Chapter 15 – Government Macroeconomic Policy & Contempt for the Poor

Twenty flashcards covering key ideas from Chapter 15 on GDP, fiscal and monetary policy, inflation, supply-side tools, the underground economy, and related concepts.

Which of the following best describes the difference between Gross National Product (GNP) and Gross Domestic Product (GDP)?

a. GNP includes only domestic production, while GDP includes international production.
b. GDP considers only goods, while GNP considers both goods and services.
c. GNP is a measure of a country's wealth, while GDP is a measure of its income.
d. GNP includes output produced by a nation’s residents worldwide, while GDP includes output produced within a nation’s geographical borders by anyone.

GNP includes output produced by a nation’s residents worldwide, while GDP includes output produced within a nation’s geographical borders by anyone.

Among the following, which type of activity is included in the calculation of a nation's Gross Domestic Product (GDP)?

a. Volunteer work, as it contributes to societal well-being.
b. Household self-production, such as growing your own food.
b. Homemakers’ services, like childcare provided at home.
d. Services like healthcare and education, as they involve market transactions.

Services like healthcare and education, as they involve market transactions.

When analyzing economic growth and comparing a country's Gross Domestic Product (GDP) over different time periods, which measure should primarily be used to account for changes in price levels?

a. Nominal GDP, as it reflects the current market prices.
b. Both real and nominal GDP, as they provide different perspectives.
c. The GDP deflator, as it is a price index.
d. Real GDP, because it adjusts for inflation, providing a more accurate picture of output changes.

Real GDP, because it adjusts for inflation, providing a more accurate picture of output changes.

What is the fundamental cause of demand-pull inflation?

a. A decrease in aggregate supply.
b. Rising production costs for businesses.
c. Excessive government spending cuts.
d. A substantial increase in aggregate demand, leading to upward pressure on prices.

A substantial increase in aggregate demand, leading to upward pressure on prices.

Which of the following are factors that can influence and consequently change the slope of the aggregate demand (AD) curve?

a. Changes in the price of raw materials or labor.
b. Government regulations on production efficiency.
c. Technological advancements in production.
d. Changes in interest rates, shifts in consumer or investor wealth, and fluctuations in international trade conditions.

Changes in interest rates, shifts in consumer or investor wealth, and fluctuations in international trade conditions.

Consumer purchases (C), a major component of Gross Domestic Product (GDP), consist of which of the following categories of goods and services?

a. Only new houses and apartments.
b. Government spending on infrastructure and defense.
c. Business investments in equipment and inventory.
d. Durable goods (lasting over a year), nondurable goods (consumed quickly), and various services.

Durable goods (lasting over a year), nondurable goods (consumed quickly), and various services.

Among the options provided, which action represents a direct tool of expansionary fiscal policy aimed at stimulating economic activity?

a. Increasing taxes on individuals and corporations.
b. Reducing government transfers to the public.
c. Increasing regulatory burdens on businesses.
d. Increasing government purchases of goods and services to inject demand into the economy.

Increasing government purchases of goods and services to inject demand into the economy.

The 'trickle-down' economic philosophy is characterized by the belief that benefits for the wealthy will eventually reach the less affluent. Which of the following ideas is NOT typically associated with this philosophy?

a. Tax cuts for high-income earners and corporations.
b. Reduced regulation for businesses.
c. An emphasis on supply-side incentives to boost overall economic growth.
d. Implementing special government programs specifically targeting and assisting the poor directly.

Implementing special government programs specifically targeting and assisting the poor directly.

Which independent institution is primarily responsible for the direct control and implementation of monetary policy in the United States?

a. The U.S. Department of the Treasury.
b. The U.S. Congress.
c. The White House (President's economic advisors).
d. The Federal Reserve (the Fed), which manages the money supply and interest rates.

The Federal Reserve (the Fed), which manages the money supply and interest rates.

What types of economic activities are typically encompassed within a nation's 'underground economy'?

a. Only illegal activities like smuggling or drug dealing.
b. Only household production and homemaker services.
c. Activities that are officially recorded but do not contribute to GDP.
d. Both illegal activities (e.g., drug trade) and legal activities intentionally unreported to avoid taxes or regulations.

Both illegal activities (e.g., drug trade) and legal activities intentionally unreported to avoid taxes or regulations.

