Question 1

Poorland is a country of subsistence farmers; most people in Poorland eat what they grow. In Richland, most people purchase their food in stores. How would these lifestyle choices affect the comparison of the GDPs of the two countries?

Accepted Answer

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Question 2

What are some of the important economic variables affected by the business cycle?

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Question 3

Which statement is TRUE in the case of the simple circular flow model with no savings?
A) Total spending is greater than total income.
B) Total spending equals total income only at full employment.
C) Total spending equals total income.
D) Total spending is less than total income.

Accepted Answer

In the simple circular flow model with no savings, households spend their entire income on goods and services in the market, which become the revenue for firms. This revenue is then used to pay for the factors of production (wages, rent, etc.) that were used to produce the goods and services. Thus, total spending equals total income in this model.

Question 4

Suppose the yield on a 3-month Treasury bill is 0.5% and the 10-year Treasury note yields 2.67%. State whether the slope of this yield curve indicates if the economy may be headed for a recession, and support your answer.

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Question 5

Developing countries tend to place a higher value on environmental quality than developed countries do.

Accepted Answer

Developed countries often have more resources and public support for environmental protection, leading them to place a higher value on environmental quality compared to developing countries, which may prioritize economic growth and poverty alleviation.

Question 6

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

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Question 7

Suppose the Chicago Fed National Activity Index increased from -0.52 in April to -0.30 in May. Use this information to describe the conditions present in the economy in April and May and speculate about the probability of a recession in the near future.

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Question 8

Suppose the Chicago Fed National Activity Index decreased from +0.27 in November to +0.02 in December. Use this information to describe the conditions present in the economy in November and December and speculate about the probability of a recession in the near future.

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Question 9

Suppose the Department of Homeland Security purchases a computer to improve the productivity of its workers. Which spending category in the national income and product accounts would this purchase fall under?

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Question 10

The countries in the southern tip of Africa (Botswana, Namibia, and South Africa) all have relatively high levels of income inequality. South Africa's population is much larger than the population of Botswana or Namibia. What measure would be most appropriate for comparing the standard of living across these three countries?

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Question 11

(Table) The table that follows shows components of aggregate expenditures. What is GDP according to the expenditure approach? What are the amounts of the major categories of spending?

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Question 12

Describe the changes in the macroeconomy over the past two decades that have slowed job growth.

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Question 13

What are the four major expenditure components of GDP? Provide examples to describe each component.

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Question 14

Draw a simple circular flow diagram that shows how businesses and households interact through the product and resource markets, and describe the circular flow of income.

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Question 15

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

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Question 16

Cities in Colombia have the option to designate "tolerance zones" where prostitution is legal. How would Colombia's GDP be affected if prostitution were made illegal?

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Question 17

What is the purpose of the national income and product accounts? Why and how were they established?

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Question 18

Describe the major components of national income.

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Question 19

According to the simple circular flow diagram, total income equals total expenditures. Suppose $100 in funds flows through an economy. Suppose $75 of the business resource costs goes to labor and $25 goes to non-labor resources. Why is spending not $75?

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Question 20

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

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Quiz 5: Introduction to Macroeconomics