Real and Nominal GDP
Real and Nominal GDP
| video games | energy drinks | |
| year 1 price | ||
| year 1 output | ||
| year 2 price | 2.5 | |
| year 2 output | ||
| year 3 price | 2.5 | |
| year 3 output |
130. Based on the table "Real and Nominal GDP," if year one is the base year, then the real GDP in year two, is ________.
A) 5000
B) 5250
C) 5900
D) 6175
E) none of the above
131. Based on the table "Real and Nominal GDP," if year one is the base year, then the real GDP in year three, is ________.
A) 7200
B) 8250
C) 1050
D) 7500
E) none of the above
132. Based on the table "Real and Nominal GDP," if year one is the base year, then the nominal GDP in year two, is ________.
A) 8250
B) 5000
C) 7200
D) 7500
E) none of the above
133. Based on the table "Real and Nominal GDP," if year three is the base year, then the real GDP in year two is ________.
A) 8250
B) 5900
C) 7500
D) 6775
E) none of the above
134. The inflation rate = ________.
A) nominal GDP - real GDP
B) growth rate in real GDP — growth rate in nominal GDP
C) growth rate in real GDP + growth rate in nominal GDP
D) nominal GDP ÷ real GDP
E) none of the above
Real and Nominal GDP
| video games | energy drinks | |
| year 1 price | ||
| year 1 output | ||
| year 2 price | 2.5 | |
| year 2 output | ||
| year 3 price | 2.5 | |
| year 3 output |
135. Based on the table "Real and Nominal GDP," if year one is the base year, then the GDP deflator for year two is ________.
A) 95.5
B) 123.5
C) 118
D) 104.7
E) 116.6
136. Based on the table "Real and Nominal GDP," if year one is the base year, then the GDP deflator for year three is ________.
A) 165
B) 139.8
C) 85.8
D) 133.6
E) 114.6
137. Based on the table "Real and Nominal GDP," if year one is the base year, then the inflation rate in year three is ________.
A) 14.6%
B) 9.5%
C) 9.9%
D) 11.5%
E) 16.5%
138. According to Figure above, the United States labor force in April 2010 was ________.
A) 154.8 million
B) 139.5 million
C) 237.4 million
D) 222.1 million
E) none of the above
139. According to Figure above, the United States unemployment rate in April 2010 was ________.
A) 6.4%
B) 18.5%
C) 9.9%
D) 65.2%
E) none of the above
140. According to Figure above, the United States labor force participation rate in April 2010 was ________.
A) 6.4%
B) 18.5%
C) 9.9%
D) 65.2%
E) none of the above
141. According to Figure above, the United States civilian employment ratio in April 2010 was ________.
A) 142.5%
B) 34.8%
C) 58.8%
D) 65.2%
E) none of the above
142. A discouraged worker might ________.
A) be counted as unemployed
B) have tried to find a job during the month prior to the household survey, but without success
C) have been prevented from working during the week prior to the household survey, due to illness or other temporary circumstances
D) be waiting to return to a job from which he or she has been laid off
E) none of the above
143. The nominal interest rate ________.
A) makes no allowance for inflation
B) is a percentage of the amount borrowed
C) is the rate that most banks advertise
D) all of the above
E) none of the above
144. The Fisher equation implies ________.
A) the nominal interest rate equals the real rate of inflation plus expected inflation
B) the real interest rate equals expected inflation
C) expected inflation equals current inflation
D) the growth rate of inflation equals the real minus the nominal rates of interest
E) none of the above
145. The Fisher equation implies that an increase in the nominal rate of interest relative to the real rate indicates that ________.
A) inflation is expected to rise
B) inflation is expected to decrease
C) the real cost of borrowing has increased
D) the real cost of borrowing has decreased
E) none of the above
146. Increases in ________ typically lead to decreases in consumption
A) the interest rate
B) disposable income
C) autonomous consumption
D) all of the above
E) none of the above
147. ________ typically lead to increases in ________.
A) decreases in interest rates ; investment
B) increases in disposable income; consumption
C) increases in autonomous investment; investment
D) all of the above
E) none of the above
148. In the long run, if government increases spending ________.
A) interest rates decrease
B) it crowds out private investment
C) saving increases
D) all of the above
E) none of the above
149. In the long run, larger budget deficits lead to ________.
A) higher saving levels
B) a fall in investment
C) lower interest rates
D) all of the above
E) none of the above
150. In an open economy, Y = C + I + G + NX. From this we may infer that ________.
A) output is greater in an open economy than in a closed economy
B) the condition for goods market equilibrium is that S = I + G + NX
C) net exports can be zero only if the domestic real interest rate is equal to the world real interest rate
