Macroeconomics Test Review — Questions

How is GDP calculated?

By grouping national spending on final goods and services according to the four sectors.

What is the difference between GDP and GNP?

What is considered the full employment?

An unemployment rate of four to six percent.

What does Per Capita GDP measure?

A country’s standard of living.

Describe a country with a high Per Capita GDP and one with low Per Capita GDP?

When in the business cycle do recession and depressions occur?

During the contraction.

What is the difference between recession and depression in the business cycle?

A recession is a contraction that lasts two more quarters while a depression is an extended period of high unemployment and limited business activity.

What factors affect the business cycle?

Decisions made by businesses, changes in interest rates, consumer expectations, and external issues.

Describe the type of person that is statistically most likely live in poverty?

What are the measures of inflation?

Consumer Price Index, Produce Price Index, and Inflation Rate.

Explain the difference cost-push and demand-pull inflation.

Cost-push inflation is when the cost of production increases prices but Demand-pull inflation is when total demand increases faster than production.

What are the two systems of taxation?

Benefits Received Principle and Ability to Pay Principle.

What are the three criteria do the two systems of taxation attempt to meet?

Equity, Simplicity, and Efficiency.

What are the advantages and disadvantages to progressive tax?

A higher percentage rate of taxation is placed on high-income earner than low income earners but they not only pay more in the amount of taxes but a higher percentage of taxes as well.

What are the advantages and disadvantages to regressive tax?

A larger percentage of taxes are taken from people with low incomes than from people with higher incomes because people with low incomes are more likely to use the goods and services payed for with this tax.

What are the advantages and disadvantages to proportional tax?

The same percentage of income is taken from all taxpayers regardless of their income but people with lower income technically pay more.

From what source does most government come from?

What is the purpose of tax deduction?

An expense that a taxpayer paid during a given tax year that can be used to reduce their taxable income so that they pay less in taxes.

What are the two types of government spending?

What are the three methods of government spending?

Explain how adjusting interest rates affects the economy.

Explain how fiscal and monetary policy are used to influence the business cycle.

What is the difference between fiscal policy and monetary policy?