ECON UNIT 2 TEST CHAPTER 6
By the end of 2009, the economy had recovered slightly; however, the economy was still smaller than it was two years prior. From 2007 to 2009, real GDP had fallen from $15,762 billion to $15,356 billion. How deep was the recession? Suppose that the long-run growth trend of real GDP was 3% per year. If the economy had grown at 3% per year since 2007, there was a shortfall of $ ______________ billion at the end of 2009. (Give your answer to the nearest whole number)
$1366
You are trying to explain to your friends the importance of using real GDP to measure economic health over time, but some of them still insist that nominal GDP is equally good. Use the data given below to show your friends the difference between real and nominal GDP. Nominal GDP (millions of dollars) = $13000. Price level (GDP deflator) = 92 What is real GDP given the nominal GDP and price level (GDP deflator)? Real GDP (Round to the nearest whole number) = $ ________________.
$14,130.00
Suppose that the Free States of Eldricia, a small nation, has consumption, investment, government purchases, imports, and exports as follows. Consumption: $140 Investment: $50 Government Purchases: $50 Imports: $35 Exports: $25 Calculate the Free States of Eldricia's GDP. $_______________
$230.00
Suppose U.S. nominal GDP changed by -3.00% from 2019 to 2020, and the price level changed by 2.50%. Therefore, real GDP changed by approximately ______________ %.
-5.5 %
What is a Contraction on the Business Cycle?
A downward phase, which is a period of slow or negative growth.
Great Recession
A recession that lasted for two years. Dubbed for its length and depth.
What is the largest component of GDP? Choose one: A. Consumption B. Net exports C. Exports D. Imports E. Investment F. Federal government spending G. State government spending
A. Consumption
Before Ana married her husband, Anthony, she hired him as her gardener. After they were married, Anthony still did the gardening, but Ana no longer paid him. Assuming nothing else changed, GDP would be _______________ when they are married compared to when Ana was single. Choose One: A. Lower B. Higher
A. Lower
Which of the following occurs during a contraction? Choose one: A. real GDP falls; employment falls; incomes fall B. real GDP rises; employment rises; incomes fall C. real GDP rises; employment rises; incomes rise D. real GDP falls; employment falls; incomes rise
A. Real GDP falls; employment falls; incomes fall
Economic Growth is measured as the percentage change in _____ _____ _______ GDP. Choose one: A. Real Per Capita B . Nominal Per Capita
A. Real Per Capita
Of the following, _________________ is the best measure of a nation's standard of living over time. Choose one: A. Per Capita GDP B. Real Per Capita GDP C. Real GDP D. Real Per Capita GDP
A. Real Per Capita
If the price level rose from 116 to 119 but economic output remained the same, nominal GDP would _______________ . Choose One: A. Rise B. Stay the same C. Lower
A. Rise
The article mentions the two most volatile components of GDP. It refers to one of these components as "inventories." Inventory is part of the investment component of GDP. Which of the following is the other volatile component of GDP mentioned in the article? Choose one: A. net exports B. government spending C. income D. consumption
A. net exports
In many parts of the world, a significant amount of effort goes into nonmarket production in the household, such as stay-at-home parenting. For example, Zimbabwe has a very high rate of nonmarket household production, about 35% of GDP. In contrast, Canada has a low rate of nonmarket household production, about 12% of GDP.How does the difference in nonmarket household production affect a comparison of GDP between Zimbabwe and Canada? Choose one or more: A.Canada's GDP would be higher if nonmarket production were counted. B.Zimbabwe's GDP would be lower if nonmarket production were counted. C.The difference between Canada's and Zimbabwe's GDP would be smaller if nonmarket production were counted. D.The difference between Canada's and Zimbabwe's GDP would be larger if nonmarket production were counted. E.Zimbabwe's GDP would be higher if nonmarket production were counted. F.Canada's GDP would be lower if nonmarket production were counted.
A.Canada's GDP would be higher if nonmarket production were counted. E.Zimbabwe's GDP would be higher if nonmarket production were counted.
Which of the following are components of GDP? Choose one or more: A.consumption B.exports C.imports D.income E.investment
A.consumption B.exports C.imports E.investment
Intermediate Goods
Are goods that firms repackage or bundle with other goods for sale at a later stage.