D) if saving is greater than zero, NX cannot be zero
E) none of the above
151. Fred has always been known as "the rich kid." Strictly speaking, this must mean that ________.
A) Fred has a lot of cash
B) Fred's income is quite high
C) Fred won the lottery before he was legally eligible
D) Fred has a flashy wardrobe
E) Fred has a lot of wealth
152. In modern economies, the supply of money depends mainly on the economy's ________.
A) tax rates
B) mining of precious metals
C) net exports
D) growth of output of goods and services
E) none of the above
153. Open Market operations consist mainly of ________.
A) the government buying and selling private securities in the open market
B) the NB buying and selling government securities in the open market
C) the government selling its own securities in the open market
D) the NB setting rates for securities traded in the open market
E) none of the above
154. When the NB sells government securities in the open market, the money supply ________ because ________.
A) decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease
B) increases; banks gain liquidity, they make more loans and checking account deposits increase
C) increases; banks lose liquidity, they make more loans and checking account deposits increase
D) decreases; banks gain liquidity, they make fewer loans and checking account deposits decrease
E) none of the above
155. When the NB buys government securities in the open market, the money supply ________ because ________.
A) decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease
B) increases; banks gain liquidity, they make more loans and checking account deposits increase
C) increases; banks lose liquidity, they make more loans and checking account deposits increase
D) decreases; banks gain liquidity, they make fewer loans and checking account deposits decrease
E) none of the above
156. The NB's narrowest measure of money is ________.
A) M1
B) M2
C) M3
D) all of the above
E) none of the above
157. M1 does not include cash that is held in ATMs or bank vaults, because ________.
A) no one really owns that money
B) that money is included in M2
C) that money earns no interest
D) the right to access that money is counted already as bank deposits
E) none of the above
158. Which of these transactions results in an increase in M2?
A) certificate of deposit matures, adding $520 to your checking account
B) withdrawal of $100 cash from your checking account
C) depositing a bank loan of $400 into your savings account
D) depositing a $300 paycheck into your savings account
E) none of the above
159. If the euro replaces the U.S. dollar as the world's most popular currency, that will likely ________.
A) reduce M1, without affecting M2
B) reduce M2, without affecting M1
C) cause a temporary increase in M1
D) affect neither M1 nor M2
E) none of the above
160. As of 2010 the outstanding U.S. currency is $872 billion, which implies that the typical U.S. citizen holds $2,800 in cash. Is this an accurate inference? Why?
A) Yes; because dividing total currency of $872 billion by total U.S. population in 2010 roughly works out to $2,800 per person
B) No; because criminals and foreigners hold large sums of dollars, so the average citizen holds far less.
C) No; because the average citizen probably does not have $2800 in her checking account to back up all that cash
D) Yes; because the Fed rarely makes accounting mistakes when computing M1
E) none of the above
161. The quantity theory of money (MV = PY, money supply = nominal GDP) explains how ________ depends on ________.
A) real GDP; the money supply
B) the price level; the demand for money
C) the money supply; the velocity of money
D) all of the above
E) none of the above
162. The quantity theory of money tells us that real money balances are proportional to income, since ________.
A) velocity is assumed constant in the short run
B) the supply and demand of money are equal in equilibrium
C) changes in the quantity of money lead to proportional changes in the price level
D) all of the above
E) none of the above
163. From the equation of exchange, if both nominal income and the quantity of money (M) double, the price level (P) decreases by 50 percent and velocity (V) remains constant, then real output (Y)________.
A) also doubles
B) triples
C) quadruples
D) decreases by 50 percent
E) none of the above
164. From the equation of quantity theory of money, if both real income (Y) and the quantity of money (M) double and the price level (P) remains constant, then velocity (V)________ and nominal income ________.
A) remains constant; doubles
B) doubles; remains constant
C) doubles; doubles
D) decreases by 50 percent; quadruples
E) none of the above
165. Suppose Y = 100, P = 80, and V = 3.2. If Y rises to 105, and the inflation rate is 10 percent, what is the new value of M?
a) 29568.5
B) 9240.5
C) 2500.0
D) 2,887.5
166. Productivity growth can be measured ________. (same as Growth rate of Productivity?)
A) by dividing output by Kt0.3 Lt0.7
B) by adding the contributions from capital growth and labor growth
C) by subtracting the contributions from capital growth and labor growth from the growth of output
D) by dividing the growth of output by the contributions from capital growth and labor growth
167. Productivity is ________.
A) determined by central bank policy
B) the combined effect of monetary and fiscal policy
C) the residual component of the production function
D) driven by changes in the rate of growth of output
168. If productivity growth equals 3.0 percent, the contribution from capital growth 1.2 percent and the contribution from labor growth 2.0 percent, then output growth must equal ________.
A) 2.2 percent.
B) 4.2 percent.
C) 6.2 percent.
D) 7.2 percent.
169. If the contribution from capital and labor growth in a given economy equals 4.0 percent and output growth equals 6.4 percent over that same period of time, then productivity growth must equal ________.
A) 25.6 percent.
B) 10.4 percent.
C) 2.4 percent.
D) 1.6 percent.
170. The growth rate of which of the following is not a component of the growth accounting equation?
A) the capital stock.
B) labor.
C) depreciation.
D) available technology.
171. If the contribution from capital growth equals 3 percent and the contribution from productivity growth equals 1.6 percent, GDP will grow by ________.
A) 1.6 percent.
B) 4.6 percent.
C) 4.8 percent.
