2301-Exam ECON 3
1. GDP is:
A) the total value of all consumer expenditures within a given period.
B) national income after taxes.
C) the total value of all final goods and services plus intermediate goods and services produced domestically within a given period.
D) the value of all final goods and services produced domestically within a given period.
E) the total value of all final goods and services minus the value of intermediate goods and services produced domestically within a
given period.
2. The goods and services that are used in the production of other goods and services are called:
A) gross domestic goods.
B) intermediate goods.
C) final goods.
D) ultimate goods.
E) preliminary goods.
3. If individuals were paid for their household production, GDP would:
A) increase.
B) not change.
C) decrease.
D) not change, but the welfare of citizens would improve.
4. The expenditure approach to GDP accounting includes:
A) consumption.
B) investment.
C) government purchases.
D) net exports.
E) all of the answer choices.
5. Which of the following is not a subcategory of consumption spending?
A) consumer services
B) consumer investment
C) consumer durable goods
D) consumer nondurable goods
6. Which of the following is not considered part of the services category under the expenditure approach to GDP accounting?
A) sporting events
B) haircuts
C) commercial airline transportation
D) privately owned jets
7. Which of the following is not included in the investment category under the expenditure approach to GDP accounting?
A) newly constructed residential housing
B) factory buildings
C) stocks and bonds
D) additions to inventory
E) All of the answer choices are included in the investment category.
8. Government purchases, under the expenditure approach to GDP accounting, do not include:
A) state government purchases of plumbing services.
B) Social Security benefit payments to retirees.
C) the salaries of military officers.
D) federal government purchases of computers.
9. Fixed investment includes all of the following except:
A) all purchases by businesses that add to their inventories.
B) all spending on capital goods.
C) all spending on producer goods.
D) all spending on goods that increase future production capabilities.
10. If a nation's imports exceed its exports:
A) net exports will be positive.
B) GDP will be less than the sum of consumption, investment, and government purchases.
C) GDP will be greater than the sum of consumption, investment, and government purchases.
D) none of the above apply.
11. The services rendered by a special agent with the Federal Bureau of Investigation is included in which expenditure category of
GDP?
A) consumption
B) investment
C) government purchases
D) net exports
E) none of the above
12. The purchase of a new scanner by a computer graphics business is included in which expenditure category of GDP?
A) consumption
B) investment
C) government purchases
D) net exports
E) none of the above
13. Household income after taxes is called:
A) national income.
B) gross domestic product.
C) disposable personal income.
D) gross national product.
E) personal income.
14. If real GDP increased by 2% and nominal GDP increased by 1%, then output:
A) increased and the price level increased.
B) increased and the price level decreased.
C) decreased and the price level increased.
D) decreased and the price level decreased.
15. A price index can be constructed by:
A) dividing the value of a market basket by the rate of inflation.
B) dividing the current-year value of a market basket by the base-year value of the same market basket and multiplying by
100.
C) multiplying the value of a market basket by the rate of inflation.
D) multiplying the current-year value of a market basket by the base-year value of the same market basket and dividing by 100.
16. If the consumer price index was 100 in the base year and 96 in the following year, the inflation rate was:
A) 96 percent.
B) 100 percent.
C) 4 percent.
D) -4 percent.
E) -6 percent.
17. Mistakenly adding the value of a good or service twice by counting the intermediate goods and services in GDP is known as:
A) value added.
B) double counting.
C) factor payments.
D) net depreciation.
18. Nominal GDP is $10,000 billion in 2000, but real GDP is only $9,000. It follows that:
A) the GDP deflator is equal to 111.
B) the GDP deflator is equal to 100.
C) the GDP deflator is equal to 90.
D) prices must have decreased relative to the base year.
19. Nominal GDP will always equal real GDP:
A) if prices are declining.
B) in the base year.
C) if prices are increasing.
D) if the economy's total production does not change.
20. In some rural regions of the United States, residents harvest much of their food supplies directly from nature by hunting, fishing,
and gathering. With regard to these subsistence activities:
A) GDP will overestimate the true value of the nation's production of final goods and services.
