Test Bank 2

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) If C is consumption, I is investment, G is government purchases and NX is net exports, according to the expenditure
approach, Y would stand for ________; and the national income identity could be written as ________. 1) _______
A) transfers; Y = C + I + G - NX
B) CPI; Y = C + I + G + NX
C) the real interest rate; Y = C + I + G + NX
D) GDP; Y - C - I = G + NX
E) income; Y = C - I - G + NX
2) All income, production, and expenditure variables that are measured at current market prices are referred to as
________. 2) _______
A) nominal variables
B) real variables
C) index variables
D) implicit variables
E) none of the above
Real and Nominal GDP
video games energy drinks

year 1 price 40 2
year 1 output 100 500
year 2 price 40 2.5
year 3 price 45 2.5
3) Based on the table "Real and Nominal GDP," if year one is the base year, then the real GDP in year two, is ________.
3) _______
A) 5250
B) 5900
C) 6175
D) 5000
4) Based on the table "Real and Nominal GDP," if year one is the base year, then the real GDP in year three, is ________.
4) _______
A) 1050
B) 7500
C) 7200
D) 8250
5) Based on the table "Real and Nominal GDP," if year three is the base year, then the real GDP in year two is ________.
5) _______
A) 5900
B) 8250
C) 7500
D) 6775
6) During a business cycle expansion, total production ________ and total employment ________. 6) _______
A) increases; increases B) decreases; decreases
C) decreases; increases D) increases; decreases
7) In calculating gross domestic product, the ministry of the Economy uses the sum of the market value of final goods and
services produced. This means that the ministry 7) _______
A) simply counts the total number of goods and services produced in the marketplace and then adds them up.
B) values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.
C) simply counts the total number of goods produced in the market place and then adds them up.
D) values goods at their market prices, multiplies them by the quantity produced, and then adds them up.
8) Gross Domestic Product is calculated by summing up 8) _______

A) the total quantity of goods and services produced in the economy during a period of time.
B) the total market value of goods and services in the economy.
C) the total quantity of goods and services in the economy.
D) the total market value of final goods and services produced in the economy during a period of time.
9) Which of the following transactions represents the purchase of a final good? 9) _______
A) Delta buys a new European-made jetliner.
B) Apple computer buys computer processors from Intel.
C) The purchase of coffee beans by Starbucks.
D) Your father buys a new John Deere riding lawn mower.
10) Which of the following is not directly counted in GDP? 10) ______
A) consumer goods B) government purchases
C) intermediate goods D) investment expenditures
11) In the circular flow model, the value of total income for an economy ________ the value of total production. 11)
______
A) is less than B) equals

C) is greater than D) may be greater than or less than
12) In the circular flow model, the value of total production for an economy ________ the value of total expenditures on
final goods and services. 12) ______
A) is greater than B) is less than

C) equals D) may be greater than or less than
13) If real GDP in 2010 was $130 billion. This means that 13) ______
A) total spending in 2010 was around $130 billion.
B) total income in 2010 was around $130 billion.
C) the value of output in 2010 was around $130 billion.
D) all of the above are true.
14) To calculate GDP by the expenditure method one must add 14) ______
A) labor, natural resources, entrepreneurship, and capital.
B) consumption spending, investment spending, government spending and net exports.
C) wages, rents, interest, and profits.
D) consumption spending, investment spending, government spending and exports.
Table 15-3
Consumption expenditures $800

Investment expenditures 200
Government purchases 300
Exports 100
Imports 200
Wages 800
15) Refer to Table 15-3. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in
billions of dollars) for this economy equals 15) ______
A) $1,200. B) $1,400. C) $1,600. D) $2,200.
16) Nominal GDP is GDP in a given year 16) ______

A) valued in the prices of the base year. B) valued in the prices of that year.
C) adjusted for anticipated inflation. D) adjusted for inflation.
17) Which of the following could cause nominal GDP to increase, but real GDP to decrease? 17) ______
A) The price level falls and the quantity of final goods and services produced rises.
B) The price level rises and the quantity of final goods and services produced rises.
C) The price level rises and the quantity of final goods and services produced falls.
D) The price level falls and the quantity of final goods and services produced falls.
18) To examine how the total production of an economy has changed over time, it would be better to examine 18)
______
A) nominal GDP. B) real GDP.