D) an unknown value.
172. If the contribution from capital growth equals 2 percent and the contribution from labor growth equals 4 percent, then GDP ________.
A) will grow by 6 percent.
B) will grow by 8 percent.
C) will grow by 2 percent.
D) will change by an unknown percentage
173. Given the production function Y = A K0.3L0.7if output grows by five percent, the capital input grows by five percent, and the labor input grows by two percent, calculate the technology change rate. Calculate the growth rates of output per worker.
A) 0.021; 0.03
B) 0.02; 0.05
C) 0.3; 0.21
D) 0.021; 0.05
174. In a closed economy ________.
A) investment equals consumption.
B) investment equals savings.
C) saving equals consumption.
D) exports are greater than imports.
175. In the bathtub analogy, which of the following is a stock variable?
A) the amount of investment.
B) the rate of depreciation.
C) the amount of capital-per worker.
D) the Cobb-Douglass value.
176. If an economy invests more than it loses through depreciation ________.
A) the saving rate will fall.
B) the saving rate will rise
C) the quantity of labor will fall.
D) the capital stock will expand.
177. The loss of capital due to the wearing out of machines is known as ________.
A) saving.
B) investment.
C) consumption.
D) depreciation.
178. A higher rate of saving at the national level will, in the long-run ________.
A) cause a decrease in levels of capital and output.
B) have no effect on levels of capital and output.
C) lead to an increase in population growth.
wD) cause an increase in levels of capital and output.
179. In a steady-state economy with no population growth, output per worker is 35, the saving rate is 20 percent, and the depreciation rate is 11 percent. The level of capital per worker is ________. (delta.k/k = s * (y/k) – d*s – n)
A) 318.2
B) 256.4
C) 168.3
D) 280.5
180. In a steady-state economy with no population growth, consumption per worker is 45, the saving rate is 25 percent, and the depreciation rate is 15 percent. The level of capital per worker is ________. (C + S = Y)
A) 4
B) 400
C) 40
D) 4000
181. Other things the same, in the Solow model in the steady state, a higher rate of population growth ________ the level of output per worker.
A) leads to an increase in
B) has no long-run effect on
C) has an ambiguous effect on
D) leads to a decrease in
182. If output per worker in a steady state is $30,000, depreciation is 13%, the population growth rate is two percent, and the saving rate is 20%, what is the steady state capital-labor ratio (k)?
A) 145600.5
B) 150727.3
C) 140868.5
D) 130434.7
183. On the Solow Diagram, an increase in population growth is shown by
A) an upward shift of the depreciation plus capital line
B) an upward shift of the investment function
C) an upward shift of the per-worker production function
D) a downward shift of the investment function
184. A One-Child Policy was instituted in 1979 in ________.
A) Brazil.
B) South Africa.
C) India.
D) China
185. Total planned expenditure (equals total output) is 14,000 when autonomous consumption expenditure is 450. When autonomous consumption expenditure falls to 400, total planned expenditure (equals total output) is 13,800. The marginal propensity to consume is ________.
A) 0.89
B) 0.75
C) 0.99
D) 0.44
E) 0.03
186. Total planned expenditure (equals income) is 13,500, autonomous consumption expenditure is 600, the marginal propensity to consume is 0.8, government purchases are 2,700, taxes are 2,500 and planned investment spending is ________.
A) 1750
B) 1400
C) 1200
D) 1800
187. An increase in the real interest rate will cause an increase in ________.
A) saving
B) planned investment
C) net exports
D) all of the above
E) none of the above
188. The IS curve ________.
A) shows the relationship between aggregate output and the real interest rate when the goods market is in equilibrium
B) tells us that increases in autonomous consumption, investment, government purchases raise output for any real interest rate
C) tells us that a decrease in taxes leads to increases in output for any given real interest rate
D) all of the above
E) none of the above
189. In the IS curve ________.
A) an increase in the interest rate constitutes an upward movement along the curve
B) an increase in aggregate consumption constitutes a downward movement along the curve
C) an increase in taxes constitutes a rightward shift of the curve
D) all of the above
E) none of the above
190. The relative price of one currency in terms of another is known as the ________.
A) nominal exchange rate.
B) real exchange rate.
C) domestic price level.
D) real interest rate.
191. The relative price of goods in two countries is known as the ________.
A) nominal exchange rate.
B) real exchange rate.
C) domestic price level.
D) real interest rate
192. An increase in the value of a country's currency is known as ________.
A) a spot exchange rate.
B) a depreciation of its value.
C) an appreciation of its value.
D) a backward exchange rate.
193. Suppose that a haircut in your hometown costs $20, while the price for the same haircut in Mumbai is 600 Indian rupees. At which nominal exchange rate is the dollar price lower for the Mumbai haircut?
A) 0.029$/Rs.
B) 20Rs./$
C) 25Rs./$
D) 0.04$/Rs.
194. Suppose that a haircut in your hometown costs $20, while the price for the same haircut in Mumbai is 600 Indian rupees. At which nominal exchange rate is the dollar price lower for the Mumbai haircut?
A) 0.029$/Rs.
