Deck 5: Introduction to Macroeconomics

Question 1

(Table) According to the table, the GDP for 2010 was GDP Expenditures for 2010

A) $15,603.1 billion.
B) $16,843.8 billion.
C) $14,592.3 billion.
D) $13,562.1 billion.

Answer 1

$14,592.3 billion.

Question 2

In the national income and product accounts system, the two main approaches to measuring the size of the economy are

A) income and expenditures.
B) imports and exports.
C) production and consumption.
D) government and private.

Answer 2

income and expenditures.

Question 3

U.S. business cycles since 1950 have shown

A) expansions to be just as lengthy as recessions.
B) expansions to be longer than recessions.
C) expansions to be shorter than recessions.
D) stable unemployment rates.

Answer 3

expansions to be longer than recessions.

Question 4

The largest component of national income is

A) corporate profits.
B) compensation of employees.
C) proprietors' income.
D) rental income.

Question 5

The yield curve shows the interest rates for bonds with different maturities.

Question 6

Marci is 11 years old. She walks her neighbors' dogs for cash. Her income from this service is probably part of the informal economy.

Question 7

A double-dip recession is a recession that is twice as bad as the one that preceded it.

Question 8

Which statement is TRUE within the circular flow of economic activity?

A) Households are buyers of products and sellers of production factors.
B) Business firms are buyers and sellers of production factors.
C) Households are sellers of products and buyers of production factors.
D) Business firms are buyers of products and sellers of production factors.

Question 9

Services constitute approximately _____ of GDP.

A) 70%
B) 25%
C) 50%
D) 10%

Question 10

National income and product accounts came about in the United States during the 1930s as a result of

A) the theories of John Maynard Keynes.
B) a lack of reliable economic data.
C) the work of the Council of Economic Advisers.
D) the work of the Federal Reserve.

Question 11

Which statement is a criticism of the national income and product accounts?

A) They do not capture most nonmarket economic activity.
B) They are too cumbersome to use for policymaking.
C) They overstate the "green" impact of economic activity.
D) They are poorly correlated with the business cycle.

Question 12

Everything else the same, if investment expenditures rise by $300 billion and imports increase by $300 billion, then GDP

A) increases by $600 billion.
B) increases by $300 billion.
C) decreases by $600 billion.
D) does not change.

Question 13

In the national income accounts, which of these is NOT classified as government spending?

A) payments to Social Security recipients
B) services provided by police officers
C) purchases of military hardware
D) services provided by U.S. senators

Question 14

In 2014, we could accurately say that the Leading Economic Index successfully predicted the past seven recessions.

Question 15

What event was a major influence on the development of macroeconomics?

A) Great Depression
B) Employment Act of 1946
C) establishment of the Federal Reserve System in the United States
D) U.S. entry into World War II

Question 16

A recession is always followed by a depression.

Question 17

Suppose an economy has historically grown at a rate of 2.25%. The economy is currently growing at a rate of 3%, and the unemployment rate is low by historical standards. The economy is expected to continue to grow in the near future, but monetary authorities are concerned that inflation may increase. This economy is probably in the _____ stage of the business cycle.

A) expansion
B) recovery
C) contraction
D) trough

Question 18

If a country's GDP per capita is $86,000, then a typical married couple earns $172,000 per year.

Question 19

Which statement is TRUE within the circular flow of economic activity?

A) Households are sellers of products and sellers of production factors.
B) Business firms are buyers and sellers of production factors.
C) Households are sellers of products and buyers of production factors.
D) Business firms are sellers of products and buyers of production factors.

Question 20

An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n)

A) unemployment trap.
B) recession.
C) jobless recovery.
D) microeconomic problem.

Question 21

Which of these is NOT included in gross private domestic investment?

A) construction of residential housing
B) new equipment purchased by businesses
C) purchases of common stock by investors
D) an increase in business inventories

Question 22

Martin purchases 500 shares of stock in ABC Company at a price of $10 per share. He pays his stockbroker a commission of $50 for helping with the transaction. How much does GDP change as a result of Martin's commission payment?

A) There is no change in GDP.
B) GDP rises by $5,000.
C) GDP rises by $5,050.
D) GDP rises by $50.

Question 23

A business cycle is

A) the periodic fluctuation of economic activity.
B) the engine of economic growth.
C) a period lasting about 50 years.
D) identical to the consumption life cycle.

Question 24

Leisure time is included in the GDP accounts.

Question 25

The National Bureau of Economic Research determines that a recession is over

A) after one year of economic growth.
B) when the economy is in a trough.
C) when the unemployment rate falls below 5%.
D) when the stock market reaches its prerecession level.

Question 26

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

Question 27

Gross private domestic investment is a key factor behind economic growth in the United States.