B) GDP will underestimate the true value of the nation's production of final goods and services only when the income approach is
used.
C) GDP will correctly estimate the true value of the nation's production of final goods and services.
D) GDP will underestimate the true value of the nation's production of final goods and services.
21. To better measure economic well being, GDP needs to:
A) find better ways to estimate the value of leisure.
B) estimate and factor in the value of the underground economy.
C) account for full production costs and factor in externalities.
D) provide a reasonable estimate for the value of the work done through volunteer efforts and inside the home.
E) do any or all of the above.
22. Economic growth is measured by the:
A) advancement in the quality of a nation's technology.
B) rate of business investment and capital formation.
C) annual percentage change in per capita real output of goods and services.
D) marginal change in nominal output divided by total output from the previous year.
23. Given a constant rate of growth of real GDP, what would lead to an increasing real GDP per capita?
A) a rate of population growth that is less than the rate of growth of real GDP
B) a rate of population growth that is greater than the rate of growth of real GDP
C) an increase in the size of the labor force
D) an increase in the capital stock
E) none of the answer choices
24. How much a country's economy will produce at its potential output is also called:
A) the trough of the business cycle.
B) its economic welfare.
C) the trend line.
D) the natural level of output.
E) the macroeconomic limit.
25. Which of the following statements is not correct?
A) Economic growth is best measured by the annual percentage change in nominal GDP per capita.
B) An economy producing along the production possibilities curve is operating at its potential output.
C) Economic growth is a crucial determinant of people's well-being.
D) If the quality of labor improves, an economy's production possibilities curve will shift outward.
26.
In any country, the population will generally be better off as long as the ____ over time and population ____.
A) quantity and quality of output decreases; does not increase faster than real output
B) quantity and quality of output increases; increases faster than real output
C) quantity and quality of output increases; does not increase faster than real output
D) technology improves; increases faster than real output
27. Which of the following did not result in economic growth?
A) Installing a network of irrigation ditches and pumping stations in order to grow fruits and vegetables in parts of southern California
B) Cyrus McCormack inventing a threshing machine for harvesting grains
C) After World War II, the U.S. instituting the GI bill, which provided education subsidies to soldiers being released from service duty
D) Many citizens emigrating from a nation when a politically repressive regime takes office
28. The rule of 70 which predicts the time required for the economy of a nation to double, is based on the mechanism of:
A) compound interest.
B) capital formation.
C) labor force productivity.
D) capital investments.
29. A country will roughly double its GDP in twenty years if its annual growth rate is:
A) 2.5 percent.
B) 3.5 percent.
C) 7.5 percent.
D) 12 percent.
E) 20 percent.
30. Country A and Country B initially have the same real GDP per capita. Country A experiences no economic growth, while Country
B grows at a sustained rate of 5 percent. In 14 years, Country A's GDP will be approximately ____ that of Country B.
A) one-fourth
B) one-half
C) double
D) triple
E) five times
31. Technology can enable producers to economize on:
A) labor.
B) capital.
C) land.
D) any of the answer choices.
32. Which of the government policies below is not likely to encourage per capita economic growth?
A) High taxes on companies that spend a lot on capital formation
B) The use of tax revenues for investment and capital formation
C) Special subsidies for capital-intensive forms of production
D) Promotion of education and training programs for workers
33. In countries with low levels of income:
A) the opportunity cost of an education is higher than in high-income countries.
B) illiteracy rates are higher than in high-income countries.
C) economies are primarily agricultural-based.
D) all of the answer choices tend to be true.
34. Higher levels of savings will result in all of following except:
A) greater economic growth.
B) higher capital formation.
C) more consumption in the future.
D) lower rates of investment.
35. Is it possible to have economic growth with no opportunity cost?
A) Yes, economic growth requires no current sacrifices-only the passage of time.
B) No, but economic growth is always worth whatever sacrifice is required.
C) No, because growth depletes the stock of knowledge so that more growth today means less growth tomorrow.