B) 20Rs./$
C) 25Rs./$
D) 0.04$/Rs.
195. Suppose you reserve a hotel room in Madrid for $300 per night. When you check out, you are charged only $285 per night. Assuming that the price of the room in euros had not changed, and that the nominal exchange rate had been 0.8 (euros/$) when the reservation was made, the new nominal exchange rate is ________.
A) 0.84
B) 0.76
C) 0.95
D) 1.05
196. Suppose an item sells for $125 in the United States and for 62,500 pesos in Chile. According to the law of one price, the nominal exchange rate (pesos/dollar) should be ________.
A) 31,313
B) either $125, or 62,500 pesos, but not both
C) 0.002
D) 500
197. Suppose the nominal exchange rate rises from 82 to 90. The domestic currency has appreciated by ________ percent.
A) ten
B) nine
C) eight
D) 86
198. In a fixed exchange rate regime, the value of a currency is pegged to ________.
A) an anchor currency.
B) a currency board.
C) a dirty float.
D) an interest rate standard such as the Treasury bill rate in the U.S.
199. Suppose total government spending is increased permanently by ten percent, with no change in tax rates. In the long run, the resulting deficit will disappear, ________.
A) only if government spending is brought back down to the original level
B) if economic growth raises tax revenue by ten percent
C) if the government debt is sold to foreigners
D) unless the money is spent entirely on government consumption
200. Fiscal policy involves manipulating ________.
A) the supply of money.
B) consumption spending.
C) federal subsidies and minimum wage values.
D) government spending and taxes.
201. Private saving refers to ________.
A) disposable income minus consumption expenditure
B) total expenditure minus purchases of capital goods
C) taxes plus consumption minus income
D) consumption expenditure divided by disposable income
E) none of the above
202. Private saving refers to ________.
A) after-tax income minus consumption expenditures
B) a flow variable which adds to the stock of wealth
C) the private saving rate times disposable income
D) all of the above
E) none of the above
203. Government saving refers to ________.
A) tax revenues minus transfers minus government consumption minus government investment
B) the government's tax receipts minus its outlays
C) national saving minus private saving
D) all of the above
E) none of the above
204. Net capital outflows ________. NX => NCO
A) are also known as net foreign investment
B) are positive if saving is greater than investment
C) are also known as the trade balance
D) all of the above
E) none of the above
205. The real interest rate ________.
A) is the cost of borrowing adjusted for inflation
B) keeps the market for saving and investment in equilibrium
C) describes the real benefit of saving
D) all of the above
E) none of the above
206. Consumption expenditures are a function of ________.
A) the real interest rate (indirectly affects Consumption)
B) disposable income
C) autonomous consumption
D) all of the above
E) none of the above
207. In an economy open to international trade ________.
A) saving is net exports added to investment
B) saving equals investment as long as NX=0
C) the domestic real interest rate should equal the world real interest rate as long as there is perfect capital mobility
D) all of the above
E) none of the above
208. In an economy open to international trade ________.
A) saving is the difference between net exports and consumption
B) saving equals investment as long as the domestic real interest rate is equal to the world real interest rate
C) the domestic real interest rate should equal the world real interest rate as long as the economy is relatively small
D) all of the above
E) none of the above
209. A small open economy would typically enjoy a higher trade balance if, in the domestic economy, ________.
A) autonomous consumption expenditures increase
B) taxes decrease
C) government spending decreases
D) all of the above
E) none of the above
210. Money is not ________.
A) income because the former is a stock measure and the latter a flow
B) wealth because the latter is generally used to procure the former
C) as desirable as barter because the latter is more efficient than the former
D) all of the above
E) none of the above
211. Money is not ________.
A) income because the former is a stock measure and the latter a flow
B) wealth because the former is generally used to procure the latter
C) as inefficient as barter because the latter requires a double coincidence of wants
D) all of the above
E) none of the above
212. Money is another measure of ________.
A) income because they both are flow measures
B) wealth because they both measure the total collection of property that serves as store of value
C) the flow of earnings one draws every two weeks
D) all of the above
E) none of the above
213. Subject to a few legal and practical restrictions, anything may be exchanged for anything else. The distinctive advantage of money is that ________.
A) it is likely to retain its value, whether it is kept or exchanged
B) it has little, if any, use other than exchange
C) it can generate income while it is kept
D) it is likely to be accepted by everyone in exchange for anything
E) none of the above
214. Characteristics that enable an item to serve well as money include each of the following, except ________.
A) durable
B) abundant
C) divisible
D) portable
E) verifiable
215. M1 differs from M2 because ________.
A) M1 includes demand deposits and M2 does not
B) M1 includes currency held by the nonbank public and M2 includes only currency held by banks
C) M1 includes non interest-bearing checking accounts and M2 includes interest bearing time deposit accounts
D) all of the above
E) none of the above
216. Financial innovations such as direct deposit of paychecks, electronic payment of bills, and automated teller machines (ATMs) have likely ________.
