CC - Econ 2010 - Macro test bank questions

1. Which of the following is not included in the gross domestic product (GDP)? A. Purchase of a new home. B. Investment in new computers. C. A doctor’s fee. *D. Purchase of common stock. 2. All of the following are components of the formula used to calculate gross domestic product except *A. The value of a homemaker’s work. B. Foreign net export spending. C. Government spending. D. Gross investment. 3. Gross domestic product includes which of the following measures? A. The size of a population that must share a given output within 1 year. B. The negative externalities of the production process of a nation within 1 year. *C. The total monetary value of all final goods and services produced within a nation in 1 year. D. The total monetary value of goods and services including barter transactions within a nation in 1 year. 4. For a given level of tax collections, prices, and interest rates, a decrease in governmental purchases will result in a(n) A. Increase in aggregate demand. B. Increase in aggregate supply. *C. Decrease in aggregate demand. D. Decrease in aggregate supply. 5. Investment figures are for planned investment. Amounts are in billions. Personal Consumption Real GDP Expenditures $510 $492 520 500 530 508 540 516 550 524 560 532 570 540 Assuming that taxes and net exports are zero, government purchases of goods and services are equal to $12, and gross private domestic investment is equal to $10, the equilibrium real gross domestic product will be A. $510 B. $520 *C. $530 D. $570 6. The level of aggregate demand will decline if the level of A. Imports decrease. *B. Gross private domestic investment decreases.

C. Personal consumption expenditures increase. D. Government purchases increase. 7. Which one of the following components of gross domestic product (GDP) has the greatest fluctuation from year to year? A. Personal consumption expenditures. *B. Gross domestic private investment. C. Government spending. D. Net exports. 8. A United States-based faculty member goes on sabbatical and works in Finland for a government-run university teaching classes for its International MBA program. The faculty member returns to the U.S. with a paycheck for $50,000 and spends $38,000 of it on a German manufactured car from a dealership in Miami, Florida. Using the classic expenditure model, how much does the GDP increase in each country? Germany Finland United States A. $38,000 $50,000 $50,000 B. $0 $0 $50,000 *C. $38,000 $50,000 $0 D. None of the answers are correct. 9. A privately owned subchapter S corporation increases its inventory of paper towels held for sale by 35% this year. How will this be reflected in the GDP calculation? A. As a reduction of personal consumption expenditure. *B. As an increase in gross private domestic investment. C. As a government transfer payment. D. As an increase in net exports. 10. A small country that uses the U.S. dollar as its currency is measuring its GDP for the current year. Personal consumption expenditure was $69,000 last year, and it increased by 10% this year. Gross private domestic investment was $18,000, and it decreased by 5% this year. Government purchases was $19,000, and it increased by 20% this year. Net exports of $2,000 remained the same as last year. What is the current year’s GDP based on the classic expenditure model? *A. $117,800. B. $114,000. C. $108,000. D. None of the answers are correct. 11. Under the income approach, gross domestic product (GDP) is measured as *A. Depreciation charges and indirect business taxes + Wages + Rents + Interest + Profits – Net American income earned abroad. B. Wages + Rents + Interest + Profits. C. Depreciation charges and indirect business taxes + Wages + Rents – Interest + Profits. D. Wages + Rents + Interest – Profits + Net American income earned abroad. 12. Fact pattern: The financial transactions for the country of Panglossia with values stated in billions of dollars are listed below. Gross domestic product (GDP) $4,000

Transfer payments 500 Corporate income taxes50 Social Security contributions 200 Indirect business taxes 210 Personal taxes 250 Undistributed corporate profits 25 Depreciation 500 Net income earned abroad for the country 0 Panglossia’s national income is A. $3,500 *B. $3,290 C. $3,515 D. $3,265 13. Fact pattern: The financial transactions for the country of Panglossia with values stated in billions of dollars are listed below. Gross domestic product (GDP) $4,000 Transfer payments 500 Corporate income taxes50 Social Security contributions 200 Indirect business taxes 210 Personal taxes 250 Undistributed corporate profits 25 Depreciation 500 Net income earned abroad for the country 0 Panglossia’s disposable income is A. $3,500 B. $3,290 C. $4,500 *D. $3,265 14. Using the income approach, calculate the national income used to calculate GDP with the information provided below: Interest$8,000 Salaries and wages 50,000 Net foreign factor income 7,000 Partnership income 10,000 Rents 20,000 Indirect business taxes 1,000 Corporate profits 25,000 Proprietor income 4,000 A. $107,000 *B. $117,000 C. $118,000 D. $124,000 15. Personal income is equal to A. Gross domestic product minus net domestic product.