D) No, because growth requires the sacrifice of consumption goods in order to invest in capital formation and research and
development.
36. Sergei has developed a new fat substitute that has no calories and produces no side effects. In order for him to be encouraged to
bring this innovation to the marketplace he is likely to want which of the following the most?
A) time to be able to thoroughly test the fat substitute
B) an ample supply of capital to start the manufacturing process
C) a trademark
D) a patent
37. New growth theorists believe that increased economic growth is driven by:
A) higher level of savings.
B) higher level of capital investments.
C) increased foreign investment.
D) technological innovation and ideas.
38. Rapid population growth can threaten sustained economic growth if it:
A) leads to diminishing marginal returns in production.
B) remains unmonitored by government agencies.
C) enables economies of scale in production to be exploited.
D) leads to increased capital formation.
39. In the 1700s, Reverend Thomas Malthus predicted that:
A) per capita economic growth would not change very much since humans were already content with their standards of living.
B) per capita economic growth would tend to rise as modern birth control techniques caused the rate of population growth to decline.
C) per capita economic growth would eventually become negative since population growth would tend to outstrip production.
D) per capita economic growth would tend to rise in the future because technological advances in production would outpace
population growth.
40. Which of the following would not be considered an investment in human capital?
A) education
B) training programs
C) transportation infrastructure
D) literacy programs
41. People who make the arguments that economic growth will deplete natural resources make the same assumption Malthus made
about resources. What is that assumption?
A) Natural resources will never run out because they are freely available from nature.
B) Natural resources cannot be produced, so they are available in fixed quantities.
C) That new technology will limit our dependence on natural resources so they won't be depleted.
D) That the government will eventually step in to save the natural resources from depletion.
42. Changes in the growth rate of real GDP per capita do not reflect which of the following?
A) changes in the total production of final in goods the economy
B) changes in the production of final services in the economy
C) changes in the distribution of income
D) changes in the size of the population
43. Which of the following is false?
A) Accepting a reduction in current income to acquire education and training can increase future earning ability, which can raise the
standard of living.
B) Improvements in literacy stimulate economic growth by reducing barriers to the flow of information and raising labor productivity.
C) One problem of providing enough education in poorer countries is that since children in developing countries are an important part
of the labor force at a young age, there is a higher opportunity cost of education in terms of foregone contribution to family income.
D) Investment alone does not guarantee economic growth per capita.
E) None of the answer choices are false.
44. Enforcement of property rights is likely to result in:
A) more incentives to invest.
B) lower rates of economic growth.
C) political instability.
D) corruption.
45. A bank is an example of a financial intermediary.
A) True
B) False
46. A stock is an obligation issued by a corporation that promises the holder to receive fixed annual interest payments and payment of
the principal upon maturity.
A) True
B) False
47. Stocks and bonds are both considered securities.
A) True
B) False
48. The PE ratio is determined by dividing the earnings per share by the current market price of the stock.
A) True
B) False
49. A decrease in real interest rates will lead to an increase in the demand for loanable funds.
A) True
B) False
50. The 2008 financial crisis was caused by the decline of real estate values as well as several other factors.
A) True
B) False
51. Which of the following is a method by which a firm can obtain financial resources to invest in capital?
A) use of retained earnings
B) borrowing from financial intermediaries
C) selling stocks or bonds
D) all of the answer choices
52. In the loanable funds market which of the following is true?
A) Borrowers represent supply and government represents demand.
B) Borrowers represent supply and banks represent demand.
C) Banks represent supply and savers represent demand.
D) Savers represent supply and borrowers represent demand.
E) Savers represent supply and consumers represent demand.
53. "Saving" refers to ____ while "savings" refers to ____.
A) a stock concept; a flow concept
B) how much is saved within a certain time period; accumulated assets
C) a stock concept; accumulated assets
D) how much is saved within a certain time period; a flow concept
54. Which of the following is true regarding bonds?
A) Bondholders have greater financial security than stockholders.
B) The possibility of a bond's value increasing greatly is limited compared to stocks.
C) The obligation to bondholders is of higher priority than that of stockholders.
