Macroeconomics

Refer to the graphs which show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. The collective willingness to pay for the first unit of this public good is

$18

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is

$210 billion.

Refer to the accompanying national income data (in billions of dollars). Gross domestic product is

$1.079 billion.

Refer to the accompanying national income data (in billions of dollars). The national income in this economy can be estimated by adding items

2 through 7.

Which of the following statements about price stickiness or flexibility is true?

Prices of many raw materials are much more flexible than the prices of final goods and services.

Which of the following statements best describes price flexibility in the economy?

Prices tend to be sticky in the short run but become more flexible over time

Under what circumstances do rates of economic growth understate the growth of economic well-being?

Product quality has improved.

Refer to the figure. Assuming this market is representative of the economy as a whole, a negative demand shock wil

lower prices but leave output unaffected.

Refer to the provided supply and demand graph for a public good. Point c on the graph shows where the

marginal benefit equals the marginal cost of the public good.

GDP is the

monetary value of all final goods and services produced within the borders of a nation in a particular year.

The total income earned through the use of resources, plus taxes on production and on imports, equals

national income.

Which of the following is most closely related to recessions?

negative real growth in output

The GDP price index equals

nominal GDP divided by real GDP.

Price wars among firms

occur when one firm lowers its price and rival firms react by lowering their prices.

The term "recession" describes a situation where

output and living standards decline.

GDP can be calculated by summing

personal consumption, investment, government purchases, and net exports

Personal income will equal disposable income when

personal taxes are zero.

Refer to the provided supply and demand graph of Product X. If there are positive externalities from the consumption of Product X, then the socially optimal demand curve would be

to the right of the D curve on the graph.

The average amount of time between price changes for gasoline is

two to three weeks.

Refer to the accompanying national income data (in billions of dollars). The expenditures approach to GDP calculation can be done by adding

8 through 11.

Which of the following is not a factor that increases short-run price stickiness?

A firm can lower its price without fear that rival firms will also lower their prices.

Refer to the figures. Which figure(s) represents) a situation where prices are flexible?

A only

Refer to the graph. Growth of production capacity is shown by the

shift from AB to CD.

Refer to the figures. Which figure(s) represents) a situation where prices are sticky?

B only

The National Income and Product Accounts (NIPA) for the U.S. are compiled by the

Bureau of Economic Analysis.

Refer to the diagram. Assuming equilibrium price P, producer surplus is represented by areas

C+D

Which of the following best explains why prices tend to be inflexible even when demand changes?

Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

Which of the following statements about price wars is true?

Firms that have to deal with the possibility of price wars often have sticky prices.

Real GDP refers to

GDP data that have been adjusted for changes in the price level.

Suppose the total monetary value of all final goods and services produced in a particular country in a year is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that

GDP that year is $500 billion.

Consumer surplus

Is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price.

"Net foreign factor income" in the national income accounts refers to the difference between

the income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S.

If there are external benefits associated with the consumption of a good or service,

the market demand curve will underestimate the true demand curve.

A price index is

the price of a market basket in a given year divided by the price of an identical market basket in a reference year.

Nominal GDP is

the sum of all monetary transactions involving final goods and services that occur in the economy in a year.

A negative externality or spillover cost occurs when

the total cost of producing a good exceeds the costs borne by the producer.

External benefits in consumption refer to benefits accruing to

those other than the ones who consumed the product.

Firm A produces something that Firm B uses as an input. The product of Firm B, in turn, is purchased and used as an input by Firm C, and so on down the line through Firm E, which produces the final product. (See the accompanying table.) The total value added by Firms A-E from the production of the final product described here is

$3,800.

Refer to the accompanying national income data (in billions of dollars). Net exports are equal to

-$424 billion.

At an annual growth rate of 7 percent, real GDP will double in about

10 years.

A nation's real GDP was $250 billion last year and $265 billion this year. Its population was 122 million last year and 125 million this year. What is the growth rate of real GDP per capita in this year?

3.4 percent

The amount of new output produced per year for both consumption and additions to capital stock is measured by

NDP.

Nonrivalry and nonexcludability are the main characteristics of

Public goods

Refer to the graph. An increase in an economy's labor productivity would

Shift curve AB to CD.

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be

Subsidized

Producer surplus is the difference between

The minimum prices producers are willing to accept for a product and the higher equilibrium price.

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

The total revenue received by producers equals the total cost of production.

