Deck 12: Tracking and Explaining the Macroeconomy

Question 1

Government purchases include both government purchases of goods and services and transfer payments.

Answer 1

False

Question 2

Goods produced but not sold during the year are included in GDP.

Answer 2

True

Question 3

An increase in nominal GDP indicates that output has increased.

Answer 3

False

Question 4

The business cycle consists of four phases: expansion, peak, contraction, and trough.

Question 5

Net private domestic investment is a measure of the change in the nation's capital stock.

Question 6

Aggregate demand shows the total amount of goods and services that will be sold at each price level.

Question 7

The aggregate supply curve shows the total output of final goods and services that will be produced at each price level.

Question 8

A price index measures the price level for a given period relative to the base period.

Question 9

Unemployment increases during the expansion phase of a business cycle.

Question 10

GDP has four parts: consumption, investment, government purchases, and net exports.

Question 11

Recurring fluctuations in the level of economic activity are referred to as economic fluctuations.

Question 12

Real GDP is derived by using the GDP deflator to deflate nominal GDP.

Question 13

The aggregate demand curve is negatively sloped because as the price level falls, consumers will buy more of the goods and services that are relatively cheaper.

Question 14

Government expenditures on goods and services is the largest component of GDP.

Question 15

Gross domestic product (GDP) is the market value of all goods and services produced in an economy over some time period.

Question 16

If net investment is positive, an increase in the nation's capital stock occurs.

Question 17

Expansionary fiscal policy will cause a decrease in aggregate demand.

Question 18

The value of a meal John cooks for his family is excluded from GDP.

Question 19

As the price level rises, interest rates will increase, and investment and consumption will fall.

Question 20

Excluding intermediate goods from GDP causes the measure to understate the value of production.

Question 21

Aggregate demand shows:

A) the total amount of labor that will be hired at various real wage rates.
B) the amount of final goods and services that will be purchased when the economy is at full employment.
C) the amount of final goods and services that will be purchased at various price levels.
D) the amount of all goods and services that will be purchased at various price levels.

Question 22

Intermediate goods are excluded from GDP in order to avoid:

A) double counting.
B) understating GDP.
C) over counting.
D) erratic price fluctuations.

Question 23

An increase in government spending will shift the aggregate supply curve to the right.

Question 24

The aggregate demand curve is negatively sloped because:

A) higher prices cause a substitution of foreign goods for domestic goods.
B) higher prices will erode the value of financial assets that have values fixed in dollar terms.
C) higher prices will lead to an increase in interest rates.
D) All of the above.

Question 25

The aggregate demand curve is negatively sloped because of:

A) the real balance effect, the interest rate effect, and the government debt effect.
B) the real balance effect, the interest rate effect, and the price level's effect on net exports.
C) the productivity effect, the interest rate effect, and the price level's effect on net exports.
D) the real balance effect, the government debt effect, and the price level's effect on net exports.

Question 26

Fiscal policy refers to:

A) changes in the money supply designed to achieve full employment.
B) changes in government regulations designed to achieve full employment.
C) special incentives given to businesses to hire groups with traditionally high unemployment rates.
D) changes in taxes and government spending designed to achieve full employment.

Question 27

An increase in the price level will cause aggregate quantity supplied to increase only if output is less than the full employment level of output.

Question 28

Which of the following best describes business cycle activity?

A) Business cycles are recurring fluctuations in the level of economic activity.
B) Each phase of the business cycle lasts a predictable length of time.
C) The contraction phase of the business cycle generally lasts longer than the expansion phase.
D) The trough of a business cycle generally lasts about three months.

Question 29

Government purchases refer to purchases of goods and services by:

A) the federal government.
B) by state governments.
C) by local governments.
D) All of the above.

Question 30

Monetary policy is conducted by:

A) the Federal Reserve.
B) the federal government.
C) state governments.
D) all of the above.

Question 31

The equilibrium level of real GDP occurs where the aggregate supply curve and the aggregate demand curve intersect.

Question 32

Aggregate demand consists of:

A) consumption, investment, government purchases, government transfers, and net exports.
B) consumption, investment, government purchases, and exports.
C) consumption, investment, government purchases, and net exports.
D) consumption, investment, government transfers, and exports.

Question 33

A good that is purchased for final use is:

A) an intermediate good.
B) a final good.
C) an inventory good.
D) an ultimate good.

Question 34

The consumption of fixed capital refers to:

A) the deduction made from GDP in order to allow for the purchase of new issues of stocks and bonds.
B) the depreciation of and accidental damage to the nation's capital stock.
C) the allowance made for the purchase of used capital equipment.
D) the allowance made for the trade of capital equipment between the United States and other countries.

Question 35

Real GDP refers to:

A) output measured in current prices.
B) output measured in constant prices.
C) output measured in current average prices.
D) output measured in terms of a base year output.

Question 36

GDP is defined as:

A) the market value of all goods and services bought and sold in the economy over some time period.
B) the market value of all final goods and services produced in the economy over some time period.
C) the quantity of all final goods and services produced in the economy over some time period.
D) the quantity of all goods and services bought and sold in the economy over some time period.

