Econ 1 test 2

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

an appreciation of the U.S. dollar

The interest-rate effect suggests that

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

The long-run lasts

as long as all output and input prices stay fully flexible.

Higher interest rates may cause

both A and B.

The aggregate-demand curve

shows the amount of real output that will be purchased at each possible price level.

The aggregate supply curve (short-run)

slopes upward and to the right.

If consumers expect their future real income to rise, they will

tend to spend more of their current incomes now.

Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being?

the child-care services provided by stay-at-home parents

If depreciation exceeds gross investment,

the economy's stock of capital is shrinking.

GDP excludes

the market value of unpaid work in the home.

Real GDP

todays prod at base year price

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 Multiple Choice

GDP that year is $500 billion.

Which of the following transactions would be included in GDP?

Henry buys a newly constructed house.

Real GDP measures

current output at base-year prices.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the

determinants of aggregate demand.

The aggregate demand curve is

downward-sloping because of the interest-rate, real-balances, and foreign purchases effects.

Net exports are

exports minus imports.

Government purchases include

federal, state, and local government expenditures.

Which of the following is included in GDP?

fees received by stockbrokers

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production?

goods and services produced in the underground economy

Final goods and services refers to

goods and services purchased by ultimate users, rather than for resale or further processing.

Government purchases include government spending on

government consumption goods and public capital goods.

Net =

gross - depreciation

When an economy's production capacity is expanding,

gross domestic investment exceeds depreciation.

Depreciation =

gross-net

Gross domestic product (GDP) measures and reports output

in dollar amounts.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will

increase U.S. exports and decrease U.S. imports.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will

increase U.S. imports and decrease U.S. exports.

In an effort to avoid a recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to

increase aggregate demand.

The largest component of total expenditures in the United States is

personal consumption expenditures.

GDP can be calculated by summing

personal consumption, investment, government purchases, and net exports.

Tom Atoe grows fruits and vegetables for home consumption. This activity is

productive but is excluded from GDP because no market transaction occurs.

The amount of real output that could be purchased at current prices if all of our assets were liquidated (turned to cash) and the money used to purchase goods and services is the

real-balances effect.

The value of U.S. imports is

subtracted from exports when calculating GDP because imports do not constitute production in the United States.

The value added of a firm is the market value of

The value added of a firm is the market value of

Suppose Smith pays $100 to Jones.

We need more information to determine whether GDP has changed.

Why slope is negative

Wealth effect Interest rate effect Government purchases effect Foreign effect

The economy's long-run AS curve assumes that wages and other resource prices

eventually rise and fall to match changes in the price level.

Gross>Dep

expanding eco

The determinants of aggregate demand

explain shifts in the aggregate demand curve.

If the dollar is strong will the US import

export less because they pay more to get our products

IPO

initial public offer

A nation's gross domestic product (GDP)

is the dollar value of all final output produced within the borders of the nation during a specific period of time.

The economy's LRAS (long-run aggregate supply curve)

is vertical.

If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that

net investment is negative.

Gross =

net+ depreciation

Deflator

nominal/real x 100

In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are

not counted.

National income accountants can avoid multiple counting by

only counting final goods.

To avoid multiple counting in national income accounts,

only final goods and services should be counted.

How do you calculate GDP

output, input, expenditure approach

The reason the long-run aggregate supply curve is vertical is

when both input prices and output prices are flexible, profit levels always adjust to give firms exactly the right profit incentive to produce the full-employment output level.

The real-balances, interest-rate, and foreign purchases effects all help explain

why the aggregate demand curve is downward-sloping.

Environmental pollution is accounted for in

None of the answers are correct.

Which of the following is a private transfer payment?

a check for $250 sent by a parent to a daughter at college

Buying new furniture for your home would increase

consumer durable goods and therefore personal consumption expenditures.

Which of the following is an intermediate good?

the purchase of gasoline for a ski trip to Colorado

Nominal GDP is

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

In national income accounting, the personal consumption expenditures category includes purchases of

consumer durable goods, consumer nondurable goods, and services.

Which of the following will NOT be included in U.S. GDP?

the value of avocados grown in Mexico and shipped to your local grocery store

Which of the following will be included in U.S. GDP?

the value of the cars produced at a Japanese-owned Toyota factory in Ohio

If intermediate goods and services were included in GDP,

then GDP would be overstated.

Nom GDP

todays prod at todays price

A large underground economy results in an

understated GDP.

Alejandro owns a store specializing in soccer jerseys. One year, he purchased $150,000 worth of jerseys from manufacturers and later that year, sold the jerseys for $280,000. Based on this information, what was the value added at Alejandro's store?

$130,000

A business buys $1,000 worth of inputs from other firms in order to produce a product. The business makes 500 units of the product and each of them sells for $3. The value added by the business to these products is

$500.

Full emp

3-4%

Exports are subtracted from imports in calculating U.S. GDP because exports are not available for domestic consumption.

False

Gross private domestic investment exceeds depreciation in an economy that experiences expanding production capacity.

False

Gross>Net

Declining eco

DI =

Disposable income

Economy on the right of LRAS means economy is in

Economic boom

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Based on this information, positive net investment is occurring in

Economy C only.

Tight money

MS (Down) Y(down) AD(down)

Loose money (easy)

MS^ Y^ AD^

The system that measures the economy's overall performance is formally known as

National income accounting

Base year is the year where

Nominal GDP =Real GDP

Economy on left of LRAS means economy is in

Recession

Gross=net

Static/flat

Which one of the following would not shift the aggregate demand curve?

a change in the price level

Which of the following is a final good or service?

a haircut purchased by a father for his 12-year-old son

The real-balances effect indicates that

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

Net exports are negative when

a nation's imports exceed its exports.

Veterans' payments are excluded from GDP calculations because they are

a public transfer payment.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right.

Adding the market value of all final and intermediate goods and services in an economy in a given year would result in

an amount greater than GDP for that year.

A nation's gross domestic product (GDP)

can be found by summing C + I + G + Ex.

The largest component of national income is

compensation of employees.

Transfer payments are not included in government purchases because

such payments generate no production.

In 1933, net private domestic investment was a minus $6.0 billion. This means that

the production of 1933's GDP used up more capital goods than were produced that year.

Which of the following is not economic investment?

the purchase of 100 shares of Boeing stock by a retired business executive

Which of the following do national income accountants consider to be investment?

the purchase of a new house