D) Higher market interest rates represent a risk to bondholders.
E) all of the answer choices
55. Based on the table below, which of the following is true assuming that the average PE ratio in this industry 15?
52-Week
YLD
VOL
HI
LO
STOCK (DIV)
DIV
%
PE
100s
CLOSE
29.42
17.49
HomeDepot
0.90
3.1
21.86
11,790
29.28
A) The stock is undervalued in comparison to other firms in the industry.
B) The total earnings are 21.86 times greater than the price.
C) The price is 21.86 times greater than the earnings per share.
D) The earnings per share are 21.86 times greater than the price.
56. If the government runs a deficit, which of the following will be true?
A) T > G - TR
B) T < G - TR
NET
CHG
+0.32
C) T > G + TR
D) T < G + TR
57. Which of the following is likely to increase the equilibrium real interest rate?
A) greater tax benefits for IRAs
B) technological improvement creating profitable investment opportunities
C) elimination of an investment tax credit for corporations
D) an increased consumption tax
58. A government budget deficit will have a:
A) positive effect on public saving causing a rightward shift in the supply of loanable funds.
B) positive effect on public saving causing a leftward shift in the supply of loanable funds.
C) negative effect on public saving causing a rightward shift in the supply of loanable funds.
D) negative effect on public saving causing a leftward shift in the supply of loanable funds.
59. According to the crowding-out effect, a budget deficit will lead to:
A) reduced investment spending and a reduction in long-term economic growth.
B) reduced investment spending and an increase in long-term economic growth.
C) increased investment spending and a reduction in long-term economic growth.
D) increased investment spending and an increase in long-term economic growth.
60. In an open economy, which of the following is true?
A) A low real domestic interest rate will cause an outflow of capital to foreign markets.
B) A low real domestic interest rate will cause an inflow of capital from foreign markets.
C) A high real domestic interest rate will cause an inflow of capital to foreign markets.
D) none of the answer choices.
61. Which of the following expenditures would be counted as consumption in GDP accounts?
A) Mary buys a new computer to check her e-mail and play computer games.
B) Mark buys a new computer for his medical economic consulting business.
C) Leslie, an EPA scientist, buys a new computer for her lab at work.
D) Juan leases a new computer for his graphic design company.
62. During the 1970s, U.S. prices generally rose faster than prices in other parts of the world. Which of the following changes would
the Open Economy Effect predict took place in response to these price level changes?
A) Americans reduced the proportion of foreign goods bought since their foreign prices became relatively lower.
B) Americans reduced the amount of investment they undertook because interest rates increased.
C) Americans reduced the amount of goods and services they wanted to purchase for consumption because they felt less wealthy.
D) Americans reduced the fraction of purchases they made from domestic producers of goods and services since foreign prices
became relatively lower.
63. As the price level increases, households and firms holdings of money ____, interest rates ____, investments ____, and the quantity
RGDP demanded ____.
A) increases, decrease, increase, decreases
B) increases, increase, increase, decreases
C) decreases, decrease, decrease, increases
D) decreases, decrease, increase, increases
E) increases, increase, decrease, decreases
64. In an open economy, as the price level increases, a(n) ____ in demand for domestic goods results in a(n) ____ in the quantity of
RGDP demanded.
A) increase, decrease
B) increase, increase
C) decrease, decrease
D) decrease, increase
65. Which of the following will cause consumption, and as a result, aggregate demand, to decrease?
A) a tax cut
B) a fall in consumer confidence
C) increased population
D) an optimistic forecast of future income growth
66. Which of the following are likely to increase investment and as a result, aggregate demand?
A) decreased demand for investment goods
B) falling real interest rates
C) rising real interest rates
D) increased business taxes
E) All of the answer choices.
67. Investment will decrease if business taxes ____, real interest rates ____, or if business confidence ____.
A) increase, increase, increases
B) decrease, decrease, decreases
C) increase, increase, decreases
D) decrease, decrease, increases
68. If the stock market continues a steady climb upwards, this ____ consumer confidence and wealth, leading to ____ consumption,
and ____ aggregate demand.
