Question 1

If Real GDP was $9,542 billion in year 2 and it had been $9,300 billion in year 1,what was the approximate economic growth rate during this time period?
A) 9.7 percent
B) 2.4 percent
C) 3.5 percent
D) 2.6 percent

Accepted Answer

To find the economic growth rate, we need to use the formula: ((Real GDP in Year 2 - Real GDP in Year 1) / Real GDP in Year 1) x 100. Applying this formula, we get ((9542-9300)/9300) x 100 = 2.6%. Therefore, the answer is D) 2.6 percent.

Question 2

Why do economists prefer to compare Real GDP figures for various years instead of GDP figures?
A) Because when GDP in one year is higher than in another year,there is no way to tell why it is higher.Is it because output is higher,prices are higher,etc.? This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because output is higher.
B) Because when GDP in one year is higher than in another year,there is no way of knowing if the quality of goods produced is higher in one year than the other.This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because the quality of the goods produced is higher.
C) Actually the question is incorrect.Economists prefer to compare GDP figures instead of Real GDP figures.
D) Because Real GDP is easier to compute than GDP.
E) Because when GDP in one year is higher than in another year,there is no way to tell if the quality of life is higher in one year than the other.This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because the quality of life is higher.

Accepted Answer

Economists prefer to compare Real GDP figures for various years instead of GDP figures because Real GDP takes inflation into account, provide a better measure of economic growth, and shows the actual increase in output. This is not the case with GDP figures as an increase in GDP might be due to an increase in prices and not necessarily due to an increase in output.

Question 3

In the business cycle,what is the difference between the recovery phase and the expansion phase?
A) The expansion phase occurs in the rising portion of the business cycle,while the recovery phase occurs in the falling portion of the business cycle.
B) The expansion phase occurs in the falling portion of the business cycle,while the recovery phase occurs in the rising portion of the business cycle.
C) The expansion phase is the period when Real GDP increases beyond the recovery phase.
D) The expansion phase must always come before the recovery phase.

Accepted Answer

The expansion phase is characterized by the period when Real GDP grows beyond the initial recovery from a recession, indicating a sustained period of economic growth. The recovery phase is specifically the initial period of growth following a recession, leading into the expansion phase as growth continues.

Question 4

Suppose that consumption spending is $3,200 billion,spending on durable goods is $800 billion,and spending on services is $1,800 billion.What does spending on nondurable goods equal?
A) $5,800 billion
B) $600 billion
C) $2,400 billion
D) $3,200 billion
E) There is not enough information to answer this question.

Accepted Answer

According to the given information, 
Consumption spending = $3,200 billion 
Spending on durable goods = $800 billion 
Spending on services = $1,800 billion

To find spending on nondurable goods, we can subtract spending on durable goods and services from consumption spending:

Spending on nondurable goods = Consumption spending - Spending on durable goods - Spending on services 
= $3,200 billion - $800 billion - $1,800 billion 
= $600 billion

Therefore, the answer is B.

Question 5

Suppose that net exports are -$140 billion and exports are $240 billion.Imports must be equal to
A) $380 billion.
B) $100 billion.
C) $200 billion.
D) -$200 billion.
E) There is not enough information to answer this question.

Accepted Answer

Net exports are calculated as exports minus imports. Given that net exports are -$140 billion and exports are $240 billion, imports must be $240 billion + $140 billion = $380 billion to result in the negative net exports.

Question 6

An economy produces 10X,20Y,and 30Z in a year.Base-year prices for these goods are $1,$2,and $3,respectively.Current-year prices for these goods are $2,$3,and $4,respectively.What is Real GDP?
A) $180
B) $200
C) $140
D) $240
E) none of the above

Accepted Answer

Real GDP is calculated by valuing the quantities of goods produced in a given year using the prices from a base year. For this economy, the calculation is: (10X * $1) + (20Y * $2) + (30Z * $3) = $10 + $40 + $90 = $140.

Question 7

The sum of durable goods,nondurable goods,and services equals
A) investment.
B) fixed investment.
C) government purchases.
D) consumption.
E) net exports.

Accepted Answer

The sum of durable goods, nondurable goods, and services is known as personal consumption expenditures, which falls under the category of consumption in the national income accounting identity.

