practice-problems

practice-problems - Practice Problems 1) If real salaries...

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Practice Problems 1) If real salaries increase but nominal salaries do not, this means that: A) the purchasing power of money has decreased. B) prices have not changed. C) prices have risen. D) prices have fallen. Answer: D 2) Suppose your bank pays you 4 percent interest per year on your savings account, so that $100 grows to $104 over a one-year period. If prices increase by 3 percent per year over that time, approximately how much do you gain by keeping $100 in the bank for a year? A) $0 B) $1 C) $3 D) $4 Answer: B 3) When product prices increase faster than nominal wages increase, the real value of wages decreases. Answer: TRUE 4) If product prices decrease more than nominal wages decrease, the real value of wages will decrease. Answer: FALSE 5) The circular flow is used to make the point that: A) rising prices never occur during times of unemployment. B) unemployment only occurs during a recession. C) production generates income. D) households purchase factors of production from firms. Answer: C 6) As depicted in the circular flow diagram, firms: A) demand the goods and services that households supply in product markets. B) supply the goods and services that households demand in product markets. C) demand the resources that households supply in product markets. D) supply the resources that households demand in factor markets. Answer: B 7) Gross domestic product calculations count only final goods and services because: A) these are the only goods and services that are purchased in an economy. B) counting all goods and services would lead to double-counting of many activities. C) it is difficult to measure the prices of intermediate goods produced.
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D) one cannot calculate the quantities of intermediate goods produced. Answer: B 8) "Final goods and services" are those that are: A) produced outside the United States. B) used in the production of other goods and services. C) double counted in the calculation of GDP. D) sold to ultimate or final purchasers. Answer: D 9) A rancher raises sheep. Once a year he shears them and sells the raw wool to a processor who cleans it and spins it into yarn. The yarn is then sold to a knitting mill, which produces and sells sweaters. In calculating GDP we would count: A) the raw wool, the yarn and the sweaters. B) only the yarn and the sweaters. C) only the sweaters. D) only the raw wool and the yarn. Answer: C 10) When there are sustained increases in real GDP over time, we say that the economy is undergoing: A) economic stagnation. B) a recession. C) economic growth. D) massive changes in productive capacity. Answer: C 11) Which prices are used to measure goods and services in calculating the GDP? A) past years prices B) current prices C) average prices D) projected prices Answer: B 12) Which of the following is not a component of gross domestic product? A) net exports
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This note was uploaded on 07/23/2008 for the course ECON 2006 taught by Professor Rdcothren during the Summer '08 term at Virginia Tech.

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practice-problems - Practice Problems 1) If real salaries...

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