A) increases, decreased, increased
B) decreases, decreased, decreased
C) increases, increased, increased
D) increases, increased, decreased
69. An increase in investment, combined with an increase in imports, would have what effect on aggregate demand?
A) AD would increase.
B) AD would decrease.
C) AD would stay the same.
D) AD could either increase or decrease, depending on which change was of a greater magnitude.
70. Faster growth rates by a major trading partner, combined with an increase in stock market wealth, would have what effect on
aggregate demand?
A) AD would increase.
B) AD would decrease.
C) AD would stay the same.
D) AD could either increase or decrease, depending on which change was of a greater magnitude.
71. What would happen to aggregate demand if the federal government increased military purchases and state and local governments
decreased their road building budgets at the same time?
A) AD would increase, because only federal government purchases affect AD.
B) AD would decrease, because only state and local government purchases affect AD.
C) AD would increase if the change in federal purchases were smaller than the change in state and local purchases.
D) AD would decrease if the change in federal purchases was smaller than the change in state and local purchases.
72. If exports and imports both rose, but exports rose more than imports,
A) AD would fall.
B) AD would rise.
C) AD would be unaffected.
D) AD could either increase or decrease.
73. The aggregate supply curve is drawn with:
A) the price level on the vertical axis and real GDP on the horizontal.
B) the price level on the vertical axis and nominal GDP on the horizontal.
C) nominal GDP on the vertical axis and real GDP on the horizontal.
D) real GDP on the horizontal axis and the rate of unemployment on the vertical.
74. Along the long-run aggregate supply curve, the level of RGDP supplied ____ with increases in the price level.
A) does not change
B) increases
C) decreases
D) None of the answer choices.
75. Ceteris paribus, which of the following would cause the aggregate demand curve to shift to the right?
A) higher personal taxes
B) a rise in consumer confidence
C) reduced stock market wealth
D) a reduction in transfer payments
76. Which of the following observations will be valid, if major trading partners of the United States experience an economic
slowdown?
A) an increase in U.S. exports to them
B) aggregate demand will not be affected
C) U.S. net exports will fall
D) aggregate demand will shift to the right
77. The misperception effect explanation for an upward-sloping short-run aggregate supply curve is based on:
A) falling profit margins as the price level rises.
B) rising costs of production as the price level rises.
C) fixed wage labor contracts.
D) people mistaking changes in aggregate demand for changes in the demand for their goods relative to other goods and
services.
78. The long-run aggregate supply relationship refers to:
A) a time period long enough for the prices of both outputs and inputs to adjust to changes in the economy.
B) any time period of more than a year.
C) a time period in which input prices can change, but output prices have not had time to adjust.
D) a time period in which output prices can change but input prices have not had time to adjust.
79. The SRAS is ____; the LRAS is ____.
A) upward sloping; upward sloping
B) upward sloping; vertical
C) vertical; upward sloping
D) vertical; vertical
80. When the price of cotton has risen 12 percent, the misperception effect could lead cotton producers to increase their output when
they otherwise would not, if overall prices:
A) have been stable
B) have risen 4 percent.
C) have risen 12 percent.
D) have risen 20 percent.
E) have risen either 12 percent or 20 percent.
81. The LRAS curve is ____ with real output levels that ____.
A) upward sloping; vary positively with the price level
B) upward sloping; vary negatively with the price level
C) vertical; are equal to the natural level of real output at all price levels
D) vertical; can be either greater than or less than the natural level of real output
82. Which of the following would lead to stagflation?
A) demand-pull inflation
B) cost-push inflation
C) both of the above
D) none of the above
83. Demand-pull inflation is caused by:
A) an increase in aggregate demand.
B) a decrease in aggregate demand.
C) an increase in short-run aggregate supply.
D) a decrease in short-run aggregate supply.
84. Cost-push inflation is caused by:
A) an increase in aggregate demand.
B) a decrease in aggregate demand.
C) an increase in aggregate supply.
D) a decrease in aggregate supply.