Homework answers / question archive / Kennesaw State University - ECON 2200 ECON 2200 Chapter 5 Practice Questions  1)An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n): A) unemployment trap

Kennesaw State University - ECON 2200 ECON 2200 Chapter 5 Practice Questions  1)An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n): A) unemployment trap

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Kennesaw State University - ECON 2200

ECON 2200 Chapter 5 Practice Questions

 1)An economic recovery that produces too few jobs to significantly reduce the unemployment rate is known as a(n): A) unemployment trap.

1. 2. recession.
   3. jobless recovery.
   4. microeconomic problem.

 

2. Macroeconomics was developed to explain: A) the Great Depression.
   2. jobless recoveries.
   3. the Industrial Revolution.
   4. the Internet boom.

 

3. Over the past 150 years, the U.S. economy has endured a recession on average about every:
   1. one to two years.
   2. four to five years.
   3. 10 to 15 years
   4. 50 years

 

4. An economy has historically grown at a rate of 1.25%. Economic activity decreased every quarter over the past year, but the decline stopped this quarter. The economy is expected to grow at a rate of 1.4% in the near future, and the monetary authorities are concerned that inflation may increase. This economy is probably in the _____________ stage of the business cycle.
   1. expansion
   2. recovery
   3. contraction
   4. trough

 

5. Suppose the Federal Reserve Bank of Chicago's National Activity Index drops to –0.83 this month after being above +0.36 for the previous three months. This movement in the index indicates that:
   1. the economy has probably moved into a recession.
   2. the rate of economic growth has slowed, but not enough to suggest that a recession is imminent.
   3. the rate of economic growth has dropped below the historical trend rate of growth, and the economy has reached a trough.
   4. the economy is at its peak this month but will move into the recession stage in the near future.

 

6. A business cycle is:
   1. the periodic fluctuation of economic activity.
   2. the engine of economic growth.
   3. a period lasting about 50 years.
   4. identical to the consumption life cycle.

 

7. During a typical economic recovery: A) inflation drops.
   2. people become pessimistic.
   3. unemployment drops.
   4. incomes fall.

 

8. Business cycles:
   1. are always the same duration.
   2. are always the same magnitude.
   3. are always the same duration and magnitude.
   4. vary in duration and magnitude.

 

9. Which phase of the business cycle occurs immediately after a recovery?
   1. peak
   2. trough
   3. boom
   4. recession

 

10. The National Activity Index:
    1. is a weighted average of 85 indicators of national economic activity.
    2. is a weighted average of estimates of economic activity by the National Bureau of Economic Research (NBER) and the Bureau of Economic Activity (BEA). C)            is produced by the NBER.

D) is a measure of unemployment and participation in the labor force.

 

11. We are least likely to be heading into a recession when the National Activity Index equals:
    1. –0.33.
    2. 0.55.
    3. –0.98.
    4. 0.81.

 

12. When the National Activity Index is at zero, the economy is growing at _____ rates.  Negative values imply _____ trends. Positive values imply that growth is _____ the long-term trend.
    1. rapidly; slowing; equal to
    2. slowly; accelerating; equal to
    3. historical; slowing; faster than
    4. historical; accelerating; slower than

 

13. A change in the Leading Economic Index is supposed to reflect: A) how the economy behaved in the recent past.
    2. how the economy is behaving.
    3. how the economy will behave in the near future.
    4. an average of how the economy has behaved over the most recent business cycle.

 

14. We are most likely to see a recession if interest rates on long-term bonds are: A) higher than interest rates on short-term bonds.
    2. the same as interest rates on short-term bonds.
    3. rising.
    4. lower than interest rates on short-term bonds.

 

15. According to the circular flow model, the value of the household sector and the value of the business sector will: A) never be the same.
    2. always be equal.
    3. differ by the amount of the resource market.
    4. differ by the amount of the product market.

 

16. The two approaches used by government in estimating GDP are: A) statistical and nonstatistical.
    2. survey and nonsurvey.
    3. income and earnings.
    4. expenditure and income.

 

17. Gross domestic product is the total market value of all:
    1. final goods and services produced in the United States by labor and property.
    2. final and intermediate goods and services produced in the United States by labor and property.
    3. intermediate goods produced in the United States by labor and property.
    4. final goods and services sold in the United States.

 

18. Which component is the smallest part of U.S. GDP?
    1. personal consumption expenditures
    2. gross private domestic investment
    3. government purchases of goods and services
    4. net exports

 

19. If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: A) $160.
    2. $180.
    3. $150.
    4. $140.

 

20. John earns $2,000. His taxes are $250 and he spends $1,500. Therefore, his savings must be:
    1. $1,500.
    2. $500.
    3. $250.
    4. His savings cannot be calculated from the data given.

 

21. Which component of GDP includes inventory changes?
    1. consumption
    2. investment
    3. government spending
    4. Inventory changes are not included in GDP.