The major components of a country's economy are consumption (C), investment (I), government spending (G), exports, and imports. Which of the following is the correct equation for determining GDP? Choose one: A. C + I + G - exports - imports B. C + I + G + exports - imports C. C + I + G + exports + imports D. C + I + G E. C + I - G F. C + I + G - exports + imports
B. C + I + G + exports - imports
Before Anthony was Ana's gardener, he lived in Colorado and grew and sold marijuana. This was before it was legalized in 2014. Suppose he continued to grow and sell marijuana after it was legalized. Assuming nothing else changed, Colorado's GDP would be _________________ once marijuana was legalized. Choose One: A. Lower B. Higher
B. Higher
If the price level rose from 116 to 119 but economic output remained the same, real GDP would _______________. Choose One: A. Rise B. Stay the same C. Lower
B. Stay the same
When looking at the upward trends of Nominal GDP & Real GDP. What causes the gap between the two curves? Choose one: A. an increasing trade deficit B. inflation C. unemployment D. economic growth
B. inflation
If you wanted to compare economic well-being over time and across countries, the data you would use is: Choose one: A. per capita nominal GDP B. per capita real GDP C. real GDP D. inflation
B. per capita real GDP
When looking at the upward trends of Nominal GDP & Real GDP. What happens to the distance between the two trends as you move forward in time? Choose one: A. The distance gets smaller. B. The distance stays the same. C. The distance gets bigger.
C. The distance gets bigger.
Uganda is a very poor country. Lichtenstein is much smaller geographically and has far fewer people, but it is roughly 70 times richer in terms of per capita GDP. Supposing the following statements are true, which one might explain why Uganda is a little closer to Lichtenstein in terms of standard of living than the official statistics suggest? Choose one: A. There is more underground market activity in Lichtenstein than in Uganda. B. Health standards in Lichtenstein exceed those in Uganda. C. Uganda has more nonmarket production than Lichtenstein. D. Lichtenstein is much more livable in terms of pollution than Uganda.
C. Uganda has more nonmarket production than Lichtenstein.
Which of the following will be counted in this year's GDP? Choose one or more: A.You detail your car so that it is spotless inside and out. B.Apple buys 1,000 motherboards for use in making new computers. C.You purchase a new hard drive for your old laptop. D.Toyota produces 10,000 new Cars that remain unsold at the end of the year. E.You purchase an Investing for Dummies book at Barnes & Noble. F.You purchase a historic home without the help of a real estate agent. G.Your therapist performs $300 of physical therapy on you but does not report it. H.You bought a new Wii at GameStop last year and resold it on eBay this year.
C.You purchase a new hard drive for your old laptop. D.Toyota produces 10,000 new Cars that remain unsold at the end of the year. E.You purchase an Investing for Dummies book at Barnes & Noble.
Let's consider the underground, or shadow, economy in each country. Assume that the size of the underground economy is 10% of GDP in Canada and 40% of GDP in Zimbabwe. Why is the underground economy so much larger in Zimbabwe? Choose one or more: A.Life satisfaction is lower in Zimbabwe, so people rely on underground services to increase their happiness. B.Many services provided in the shadow economy are not available through international trade. C.Zimbabwe's government is more corrupt and less transparent than Canada's government. D.Zimbabwe's economy does not generate the jobs and opportunities that allow people to earn more in legitimate activities.
C.Zimbabwe's government is more corrupt and less transparent than Canada's government. D.Zimbabwe's economy does not generate the jobs and opportunities that allow people to earn more in legitimate activities.
Which of the following transactions, if they were included in the calculation of GDP, would lead to an overstated GDP figure? Choose one or more: A.buying asparagus for dinner, even though it is really expensive B.acquiring the latest lawn tractor C.purchasing your first home, which was not a new construction D.downloading pirated music from the internet E.the purchase of dried strawberries by a breakfast cereal company F. saving money by purchasing a rebuilt lap top
C.purchasing your first home, which was not a new construction E.the purchase of dried strawberries by a breakfast cereal company F. saving money by purchasing a rebuilt lap top
Growth Domestic Product = C + I + G + NX
Consumption + Investment + Government Purchases + Net Exports
a new tractor purchased by a farmer an increase in Apple's inventories of iPads he sale of oranges to Canada John Deere, a U.S. company, sells a tractor to a farmer in Canada the sale of a song written by a Californian to a customer in Kansas gambling services provided to tourists by Las Vegas casinos commission paid to E-Trade because they facilitated a stock trade a Netflix subscription the sale of bolts to Ford to be used on the tires of the vehicles they sell the purchase of a used couch on Craigslist Organize between: Consumption Investment Government Network Not Included
Consumption: he sale of a song written by a Californian to a customer in Kansas gambling services provided to tourists by Las Vegas casinos commission paid to E-Trade because they facilitated a stock trade a Netflix subscription Investment: a new tractor purchased by a farmer an increase in Apple's inventories of iPads Government: the salary of the chief of police billions on new highway construction Network: the sale of oranges to Canada John Deere, a U.S. company, sells a tractor to a farmer in Canada Not Included: the sale of bolts to Ford to be used on the tires of the vehicles they sell the purchase of a used couch on Craigslist
What are the uses of GDP Data? Choose One: A. Measuring Living Standards & Measuring Economic Growth. B. Measuring Economic Growth & Measuring Business Cycles C. Measuring Business Cycles D. Measuring Living Standards, Measuring Economic Growth, & Measuring Business Cycles.
