Untitled Flashcards Set

Chapter 10: GDP

Q: What is the basic definition of GDP?
A) The total value of all goods produced in a country
B) The market value of all final goods and services produced within a country in a given period
C) The value of all products sold in a country
D) The amount of money circulating in an economy
Answer: B

Q: What is the more technical definition of GDP?
A) The market value of all final goods and services produced within a country in a given period
B) The value of all goods sold in a country
C) The total revenue of all businesses in a country
D) The total savings and investments in a country
Answer: A

Q: How do you calculate GDP?
A) C + I + G + NX
B) C + S + T + NX
C) P + R + I + D
D) Income – Expenses
Answer: A

Q: What are the four components of GDP?
A) Consumption, Investment, Government Spending, and Net Exports
B) Wages, Rent, Interest, and Profit
C) Stocks, Bonds, Loans, and Transfers
D) Imports, Exports, Investment, and Consumption
Answer: A

Q: Which of the following is an example of investment (I) in GDP?
A) A company purchasing new machinery
B) A family buying groceries
C) A government agency paying salaries
D) A person purchasing stocks
Answer: A

Q: What is included in GDP?
A) New car purchases, government spending, and exports
B) Used goods, transfer payments, and financial transactions
C) Volunteer work, household labor, and black-market sales
D) Unpaid work, secondhand sales, and social security payments
Answer: A

Q: How are newly constructed houses counted in GDP?
A) As part of consumption
B) As part of investment
C) As part of government spending
D) They are not included in GDP
Answer: B

Q: How are previously constructed, occupied houses counted in GDP?
A) As part of investment
B) As part of consumption
C) They are not included in GDP
D) As part of government spending
Answer: C

Q: How do goods that go into inventories affect GDP?
A) They are counted as investment
B) They are not included in GDP
C) They are only counted if sold within the same year
D) They are considered government purchases
Answer: A

Q: How do transfer payments (e.g., Social Security) affect GDP?
A) They increase GDP
B) They decrease GDP
C) They are not included in GDP
D) They are part of consumption
Answer: C

Q: How do imports affect GDP?
A) They increase GDP
B) They decrease GDP
C) They do not affect GDP
D) They count as part of investment
Answer: B

Q: How do you calculate Nominal GDP?
A) Using current prices
B) Using base year prices
C) Using inflation-adjusted values
D) Subtracting imports from exports
Answer: A

Q: How do you calculate Real GDP?
A) Using current prices
B) Using base year prices
C) Adding inflation to Nominal GDP
D) Only including government spending
Answer: B

Q: What does the GDP Deflator measure?
A) The inflation rate between Nominal and Real GDP
B) The unemployment rate
C) The total government spending
D) The total net exports
Answer: A

Q: How do you calculate the GDP Deflator?
A) (Nominal GDP / Real GDP) × 100
B) (Real GDP / Nominal GDP) × 100
C) (Consumption + Investment + Government Spending) ÷ Net Exports
D) (Government Spending / Total GDP) × 100
Answer: A

Q: How do you compute the inflation rate using the GDP Deflator?
A) [(New GDP Deflator – Old GDP Deflator) / Old GDP Deflator] × 100
B) (Nominal GDP – Real GDP) ÷ Real GDP
C) (Exports – Imports) ÷ GDP
D) (Consumption + Investment + Government Spending) ÷ GDP
Answer: A

Q: What are some problems with using GDP as a measure of economic well-being?
A) It doesn’t account for environmental damage or income inequality
B) It perfectly represents economic prosperity
C) It includes non-market activities like household work
D) It accounts for all informal transactions
Answer: A

Chapter 11: CPI

Q: What are the five steps for creating the CPI Index?
A) Fix the basket, find prices, compute the cost of the basket, choose a base year, compute the index
B) Collect wages, calculate GDP, determine total savings, analyze stock market trends, compute the index
C) Track government spending, measure employment, adjust inflation, compute the deflator, calculate CPI
D) None of the above
Answer: A

Q: How do you calculate CPI?
A) (Cost of basket in current year / Cost of basket in base year) × 100
B) (Nominal GDP / Real GDP) × 100
C) (Government spending / Total GDP) × 100
D) (Total wages / Total consumption) × 100
Answer: A

Q: What are problems with CPI?
A) Substitution bias, introduction of new goods, unmeasured quality changes
B) It accounts for all spending perfectly
C) It includes only imports
D) It never changes over time
Answer: A

Q: How does the GDP Deflator differ from CPI?
A) GDP Deflator measures all domestic production, while CPI measures a fixed basket of consumer goods
B) They are the same measure
C) CPI includes everything produced in an economy
D) GDP Deflator excludes investment
Answer: A

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Chapter 13: Financial System in a Closed Economy

Q: What are financial markets?
A) Institutions where savers directly provide funds to borrowers
B) Places where only governments invest money
C) The total sum of all household savings
D) A collection of businesses that sell consumer goods
Answer: A