A) had minimal effect on M1 and M2
B) reduced the size of M2 relative to M1
C) increased both M1 and M2 relative to GDP
D) caused the growth rates of M1 and M2 to become more stable
E) reduced the size of M1 relative to M2
217. Typically, when someone borrows money from a bank, M2 ________, because ________.
A) increases; the money is held for a while in a liquid form
B) decreases; the money is held for a while in a liquid form
C) does not change; the loan affects only the subcategories within M2
D) decreases; of the decline in the bank's vault cash
E) none of the above
218. Which of these transactions results in an increase in M1?
A) withdrawal of $100 cash from your checking account
B) certificate of deposit matures, adding $520 to your checking account
C) depositing a bank loan of $400 into your savings account
D) depositing a $300 paycheck into your savings account
E) none of the above
219. The quantity theory of money ________.
A) is the product of Keynesian economists
B) links total income to a country's supply of money
C) explains why the equation of exchange is true by definition
D) all of the above
E) none of the above
220. The velocity of money ________.
A) represents the average number of times a dollar is spent in a given year
B) provides the link between the money supply and money demand
C) times the money supply should equal real GDP
D) all of the above
E) none of the above
221. From the equation of exchange, if both nominal income and the quantity of money (M) triple, the price level (P) increases by 50 percent and velocity (V) remains constant, then real output (Y)________.
A) also triples
B) increases by 50 percent
C) doubles
D) decreases by 50 percent
E) none of the above
222. From the equation of exchange, if both nominal income and the quantity of money (M) double, the price level (P) decreases by 50 percent and velocity (V) remains constant, then real output (Y)________.
A) also doubles
B) triples
C) quadruples
D) decreases by 50 percent
E) none of the above
223. From the equation of exchange, if both real income (Y) and the quantity of money (M) double and the price level (P) remains constant, then velocity (V)________ and nominal income ________.
A) remains constant; doubles
B) doubles; remains constant
C) doubles; doubles
D) decreases by 50 percent; quadruples
E) none of the above
224. The quantity theory of money ________.
A) implies that inflation equals the ratio of the growth rates of the money supply and of real income
B) provides central banks with a tool to prevent the rate of inflation from fluctuating
C) implies that, in the long run, changes in the money supply will be matched by changes in real income
D) all of the above
E) none of the above
225. Hyperinflation typically ________.
A) describes periods of extreme price increases of over 50% per month or 1,000% per year
B) is a a result of extreme periods of money growth that tend to come only from large fiscal imbalances
C) affects both poor and developed economies
D) all of the above
E) none of the above
226. National output is a function of ________.
A) capital and saving
B) technology, employment and demand
C) labor and depreciation
D) labor, technology and capital
227. Capital and labor are distinct from productivity in that ________.
A) productivity is independent of technology changes
B) productivity can only increase over time
C) productivity is subject to diminishing returns
D) capital and labor are subject to diminishing marginal returns
228. Across national economies which of the following is the most important source of variation in growth rates?
A) labor growth.
B) capital growth.
C) productivity growth.
D) government regulation.
229. If an economy invests more than it loses through depreciation ________.
A) the saving rate will fall.
B) the saving rate will rise
C) the quantity of labor will fall.
D) the capital stock will expand.
230. An increase in the saving rate results in a higher steady state ________.
A) growth rate of capital
B) growth rate of output per worker
C) level of consumption per worker
D) level of capital per worker
231. Output per worker is 50, the saving rate is 15 percent, the population is growing at one percent, depreciation is 9 percent, and the capital-labor ratio is 80. Consumption per worker is ________.
A) 37.5
B) falling
C) 75
D) 68
232. In a business cycle, a period from peak to trough may be referred to as ________.
A) an expansion
B) a recurrence
C) a contraction
D) all of the above
E) none of the above
233. In a business cycle, a period from peak to trough may be referred to as ________.
A) a contraction
B) a recession
C) a depression
D) all of the above
E) none of the above
234. In a business cycle, a period from trough to peak may be referred to as ________.
A) a contraction
B) an expansion
C) a recurrence
D) all of the above
E) none of the above
235. A characteristic of the unemployment rate is that ________.
A) it typically goes up in a recession
B) it typically goes down in a boom
C) all of the above
D) none of the above
236. Total planned expenditure (equals income) is 13,500, autonomous consumption expenditure is 600, the marginal propensity to consume is 0.8, government purchases are 2,700, taxes are 2,500 and planned investment spending is 2,900. Net exports is ________.
A) 3,840
B) negative 1,500
C) negative 1,380
D) negative 1,340
E) 2,100
237. Consumption expenditure is 15,000, government purchases are 5,000, planned investment spending is 4,000 and net exports are 1,500. If total output is 25,000, then unplanned inventory investment is ________.
A) negative 500
B) 2,500
C) 3,500
D) 4,000
E) negative 450
238. In the IS curve ________.
A) an increase in the interest rate constitutes an upward movement along the curve
B) an increase in aggregate consumption constitutes a dow q2`
nward movement along the curve
C) an increase in taxes constitutes a rightward shift of the curve
D) all of the above
E) none of the above
239. Firms can acquire access to savings indirectly through________.
A) issuing securities.
