Question 1

In the second circular-flow model of Chapter 2,households have two uses for their total income:

Accepted Answer

In the second circular-flow model, households have two uses for their total income which are consumption and saving.

Question 2

An individual buys shares in a mutual fund,which uses the proceeds to buy corporate stocks and bonds.This is part of the process by which

Accepted Answer

When an individual buys shares in a mutual fund, their investment contributes to the fund's pool of assets. The mutual fund then uses these assets to buy stocks and bonds issued by corporations. This is an example of firms obtaining investment goods that consumers (the shareholders) relinquish claims to. The mutual fund manages the assets and earns returns on behalf of the shareholders.

Question 3

Job openings are plentiful when the

Accepted Answer

When actual real GDP is above the natural real GDP, it indicates that the economy is operating at a level higher than its potential. This means that businesses are producing more goods and services than what would have been produced at the natural level of output, leading to an increase in the demand for labor. As a result, job openings are likely to be plentiful, as businesses expand to meet the higher demand.

Question 4

When the dollar depreciates,

Accepted Answer

When the dollar depreciates, exports become less expensive for foreign buyers, which makes them more attractive. This means that exports will increase and U.S. exporters will gain from the increased demand for their goods.

Question 5

Assume a simple economy without a government and that saving and borrowing behavior is never observed.Then the value of

Accepted Answer

In this scenario where there is no saving or borrowing behavior, all income generated from production is spent on expenditures. Therefore, the value of production is equal to income because there is no saving or borrowing to create a difference between the two.

Question 6

GDP can be measured by the

Accepted Answer

GDP is defined as the total market value of all final goods and services produced within a country in a given period of time. It includes only final goods and services because intermediate goods and services have already been included in the value of the final product. GDP does not include sales of used goods, financial transactions, or non-market activities such as unpaid household work.

Question 7

The real income per capita is a measure of the

Accepted Answer

Real income per capita measures the average income of individuals in a nation adjusted for inflation, so it provides a measure of the well-being of the average individual in the nation. It does not take into account non-monetary factors that contribute to well-being, such as access to healthcare, education, or social support.

Question 8

The cars produced by Toyota in its factory in Kentucky ________ in U.S.GDP and ________ in U.S.GNP.

Accepted Answer

The cars produced by Toyota in its factory in Kentucky are included in the calculation of U.S. GDP because they are produced within the borders of the United States. However, they would not be included in the calculation of U.S. GNP because Toyota is a Japanese company and the income generated from the production of the cars would flow back to Japan, not the United States. Therefore, the cars are counted in U.S. GDP but not in U.S. GNP.

Question 9

In the simple circular flow model containing just households and business firms,the entire product flows to ________ in exchange for ________.

Accepted Answer

In the simple circular flow model containing just households and business firms, the households provide labor services to the business firms in exchange for wages. Then the entire product flows to households in exchange for their consumer expenditures. Therefore, the correct answer is C, where households receive the product in exchange for their consumer expenditures.

Question 10

Negative net exports represent reduced investment because

Accepted Answer

Negative net exports mean that a country is importing more than it is exporting, resulting in an outflow of money. This means that foreigners will have more money spent on domestic goods in their own country rather than investing in the exporting country. Therefore, reduced investment can be a result of negative net exports.

Question 11

Which of the following is NOT a "flow" variable?

Accepted Answer

Government debt is a "stock" variable, as it represents a cumulative value of the government's outstanding debt over time. The other choices are "flow" variables, as they represent the rate at which economic activities occur over a period of time (e.g. consumption expenditure per month, labor services per hour, income per year).

Question 12

When the dollar strengthens,

Accepted Answer

When the dollar strengthens, it means that it takes more of a foreign currency to buy a dollar. This makes U.S. goods more expensive for foreign buyers, which can lead to a decrease in exports. However, it also makes foreign goods cheaper for U.S. consumers, leading to an increase in imports and benefiting U.S. consumers.

Question 13

Figure 2-2
 
-Employing the data from Figure 2-2,income Y is equal to

Accepted Answer

Looking at the graph, we can see that the line representing income (Y) intersects with the Y-axis at approximately $3,300,000. Therefore, B is the correct answer. A, C, and D are all incorrect because they are not the point at which the income line intersects with the Y-axis.

Question 14

The circular flow of income describes the

Accepted Answer

The circular flow of income describes the flow of income from domestic firms to the nonproduction sector (households) and back again in a circular manner. This includes the flow of goods and services, as well as money and resources, between the two sectors. Option B is incorrect because the circular flow of income does not refer to the amount of money in the economy, but rather the flow of income. Options C and D are incorrect because they refer to injections and withdrawals from the economy, which are not specifically related to the circular flow of income.

Question 15

From the last five recessions,the mildest two were

Accepted Answer

The mildest two recessions from the given options are 1990-91 and 2001. The 1975 and 1981-82 recessions were more severe in terms of unemployment rates and GDP contractions, while the 2008-09 recession was the longest and deepest recession since the Great Depression. The 1990-91 and 2001 recessions were relatively mild and brief, with smaller declines in GDP and lower unemployment rates compared to the other recessions in the list.

Question 16

The condition in circular-flow models whereby firms purchase all the goods not purchased by households is that

Accepted Answer

In circular-flow models, the condition where firms purchase all the goods not purchased by households is described by investment equaling saving. This reflects the balance between the goods produced and not consumed by households (savings) and the goods purchased by firms for investment purposes, ensuring that all output is accounted for either through consumption or investment.

Question 17

"Net exports" is defined as

Accepted Answer

Net exports is calculated as the difference between a country's exports and imports, therefore the correct choice is exports minus imports.

Question 18

In the simple circular flow model containing just households and business firms,all income is received by households in exchange for

Accepted Answer

In the simple circular flow model, households provide labor services to business firms in exchange for income, such as wages.

Question 19

With positive net exports,a nation is a net ________,and thus has a ________ "net foreign investment."

Accepted Answer

With positive net exports, a nation exports more than it imports, meaning it sells more goods and services to foreigners than it buys from them. This surplus allows the nation to invest abroad, making it a net buyer of foreign assets, and its net foreign investment is positive because it is investing more abroad than foreigners are investing in the nation.

Question 20

Changes in business inventories

Accepted Answer

Changes in business inventories can indeed be either positive or negative, reflecting increases or decreases in the stock of unsold goods.

Quiz 2: The Measurement of Income,prices,and Unemployment