The base year of the price index given in the accompanying table is

Year 1

Refer to the diagram. Assuming equilibrium Price PI, consumer surplus is represented by areas

a + b

Inflation is defined as

a general increase in the price level.

Unemployment describes the condition where

a person cannot get a job but is willing to work and is actively seeking work.

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

a weather warning system

Refer to the diagram. The area that identifies the maximum sum of consumer surplus and producer surplus is

a+b+c+d

Shocks to the economy occur when

actual economic events do not match what people expected

For which of the following goods are services prices least sticky?

airline tickets

Refer to the diagram. If actual production and consumption occur at Q1,

an efficiency loss (or deadweight loss) of b + d occurs.

Economic growth can be portrayed as

an outward shift of the production possibilities curve

National income accountants define investment to include

any increase in business inventories.

Refer to the diagram. Which of the following areas best represents the efficiency loss from underproduction?

b + d

Refer to the accompanying graph. The year 2000 must be the

base year of the GDP price index.

Among the following examples, the one that best illustrates a public good is the

bike paths around a city or town

A nation's gross domestic product (GDP)

can be found by summing C+ lg+ G+ Хл

Real GDP measures

current output at base year prices.

Demand-side market failures occur when

demand curves don't reflect consumers' full willingness to pay for a good or service.

In a typical year, which of the following measures of aggregate output and income is likely to be the smallest?

disposable income

That portion of corporate profits which is included in personal income is

dividends.

The number of years required for real GDP to double can be found by

dividing 70 by the annual growth rate.

Real GDP per capita is found by

dividing real GDP by the population.

Refer to the diagram. If actual production and consumption occur at Q2,

efficiency is achieved.

Economic growth is best defined as an increase in

either real GDP or real GDP per capita.

Net exports are

exports less imports.

Prices for airline tickets change hourly. This would suggest that airline ticket prices are

extremely flexible.

Prices tend to be sticky because

firms are worried that frequent price changes would annoy consumers

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curve for Z are D and S. If there are substantial external benefits associated with the production of Z, then

government can improve the allocation of resources by subsidizing consumers of Z.

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply for Z are D2 and S2. If there are substantial external costs associated with the production of Z, then

government should levy a per-unit excise tax on Z to shift the supply curve toward S1.

Unlike a private good, a public good

has benefits available to all, including nonpayers.

Refer to the figure. Assuming this market is representative of the economy as a whole, a positive demand shock will

increase output but leave prices unchanged.

The achievement of full employment through time will

increase the realized rate of economic growth

Refer to the figure. Assuming this market is representative of the economy as a whole, a negative demand shock will most likely

increase unemployment.

Harry's Pizza Parlor produced 10,000 large pizzas last year that sold for $10 each. This year Harry's produced 11,000 large pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pizzas

increased both nominal and real GDP from last year.

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas this year

increased nominal GDP by $20,000 but left real GDP unchanged.

Refer to the provided supply and demand graph of Product X. What would happen if the government decided to also start providing Product X in the market?

price would decrease

The figure depicts a situation where

prices are flexible, but output is constant.

The figure depicts a situation where

prices are sticky, but output is flexible.

Refer to the figure. Assuming this market is representative of the economy as a whole, a positive demand shock will

raise the price level but leave output unchanged.

The three statistics that are the main focus for those measuring macroeconomic health are

real GDP, inflation, and unemployment.

The two topics of primary concern in macroeconomics are

short-run fluctuations in output and employment and long-run economic growth.

The fact that nominal GDP has risen faster than real GDP

suggests that the general price level has risen

Corporate profits are found by

summing corporate income taxes, dividends, and undistributed corporate profits

Refer to the provided supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?

supply would decrease

Government can reallocate resources away from private goods toward public goods, usually through

taxes and government spending.

A positive externality or spillover benefit occurs when

the benefits associated with a product exceed those accruing to people who consume it

Allocative efficiency occurs only at that output where

the combined amounts of consumer surplus and producer surplus are maximized.

Macroeconomics is mostly focused on

the economy as a whole

Private firms can hardly produce a public good profitably because of

the free-rider problem.

Refer to the provided supply and demand graph for a public good. If Q1 units of the public good are produced, then

users are willing to pay more for the public good than it costs to produce it.

Real GDP measures the

value of final goods and services produced within the borders of a country, adjusted for price changes

Value added by a firm is the market value of the firm's output minus the

value of inputs bought from other firms.

Shocks to the economy occur

when expectations are unmet.

The "rule of 70" is a formula for determining the approximate number of

years that it would take for a value (like real GDP) to double.