B) borrowing from banks.
C) the payment of taxes to the federal government.
D) the depositing of funds in depository institutions.
240. The real exchange rate is equal to the ________.
A) nominal rate of exchange plus the domestic level of prices.
B) the nominal exchange rate minus the relevant foreign price level.
C) nominal exchange rate divided by the domestic plus foreign price levels.
D) nominal exchange rate times the domestic price level divided by the foreign price level
241. If the rate of inflation in Country A is higher than in Country B, then ________.
A) in nominal terms, country A's currency should depreciate
B) in nominal terms, country B's currency should depreciate
C) the law of one price will not hold
D) purchasing power parity does not apply
242. An increase in the domestic real interest rate will tend to cause, other things the same ________.
A) a depreciation of the domestic currency.
B) an increase in the demand for domestic goods and services.
C) an increase in demand for foreign currencies.
D) an appreciation of the domestic currency
243. Private saving + Government saving equals ________.
A) Taxes + Investment
B) Output minus Consumption
C) Government capital + human capital
D) Investment + Net exports
244. Fiscal policy involves manipulating ________.
A) the supply of money.
B) consumption spending.
C) federal subsidies and minimum wage values.
D) government spending and taxes.
245. According to the IS curve, the tax multiplier is always ________.
A) larger in absolute value than the expenditure multiplier
B) equal to the expenditure multiplier
C) smaller in absolute value than the expenditure multiplier
D) equal to one
246. The idea behind the Phillips curve is that ________.
A) tight labor markets lead to inflationary pressures
B) when the unemployment rate is low, wages will increase
C) when firms raise wages to attract new workers, prices will also increase
D) all of the above
E) none of the above
247. The idea behind the Phillips curve is that ________.
A) tightness in the labor market raises wages but has little impact on prices
B) when the unemployment rate is low, wages will decrease
C) when firms raise wages to attract new workers, prices will also increase
D) all of the above
E) none of the above
248. As the nominal interest rate increases ________.
A) it becomes more costly to hold money instead of bonds
B) the quantity of money demanded falls
C) the opportunity cost of holding money rises
D) all of the above
E) none of the above
249. As the nominal interest rate increases ________.
A) it becomes more costly to hold bonds instead of money
B) the quantity of money demanded rises
C) the opportunity cost of holding money rises
D) all of the above
E) none of the above
250. The supply curve for money ________.
A) is upward sloping with respect to interest rates
B) is fixed to a specified interest rate
C) is fixed regardless of the interest rate
D) is downward sloping with respect to interest rates
E) none of the above
251. Gross domestic product is a measure of the total value of all
A) sales in an economy over a period of time.
B) consumer income in an economy over a period of time.
C) capital accumulation in an economy over a period of time.
D) final goods and services produced in an economy over a period of time.
252. Gross domestic product (GDP) is the ________ in a given time period.
A) value of personal consumption expenditures, gross private domestic investment, and federal government expenditures
B) sum of wage and salary compensation of employees and corporate profits
C) value of all final and intermediate goods and services produced by the economy excluding those goods exported to foreign nations
D) market value of final goods and services produced by the economy
253. Gross domestic product (GDP) measures the
A) number of final goods and services produced in the economy in a given time period.
B) number of final goods and services sold in the economy in a given time period.
C) market value of old and new final goods and services sold in the economy in a given time period.
D) market value of final goods and services produced in the economy in a given time period.
254. In the definition of GDP, "market value" refers to
A) valuing production in production units.
B) not counting intermediate products.
C) valuing production according to the market price.
D) when the production took place.
255. The word "final" in the definition of GDP refers to
A) not counting intermediate goods or services.
B) the time period when production took place.
C) valuing production at market prices.
D) counting the intermediate goods and services used to produce GDP.
256. Which of the following is a final good?
A) the memory chips in your new smart phone
B) a share of IBM stock
C) flour purchased at the store to bake cookies
D) flour used by the bakery to bake cookies
257. Intermediate goods are excluded from GDP because
A) their inclusion would involve double counting.
B) they represent goods that have never been purchased so they cannot be counted.
C) their inclusion would understate GDP
D) the premise of the question is incorrect because intermediate goods are directly included in calculating GDP.
258. A ton of coal purchased by your local utility to burn to make electricity would be best described as
A) an intermediate good.
B) a financial asset.
C) a used good.
D) a final product.
259. Which of the following expenditures is for an intermediate good?
A) The government buys new tires for its military vehicles.
B) A U.S. tire firm sells new tires to Canada.
C) General Motors buys new tires to put on the cars it's building.
D) You buy new tires for your used car.
260. The calculation of the final goods and services sold in an economy would NOT include
A) the purchase of a lawnmower by a household.
B) General Motors' purchases of tires for new automobiles.
C) Ford Motor Company's purchase of a new industrial robot to be used to produce cars.
D) the purchase of a service by a household.
261. Double counting (counting the same thing twice) in GDP accounting is avoided by not including
A) net exports.
B) intermediate goods.
C) illegal activities.
D) depreciation.
262. The circular flow model shows that consumer goods and services produced by business firms are sold in the
A) goods market.
