Economics 202 Ch 5

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals:

$140

GDP per capita

A country's GDP divided by its population, shows standard of living

Gross Domestic Product (GDP)

A measure of the economy's total output; it is the most widely reported value in the national income and product accounts (NIPA) and is equal to the total market value of all final goods and services produced by resources in a given year.

Business cycles:

Vary in Duration and Magnitude

A recession begins...

after 2 consecutive quarters of negative growth

What is an example of a final good?

bacon purchased at a grocery store

Major components of the NIPA 2 ways

by adding up the income in the economy or by adding up spending

Which of the following values is an example of a nonmarket transaction NOT included in the national income and product accounts?

mowing your own lawn

Double-dip recesion

occurs when a recovering economy does not reach its former peak

The expenditure category that accounts for the largest share of GDP is:

personal consumption expenditures.

Which of the following would NOT be included in the GDP accounts?

the value of time spent learning how to prepare your personal income tax return

Which is NOT a main use of the national income and product accounts?

to support the macroeconomic theory of the political party in power

When Mr. Wilson worked full time, he paid a cleaning service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP?

GDP falls as a result of this change.

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.

Historical; slowing; faster than

Which of the following statements is CORRECT?

Households supply both labor and nonlabor resources.

Informal Economy

Includes all transactions that are conducted but are not licensed and/or generate income that is not reported to the government (for tax collection). Black markets

Whose analysis serves as the foundation of modern macroeconomics?

John Maynard Keynes

Examples of methods used to predict business cycle movements

National Activity Index, Leading Economic Index, Yield Curve

A peak in the business cycle

Operating at capacity

Which phase of the business cycle occurs immediately before a trough?

Recession

What component of GDP includes college tuition?

Services

Yield Curve

Shows the relationship between interest rate earned on a bond (vertical) and the length of time until the bond's maturity date (horizontal)

A criticism of GDP per capita is that it:

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

A criticism of the National Bureau of Economic Research's business cycle dating committee is that it:

dates peaks and troughs only after the fact.

In a simple circular flow diagram, total spending on goods and services in the product market:

equals the total income earned in the resource market.

Which of the following is NOT a problem in using GDP to measure standard of living?

failure to include exports and imports

Which of the following activities is an example of a nonmarket transaction?

growing your own food in a vegetable garden

A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $180. The change in GDP would be:

$180

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 ______.

$25,000; $23,000; $18,000

The economy is probably heading into a recession when the National Activity Index equals:

-0.94

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?

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

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.

Expansion

Which of the following is TRUE within the circular flow of economic activity?

Households are buyers of products and sellers of production factors.

Which of the following describes the informal economy?

It is largely unmeasured.

Which of the following statements is TRUE about the National Activity Index?

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

GDP

Reflects the final value of goods and services produced, Measures the output if produced by resources in the US, Uses market values, Focus on market-produced goods and services

Which of the following items would be considered a durable good?

Refrigerator

Business Cycles

The alternating increases & decreases in economic activity

Which ONE of the following would be included in the GDP calculations?

a hamburger purchased by a hungry restaurant patron

A benefit of using GDP per capita instead of GDP is that it:

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

Suppose the Federal Reserve Bank of Chicago's National Activity Index drops to -0.83 this month after being above +0.36 for the previous three months. This movement in the index indicates that:

the economy has probably moved into a recession.

The more severe the recession

the higher the unemployment rate goes

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 it. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water:

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