Question 37

In order to determine how much the capital stock has grown, one must examine:

A) total private domestic investment.
B) gross private domestic investment plus the consumption of fixed capital.
C) net private domestic investment.
D) net private domestic investment plus investment in the United States by other countries.

Question 38

Which of the following statements is correct?

A) Real GDP holds quantity constant.
B) Real GDP holds prices constant.
C) Nominal GDP holds quantity constant.
D) Nominal GDP holds prices constant.

Question 39

Consumption is:

A) the largest component of GDP.
B) a relatively stable component of GDP.
C) household purchases of both durable and nondurable goods and services.
D) All of the above.

Question 40

A good that is purchased for resale or for use in producing other goods is:

A) an intermediate good.
B) a final good.
C) an inventory good.
D) an ultimate good.

Question 41

Which of the following would not be included in GDP in 1998?

A) A car that is produced in 1997 and sold in 1998.
B) A car that is produced and sold in 1998.
C) A car that is produced in 1998, but not sold.
D) The amount you pay your doctor for health care in 1998.

Question 42

Which of the following describe an intermediate good?

A) John buys pizza for diner.
B) Jack buys cheese for his pizza shop.
C) Jerry buys cheese to make himself pizza for lunch.
D) Jeremy buys gas for his car that he drives to work everyday.

Question 43

Which of the following is an example of double counting?

A) Summing the total market value of baseballs and baseball bats.
B) Summing the total market value of new housing and the lumber used to construct the housing.
C) Summing the total market value of eyeglasses and contacts.
D) Summing the total market value of apples and computer floppy disks.

Question 44

Which of the following describe an intermediate good?

A) John buys a baseball bat to play with his son.
B) Jack buys a baseball bat for his professional baseball club.
C) Jerry buys a baseball bat as a gift for his friend.
D) Jeremy buys a baseball bat to play with his friends in the park.

Question 45

Which of the following would be considered an intermediate good?

A) The pencil you are using to take this exam.
B) A computer in your instructor's office
C) The bricks used to construct a new home.
D) The automobile you drive.

Question 46

Which of the following would be included in GDP?

A) The purchase of Genotech stock.
B) The purchase of used car.
C) The purchase of a new home.
D) A bakery's purchase of flour to make gourmet cookies.

Question 47

Which of the following would be considered a personal consumption expenditure?

A) A household's purchase of new lawn mower.
B) A firm's purchase of a computers for its statisticians.
C) A household's purchase of an old home.
D) The government's purchase of a new computer.

Question 48

The positively sloped portion of the aggregate supply curve is drawn on the assumption that:

A) resources are scarce.
B) wealth is constant.
C) there is no change is fiscal policy.
D) price levels are constant.

Question 49

Which of the following would be included in gross investment?

A) The purchase of a 20-year government bond.
B) The purchase of stocks in New York Stock Exchange.
C) The purchase of a new automobile by a cab company.
D) The purchase of a house to live in.

Question 50

The aggregate supply curve:

A) is positively sloped.
B) is negatively sloped.
C) is vertical.
D) has both a positively sloped and a vertical segment.

Question 51

Suppose that net investment is greater than zero. We know that:

A) the nation's capital stock has grown.
B) the nation's capital stock has decreased.
C) there has been no change in the capital stock.
D) the consumption of fixed capital must also be greater than zero.

Question 52

Sugar sold to Betty Crocker is excluded from GDP because:

A) it is an intermediate good.
B) double counting would occur if it were included.
C) it is an input used to produce a final product.
D) All of the above.

Question 53

The vertical portion of the aggregate supply curve is drawn on the assumption that:

A) resource prices are constant.
B) resources and technology do not change.
C) the price level is constant.
D) there is no change in fiscal policy.

Question 54

Suppose gross investment is $975 billion. If the consumption of fixed capital is $700 billion, then net investment is:

A) $1,675 billion.
B) $975 billion.
C) $700 billion.
D) $275 billion.

Question 55

Expansionary monetary policy refers to:

A) an increase in the growth rate of the money supply.
B) a decrease in the growth rate of the money supply.
C) a decrease in the growth rate of bank deposits.
D) increased taxes.

Question 56

Which of the following would be considered a final good?

A) The steel used in the construction of a skyscraper.
B) The stereo Ford installs in a new Concord.
C) The paper in your textbook.
D) A computer you buy for use in your home.

Question 57

The aggregate supply curve shows:

A) the total quantity of resources that will be supplied at various price levels.
B) the total quantity of goods and services that will be supplied at various price levels.
C) the total quantity of final goods and services that will be supplied at various price levels.
D) the total quantity of consumer goods and services that will be supplied at various price levels.

Question 58

Which of the following would be included in gross investment?

A) The purchase of a 20-year government bond.
B) The purchase of Wal-Mart stock.
C) The construction of an automobile assembly plant.
D) All of the above.

Question 59

Which of the following is included in GDP?