B) factor market.
C) labor market.
D) financial market.
263. In the circular flow of income
A) households demand goods and services that are supplied by firms, and the firms demand factors that are supplied by intermediate firms.
B) households demand goods and services that are supplied by firms, while supplying factors that are demanded by firms.
C) households sell goods and services while firms sell factors.
D) households buy goods and services while firms sell goods and services. Firms obtain labor from households, capital from government, and raw materials from other firms.
264. In the above figure, flow B represents ________.
A) household purchases of goods and services
B) household borrowing
C) household income
D) firms' payments for labor services
265. In the above figure, flow B represents households' ________.
A) income
B) consumption expenditures
C) saving
D) investment
266. In the above figure, household income is shown by flow
A) A.
B) B.
C) C.
D) F.
267. In the above figure, consumption expenditure is shown by flow
A) A.
B) B.
C) C.
D) F.
268. If depreciation is less than gross investment, then net investment is
A) positive.
B) negative.
C) zero.
D) This situation could never occur because it is impossible for depreciation to be less than gross investment.
269. Net investment is the
A) total amount of gross investment minus depreciation.
B) value of software and other network related products.
C) profit or loss in the stock market.
D) value of the depreciated capital multiplied by the changes in the price level.
270. GDP can be computed as the sum of
A) all sales that have taken place in an economy over a period of time.
B) the total expenditures of consumers and business over a period of time.
C) the total expenditures of consumption, investment, and government expenditure on goods and services over a period of time.
D) the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time.
271. The expenditure approach measures GDP by adding
A) compensation of employees, rental income, corporate profits, net interest, and proprietors' income.
B) compensation of employees, rental income, corporate profits, net interest, proprietors' income, subsidies paid by the government, indirect taxes paid, and depreciation.
C) compensation of employees, rental income, corporate profits, net interest, proprietors' income, indirect taxes paid, and depreciation and subtracting subsidies paid by the government.
D) consumption expenditure, gross private domestic investment, net exports of goods and services, and government expenditure on goods and services.
272. The four categories of expenditure used by the expenditure approach method to calculate GDP are
A) consumption expenditure, taxes, saving and investment.
B) consumption expenditure, investment, net imports and saving.
C) saving, taxes, government expenditure and investment.
D) consumption expenditure, investment, government expenditure and net exports.
273. Gross Domestic Product is equal to the sum of consumption expenditure, investment, net exports, and ________.
A) government expenditures on goods and services
B) saving
C) profits
D) net taxes
| Item | Billions of dollars |
| Government expenditure on goods and services | |
| Compensation of employees | 1,675 |
| Gross private domestic investment | |
| Rental income | |
| Personal consumption expenditures | |
| Net interest | |
| Net exports of goods and services | |
| Indirect business taxes and depreciation |
274. The above table shows some (but not all) national income accounting data for a hypothetical country. According to these data, the value of GDP is ________ billion.
A) $2100
B) $1850
C) $2000
D) $2050
| Item | Dollars |
| Personal consumption expenditure | |
| Gross private domestic investment | |
| Government expenditure on goods and services | |
| Exports of goods and services | |
| Imports of goods and services | |
| Depreciation | |
| Indirect business taxes |
275. Based on the data in the above table, gross domestic product equals
A) $2,190.
B) $2,840.
C) $2,465.
D) $2,750.
| Item | Billions of dollars |
| Personal consumption expenditure | |
| Gross private domestic investment | |
| Government expenditure on goods and services | |
| Exports of goods and services | |
| Imports of goods and services | |
| Net taxes |
276. The above table shows data from the GDP accounts of Hypothetica. Hypothetica's GDP is ________ billion.
A) $270
B) $210
C) $190
D) $160
277. If imports are $100 million less than exports, government expenditures are $500 million, consumer expenditures are $1 billion, and gross investment spending is $500 million, then GDP is
A) $1 billion.
B) $1.9 billion.
C) $2 billion.
D) $2.1 billion.
| Component | Amount (billions of dollars) |
| Net taxes | 1,635 |
| Personal consumption expenditure | 5,566 |
| Depreciation | |
| Government expenditure | 1,784 |
| Gross investment | 1,234 |
| Exports | |
| Imports | 1,138 |
| Household saving | 1,202 |
278. Using the data in the table above, what is the value of GDP?
A) $13,516 billion
B) $10,679 billion
C) $9,541 billion
D) $8,403 billion
279. Using the data in the above table, what is the value of net exports?
A) -$181 billion
B) $181 billion
C) $957 billion
D) -$957 billion
280. Using the data in the above table, what is the value of national saving?
A) $1,202 billion
B) $2,837 billion
C) $1,053 billion
D) -$85 billion
| Component | Amount (dollars) |
| Net taxes | |
| Personal consumption expenditure | |
| Depreciation | |
| Government expenditure | |
| Gross investment | |
| Net exports | -10 |
| Compensation of employees |
281. Using the information in the table above, calculate gross domestic product.
A) $118
B) $108
C) $86
D) $78
282. Using the information in the table above, calculate the government's budget deficit or surplus.
A) $2
B) -$4
C) -$10
D) $4
| Component | Amount (billions of dollars) |
| Personal consumption expenditure | 3,720 |
| Government expenditure | |
| Gross investment | |
| Net investment | |
| Exports | |
| Imports |
283. Using the information in the table above, calculate gross domestic product.
A) $5,130 billion
B) $5,320 billion
C) $4,760 billion
D) $4,690 billion
284. Using the information in the table above, net exports equals
A) $1,370 billion.
