ECON - Chapter 5 (problems)

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.

The largest component of GDP is: A) consumption expenditure. B) gross private domestic investment. C) government spending. D) net exports.

A) consumption expenditure.

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

A) money; goods and services; income to households

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

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

Which phase of the business cycle occurs immediately before a trough? A) peak B) recession C) boom D) recovery

B) recession

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

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)

. 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

. GDP includes output produced _____ but it does not include output 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

One of the key concepts involved in the circular flow diagram is that: A) households and businesses are in conflict with each other. B) the national economy is similar to a zero-sum game. C) one person's spending is another person's income. D) the sum of the resource and product markets must equal household income.

C) one person's spending is another person's income.

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

C)unemployment deacreases

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: A) $160. B) $180. C) $150. D) $140.

D) $140.

In a simple circular flow diagram, total spending on goods and services in the product market: A) is greater than the total income earned in the resource market. B) is less than the total income earned in the resource market. C) is done by the government. D) equals the total income earned in the resource market.

D) equals the total income earned in the resource market.

Which of the following activities is an example of a nonmarket transaction? A) hiring a maid to clean your home B) employing a lawn service worker to trim your bushes C) hiring a nanny to take care of your kids D) growing your own food in a vegetable garden

D) growing your own food in a vegetable garden

Which of the following describes the informal economy? A) It is largely unmeasured. B) It does not include transactions dealing with illegal goods and services. C) It does not include income earned by undocumented residents. D) It accounts for 50% of U.S. GDP

A) It is largely unmeasured.

Suppose the National Activity Index of the Federal Reserve Bank of Chicago drops to -0.83 this month after being above +0.36 for the previous three months. This movement in the index indicates that: A) the economy has probably moved into a recession. B) the rate of economic growth has slowed, but not enough to suggest that a recession is imminent. C) the rate of economic growth has dropped below the historical trend rate of growth, and the economy has reached a trough. D) the economy is at its peak this month but will move into the recession stage in the near future.

A) the economy has probably moved into a recession.

At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water: A) the standard of living of the citizens of Pittsburgh has increased, even though the improvement in the environment was not reflected in its GDP. B) the value of the GDP increased. C) the value of the GDP increased in the year that the improvements were made but did not change in ensuing years. D) the standard of living of the citizens of Pittsburgh did not change.

A) the standard of living of the citizens of Pittsburgh has increased, even though the improvement in the environment was not reflected in its GDP

. Last year, Marian earned $25,000, paid $2,000 in taxes, and saved $5,000. Marian's personal income was _____, her disposable personal income was _____, and her consumption spending was _____. 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

Which of the following is true about business cycles? A) They all have the same approximate length. B) Every cycle is unique. C) Each recession causes the same amount of unemployment. D) The intensity tends to be constant from recession to recession, but the duration differs.

B) Every cycle is unique.

How do trends in bond interest rates help predict changes in the business cycle? A) When long-term rates are higher than short-term rates, a recession is likely. B) When long-term rates are lower than short-term rates, a recession is likely. C) When long-term rates are higher than short-term rates, a trough is present. D) When long-term rates are lower than short-term rates, an expansion is likely.

B) When long-term rates are lower than short-term rates, a recession is likely.

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.

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.

The value of cars that the Ford Motor Company (a U.S. 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.