Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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Products that would be used in calculating GDP include
a. | toys manufactured in China at a factory owned by a U.S. company. | b. | cars manufactured in
Tennessee at a factory owned by a Japanese automobile company. | c. | plastic manufactured
in a factory in Kentucky and sold to toy manufacturers around the world to make plastic
toys. | d. | cotton cloth manufactured in India and sold to clothes makers in the United
States. |
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2.
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An example of a durable good would be
a. | a used car. | c. | a box of cereal. | b. | a paperback book. | d. | a pack of baseball
cards. |
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3.
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Compared with the expenditure approach to calculating GDP, the income approach
is
a. | more practical. | b. | more accurate. | c. | preferred by the
average consumer. | d. | connected more strongly to stock market
performance. |
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4.
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GNP minus the cost of depreciation of capital equipment is
a. | real GDP. | c. | national income. | b. | nominal GDP. | d. | net national
product. |
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5.
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The main economic variables that affect business cycles include all of the
following EXCEPT
a. | interest rates. | c. | personal savings levels. | b. | external
events. | d. | business investment
levels. |
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6.
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An accurate statement about the Great Depression would be that
a. | it was a recession that became a depression because of World War
II. | b. | it was set off because of a sharp and unexpected rise in interest
rates. | c. | it was the most severe economic downturn in the history of industrial
capitalism. | d. | its effects and duration would have been even worse if it weren’t for a strong
economy in Japan and Europe at the time. |
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7.
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The agency that maintains the National Income and Product Accounts (NIPA)
is
a. | the U.S. Department of the Treasury. | b. | the U.S. Department of the
Interior. | c. | the U.S. Department of Defense. | d. | the U.S. Department of
Commerce. |
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8.
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An example of capital deepening would be
a. | permitting two workers to share one job. | b. | paying for an
employee to take college courses. | c. | laying off employees when a factory is
modernized. | d. | moving a manufacturing plant overseas where labor costs are
lower. |
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9.
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All of the following actions promote capital deepening EXCEPT
a. | raising taxes to pay for building roads. | b. | saving less and
spending more of one’s disposable income. | c. | borrowing money from foreign nations to invest
in building infrastructure in this country. | d. | a low population growth rate at the same time
that capital stock expands. |
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10.
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All of the following measures help to promote technological progress
EXCEPT
a. | increased wages for researchers. | b. | issuing a patent to a company that invents a
new product. | c. | training programs for workers. | d. | reducing the scale of the market for a new
product. |
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11.
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The calculation of GDP would include
a. | the sale of a 25-year-old house. | b. | the income of a person who pays rent by
babysitting for the homeowner’s children. | c. | the income of a high school English
teacher. | d. | the price of the steel used to build a new hotel. |
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12.
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An example of a nondurable good is
a. | a new car. | c. | a paperback book. | b. | a used car. | d. | a washing
machine. |
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13.
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Compared with the income approach to calculating GDP, the expenditure approach
is
a. | more accurate. | c. | preferred by most economists. | b. | more
practical. | d. | preferred by the
average consumer. |
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14.
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GDP expressed in constant, or unchanging, prices is called
a. | real GDP. | c. | nominal GDP. | b. | price level. | d. | net national
product. |
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15.
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The amount of money a person has left of his or her income after taxes is
called
a. | aggregate income. | c. | national income. | b. | personal income. | d. | disposable personal
income. |
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16.
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The lowest point in an economic contraction is called
a. | a peak. | c. | a recession. | b. | a trough. | d. | a depression. |
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17.
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The main economic variables that affect business cycles include all of the
following EXCEPT
a. | interest rates. | c. | personal savings levels. | b. | external
shocks. | d. | business investment
levels. |
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18.
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An accurate statement about the Great Depression would be that
a. | it was a normal part of the business cycle. | b. | it was caused
primarily by overspending on government programs. | c. | it ended largely because of an increase in
defense spending related to World War II. | d. | while its effects were severe among the lowest
income levels, it had little impact on the wealthy. |
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19.
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How is nominal GDP converted into real GDP?
a. | by adding up all of the real purchases made in the economy | b. | through eliminating
the effects of price increases on GDP growth | c. | by adding all incomes earned in an economy to
total expenditures by consumers, businesses, and government | d. | by adding the
contributions of American-owned factories in foreign countries |
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20.
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If no foreign companies produce in a country, but many of the country’s
companies build products in foreign countries, then it is safe to say that
a. | The country’s GNP is greater than its GDP. | b. | The country’s
GDP is greater than its GNP. | c. | The country’s GDP and GNP are
equal. | d. | The country’s GDP is equal to its National
Income. |
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21.
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Which of the following is an example of a final good or service?
a. | Wheat a bakery purchases to make bread | b. | Coffee beans a coffee shop purchases to make
coffee | c. | Lumber purchased by a construction company to use in building
houses | d. | A cake purchased from a bakery for a wedding |
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22.
