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WorksheetsEcon Section 2 Exam Review
Total questions: 81
Worksheet time: 51mins
Which of the following would be included in this year's GDP?
the value of a used car, at its sale price
the value of a new domestic automobile, at its sale price
a sale of Microsoft stock from one individual to another
the face value of a life insurance policy paid to a woman at the death of her husband
Which of the following is GDP designed to measure?
Group of answer choices
the total market value of goods and services produced domestically during the year
changes in the cost of purchasing the typical consumer market basket of goods from one year to another
the total size of the domestic underground economy
the standard of living of the average citizen
A real estate salesperson sells a house in 2011 that was built in 1994. How does this transaction get counted in the GDP statistics?
The price of the house and the real estate salesperson's commission are both included in 2011's GDP.
Neither the price of the house or the commission is included in 2011's GDP.
The real estate salesperson's commission but not the price of the house is included in 2011's GDP.
The price of the house would be included in both 1994's GDP and the GDP for 2011.
When the expenditure approach is used to measure GDP, the major components of GDP are
consumption, investment, indirect business taxes, and depreciation.
employee compensation, rents, interest, self-employment income, and corporate profits.
employee compensation, corporate profits, depreciation, and indirect business taxes.
consumption, investment, government consumption and gross investment, and net exports.
If you wanted to measure whether the output of an economy was increasing or decreasing across time periods, you would use the real GDP data rather than the nominal GDP data because
exports are excluded from real GDP but not nominal.
real GDP incorporates the impact of federal budget deficits and surpluses; nominal GDP does not.
real GDP reflects the impact of transfer payments on the economy, but nominal GDP does not.
real GDP adjusts for changes in the general level of prices, but nominal GDP does not.
The GDP deflator is designed to
adjust nominal GDP for changes in the unemployment rate.
adjust nominal GDP so as to include the problem of externalities.
adjust nominal GDP for changes in the price level.
calculate changes in the price of food and other consumer goods.
Suppose that the nominal value of GDP increased by approximately 2 percent during a given year, but real GDP decreased by 3 percent. Which of the following best explains these events?
The money supply decreased by approximately 5 percent.
Prices fell by approximately 5 percent.
Prices increased by approximately 5 percent.
The real productive capacity of the economy increased by approximately 5 percent.
If national income accountants fail to make an adequate adjustment for increases in the quality of goods and services over time,
real GDP will overstate the growth rate of real output.
the GDP deflator will underestimate inflation.
the GDP deflator will overestimate inflation.
real GDP will overstate the growth of real output, and the GDP deflator will understate inflation.
The primary value of real GDP is its ability to measure year to year changes in
real output.
income inequality.
real social welfare.
the general level of prices.
Last year your job at the university cafeteria paid you $9 an hour and the price of a ten-minute long distance call to your girlfriend in California was $4. This year your cafeteria job pays $9.90 per hour and the ten-minute phone call now costs $4.10. You are clearly
worse off because of inflation.
worse off because the phone call is now relatively more expensive.
better off because your wage rate went up.
better off because the phone call now costs less work.
Over the past century, the growth rate of real GDP in the United States has averaged approximately
1 percent.
3 percent.
6 percent.
10 percent.
Economists use the term "business cycle" to refer to
the growth of small businesses into major corporations.
changes in products that occur from improved technology.
fluctuations in the level of real output and employment.
periods of increases and decreases in the rate of inflation.
The labor force participation rate of women in the United States has been
increasing for several decades.
decreasing for the past several decades after increasing dramatically in the early 1900s.
approximately constant during the last three decades.
decreasing since the early 1900s.
Suppose there was a country with an adult (age 16 and over) population of 1,000, of which 100 were unemployed and 700 were employed. Which of the following is true?
The employment population ratio is 87.5 percent.
The labor force participation rate is 70 percent.
The unemployment rate is 12.5 percent.
There are 700 individuals in this country's labor force.
Which of the following individuals would be considered unemployed by the official government definition?
Alexander, a mathematician, who returned to graduate school after failing to find a job the last four months.
Abigail, a medical student, who is still in college and is not working.
Elizabeth, who is employed part-time but desires a full-time job.
Darius, an auto worker vacationing in Florida during a layoff at a General Motors plant.
The type of unemployment caused by changes in the business cycle is
cyclical unemployment.
natural unemployment.
frictional unemployment.
structural unemployment.
Frictional unemployment is the result of
not enough jobs for everyone to be employed.
unemployed workers' skills not matching those needed for the available jobs.
a decline in the demand for labor, such as during a recession.
imperfect information and temporary periods of unemployment while workers are changing jobs.