Q: Which of the following are examples of financial markets?
A) Bonds and stocks
B) Banks and mutual funds
C) Savings accounts and checking accounts
D) Taxes and government spending
Answer: A

Q: What are financial intermediaries?
A) Institutions that indirectly provide funds from savers to borrowers
B) The government agencies that regulate financial markets
C) The stock and bond markets
D) Individuals who lend money to businesses
Answer: A

Q: Which of the following are examples of financial intermediaries?
A) Banks and mutual funds
B) Bonds and stocks
C) Governments and private corporations
D) Investment brokers and real estate agents
Answer: A

Q: What is the national income identity for a closed economy?
A) Y = C + I + G
B) Y = C + I + G + NX
C) GDP = Exports - Imports
D) Y = Consumption + Wages + Savings
Answer: A

Q: What is private saving?
A) The portion of household income not used for consumption or taxes
B) The amount the government saves after spending
C) The total income earned by all businesses
D) The total government debt
Answer: A

Q: What is public saving?
A) The difference between tax revenue and government spending
B) The portion of household income not spent
C) The revenue earned by private businesses
D) The amount of money spent by the government on infrastructure
Answer: A

Q: What is a budget deficit?
A) When government spending exceeds tax revenue
B) When the government has extra money
C) When private saving exceeds public saving
D) When exports are greater than imports
Answer: A

Q: What is national saving in a closed economy equal to?
A) Private saving + Public saving
B) Consumption + Investment
C) Government spending + Net exports
D) Tax revenue + Wages
Answer: A

Q: What does the market for loanable funds represent?
A) The flow of savings into investment
B) The stock market fluctuations
C) Government budgeting decisions
D) The demand for bonds and stocks
Answer: A

Q: Why does the supply of loanable funds slope upward?
A) Higher interest rates encourage more saving
B) Higher interest rates encourage borrowing
C) The government controls savings rates
D) Investors always prefer to borrow money
Answer: A

Q: Why does the demand for loanable funds slope downward?
A) Higher interest rates discourage borrowing
B) Higher interest rates encourage borrowing
C) Businesses want to invest at any rate
D) There is no relationship between interest rates and investment
Answer: A

Q: What determines the real interest rate?
A) The equilibrium in the loanable funds market
B) The total money supply
C) The number of people in the labor force
D) The government’s budget decisions
Answer: A

Q: What is the crowding-out effect?
A) When government borrowing reduces private investment
B) When businesses take over government projects
C) When interest rates drop to zero
D) When public savings increase private investments
Answer: A

Chapter 15: Unemployment

Q: What is the labor force?
A) The total number of employed and unemployed workers
B) Only people currently employed
C) Only people actively seeking jobs
D) The sum of all part-time workers
Answer: A

Q: Who is included in the labor force?
A) Employed and unemployed individuals actively seeking work
B) Retired individuals
C) Full-time students who do not work
D) Stay-at-home parents
Answer: A

Q: Who is not included in the labor force?
A) Retired individuals, full-time students, and discouraged workers
B) Unemployed workers actively seeking jobs
C) Part-time workers
D) Self-employed individuals
Answer: A

Q: How do you calculate the labor-force participation rate?
A) (Labor force / Adult population) × 100
B) (Employed / Adult population) × 100
C) (Unemployed / Labor force) × 100
D) (Total workforce / Total population) × 100
Answer: A

Q: How do you calculate the unemployment rate?
A) (Unemployed / Labor force) × 100
B) (Labor force / Population) × 100
C) (Employed / Population) × 100
D) (Total job openings / Total workforce) × 100
Answer: A

Q: What are some problems with the unemployment rate?
A) It does not distinguish between full-time and part-time work
B) It accurately measures all joblessness
C) It includes discouraged workers as unemployed
D) It accounts for all informal labor
Answer: A

Q: What is the natural rate of unemployment?
A) The normal level of unemployment that persists in an efficient economy
B) Unemployment that occurs only during recessions
C) The lowest possible unemployment rate
D) The percentage of people who choose not to work
Answer: A

Q: What is cyclical unemployment?
A) Unemployment that rises during economic downturns
B) Unemployment caused by changing technology
C) The long-term unemployment rate
D) Voluntary joblessness
Answer: A

Q: What is frictional unemployment?
A) Unemployment that occurs when workers take time to find jobs
B) Long-term unemployment due to job loss in declining industries
C) Unemployment caused by minimum wage laws
D) Unemployment that exists only in recessions
Answer: A

Q: What causes frictional unemployment?
A) Job search, sectoral shifts, and unemployment insurance
B) Minimum wage laws
C) Declining industries and union activities
D) Economic recessions only
Answer: A

Q: What is structural unemployment?
A) Unemployment caused by mismatches between workers' skills and job requirements
B) Unemployment that naturally fluctuates with the business cycle
C) Voluntary unemployment
D) Short-term job loss
Answer: A

Q: What are causes of structural unemployment?
A) Minimum wage laws, unions, and efficiency wages
B) Job search and temporary layoffs
C) Government subsidies
D) Business cycle fluctuations
Answer: A