Regarding the components of Gross Domestic Product (GDP), which of the following statements is unequivocally true?

a. GDP exclusively measures the production of physical goods.
b. GDP primarily focuses on financial transactions and stock market activity.
c. GDP only includes products sold directly to consumers, not to businesses.
d. GDP encompasses both the production of tangible goods and the provision of intangible services.

GDP encompasses both the production of tangible goods and the provision of intangible services.

Which two approaches are commonly utilized as tools of expansionary supply-side policy, aiming to boost productive capacity and long-term economic growth?

a. Increasing public infrastructure spending and welfare benefits.
b. Raising interest rates and reducing the money supply.
c. Implementing tariffs on imported goods and increasing subsidies for exports.
d. Implementing cuts in tax rates (especially on income and investment) and reducing government regulations (deregulation).

Implementing cuts in tax rates (especially on income and investment) and reducing government regulations (deregulation).

Which of the following are accurate examples of government income transfers, representing a redistribution of income rather than payment for goods/services?

1. Salaries paid to government employees and military personnel.
2. Payments for road construction projects and public school supplies.
3. Purchases of new fighter jets for the military.
4. Social Security cash benefits, Food Stamps (SNAP), and housing assistance programs for low-income individuals.

Social Security cash benefits, Food Stamps (SNAP), and housing assistance programs for low-income individuals.

Government income transfers, such as unemployment benefits or welfare payments, are excluded from the 'government purchases' component of GDP. What is the fundamental reason for this exclusion?

a. They are considered private sector spending, not government spending.
b. They are too difficult to accurately measure and track.
c. They are already counted under 'consumer purchases'.
d. Transfers do not represent payments for newly produced goods or services; instead, they are a redistribution of existing income.

Transfers do not represent payments for newly produced goods or services; instead, they are a redistribution of existing income.

In the United States, which major component typically accounts for the largest share of total aggregate demand?

a. Government purchases (G).
b. Gross private domestic investment (I).
c. Net exports (Xn).
d. Consumer purchases (C), representing expenditures by households on goods and services.

Consumer purchases (C), representing expenditures by households on goods and services.

Does fiscal policy, which involves government spending and taxation, also encompass decisions made by the Federal Reserve regarding the nation's money supply?

a. Yes, fiscal policy integrates all government economic interventions, including monetary ones.
b. Only when the government directly intervenes in banking operations.
c. Sometimes, depending on the severity of economic conditions.
d. No, decisions about the money supply are strictly part of monetary policy, orchestrated by the Federal Reserve, distinct from fiscal policy.

No, decisions about the money supply are strictly part of monetary policy, orchestrated by the Federal Reserve, distinct from fiscal policy.

In the context of the Aggregate Supply (AS) curve, what economic condition does the vertical (or classical) range of the curve typically represent?

a. A period of severe economic recession, like the Great Depression.
b. A situation of massive unemployment and idle capacity.
c. The equilibrium point where aggregate demand equals aggregate supply.
d. The economy operating at its full-employment output level, where all available resources are fully utilized.

The economy operating at its full-employment output level, where all available resources are fully utilized.

Evaluate the following statement: 'Supply-side economic policy frequently incorporates strategies such as deregulation of industries and reductions in personal and corporate tax rates.' Is this statement True or False?

a. False. Supply-side policy focuses exclusively on government spending increases.
b. False. These actions are characteristic of demand-side policies.
c. True. These are key tools aimed at increasing the productive capacity of the economy.

True. These are key tools aimed at increasing the productive capacity of the economy.

When economists refer to the 'composition of GDP,' what exactly are they describing?

a. The total monetary value of all goods and services produced.
b. The rate at which GDP is growing or shrinking over time.
c. The average price level of all goods and services produced.
d. The specific breakdown and types of goods and services that collectively constitute a nation's total Gross Domestic Product.

The specific breakdown and types of goods and services that collectively constitute a nation's total Gross Domestic Product.

In the context of macroeconomic measurement, specifically related to consumer spending, what is the standard definition of a 'durable good'?

a. A good that is consumed immediately or within a very short period, usually less than a year.
b. Any good purchased by businesses for investment, regardless of its lifespan.
c. A good that is imported from another country and lasts a long time.
d. A tangible product that is expected to provide service or last for a significant period, typically more than one year (often three years or more).

A tangible product that is expected to provide service or last for a significant period, typically more than one year (often three years or more).