D. Measuring Living Standards, Measuring Economic Growth, & Measuring Business Cycles.
Which of the following statements describes a business cycle? Choose one: A. a period of time when the economy is growing faster than usual B. a period of time when the economy is growing more slowly than usual C. the time it takes the economy to return to a specific level of GDP D. short-run variations around a long-run real GDP growth trend
D. short-run variations around a long-run real GDP growth trend
GDP Deflator (price level)
Deflates all the price inflation out of nominal GDP so we can see real GDP.
What is a Expansion on the Business Cycle?
Economy recovers from the downturn and enters the expansion phase of the Business Cycle.
Real GDP
GDP adjusted for changes in prices.
Per Capita GDP
GDP per person
Final Goods
Goods that are sold to final users.
Gross Domestic Product
Market value of all final goods and services produced within a nation during a specific time period.
Economic Growth
Measured as the percentage change in real per capita GDP. (adjust for both population and inflation)
Not included in GDP Data - Non Market Goods & Services - Underground Transactions - Leisure - Environmental Impacts
Not included in GDP Data - Non Market Goods & Services - Underground Transactions - Leisure - Environmental Impacts
Economic Expansion
Occurs from the bottom of a trough to the next peak, when economic activity is increasing.
Gross National Product
Output produced by workers and resources owned by the residents of the nation.
Economic Contraction
Period extending from the peak downward to the next trough.
Consumption (C)
Purchase of final goods and services by households, exception of new housing.
Investment (I)
Refers to private spending on the tools, plant, and equipment used.
Recession
Short-terms economic downturn that last between 6-18 months.
Government Spending (G)
Spending by all levels of government on final goods and services.
Nominal GDP
The GDP calculated from current prices.
What is a Trough on the Business Cycle?
The low point on the Business Cycle.
To calculate the growth in real GDP from one quarter to another, all we need to do is take the percentage change in real GDP: Growth in real GDP = % change in real GDP = (real GDP 2009Q2 - real GDP 2007Q4)/real GDP 2007Q4 × 100 For our problem: Growth in real GDP = % change in real GDP = (15,134.1 - 15,762)/15,762 × 100 Growth in real GDP = % change in real GDP = -3.98% To get price level growth, we want to first calculate the GDP deflator = (nominal GDP/real GDP) × 100 2007Q4 deflator = (14,681.5/15,762) × 100 = 93.15 2009Q2 deflator = (14,352.9/15,134.1) × 100 = 94.84 Therefore, the price level grew by 1.82%.
To calculate the growth in real GDP from one quarter to another, all we need to do is take the percentage change in real GDP: Growth in real GDP = % change in real GDP = (real GDP 2009Q2 - real GDP 2007Q4)/real GDP 2007Q4 × 100 For our problem: Growth in real GDP = % change in real GDP = (15,134.1 - 15,762)/15,762 × 100 Growth in real GDP = % change in real GDP = -3.98% To get price level growth, we want to first calculate the GDP deflator = (nominal GDP/real GDP) × 100 2007Q4 deflator = (14,681.5/15,762) × 100 = 93.15 2009Q2 deflator = (14,352.9/15,134.1) × 100 = 94.84 Therefore, the price level grew by 1.82%.
Net Exports (NX)
Total exports (-) Total Imports
What is a Peak on the Business Cycle?
Usually starts a cycle and is a high point on the Business Cycle.
change in price level = 110 (-) 108 (/) 108 (X) 100 = 1.9%
change in price level = 110 (-) 108 (/) 108 (X) 100 = 1.9%
nominal GDP growth in 2018 = GDP 2018 (-) GDP 2017 (/) GDP 2017 (X) 100
nominal GDP growth in 2018 = GDP 2018 (-) GDP 2017 (/) GDP 2017 (X) 100
real GDP = Nominal GDP / Price Level (X) 100
real GDP = Nominal GDP / Price Level (X) 100
