Gross Domestic Product and Growth

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?

$300,000

Which of these is an example of depreciation?

A worker's truck breaks down more often after 80,000 miles of driving.

According to the aggregate supply curve, what happens as the price level increases?

Firms have more of an incentive to increase output.

What is an example of a positive external shock to aggregate supply?

Good weather leads to an unusually productive harvest for corn farmers.

Which of the following is an accurate statement about the Great Depression?

It was the most severe economic downturn in the history of industrial capitalism.

What is the difference between real GDP and nominal GDP?

Real GDP is based on constant prices; nominal GDP is based on the current year's prices.

_____ is the increase in efficiency gained by producing more output without using more inputs.

Technological progress

How would a rise in business investment affect the aggregate demand curve?

The aggregate demand curve shifts to the right.

What stage of the business cycle would be most appropriate to describe the years from 1929 to 1933?

a contraction

Which of the following is an example of a nondurable good?

a paperback book

What is a recession?

a period when real GDP falls for at least six months

Which of the following is an example of a durable good?

a used car

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 _____.

an increase in total investment by 85 cents

How does a higher level of saving lead to higher GDP in the future?

because more capital is available for investment, leading to higher output through capital deepening

If there is a fall in the interest rate, _____.

businesses will be more likely to expand their facilities

How does an economist compare the standard of living in two different countries?

by comparing real GDP per capita

How is nominal GDP converted into real GDP?

by eliminating the effects of price increases on GDP growth

How can a trade deficit actually increase the productivity of an economy?

by importing investment goods used for capital deepening

Which of the following products would be used in calculating GDP?

cars manufactured in Tennessee at a factory owned by a Japanese automobile company

In a typical business cycle, what stage immediately follows a peak?

contraction

What is the amount of money a person has left of his or her income after taxes called?

disposable personal income

Short-term interest rates show the cost of borrowing money for how long?

for a few days or months

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 _____.

growth in population

To calculate disposable personal income, you take personal income and subtract which of the following?

individual income taxes

Compared with the expenditure approach to calculating GDP, the income approach is _____.

more accurate

Which of the following would be an example of capital deepening?

paying for an employee to take college courses

Which of the following is the basic measure of a nation's economic growth rate?

percentage change of real GDP over a given period of time

What is the underground economy?

products and income that are not reported as income to the government

Which of the following is found by dividing real GDP by the total population?

real GDP per capita

Which of the following was a lasting effect of the OPEC embargo in the 1970s on the U.S. economy?

reduced use of petroleum

Going from left to right on the aggregate demand curve, real GDP _____.

rises as price level falls

What is the proportion of saved disposable income referred to as?

savings rate

As you move from left to right, the aggregate demand curve _____.

slopes downward

An economy that experiences decreasing real GDP and increasing prices is said to suffer from _____.

stagflation

Which of the following may not be indicated by low long-term interest rates?

that consumers want to borrow money to invest

What is the savings rate?

the proportion of disposable income that is saved

What is one way to measure technological progress?

total growth minus increases in capital and labor