Suppose an economy is operating at its maximum sustainable output rate. Neither recession nor economic boom are present. Which of the following would be true?
The economy would be considered at full employment.
Actual GDP would exceed potential GDP.
Actual unemployment will be less than the natural rate of unemployment.
One hundred percent of the labor force is employed.
Suppose that the consumer price index at year-end 2008 was 140 and by year-end 2009 had risen to 150. What was the inflation rate during 2009?
7.1 percent
10 percent
14.2 percent
50 percent
Which of the following is true?
Anticipated inflation is an increase in the price level that comes as a surprise, at least to most individuals.
Unanticipated inflation is a change in the price level that is widely expected.
Decision makers are generally able to anticipate slow steady rates of inflation with a fairly high degree of accuracy.
Inflation will increase the prices of goods and services that households purchase but not the wage rates of workers.
Which of the following is a correct statement?
Fiscal policy is the use of tax and spending policies by Congress and the president.
Fiscal policy involves the control of the money supply by the Federal Reserve Bank.
Monetary policy involves the control of the money supply by Congress and the president.
Monetary policy is the use of tax and spending policies by the Federal Reserve Bank.
The four key markets that coordinate the circular flow of income are
goods and services, resources, loanable funds, and foreign exchange.
consumption, investment, stock, and government.
government, household goods, bond, and business.
financial, corporate, stock, and loanable funds.
If the price level in the current period is higher than what buyers and sellers anticipated,
profit margins will be unattractive and firms will expand output.
profit margins will be unattractive and firms will reduce output.
profit margins will be attractive and firms will expand output.
profit margins will be attractive and firms will reduce output.
As the general price level in an economy rises, the aggregate quantity demanded of goods and services falls because
the prices of domestic goods have risen relative to foreign goods, causing exports to fall and imports to rise.
higher interest rates caused by an increase in the demand for money balances causes a reduction in current investment and consumption.
the value of money will fall, reducing the real wealth and, thus, the consumption of persons holding money balances.
all of the above are correct.
Other things constant, if the cost of labor goes down, the profits of firms will
increase, and short-run aggregate supply will shift to the right.
fall, and short-run aggregate supply will shift to the left.
increase, and long-run aggregate supply will shift to the right.
fall, and long-run aggregate supply will shift to the left.
Long-run equilibrium in the goods and services market requires that
aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices.
the unemployment rate is zero.
prices are neither increasing nor decreasing.
aggregate supply be larger than aggregate demand.
The resource market is important from a macroeconomic perspective because
it coordinates the allocation of productive resources and determines the costs of production.
it determines the interest rates faced by borrowers and lenders.
inflation rates are set in the resource market by the government.
resource prices determine the position of the long-run aggregate supply curve.
If the dollar price of the English pound goes from $1.50 to $1.75, the dollar has
appreciated, and Americans will find English goods cheaper.
appreciated, and Americans will find English goods more expensive.
depreciated, and Americans will find English goods cheaper.
depreciated, and Americans will find English goods more expensive.
When equilibrium is present in the foreign exchange market, which of the following will tend to be in balance?
the value of goods exported and the value of goods imported
real and nominal interest rates
imports plus capital outflow and exports plus capital inflow
tax revenues and government expenditures
If the real interest rate in the domestic loanable funds market increases,
firms will have an added incentive to undertake investment projects.
households will save less.
the net inflow of foreign capital will tend to increase.
it will be cheaper to purchase goods and services now rather than in the future.
What is GDP?
The total value of all goods and services produced within a country in a given year.
The total amount of money a government collects in taxes each year.
The total income earned by a country’s citizens, including those living abroad.
The amount of money in circulation within a country’s economy.
How do we measure GDP?
By adding up all government spending in a year.
By calculating the total value of goods and services produced within a country.
By measuring the total amount of money in circulation.
By counting only the profits of businesses in a country.
What things are excluded from GDP?
Government spending on public services.
The value of illegal transactions, unpaid work, and used goods sales.
The total revenue of all businesses in the country.
The production of goods and services by major corporations.
How can GDP be calculated given information on income, resource costs, or expenditures?
By adding up total wages, rents, interest, and profits earned in an economy.
By subtracting total imports from exports only.
By counting only the profits of businesses within a country.
By measuring only government spending and investment.
What are shortcomings of GDP measurement?
It does not account for income inequality, environmental damage, or unpaid labor.
It accurately reflects overall well-being and quality of life.
It includes all economic activity, including household and informal labor.
It adjusts perfectly for inflation and cost-of-living differences.
What are the Consumer Price Index (CPI) and the GDP deflator?