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Which of the following would be counted in this year’s GDP?
a. | The value of a loan taken out this year | b. | The value of a
television produced last year but sold this year | c. | The bonus check a worker receives this
year | d. | The value of a savings bond sold by the federal government to investors this
year |
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23.
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In an economy, when the price level falls, consumers and firms buy more goods
and services. This relationship is represented by the
a. | aggregate supply curve. | c. | equilibrium
GDP. | b. | aggregate demand curve. | d. | business cycle. |
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24.
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Concern about an international crisis has caused consumers to save their money
and postpone big purchases. What is the effect on aggregate demand and aggregate supply?
a. | no change | b. | aggregate supply will decrease, raising the
price level and lowering real GDP | c. | aggregate demand will decrease, lowering both
real GDP and the price level | d. | both aggregate demand and aggregate supply will
decrease, leading to lower real GDP |
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25.
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In a typical business cycle, what stage immediately follows a peak?
a. | contraction | c. | trough | b. | expansion | d. | growth |
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26.
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How do fears of future economic problems affect GDP?
a. | businesses will invest more money in the short term to ensure higher profits in the
future; GDP will be pushed up | b. | consumers will spend more money in the short
term to prevent future economic problems; GDP will be pushed up | c. | government will
spend less and save money for a future economic contraction; GDP will be reduced | d. | consumers will spend
less and save money in case future economic problems affect them; GDP will be
reduced |
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27.
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Which of these is an example of depreciation?
a. | A clothing store owner reduces the price of a belt by $10 to encourage
sales. | b. | A construction worker’s truck breaks down more often after 80,000 miles of
work-related driving. | c. | An employer fires a worker for repeatedly
arriving late to work. | d. | A share of stock declines in value over several
months. |
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28.
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What do most economists believe about the future of business cycles?
a. | Business cycles will grow more extreme, with higher peaks and deeper
troughs. | b. | Advances in technology have brought business cycles to an end. | c. | Business cycles will
continue to drive our economy in the future, but the Federal Reserve may be able to better cushion
the economy from the worst extremes. | d. | Economists have made no predictions about the
concept of the business cycle. |
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29.
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What is an example of a positive external shock to aggregate supply?
a. | Good weather leads to an unusually productive harvest for corn
farmers. | b. | A popular new diet encourages consumers to buy more corn flakes. | c. | Demand for new
suburban houses increases the value of farmland. | d. | China announces that it will import 50 percent
more corn from the United States. |
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30.
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What is the difference between a recession and a depression?
a. | A recession is a period of economic growth while a depression is a period of economic
contraction. | b. | A recession is more severe than a depression and lasts longer. | c. | A depression is a
particularly deep recession with high levels of unemployment. | d. | Unlike a recession,
a depression includes high levels of inflation. |
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31.
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As you move from left to right, the aggregate demand curve
a. | slopes upward. | c. | may slope upward or downward. | b. | slopes
downward. | d. | is
horizontal. |
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32.
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An economy that experiences decreasing real GDP and increasing prices is said to
suffer from
a. | a recession. | c. | a business cycle. | b. | a depression. | d. | stagflation. |
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33.
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Higher saving leads to higher GDP in the future because
a. | the government taxes savings accounts to pay for education. | b. | increased savings
will divert money that would be spent on imported goods in the current year. | c. | more capital is
available for investment, leading to higher output through capital deepening. | d. | a higher national
savings rate encourages immigration and expands the labor force. |
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Matching
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Identifying Key Terms
Match each term with the correct
statement below. a. | aggregate supply | f. | national income
accounting | b. | aggregate demand | g. | recession | c. | depreciation | h. | stagflation | d. | gross domestic
product | i. | technological
progress | e. | gross national product | j. | trough |
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34.
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a system that collects macroeconomic statistics on production, income,
investment, and savings
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35.
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the dollar value of all final goods and services produced within a
country’s borders in a given year
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36.
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the total amount of goods and services in the economy available at all possible
price levels
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37.
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the loss of the value of capital equipment that results from normal wear and
tear
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38.
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a decline in GDP combined with a rise in the price level
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39.
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a prolonged economic contraction
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40.
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the lowest point in an economic contraction, when real GDP stops
falling
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41.
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an increase in efficiency gained by producing more output without using more
inputs
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Identifying Key Terms
Match each term with the correct
statement below. a. | aggregate supply | f. | gross national
product | b. | aggregate demand | g. | leading indicators | c. | contraction | h. | national income accounting | d. | depreciation | i. | stagflation | e. | gross domestic product | j. | technological
progress |
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42.
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a system that collects macroeconomic statistics on production, income,
investment, and savings
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43.
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the annual income earned by U.S.-owned firms and U.S. residents
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44.
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the amount of goods and services in the economy that will be purchased at all
possible price levels
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45.
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the loss of the value of capital equipment that results from normal wear and
tear
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46.
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a period of economic decline marked by falling real GDP
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47.
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a decline in GDP combined with a rise in the price level
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48.
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key economic variables that economists use to predict a new phase of a business
cycle
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49.
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an increase in efficiency gained by producing more output without using more
inputs
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