is the stage in a business cycle called when real GDP stops falling? (A) A peak (B) A contraction (C) A trough (D) An expansion

D

What is the underground economy? (A) Costs of such things as personal safety, vacations, and sick pay. (B) The goods and services people make or do themselves. (C) The amount spent for environmental cleanup and similar products. (D) Products and income that are not reported as income to the government.

D

Which of the following products would be used in calculating GDP? (A) Plastic manufactured in a factory in Kentucky and sold to toy manufacturers around the world to make plastic toys. (B) Cotton cloth manufactured in India and sold to clothes makers in the United States. (C) Toys manufactured in China at a factory owned by a U.S. company. (D) Cars manufactured in Tennessee at a factory owned by a Japanese automobile company.

B

Which of the following was a lasting effect of the OPEC embargo in the 1970s on the U.S. economy? (A) Higher gasoline prices (B) Reduced use of petroleum (C) Reduced taxes (D) Lower interest rates

C

Which of the following would be an example of capital deepening? (A) Laying off employees when a factory is modernized. (B) Moving a manufacturing plant overseas where labor costs are lower. (C) Paying for an employee to take college courses. (D) Permitting two workers to share one job.

A

Which of the following would be considered a good starting point for measuring a nation's quality of life? (A) Real GDP per capita (B) Business cycle (C) Aggregate supply (D) Intermediate goods

C

Which of the following would be included in the calculation of GDP? (A) Time and effort spent shopping for your household. (B) Paying your nephew to mow the lawn. (C) Purchasing a new vehicle. (D) Selling your car to a friend.

B

Which of the following would the calculation of GDP include? (A) The price of the steel used to build a new hotel. (B) The income of a high school English teacher. (C) The sale of a 25-year-old house. (D) The income of a person who pays rent by babysitting for the homeowner's children.

B

Which of these is an example of depreciation? (A) A clothing store owner reduces the price of a belt by $10 to encourage sales. (B) A worker's truck breaks down more often after 80,000 miles of driving. (C) An employer fires a worker for repeatedly arriving late to work. (D) A share of stock declines in value over several months.