Question 8

Suppose that fixed investment is $480 billion and (total)investment is $630 billion.What does inventory investment equal?
A) $150 billion
B) $550 billion
C) $630 billion
D) $1,110 billion
E) There is not enough information to answer this question.

Accepted Answer

Total investment = Fixed investment + Inventory investment
$630 billion = $480 billion + Inventory investment
Inventory investment = $630 billion - $480 billion
Inventory investment = $150 billion

Question 9

Which of the following is always a characteristic of the contraction phase of the business cycle?
A) lower unemployment rates
B) a decline in Real GDP
C) higher inflation rates
D) a decline in GDP
E) all of the above

Accepted Answer

The contraction phase of the business cycle is characterized by a decline in Real GDP. The other options are not always present during the contraction phase. For example, unemployment rates may not necessarily decrease during a contraction, and inflation rates may not necessarily increase. The question asks for the characteristic that is always present, and that is a decline in Real GDP.

Question 10

Suppose that nondurable goods spending is $200 billion,durable goods spending is $400 billion,new residential housing spending is $500 billion,and spending on services is $700 billion.What does consumption equal?
A) $600 billion
B) $1,100 billion
C) $1,800 billion
D) $1,300 billion
E) There is not enough information to answer this question.

Accepted Answer

The answer of Suppose that nondurable goods spending is $200...

Question 11

Investment equals inventory investment added to
A) business purchases of new capital goods.
B) purchases of new residential housing.
C) fixed investment.
D) business purchases of new capital goods and purchases of new residential housing.
E) either c or d

Accepted Answer

Investment can be defined as the addition of new capital goods to a business's inventory or fixed investment. This includes both business purchases of new capital goods and purchases of new residential housing, which are classified as fixed investment. Therefore, the correct choice is either c or d.

Question 12

When computing national income,which of the following is included in compensation of employees?
A) wages and salaries paid to employees
B) employers' contributions to Social Security and employee benefit plans
C) the monetary value of fringe benefits,tips,and paid vacations
D) all of the above

Accepted Answer

Compensation of employees includes all the options mentioned in the choices which are wages and salaries paid to employees, employer's contributions to Social Security and employee benefit plans, and the monetary value of fringe benefits, tips, and paid vacations. Therefore, all of the above options are included while computing national income.

Question 13

What is the proper sequence of the phases of a business cycle?
A) peak,contraction,trough,expansion,recovery
B) peak,contraction,recovery,trough,expansion
C) peak,contraction,trough,recovery,expansion
D) contraction,peak,trough,recovery,expansion
E) recovery,trough,peak,expansion,contraction

Accepted Answer

The proper sequence of the phases of a business cycle is peak, contraction, trough, recovery, and expansion. This sequence represents the natural ebb and flow of the economy, with periods of growth followed by periods of decline and vice versa. Option C represents the correct order of these phases.

Question 14

Suppose that inventory investment is $20 billion and (total)investment is $680 billion.What does purchases of newly produced capital goods equal?
A) $715 billion
B) $785 billion
C) $750 billion
D) $35 billion
E) There is not enough information to answer this question.

Accepted Answer

The question asks for the value of purchases of newly produced capital goods, which is typically considered part of total investment. However, the information given only specifies the amount of inventory investment and the total investment. To find the purchases of newly produced capital goods, one would subtract inventory investment from total investment. But none of the provided options match this calculation ($680 billion - $20 billion = $660 billion), which is not listed. Therefore, there is not enough information (or the correct option is not provided) to answer the question based on the options given.

Question 15

Which of the following statements is true?
A) National income accountants consider the portion of corporate profits that is used to pay corporate profits taxes to be income earned by households but not received.
B) Net domestic product (NDP)is a smaller dollar amount than GDP.
C) Personal income includes transfer payments.
D) b and c
E) a,b,and c

Accepted Answer

A) is true because national income accountants view corporate profits taxes as part of households' income, even though these funds are not directly received by households. B) is correct because NDP is GDP minus depreciation, making it a smaller amount. C) is accurate as personal income encompasses all income received by individuals, including transfer payments like social security or unemployment benefits.