Question 28

A simple circular flow diagram shows that the factors of production are

A) owned by the government.
B) purchased by households.
C) purchased by businesses.
D) traded in the market for goods and services.

Question 29

GNP includes output produced _____, but it does NOT include output produced _____.

A) outside the United States by U.S. citizens; inside the United States by foreign citizens
B) outside the United States by U.S. citizens; inside the United States by U.S. citizens
C) inside the United States by foreign citizens; outside the United States by U.S. citizens
D) The GNP only includes output (goods and services) produced by U.S. citizens within the United States.

Question 30

Joyce is an accountant. Sarah, her hair stylist, cuts and perms her hair in exchange for having her taxes done. This is an example of an economic transaction that is NOT included in the national income and product accounts.

Question 31

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

Question 32

The National Activity Index is

A) a weighted average of 85 indicators of national economic activity.
B) a weighted average of estimates of economic activity by the National Bureau of Economic Research (NBER) and the Bureau of Economic Activity (BEA).
C) produced by the NBER.
D) a measure of unemployment and participation in the labor force.

Question 33

During a typical economic recovery

A) inflation declines.
B) people become pessimistic.
C) unemployment decreases.
D) incomes fall.

Question 34

What component of GDP includes college tuition?

A) durable goods
B) nondurable goods
C) services
D) private domestic investment

Question 35

Henry sells brownies to his classmates at college for cash. His income from this product is probably NOT part of the informal economy.

Question 36

Which phase of the business cycle occurs immediately after a recovery?

A) peak
B) trough
C) boom
D) recession

Question 37

To solve the double counting problem, economists include only final goods and services in the summing of gross domestic product.

Question 38

What impact will a rising price level have on real GDP?

A) Real GDP will fall.
B) Real GDP will rise.
C) Real GDP will fall and then rise.
D) Changes in the price level do not impact real GDP.

Question 39

According to the circular flow model, the value of the household sector and the value of the business sector will

A) never be the same.
B) always be equal.
C) differ by the amount of the resource market.
D) differ by the amount of the product market.

Question 40

Which of these is NOT a problem in using GDP to measure standards of living?

A) failure to include environmental impacts
B) failure to include the value of nonmarket work
C) failure to include exports and imports
D) failure to include the value of investments in human capital

Question 41

The _____ is/are equal to the total market value of all final goods and services produced in the United States.

A) national income and product accounts
B) GDP
C) consumer price index
D) the National Bureau of Economic Research

Question 42

Within the circular flow diagram, the arrows pointing counterclockwise represent flows of money.

Question 43

When a recession gets under way

A) firms start to lay off workers to reduce costs.
B) consumer confidence rises because people expect an eventual recovery.
C) inflation always rises because the government prints more money.
D) inflation falls because the government reduces its budget deficit.

Question 44

The expenditures approach to calculating GDP sums consumer spending, gross private domestic investment, government spending, and

A) exports.
B) imports.
C) exports minus imports.
D) imports minus exports.

Question 45

At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water

A) the standard of living of the citizens of Pittsburgh has increased, even though the improvement in the environment was not reflected in its GDP.
B) the value of the GDP increased.
C) the value of the GDP increased in the year that the improvements were made but did not change in ensuing years.
D) the standard of living of the citizens of Pittsburgh did not change.

Question 46

A criticism of GDP per capita is that it

A) is hard to calculate.
B) might not fully reflect the standard of living of a typical citizen.
C) reduces the effect of outliers skewing averages.
D) is only a hypothetical concept that cannot be measured.

Question 47

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?

A) GDP may be rising due to rising prices rather than rising output.
B) If the consumption portion of GDP is rising more rapidly than other categories of GDP, the average person may have less to consume.
C) As incomes rise, households may use the extra income to buy services and goods that they used to produce for themselves; thus, even though GDP is higher, how much they actually consume is not higher.
D) If the rise in output is due to an increase in the population, then the amount of goods available per person may not be rising.

Question 48

A major reason to collect economic data for national income and product accounts is to guide the government in appropriate economic policy.

Question 49

Within the circular flow diagram, the arrows pointing counterclockwise represent flows of real items.

Question 50

Total spending in an economy is the sum of

A) durable goods plus nondurable goods plus services.
B) imports minus exports.
C) personal consumption plus gross private investment plus government spending plus net exports.
D) food consumption plus housing expenditures plus business expenditures plus government spending.

Question 51

The total of disposable income must be either spent or saved.

Question 52

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

A) takes into account the differences in wealth between the rich and poor within a country.
B) measures the effects of outliers skewing averages.
C) takes into account the size of the population when measuring the value of the goods and services a country produces.
D) takes into account the environmental benefits or harm of economic activity.

Question 53

If in the past, you always painted your own house but now you hire a painting contractor to do the work, what effect does this have on GDP?

