Exam 5: Introduction to Macroeconomics

Using the simple circular flow model, explain why the sum of income earned in an economy equals the sum of spending in the economy.

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

The capital consumption allowance

Suppose the National Activity Index of the Federal Reserve Bank of Chicago increased from -0.29 in May to -0.13 in June. What is the BEST interpretation of this finding?

Why do developing countries spend less on environmental quality than wealthier countries do?

The Leading Economic Index sometimes predicts recessions that do not occur.

The main idea of a circular flow diagram is that every dollar spent in an economy becomes a dollar of income to someone else.

For calculations of employee compensation in the national income and product accounts, nonmonetary benefits, such as in-kind benefits, are excluded.

Which item is NOT included in gross private domestic investment?

Suppose the National Activity Index of the Federal Reserve Bank of Chicago hovered around +0.25 for a few months but then dropped to -1.5 in November. What is the BEST interpretation of this finding?

GDP includes the value of illegal transactions, which means the level of economic activity in a country is overstated.

As a country's economy grows and real GDP per capita rises, citizens often do not feel proportionately better off. Which statement provides a logical explanation for this?

On average, the United States falls into recession about every 10 years.

Describe the shortcomings of GDP as a measure of our standard of living.

Unemployment tends to be highest during the _____ stage of the business cycle, while there is a greater risk of high demand leading to inflation during the _____ stage of the business cycle.

Which statement explains why the size and the direction of the gap between long- and short-term interest rates is a predictor of stages in the business cycle?

Which of these is included in gross private domestic investment?

Company DEF produces gizmos. One particular batch cost $50,000 to produce. Because market conditions were bad at the time of sale, they were sold at a loss for $40,000. The value of the gizmos included in the GDP is

Corporate profits are slightly less than 10% of GDP.

A drawback to producing a set of national income and product accounts statistics that take into account factors such as environmental changes and nonmarket transactions is a greater cost in their preparation.