Both measure total economic output, including international trade.
The CPI tracks changes in the price of a fixed basket of consumer goods, while the GDP deflator measures price changes for all goods and services in an economy.
The GDP deflator only measures inflation in imported goods, while the CPI measures domestic production costs.
Both are used to calculate a country's total GDP.
How can inflation be calculated?
By comparing changes in the money supply over time.
By measuring the percentage change in a price index, such as the Consumer Price Index (CPI) or the GDP deflator, over a period of time.
By subtracting total imports from total exports.
By dividing GDP by the total population.
When is inflation most troublesome?
When it is steady and predictable over time.
When it is very low and prices remain stable.
When it is high, unpredictable, and outpaces wage growth, reducing purchasing power.
When it only affects luxury goods and services.
What is the difference between Real and Nominal GDP?
Nominal GDP adjusts for inflation, while Real GDP does not.
Real GDP measures total economic output, while Nominal GDP only measures consumer spending.
Nominal GDP is measured using current prices, while Real GDP is adjusted for inflation to reflect constant prices.
Real GDP includes international trade, while Nominal GDP only measures domestic production.
How can we convert nominal to real GDP?
By adding the inflation rate to the Nominal GDP.
By multiplying Nominal GDP by the current price level.
By adjusting Nominal GDP using the GDP deflator to account for inflation.
By dividing Nominal GDP by the unemployment rate.
The formula for converting Nominal GDP to Real GDP is:
Real GDP = __________ / ____________ x 100
(a)
What is a business cycle? What are the components of a business cycle?
A business cycle refers to the fluctuations in a country’s total production, and its components are expansion, peak, contraction, and trough.
A business cycle tracks changes in the stock market only, with components like growth, stagnation, and recession.
A business cycle is the process of calculating GDP and its components are government spending, investments, exports, and consumption.
A business cycle measures the fluctuations in interest rates, and its components are inflation, deflation, and stabilization.
How is unemployment measured?
By counting the number of people receiving unemployment benefits.
By calculating the total number of people employed and dividing it by the working-age population.
By determining the percentage of the labor force that is jobless and actively seeking work.
By tracking the total number of jobs available in the economy.
How is the labor force participation rate measured?
By dividing the number of unemployed people by the total population.
By dividing the number of people in the labor force by the working-age population, then multiplying by 100.
By calculating the total number of jobs available in the economy.
By subtracting the number of part-time workers from the total number of employed individuals.
How is the employment rate measured?
By dividing the number of people unemployed by the total working-age population.
By dividing the number of employed people by the total population, then multiplying by 100.
By dividing the number of employed people by the total labor force, then multiplying by 100.
By subtracting the number of people not in the labor force from the total working-age population.
(a) Rate is the percentage of the labor force that is unemployed
___________ Rate is the percentage of the total population that is employed; __________ Rate is the percentage of the total population that is in the labor force.
(a)
What are the problems of measuring unemployment?
It only counts people receiving unemployment benefits and ignores those actively seeking work.
It includes part-time workers as fully employed and may not account for discouraged workers who stop looking for work.
It only measures the number of people in the labor force and does not consider those not working due to illness.
It accurately reflects all workers, including those who are self-employed or working in the informal economy.
(a) unemployment: Unemployment that arises when there is a mismatch between the skills of workers and the demands of the job market.
(a) unemployment: Unemployment that rises and falls with the business cycle, typically increasing during recessions.
(a) unemployment: Unemployment that occurs when workers are temporarily between jobs or entering the workforce for the first time.
What is the natural rate of unemployment?
The unemployment rate that occurs when the economy is in a recession.
The unemployment rate that includes only cyclical unemployment, which fluctuates with the business cycle.
The unemployment rate that reflects the normal, long-term level of unemployment in an economy, including frictional and structural unemployment.
The unemployment rate that measures the difference between part-time and full-time workers.
What is the full employment level of output? Is there no unemployment at this level of output?
The full employment level of output is the highest possible level of economic production; at this level, there is no unemployment.
The full employment level of output is the level where the economy produces its potential output; at this level, there is no cyclical unemployment, but some frictional and structural unemployment still exist.
The full employment level of output refers to the output produced during a recession; at this level, unemployment is only cyclical.
The full employment level of output is the level of economic output where all available resources are exhausted, leading to zero unemployment.
What is the potential GDP for an economy?
The maximum level of GDP that an economy can achieve without causing inflation, assuming full employment and efficient use of resources.
The total value of all goods and services produced during a recession.
The GDP that an economy produces when there is no government intervention in the market.
The GDP measured at current market prices, without adjustments for inflation or unemployment.
