Chapter 16

The idea that all income ultimately goes to households, which then use it to buy goods and services from firms, is a central idea of the: production possibilities frontier. supply and demand model. classical model. circular flow diagram.

circular flow diagram.

The largest component of GDP is: gross private domestic investment. consumption expenditure. net exports. government spending.

consumption expenditure.

What event was a major influence on the development of macroeconomics? Employment Act of 1946 the U.S. entry into World War II the Great Depression the establishment of the Federal Reserve System in the United States

the great depression

The U.S. gross domestic product is equal to the total market value of all: final goods and services produced by resources in the United States. final goods and services produced by U.S. citizens in the United States. intermediate goods and services produced by resources in the United States. intermediate goods and services produced by citizens in the United States.

final goods and services produced by resources in the United States.

When Mr. Wilson worked full time, he paid a 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 rises as a result of this change. GDP is unaffected by this change. GDP at first rises but then falls. GDP falls as a result of this change.

GDP falls as a result of this change.

Which of the following describes the informal economy? It does not include income earned by undocumented residents. It is largely unmeasured. It accounts for 20% of U.S. GDP. It does not include transactions dealing with illegal goods and services.

It is largely unmeasured.

Simon Kuznets: set up the National Bureau of Economic Research. was the Secretary of Treasury during World War II. devised the gross national product as a way of measuring a nation's economic output. invented the hair net.

devised the gross national product as a way of measuring a nation's economic output.

U.S. business cycles since 1950 have shown: expansions to be shorter than recessions. expansions to be longer than recessions. expansions to be just as lengthy as recessions. stable unemployment rates.

expansions to be longer than recessions.

The four types of spending in GDP are personal consumer spending, _____ private domestic investment, government spending, and _____. net; net imports net; net exports gross; net imports gross; net exports

gross; net exports

The value of cars that the Ford Motor Company produces in a German plant: is a part of U.S. GNP. is a part of U.S. GDP. is not a part of German GDP. is a part of German GNP.

is a part of U.S. GNP.

We are most likely to see a recession if interest rates on long-term bonds are: the same as interest rates on short-term bonds. lower than interest rates on short-term bonds. rising. higher than interest rates on short-term bonds.

lower than interest rates on short-term bonds.

Which of the following items would be included in the GDP accounts? personally rotating the tires on your neighbor's car paying $50 consultation fee over the phone with a psychic adviser caring for your aged grandmother at home personal time spent learning how to use accounting software

paying $50 consultation fee over the phone with a psychic adviser

Which of the following is NOT included in gross private domestic investment? new equipment purchased by businesses construction of residential housing an increase in business inventories purchases of common stock by investor

purchases of common stock by investor

GDP can be found either by adding up all of the _____ or all of the _____ in the economy. investment; income spending; income net interest payments; taxes spending; taxes

spending; income

Which organization determines the beginning and end dates of a recession? the National Bureau of Economic Research the Council of Economic Advisers the Federal Reserve Board of Governors the U.S. Treasury Department

the National Bureau of Economic Research

A business cycle is: identical to the consumption life cycle. a period lasting about 50 years. the engine of economic growth. the periodic fluctuation of economic activity.

the periodic fluctuation of economic activity.

Suppose an economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle. trough contraction recovery expansion

trough