A) GDP is unaffected by this change.
B) GDP falls as a result of this change.
C) GDP at first rises but then falls.
D) GDP rises as a result of this change.

Question 54

It can be said that macroeconomics was born during the Great Depression.

Question 55

The informal economy in the United States is estimated to be around 10% of GDP.

Question 56

(Table) When you look at the table, what evidence do you see that suggests which country has the highest savings rate?

A) The smaller amount of consumer spending in Econia suggests that it has a higher savings rate.
B) Consumer spending is a smaller share of total spending in Macland, suggesting that consumers are saving a larger share of their income.
C) Investment is lower in Econia, suggesting the households are saving rather than investing.
D) The higher GDP in Macland means that they must have a higher savings rate.

Question 57

Which transaction would NOT be included in the GDP calculation of a country?

A) price of a new office building
B) salary of a soldier in a country's army
C) supplemental income paid by the government to a person with a disability
D) the value of an increase in unsold inventory of a company

Question 58

The expenditure category that accounts for the largest share of GDP is

A) gross private domestic investment.
B) government purchases of goods and services.
C) personal consumption expenditures.
D) net exports.

Question 59

GDP measures the final value of goods and services produced to avoid the problem of

A) disintermediation.
B) double counting.
C) production by foreign citizens working in the United States.
D) undervaluing output.

Question 60

(Table) According to the table, what is this country's GDP?

A) $1,225
B) $1,305
C) $1,365
D) $1,440

Question 61

GDP per capita is found by dividing GDP by population.

Question 62

Which of these is an example of an economic investment?

A) building a new sales force training facility
B) putting funds in a certificate of deposit
C) purchasing a share of Google stock
D) trading a bond certificate

Question 63

Which item would be considered a durable good?

A) college education
B) horseradish
C) refrigerator
D) Mohawk haircut

Question 64

The Leading Economic Index fell in July, August, and September, the same three months compared to the previous year. Therefore, a recession in the near future should be expected.

Question 65

We should MOST likely expect a recession if the Leading Economic Index _____ months in a row.

A) falls for three
B) rises for three
C) rises for six
D) falls for six

Question 66

The main reason the national income and product accounts were created was to

A) provide businesses with data on the economy.
B) help governments manage the business cycle.
C) provide employment for statisticians during the Great Depression.
D) test out accounting theory developed during the early 20th century.

Question 67

A criticism of the National Bureau of Economic Research's business cycle dating committee is that it

A) makes premature judgments as to the turning points of the business cycle.
B) makes little use of the national income and product accounts.
C) dates peaks and troughs only after they occur.
D) does not update or revise data.

Question 68

Which of these is NOT an investment in human capital?

A) researching automated production techniques
B) putting more money into the education system
C) starting a job-training program
D) launching an employee physical fitness campaign

Question 69

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

A) $10,000.
B) $40,000.
C) $50,000.
D) impossible to compute because there is negative profit.

Question 70

The Integrated Environmental and Economic Satellite Accounts are intended to take into account the environmental benefits or harmful effects of economic activity.

Question 71

A jobless recovery is an economic expansion accompanied by a decrease in the number of unemployed workers.

Question 72

If a business increases its inventories, the change is treated as an investment.

Question 73

The major item that must be added to national income to obtain GDP is

A) individual income taxes.
B) property taxes.
C) capital consumption allowance.
D) Social Security payments.

Question 74

Gross private domestic investment is about 20% of GDP.

Question 75

(Table) Look at the table of data for two countries. Which statement correctly identifies the country in which consumers are better off on average and why?

A) Econoland because its GDP per capita is higher
B) Macroland because its GDP per capita is higher
C) Econoland because its consumption purchases per capita is higher
D) Macroland because its consumption purchases per capita is higher

Question 76

If an index of well-being were included in the national income and product accounts, information on life expectancy, the stock of human capital, income distributions, poverty rates, and unemployment rates might be collected.

Question 77

Corporate profits are slightly less than 10% of GDP.

Question 78

Which statement does NOT describe an adjustment to national income to obtain GDP?

A) Net exports are added to national income.
B) A capital consumption allowance is added to national income.
C) Income payments from the rest of the world are added to national income.
D) Payments U.S. corporations and residents send to foreign residents are subtracted from national income.

Question 79

The National Bureau of Economic Research

A) is a government agency that dates business cycles in the United States.
B) is a nonprofit research organization that dates business cycles in the United States.
C) consists of elected officials from the U.S. Senate.
D) is a nonprofit research organization that only determines when recessions begin.

Question 80

(Table Macroeconomic Data for Econoland) Look at the table. When is Econoland experiencing a double-dip recession?

A) second and third quarters of 2016
B) fourth quarter of 2014 and first quarter of 2015
C) second quarter of 2015
D) first quarter of 2014