Is it healthy or efficient for an economy to have some unemployed resources?
It is always unhealthy and inefficient, as it means the economy is not operating at full capacity.
It can be efficient to have some unemployed resources, as this allows for economic flexibility and adjustment in response to changes in demand.
It is healthy for an economy to have some unemployed resources because they can be easily reallocated when needed.
It is not efficient for an economy to have any unemployed resources, as this suggests inefficiency and waste.
Explain the Circular Flow Model
The Circular Flow Model shows how money circulates between businesses and the government but excludes households.
The Circular Flow Model illustrates the flow of goods, services, and money between households, businesses, and the government in an economy.
The Circular Flow Model depicts the movement of resources only between businesses, ignoring households and government.
The Circular Flow Model represents only the flow of capital and labor between businesses and foreign markets.
the ________ ___________ __________ is a theoretical framework illustrating how the supply and demand for funds interact to determine the real interest rate in an economy, connecting savers (suppliers) with borrowers (demanders).
(a)
the ________ ________ ______ is a global, decentralized marketplace where currencies are traded, facilitating international transactions and determining the price of one currency relative to another.
(a)
The _______ ________ is where businesses purchase the resources (factors of production) they need to produce goods and services, such as land, labor, capital, and entrepreneurship, from households in exchange for money.
(a)
The ___________ and _______ ___________ is where consumers pay money to acquire something. The process is carried out by simply going to the store, trading with a friend, or shopping on the internet.
(a)
Which of the following are reasons why the aggregate demand curve is downward sloping?
International Substitution Effect
Real Balances Effect
Real Interest Rate Effect
Real Aggregate Curve Effect
The aggregate demand curve is (a) sloping
The ______________________ describes how consumers switch from domestic goods to cheaper, foreign-made goods when the price of domestic goods rises, impacting net exports and potentially explaining the downward slope of the aggregate demand curve.
International Substitution Effect
Real Balances Effect
Real Interest Rate Effect
The ____________________ describes how changes in the price level impact consumer spending and aggregate demand by altering the real value of money balances held by individuals
International Substitution Effect
Real Balances Effect
Real Interest Rate Effect
The ______________________ is calculated by subtracting inflation from the nominal interest rate, affects borrowing, saving, investment, and resource allocation, ultimately impacting economic activity and purchasing power.
Real Interest Rate Effect
Real Balances Effect
International Substitution Effect
when prices rise above levels expected when costs become fixed, profits and output ________.
decrease
increase
stay the same
increase, then decrease immediately
Why is the short run aggregate supply curve upward sloping?
some input prices, like wages, are sticky, meaning they don't adjust immediately to changes in the overall price level.
some input prices, like social status, aren't sticky, meaning they immediately adjust to changes in the overall price level.
some input data, like stock market, isn't sticky, meaning it immediately adjusts to changes in the overall price level
The long run aggregate supply curve is _________
horizontal
vertical
upwards sloping
downwards sloping
in the (a) run contracts are renegotiated so that resource prices are in line with prices of goods and services.
What factors will cause the long run aggregate supply curve to shift
technological changes
change in the amount of resources
change in the rules of the game
When the SRAS curve shifts, the LRAS will...
shift as well
stay the same
it is impossible to know
What factors will cause the short run aggregate supply curve to shift?
Change is costs of production
changes in expected prices
geopolitical and natural disruptions in supply
technological changes
change in the amount of resources
What factors will cause the aggregate demand curve to shift?
Changes in wealth of consumers
Changes in expected prices (inflationary expectations)
Changes in the income of foreigners abroad
Changes in real interest rates
change in the amount of resources
The (a) approach to GDP means GDP can be calculated by summing the income payments to the resource suppliers of the things used to produce those goods and services
A _________ _________ _________ index means shifting the consumer's basket away from products that have risen to high prices.
(a)
Fill in the blanks with the following letters (some may be repeated):
A: This year's price index
B: Last year's price index
The inflation rate is calculated as [ (_________ - __________) / ____________ ] x 100
(a)
The formula for converting nominal GDP into real GDP is:
Real GDP = ___________ x (GDP______ / GDP_________)
(a)
The four phases of the hypothetical business cycle are:
(a)
The labor force participation rate = ____________________ / _________________
(a)
In a resource market, business firms demand resources because they contribute to the production of goods the firm expects to sell. The demand curve for resources slopes:
down and to the right
down and to the left
up and to the right
up and to the left
In a resource market, households supply resources in exchange for income. Higher prices increase the incentive to supply resources, thus the curve shifts:
up and to the right
up and to the left
down and to the right
down and to the left