B) $650 billion.
C) $20 billion.
D) -$70 billion.
285. Using the information in the table above, depreciation equals
A) -$90 billion.
B) $90 billion.
C) -$70 billion.
D) some amount that cannot be determined.
286. Real GDP measures the
A) total profits earned by all businesses valued using prices from a single year.
B) changes in the prices of output measured in dollars.
C) general upward drift in prices.
D) value of total production linked to prices of a single year.
287. GDP is
A) an increase in the average level of prices.
B) the value of total production when the unemployment rate is 6 percent.
C) the value of total production of all the nation's farms, factories, shops and offices measured in the prices of a single year.
D) the value of total production of all the nation's farms, factories, shops and offices measured at the prices of the year it was produced.
288. Real Gross Domestic Product is
A) the amount of people unemployed divided by the total labor force.
B) the productivity of labor.
C) the most that can be produced when the economy's resources are fully employed.
D) the value of total production linked back to the prices of a single year.
289. Suppose an economy has some inflation. Then, after a base year, the value of real GDP will
A) be less than nominal GDP.
B) not be different from nominal GDP.
C) be greater than nominal GDP.
D) will be approximately half the value of nominal GDP.
290. Gross private domestic investment is a component of which approach to measuring GDP?
A) incomes approach
B) expenditure approach
C) linking approach
D) output approach
291. A discouraged worker ________ counted as officially unemployed and ________ counted as in the labor force.
A) is; is
B) is; is not
C) is not; is
D) is not; is not
292. When an individual who has not been working but has been looking for work decides to terminate the search process, the official unemployment rate
A) will fall.
B) will rise.
C) will remain unchanged.
D) may fall or rise depending on whether or not the individual resumes his education.
293. Who of the following is counted as unemployed?
A) Rene, a retired chemist
B) Homer, a full-time student at a vocational school
C) Kim, a worker on strike from her company for a week
D) Glenn, a student who just graduated from college last week and is currently looking for a job
294. In a country with a working-age population of 300 million, 230 million workers are employed and 40 million workers are unemployed. What is the labor force participation rate?
A) 100 percent
B) 90 percent
C) 65 percent
D) 5 percent
295. In a country with a working-age population of 100 million, 70 million workers are employed and 5 million workers are unemployed. What is the labor force participation rate?
A) 70 percent
B) 5 percent
C) 75 percent
D) 7 percent
296. In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate?
A) 5.0 percent
B) 7.1 percent
C) 7.7 percent
D) 10.0 percent
output approach
291. A discouraged worker ________ counted as officially unemployed and ________ counted as in the labor force.
A) is; is
B) is; is not
C) is not; is
D) is not; is not
292. When an individual who has not been working but has been looking for work decides to terminate the search process, the official unemployment rate
A) will fall.
B) will rise.
C) will remain unchanged.
D) may fall or rise depending on whether or not the individual resumes his education.
293. Who of the following is counted as unemployed?
A) Rene, a retired chemist
B) Homer, a full-time student at a vocational school
C) Kim, a worker on strike from her company for a week
D) Glenn, a student who just graduated from college last week and is currently looking for a job
294. In a country with a working-age population of 300 million, 230 million workers are employed and 40 million workers are unemployed. What is the labor force participation rate?
A) 100 percent
B) 90 percent
C) 65 percent
D) 5 percent
295. In a country with a working-age population of 100 million, 70 million workers are employed and 5 million workers are unemployed. What is the labor force participation rate?
A) 70 percent
B) 5 percent
C) 75 percent
D) 7 percent
296. In a country with a working-age population of 130 million, 90 million workers are employed and 10 million workers are unemployed. What is the unemployment rate?
A) 5.0 percent
B) 7.1 percent
C) 7.7 percent
D) 10.0 percent
297. The three types of unemployment are
A) voluntary, involuntary, and structural.
B) voluntary, part-time, and cyclical.
C) frictional, part-time, and involuntary.
D) frictional, structural, and cyclical.
298. Frictional unemployment
A) includes discouraged workers.
B) is voluntary part-time unemployment.
C) is unemployment associated normal labor turnover.
D) is unemployment associated with declining industries.
299. This type of unemployment reflects the normal amount of unemployed workers who possess skills that will enable them to find another job.
A) cyclical unemployment
B) frictional unemployment
C) structural unemployment
D) None of the above answers is correct.
300. When a woman reenters the labor force and looks for a job after spending time at home raising a child,
A) cyclical unemployment increases.
B) structural unemployment decreases.
C) frictional and cyclical unemployment increase.
D) frictional unemployment increases.