Econ Test 1 CH. 24-26 – Flashcards
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2. The two topics of primary concern in macroeconomics are
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A. short-run fluctuations in output and employment and long-run economic growth
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5. Which of the following is most closely related to recessions?
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D. Negative real growth in output.
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7. Real GDP measures the
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B. value of final goods and services produced within the borders of a country, corrected for price changes.
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8. If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?
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D. Nominal GDP would rise, but real GDP would be unchanged
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9. Real GDP is preferred to nominal GDP as a measure of economic performance because:
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A. nominal GDP uses current prices and thus may over- or understate true changes in output.
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11. 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:
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A. increased nominal GDP by $20,000 but left real GDP unchanged
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15. Inflation is defined as
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A. an increase in the overall level of prices.
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16. Why are economists concerned about inflation?
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C. Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
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18. Modern economic growth refers to countries that have experienced an increase in
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D. real output per person.
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19. Before the period of modern economic growth
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B. rates of population growth virtually matched rates of output growth.
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20. In making international comparisons of living standards using GDP, which of the following is not adjusted for in the calculation
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B. The quantity of resources available to the economy.
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25. Which of the following would an economist consider to be investment?
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A. Boeing building a new factory.
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27. If an economy wants to increase its current level of investment, it must
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D. sacrifice current consumption.
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29. Banks and other financial institutions:
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C. promote economic growth by helping to direct household saving to businesses that want to invest.
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32. Demand shocks:
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A. refer to unexpected changes in the desires of households and businesses to buy goods and services.
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33. Which of the following is an example of a demand shock?
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B. Consumers become worried about job loss and buy fewer goods and services than expected.
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34. Supply shocks:
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C. occur when sellers face unexpected changes in the availability and/or prices of key inputs.
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35. Which of the following is an example of a supply shock?
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C. A dramatic increase in energy prices increases production costs for firms in the economy.
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37. Suppose that Techno TV produces LCD televisions. At a price of $2,000 per television, Techno determines that its optimal output is 3,000 television sets per week. If prices are sticky and fears of a recession reduce demand for LCD televisions, we would expect Techno to:
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B. reduce output in the short run.
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53. Kara's Kittens typically produces and sells at its optimal (lowest per-unit cost) level of 30 scratching posts per week. Kara's also maintains an inventory of 20 scratching posts. If prices are sticky and there is a positive demand shock this week resulting in demand for 40 scratching posts, we would expect Kara's to:
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A. sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs.
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61. Which of the following best explains why prices tend to be inflexible even when demand changes?
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D. Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.
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67. The overall behavior of the economy:
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B. differs over time as prices become increasingly flexible in the months and years following a shock.
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2. The agency responsible for compiling the National Income Product Accounts for the U.S. economy is the:
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B. Bureau of Economic Analysis.
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5. A nation's gross domestic product (GDP):
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B. is the dollar value of the total output produced by its citizens, regardless of where they are living.
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8. Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that
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C. GDP in 2010 is $500 billion.
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9. National income accountants can avoid multiple counting by:
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B. only counting final goods.
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13. If intermediate goods and services were included in GDP:
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A. the GDP would be overstated.
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16. Tom Atoe grows fruits and vegetables for home consumption. This activity is:
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C. productive but is excluded from GDP because no market transaction occurs.
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18. Alejandro Scoobertini owns a store specializing in soccer jerseys. In 2012, he purchased $150,000 worth of jerseys from manufacturers, employed one worker for $40,000, purchased $20,000 worth of supplies from an office supply store, and sold jerseys for $280,000. Based on this information, what was the value added at Alejandro's store in 2012?
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B. $110,000.
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19. Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700. Donita sells the dresses for $1,200 to kids attending the prom. The total contribution to GDP of this series of transactions is:
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A. $1,200.
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22. Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is:
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B. $30
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23. Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is:
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C. $200,000
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26. The concept of net domestic investment refers to
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D. total investment less the amount of investment goods used up in producing the year's output.
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Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Refer to the information. Positive net investment is occurring in:
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C. economy C only
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34. GDP can be calculated by summing:
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B. consumption, investment, government purchases, and net exports.
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35. In national income accounting, the consumption category of expenditures includes purchases of:
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B. automobiles for personal use but not houses
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38. Net exports are negative when:
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A. a nation's imports exceed its exports.
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39. Which of the following is not economic investment?
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B. The purchase of 100 shares of AT by a retired business executive.
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42. Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would:
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A. add $10 billion to other elements of investment in calculating total investment.
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43. Suppose that inventories were $80 billion in 2012 and $70 billion in 2013. In 2013, national income accountants would
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B. subtract $10 billion from other elements of investment in calculating total investment.
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48. In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are:
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A. not counted
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52. Transfer payments are:
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B. excluded when calculating GDP because they do not reflect current production
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54. In the treatment of U.S. exports and imports, national income accountants:
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D. add exports, but subtract imports, in calculating GDP.