C) GDP at current prices. D) the GDP deflator.
19) Real GDP will increase 19) ______

A) only if the price level falls.
B) if either the price level rises or the quantity of final goods and services produced rises.
C) only if the quantity of final goods and services produced rises.
D) only if the price level rises.
20) Potential GDP is 20) ______

A) the value of production when all the nation's resources are fully employed.
B) the level of GDP achieved during periods when 100 percent of the labor force is employed.
C) the maximum GDP that an economy actually achieves throughout its entire history.
D) a goal that can never be achieved by the economy.
21) A business cycle is 21) ______

A) the cyclical movement in the interest rates.
B) the increase in consumer spending that accompanies an increase in disposable income.
C) the cyclical change in the nation's balance of trade.
D) the pattern of short-run upward and downward movements in total output.
22) A trough is the 22) ______

A) upper turning point of a business cycle when an expansion begins.
B) lower turning point of a business cycle when an expansion begins.
C) lower turning point of a business cycle when a recession begins.
D) upper turning point of a business cycle when a recession begins.
23) An expansion occurs when the level of real GDP is 23) ______
A) at a cyclical peak. B) increasing.
C) at a cyclical trough. D) decreasing.
24) A peak is the 24) ______

A) upper turning point of a business cycle when a recession ends.
B) upper turning point of a business cycle when an expansion ends.
C) lower turning point of a business cycle when an expansion ends.
D) lower turning point of a business cycle when a recession ends.
25) In the above figure, a recession begins at point ____ and an expansion begins at point ____. 25) ______
A) a; b B) b; a C) d; c D) b; c
26) In the above figure, a trough is at point ____ and a peak is at point ____. 26) ______
A) a; b B) b; a C) d; c D) b; c
27) Real GDP per person is defined as 27) ______

A) nominal GDP divided by the number of workers.
B) real GDP divided by total population.
C) nominal GDP divided by total population.
D) real GDP divided by the number of workers.
28) If real GDP per person increases by 2 percent and population increases by 7 percent, 28) ______
A) real GDP per person increases. B) inflation per person decreases
C) real GDP per person decreases. D) inflation per person rises. Population inverse
with RGDP/person
29) If real GDP increases by 3 percent and population increases by 1 percent, 29) ______
A) real GDP per person decreases. B) inflation per person rises.
C) inflation per person decreases D) real GDP per person increases.
30) If real GDP per person is $24,000.00 and the population is 3 million, real GDP is approximately 30) ______
A) $72,000.00. B) $16 billion. C) $8 billion. D) $72 billion.
31) During a recession, ____ jobs are destroyed than created and during an expansion ____ jobs are created than
destroyed. 31) ______
A) more; fewer B) more; more C) fewer; fewer D) fewer; more
32) The unemployment rate 32) ______

A) rises during recessions and falls during expansions.
B) rises during recessions and rises during expansions.
C) falls during recessions and falls during expansions.
D) falls during recessions and rises during expansions.
33) All of the following are part of fiscal policy EXCEPT 33) ______
A) controlling the money supply.
B) setting tax rates.
C) choosing the size of the government deficit.
D) setting government spending.
34) Which of the following is included as part of fiscal policy? 34) ______
A) The level of interest rates. B) Monetary policy.
C) The level of government spending. D) Money supply.
35) Which of the following is included as part of fiscal policy? 35) ______
A) Tax rates. B) The money supply.
C) Monetary policy. D) The level of interest rates.
36) Monetary policy is controlled by 36) ______

A) Congress. B) the Federal Reserve.
C) the president. D) the Treasury Department.
37) Which of the following is a policy tool of the Federal Reserve? 37) ______
A) Changes in tax rates. B) Changes in interest rates.
C) Changes in the government deficit. D) Changes in government spending.
38) To understand the growth of average living standards, we need data on the growth rate of 38) ______
A) real GDP per person. B) real GDP.
C) retail prices. D) wholesale prices.
39) A good measure of the standard of living is 39) ______

A) total real GDP. B) total nominal GDP.
C) real GDP per capita. D) nominal GDP per capita.
40) Actual real GDP will be above potential GDP if 40) ______
A) firms are producing above capacity. B) inflation is rising.
C) firms are producing at capacity. D) firms are producing below capacity.
1) D
2) A
3) B
4) C
5) D
6) A
7) B
8) D
9) D
10) C
11) B
12) C
13) D
14) B
15) A
16) B
17) C
18) B
19) C
20) A
21) D
22) B
23) B
24) B
25) A
26) B
27) B
28) C
29) D
30) D
31) B
32) A
33) A
34) C
35) A
36) B
37) B
38) A
39) C
40) A

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Real and Nominal GDP

video games energy drinks

8) Gross Domestic Product is calculated by summing up 8) _______

A) is less than B) equals

A) is greater than B) is less than

Consumption expenditures $800

A) $1,200. B) $1,400. C) $1,600. D) $2,200.

16) Nominal GDP is GDP in a given year 16) ______

A) nominal GDP. B) real GDP.

19) Real GDP will increase 19) ______

20) Potential GDP is 20) ______

21) A business cycle is 21) ______

22) A trough is the 22) ______

24) A peak is the 24) ______

27) Real GDP per person is defined as 27) ______

A) more; fewer B) more; more C) fewer; fewer D) fewer; more

32) The unemployment rate 32) ______

36) Monetary policy is controlled by 36) ______

39) A good measure of the standard of living is 39) ______

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