B. Net domestic product plus transfer payments to individuals. C. Disposable income minus personal tax payments. *D. Disposable income plus personal tax payments. 16. Disposable income is equal to A. All earned income received. B. Earned income minus unearned income. *C. Income after taxes have been removed. D. National income minus personal income. 17. Each of the following is a limitation of GDP’s usefulness as a measure of a nation’s prosperity except *A. No practical means are available to compare real GDP from different time periods. B. GDP leaves out intermediate goods. C. Increases in GDP often involve environmental damage. D. Cash-only economic activity is not counted in GDP. 18. Variations between business cycles are most likely attributable to which of the following factors? A. The law of diminishing returns. B. Comparative advantage. *C. Duration and intensity. D. Opportunity costs. 19. Which of the following segments of the economy will be least affected by the business cycle? A. Commercial construction industry. B. Machinery and equipment industry. C. Residential construction industry. *D. Healthcare industry. 20. Which of the following may provide a leading indicator of a future increase in gross domestic product? A. A reduction in the money supply. B. A decrease in the issuance of building permits. C. An increase in the timeliness of delivery by vendors. *D. An increase in the average hours worked per week of production workers. 21. A business cycle is a record of the A. Currently hottest trends in consumer purchases. B. Duration of a company from its founding date to its dissolution date. *C. Recurrent fluctuations that occur in time series data for key macro variables such as real GDP. D. Average duration of product cycles, from introduction to obsolescence. 22. The trough of a business cycle is generally characterized by A. Shortages of essential raw materials and rising costs. B. Increasing purchasing power and increasing capital investments. C. Rising costs and an unwillingness to risk new investments. *D. Unused productive capacity and an unwillingness to risk new investments. 23. All of the following are stages of the business cycle except

A. Peak. B. Trough. C. Recovery. *D. Acceleration. 24. Diana has noticed that many of her coworkers at Bubble, Inc., have been laid off over the past year due to low profits. Also, prices were lowered recently due to economic conditions. Even though Diana is worried about her future at Bubble, she has noticed that employment has risen over the past month and that prices are slowly increasing. Because other companies have had the same experience, what phase of the business cycle is the economy currently in? A. Peak. B. Recession. C. Trough. *D. Recovery. 25. Which of the following statements is correct regarding an economy at the peak of the business cycle? A. The economy will be in a static equilibrium. *B. The economy will be at the natural rate of unemployment. C. Incomes will be stable. D. The rate of inflation will decrease. 26. Which of the following options describes the phases of business cycle, in order of occurrence? A. Recession, recovery, trough, peak. *B. Peak, recession, trough, recovery. C. Peak, recovery, trough, recession. D. Trough, recession, recovery, peak. 27. A country recently experienced a drop in consumer purchases and a rise in business inventories of durable goods. Wages grew slowly and unemployment increased. Business investment in plant and equipment dropped sharply and profits fell. Both interest rates and stock prices fell. Which of the following statements best represents the country’s current economy? A. Entering an economic “stagflation”. B. Exiting an inflationary period. C. Exiting a depression period. *D. Amidst an economic recession. 28. Which of the following definitions best describes a business cycle? A. Activity where the decline in the economy’s real gross domestic product (GDP) persists for at least a half-year. B. Activity marked by a relatively high level of real GDP, full employment, and inflation. *C. Activity that alternates periods of growth and decline in an economy’s GDP. D. Activity where real GDP declines, inflation moderates, and unemployment increases. 29. Which of the following statements is correct if there is an increase in the resources available within an economy? A. More goods and services will be produced in the economy. *B. The economy will be capable of producing more goods and services.