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56. The ZZZ Corporation issued $25 million in new common stock in 2013. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment:
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C. of $18 million has occurred.
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91. The total amount of income earned by U.S. resource suppliers in a year, plus taxes on production and imports, is measured by
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B. national income
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95. Which of the following best defines disposable income?
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A. Income received by households less personal taxes.
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101. Nominal GDP is:
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B. the sum of all monetary transactions involving final goods and services that occur in the economy in a year.
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103. Real GDP measures:
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B. current output at base year prices
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104. Nominal GDP is adjusted for price changes through the use of:
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C. the GDP price index.
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106. A price index is:
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A. a comparison of the current price of a market basket to a fixed point of reference.
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114. Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009 and 2010 the real GDP rose by approximately:
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B. 44 percent
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150. The growth of GDP may understate changes in the economy's economic well-being over time if the:
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B. quality of products and services improves.
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151. Environmental pollution is accounted for in:
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D. none of these
A. GDP.
B. PI.
C. DI.
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1. Economic growth is best defined as an increase in
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Economic growth is best defined as an increase in
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5. If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, it real GDP per capita will:
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A. remain constant.
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6. For a nation's real GDP per capita to rise during a year:
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B. real GDP must increase more rapidly than population
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7. Growth is advantageous to a nation because it
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B. lessens the burden of scarcity.
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15. At an annual growth rate of 7 percent, real GDP will double in about:
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B. 10 years
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16. If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately:
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C. 14 years
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17. If the economy's real GDP doubles in 18 years, we can:
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D. conclude that its average annual rate of growth is about 3.9 percent.
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22. Which of the following statements is most accurate about modern economic growth?
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B. Modern economic growth is characterized by sustained and ongoing increases in living standards.
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23. Countries that have experienced modern economic growth have also tended to
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C. move toward more democratic forms of government
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24. The Industrial Revolution and modern economic growth resulted in:
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A. the average human lifespan more than doubling.
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25. Economic historians date the start of the Industrial Revolution around the year 1776, when James Watt:
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D. invented and built a more powerful and efficient steam engine.
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26. Real per capita GDP
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B. was much more equal across nations in 1820 than it is today.
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31. Economic growth rates in follower countries:
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B. tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs
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32. Real GDP per capita in the United States (as of 2010) exceeds that of France primarily because:
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C. the United States has a higher percentage of the working-age population in the labor force and because U.S. employees average about 14 percent more hours worked per year.
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34. Strong property rights are important for modern economic growth because:
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B. people are more likely to invest if they don't fear that others can take their returns on investment without compensation
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37. A competitive market system
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A. encourages growth by allowing producers to make profitable investment decisions based on market signals.
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47. Suppose that an economy's labor productivity and total worker-hours each grew by 3 percent between year 1 and year 2. We could conclude that this economy's:
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D. production possibilities curve shifted outward.
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49. Suppose that an economy's labor productivity fell by 3 percent and its total worker-hours remained constant between year 1 and year 2. We could conclude that this economy's:
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A. real GDP declined
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56. An outward shift of a nation's production possibilities curve:
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C. ensures a nation neither of an increase in real GDP nor of an increase in real GDP per capita
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60. If the number of worker-hours in an economy is 100 and its labor productivity is $5 of output per worker-hour, the economy's real GDP:
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B. is $500.
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64. Other things equal, which of the following would decrease the rate of economic growth, as measured by changes in real GDP?
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D. A decrease in the labor force participation rate
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66. Which of the following would not be expected to increase labor productivity?
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C. An increase in the size of the labor force.
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70. The largest contributor to increases in the productivity of American labor is:
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D. technological advance.
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72. The historical reallocation of labor from agriculture to manufacturing in the United States has
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C. increased the average productivity of labor.
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75. A nation's infrastructure refers to:
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C. public capital goods such as highways and sanitation systems.
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79. Human capital refers to
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A. the skills and knowledge that enable a worker to be productive
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84. If the growth trend of labor productivity is 3 percent per year, the number of years that it will take for the standard of living to double will be about:
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D. 23 years.
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87. The period in the U.S. economy from 1995 to 2012 is characterized by:
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C. a higher trend rate of productivity growth.
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92. All of the following are economic implications of the 1995-2012 rise in the average rate of productivity growth except:
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C. an end to the business cycle.
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94. Economists who believe that the 1995-2012 rise in the average rate of productivity growth may be long lasting claim that the above-normal economic growth in the United States between 1995 and 2012 was caused by:
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B. increased entrepreneurial activity, application of information technology, and global competition.
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99. Critics of economic growth:
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B. argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth.
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100. Proponents of economic growth make all of the following arguments except
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C. there is a direct relationship between a growing real GDP and rising pollution.