A) the illegal sale of marijuana.
B) the money you pay to your baby-sitter that is not reported as income when she files her tax.
C) the money you pay a maid to clean your home.
D) the value of the time you spend cleaning your home.

Question 60

The vertical portion of the aggregate supply curve:

A) occurs when the level of output is less than the full employment level.
B) occurs when the level of output is equal to the full employment level.
C) occurs when the only type of unemployment is structural.
D) occurs when the only type of unemployment is frictional.

Question 61

Suppose that in 1998, nominal GDP in Liveria is $4,500 billion. If the GDP deflator is 150, real GDP in 1998 is:

A) $300 billion.
B) $3,000 billion.
C) $5,000 billion.
D) $6,750 billion.

Question 62

Suppose the United States imports $750 billion of goods and services and exports $620 billion of goods and services. For the purposes of GDP, net exports are:

A) $1,370 billion.
B) $750 billion.
C) $130 billion.
D) -$130 billion.

Question 63

Use the following diagram to answer the following questions.

Refer to GDP. In the diagram above, inflation is likely to be the greatest problem at point:

A) A.
B) B
C) C.
D) D.

Question 64

Real GDP will be smallest during:

A) the trough of a business cycle.
B) the contraction phase of a business cycle.
C) the expansion phase of a business cycle.
D) the peak of a business cycle.

Question 65

Suppose prices for 1998 are, on average, $500. Prices for the base period are $400. The price index is:

A) 2.25.
B) 1.25.
C) 0.80.
D) 0.75.

Question 66

Real GDP is increasing rapidly and unemployment is falling during:

A) the trough of a business cycle.
B) the contraction phase of a business cycle.
C) the expansion phase of a business cycle.
D) the peak of a business cycle.

Question 67

Suppose that net investment is negative. We know that:

A) the nation's capital stock has grown.
B) the nation's capital stock has decreased.
C) there has been no change in the capital stock.
D) the consumption of fixed capital is also negative.

Question 68

Suppose that over a given time period nominal GDP rises by 6 percent and real GDP rises by 4 percent. Over this period, we know that:

A) the quantity of goods and services produced fell while prices increased.
B) the quantity of goods and services produced increased while prices fell.
C) both the quantity of goods and services produced and prices increased.
D) both quantity of goods and services produced and prices fell.

Question 69

Use the following diagram to answer the following questions.

Refer to GDP. In the diagram above, unemployment is likely to be the greatest problem at point:

A) A.
B) B.
C) C.
D) D.

Question 70

Use the following table to answer the following questions.

Refer to Exports. According to the information given, net exports is:

A) $250.
B) $300.
C) $480.
D) $150.

Question 71

Use the following diagram to answer the following questions.

Refer to GDP. In the diagram above, the letters A, B, C, and D, represent which phases of the business cycle?

A) expansion, peak, contraction, and trough, respectively.
B) peak, contraction, trough, and expansion, respectively.
C) expansion, contraction, trough, and peak, respectively.
D) contraction, trough, expansion, and peak, respectively.

Question 72

Use the following table to answer the following questions.

Refer to Exports. According to the information given, net investment is:

A) $2,250.
B) $2,300.
C) $1,800.
D) $1,250.

Question 73

Suppose federal government purchases of goods and services is $475 billion, state government purchases of goods and services is $700 billion, and local government purchases of goods and services is $200 billion. What figure would GDP use for government purchases?

A) $1,375 billion.
B) $1,175 billion.
C) $900 billion.
D) $475 billion.

Question 74

Use the following diagram to answer the following questions.

Refer to GDP. In the diagram above, unemployment will likely be decreasing at point:

A) A.
B) B.
C) C.
D) D.

Question 75

Suppose that nominal GDP fell from $5,000 billion in 1997 to $4,800 billion in 1998. Suppose that over this same period real GDP did not change. In this instance:

A) price increased and quantity was constant.
B) price decreased and quantity was constant.
C) quantity increased and price was constant.
D) quantity decreased and price was constant.

Question 76

Use the following table to answer the following questions.

Refer to Exports. According to the information given, GDP is:

A) $25,800.
B) $22,300.
C) $14,800.
D) $13,800.

Question 77

Real GDP is at its greatest during:

A) the trough of a business cycle.
B) the contraction phase of a business cycle.
C) the expansion phase of a business cycle.
D) the peak of a business cycle.

Question 78

Real GDP is decreasing and unemployment is increasing during:

A) the trough of a business cycle.
B) the contraction phase of a business cycle.
C) the expansion phase of a business cycle.
D) the peak of a business cycle.

Question 79

Suppose that net investment is zero. We know that:

A) the nation's capital stock has grown.
B) the nation's capital stock has decreased.
C) there has been no change in the capital stock.
D) the consumption of fixed capital is also zero.

Question 80

Which of the following would be counted in the government purchases component of GDP?

A) State and federal government expenditures for highway construction.
B) The federal government's payments for Social Security.
C) AFDC payments made to a low-income family with dependent children.
D) Local government spending for retirement benefits for former employees.