Question 16

What does annual economic growth refer to?
A) annual increases in GDP
B) annual increases in consumption spending
C) annual increases in investment spending
D) annual increases in Real GDP
E) none of the above

Accepted Answer

Annual economic growth typically refers to the annual increase in Real GDP (gross domestic product), which measures the total economic output of a country in a year, accounting for inflation. It is considered a key indicator of a country's economic performance and overall standard of living. Option A (annual increases in GDP) is similar, but without accounting for inflation it can be misleading. Options B and C (annual increases in consumption spending and investment spending) are components of GDP but do not necessarily reflect overall economic growth. Option E is incorrect as one of the given options must be correct.

Question 17

Which of the following statements is true?
A) Another name for capital consumption allowance is depreciation.
B) When there are two consecutive quarterly declines in Real GDP the economy is said to be in recession (based on the standard definition).
C) In the expansion phase of a business cycle,Real GDP rises beyond the recovery.
D) a and b
E) a,b,and c

Accepted Answer

A) The capital consumption allowance is indeed another term for depreciation, reflecting the reduction in value of capital assets over time due to use and obsolescence. B) The standard definition of a recession is often cited as two consecutive quarters of decline in real GDP, which indicates a significant drop in economic activity across the economy. C) During the expansion phase of a business cycle, real GDP increases beyond the recovery phase, marking a period of economic growth that surpasses the previous peak.

Question 18

A business cycle refers to the
A) continued expansion in Real GDP.
B) recurrent swings (up and down)in Real GDP.
C) continued decline in Real GDP.
D) period when Real GDP grows at unusually high rates.
E) none of the above

Accepted Answer

A business cycle refers to the recurrent swings (up and down) in Real GDP. It includes periods of economic expansion when Real GDP grows and periods of economic contraction when Real GDP declines.

Question 19

Which of the following statements is false?
A) For purposes of computing GDP,the purchases of new residential housing are considered investment although it is undertaken by the household sector.
B) Consumption includes spending on durable goods but not spending on services.
C) Investment includes fixed investment but not inventory investment.
D) b and c

Accepted Answer

B is false because consumption includes spending on both durable goods and services. C is also false because investment includes both fixed investment and inventory investment.

Question 20

Consumption expenditures in the U.S.usually account for approximately __________ percent of GDP.
A) 40
B) 50
C) 60
D) 70
E) 80

Accepted Answer

Consumption expenditures in the U.S. usually account for approximately 70 percent of GDP, reflecting the significant role of consumer spending in the American economy.

Quiz 7: Consumer Choice: Maximizing Utility and Behavioral Economics

If Real GDP was $9,542 billion in year 2 and it had been $9,300 billion in year 1,what was the approximate economic growth rate during this time period?

Why do economists prefer to compare Real GDP figures for various years instead of GDP figures?

In the business cycle,what is the difference between the recovery phase and the expansion phase?

Suppose that consumption spending is $3,200 billion,spending on durable goods is $800 billion,and spending on services is $1,800 billion.What does spending on nondurable goods equal?

Suppose that net exports are -$140 billion and exports are $240 billion.Imports must be equal to

An economy produces 10X,20Y,and 30Z in a year.Base-year prices for these goods are $1,$2,and $3,respectively.Current-year prices for these goods are $2,$3,and $4,respectively.What is Real GDP?

The sum of durable goods,nondurable goods,and services equals

Suppose that fixed investment is $480 billion and (total) investment is $630 billion.What does inventory investment equal?

Which of the following is always a characteristic of the contraction phase of the business cycle?

Suppose that nondurable goods spending is $200 billion,durable goods spending is $400 billion,new residential housing spending is $500 billion,and spending on services is $700 billion.What does consumption equal?

Investment equals inventory investment added to

When computing national income,which of the following is included in compensation of employees?

What is the proper sequence of the phases of a business cycle?

Suppose that inventory investment is $20 billion and (total) investment is $680 billion.What does purchases of newly produced capital goods equal?

Which of the following statements is true?

What does annual economic growth refer to?

Which of the following statements is true?

A business cycle refers to the

Which of the following statements is false?

Consumption expenditures in the U.S.usually account for approximately __________ percent of GDP.