 

22. Which of the following items is NOT a category of personal consumption expenditures?
    1. durable goods
    2. nondurable goods
    3. residential housing
    4. services

 

             

Use the following to answer questions 23-25:

 

GDP Expenditures for 2010 

Expenditure	Billions
Personal consumption	$10,353.5
Gross private domestic investment	1,769.1
Exports	1,746.1
Imports	2,251.5
Government purchases	2,975.1
Capital consumption allowance	1,030.2

 

23. (Table) According to the table, net exports of goods and services are equal to: A) $505.4 billion.
    2. –$505.4 billion.
    3. –$738.9 billion.
    4. $738.9 billion.

 

24. (Table) According to the table, GDP for 2010 was: A) $15,603.1 billion.
    2. $16,843.8 billion.
    3. $14,592.3 billion.
    4. $13,562.1 billion.

 

25. (Table) According to the table, net domestic product for 2010 was: A) $14,592.3 billion.
    2. $738.9 billion.
    3. $15,622.5 billion.
    4. $13,562.1 billion.

 

26. If a car is produced in Detroit in 2013 but not sold until 2014, it should be included in ______ GDP, and its value should be counted in ________________.
    1. 2013's; inventory changes
    2. 2013's; durable goods
    3. 2014's; durable goods
    4. 2014's; personal consumption expenditures

 

27. A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $180. The change in GDP would be: A) $30.
    2. $180.
    3. $270.
    4. zero, because wool suits are worthless.

 

28. The value of the cars that the Ford Motor Company produces in a German plant: A) is a part of U.S. GDP.
    2. is not a part of U.S. GNP.
    3. is a part of German GNP.
    4. is a part of German GDP.

 

29. If I hire a lawn service to mow my grass, the monies I pay the service are included in the GDP, whereas if I mow my own lawn, the value of this service is not included in the GDP. This fact represents a criticism of the GDP's focus on: A) avoidance of double counting.
    2. market-produced goods and services.
    3. domestic versus national product.
    4. final values of goods and services.

 

30. Government expenditures include ________ and ________ but NOT ________.
    1. wages and salaries; transfers; the purchase of products and services
    2. transfers; the purchase of products and services; wages and salaries
    3. wages and salaries; the purchase of products and services; transfers
    4. Government expenditures include wages and salaries, transfers, and the purchase of products and services.

 

31. The income approach to calculating GDP includes compensation of employees plus: A) corporate profits and rental income.
    2. national income and government expenditures.
    3. net interest and net exports.
    4. rental income and net exports.

 

             

Use the following to answer questions 32-33:

 

Personal consumption expenditures	$900
Personal taxes	$180
Government expenditures	$300
Exports	$40
Imports	$75
Interest income	$60
Depreciation	$50
Gross private domestic investment	$200

 

32. (Table) According to the table, what is this country's GDP?
    1. $1,225
    2. $1,305
    3. $1,365 D) $1,440

 

33. (Table) According to the table, what is the value of this country's net exports?
    1. $35
    2. –$35
    3. $115
    4. –$115

 

34. Last year, Marian earned $25,000, paid $2,000 in taxes, and saved $5,000. Marian's personal income is ______, disposable personal income is ______, and consumption spending is ______.
    1. $20,000; $18,000; $13,000
    2. $25,000; $23,000; $18,000
    3. $25,000; $18,000; $13,000
    4. $23,000; $21,000; $18,000

 

35. At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left it. Since that time, the city has greatly reduced its air and water pollution.

As a result of cleaner air and water:

1. 1. the standard of living of the citizens of Pittsburgh increased, even though the improvement in the environment was not reflected in its GDP. B)      the value of the GDP increased.

1. 3. the value of the GDP increased in the year that the improvements were made but did not change in ensuing years.
   4. the standard of living of the citizens of Pittsburgh did not change.

 

36. When Mr. Wilson worked full time, he paid a cleaning service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP?
    1. GDP is unaffected by this change.
    2. GDP falls as a result of this change.
    3. GDP at first rises but then falls.
    4. GDP rises as a result of this change.

 

37. Which of the following items would be included in the GDP accounts?
    1. personal time spent learning how to use accounting software
    2. personally rotating the tires on your neighbor's car
    3. caring for your aged grandmother at home
    4. $50 consultation on the phone with a psychic adviser

 

38. Which of the following statements about environmental quality and economic activity is

TRUE?

1. 1. Wealthier countries tend to value environmental quality more than developing countries.
   2. As countries develop, they spend on less resources to improve environmental quality.
   3. No measure of economic progress incorporates environmental quality.
   4. Developing countries generally prefer to keep their environments pristine, even at the cost of such necessities as food and health care.

 

39. Use the information in this table to sketch out a business cycle and to label a downturn and a recovery.

Year          Real GDP (millions)

1. 1. 1. $6
      2. $4
      3. $
      4. $5
      5. $7
      6. $

 

40. The table that follows shows components of aggregate expenditures. What is GDP according to the expenditure approach? What are the amounts of the major categories of spending?

 

National Income and Product Accounts Categories     Thousands

Residential housing	$15
Consumption expenditures on durable goods	30
Exports	20
Government purchases	10
Consumption expenditures on nondurable goods	50
Changes in inventory	5
Imports Domestic investment (excluding inventory changes and	15
residential housing)	10