ECO 372T Wk 1 – Practice: Knowledge Check

Gross Private Domestic Investment      $46

Exports of the U.S.       9

Disposable Income 190

Personal Saving     10

Government Purchases   84

Net Foreign Factor Income    10

Consumption of Fixed Capital      52

Dividends       13

Imports of the U.S.       12

Taxes on Production and Imports  22

Personal Taxes       38

Social Security Contributions       23

Statistical Discrepancy   0

Refer to the accompanying data. All figures are in billions of dollars. Personal income is

Multiple Choice

• $184.
• $221.
• $149.
• $228.

If real GDP falls from one period to another, we can conclude that

Multiple Choice

• deflation occurred.
• inflation occurred.
• nominal GDP fell.
• none of these necessarily occurred.

Real gross domestic product

Multiple Choice

• is a measure of inflation.
• will increase if the price level increases.
• will increase if the level of output increases.
• can change from one year to the next even if there is no change in output.

GDP measured using current prices is called

Multiple Choice

• nominal GDP.
• real GDP.
• constant GDP.
• deflated GDP.

Personal income will equal disposable income when

Multiple Choice

• corporate profits are zero.
• personal taxes are zero.
• transfer payments are zero.
• Social Security contributions are zero.

Which of the following statements best describes price flexibility in the economy?

Multiple Choice

• Prices tend to be sticky in the short run and stuck in the long run.
• Prices tend to be just as sticky in the short run as in the long run.
• Prices tend to be sticky in the short run but become more flexible over time.
• Prices tend to be flexible in the short run but become more sticky over time.

The amount of new output produced per year for both consumption and additions to capital stock is measured by

Multiple Choice

• GDP.
• net investment.
• NDP.
• net exports.

Value added refers to

Multiple Choice

• any increase in GDP that has been adjusted for adverse environmental effects.
• the excess of gross investment over net investment.
• the difference between the value of a firm’s output and the value of the inputs it has purchased.
• the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.

Which of the following is not a factor that increases short-run price stickiness?

Multiple Choice

• Consumers tend to prefer stable prices.
• Stable prices make it easier for consumers to plan their spending.
• A firm can lower its price without fear that rival firms will also lower their prices.
• Firms try to avoid price wars.

A higher rate of investment now will generate

Multiple Choice

• more saving now.
• more current consumption.
• more future production.
• more future inflation.

(Consider This) What is the difference between financial investment and economic investment?

Multiple Choice

• There is no difference between the two.
• Financial investment refers to the purchase of financial assets only; economic investment refers to the purchase of any new or used capital goods.
• Economic investment is adjusted for inflation; financial investment is not.
• Financial investment refers to the purchase of assets for financial gain; economic investment refers to the purchase of newly created capital goods.

The GDP price index equals

Multiple Choice

• gross private domestic investment less the consumption of fixed capital.
• gross national product less net foreign factor income earned in the United States.
• nominal GDP divided by real GDP.
• real GDP divided by nominal GDP.

Gross domestic product (GDP) measures and reports output

Multiple Choice

• as an index number.
• in percentage terms.
• in dollar amounts.
• in quantities of physical units (for example, pounds, gallons, and bushels).

Gross output (GO) for an economy in a given year

Multiple Choice

• will always be less than GDP for that economy in the same year.
• will always equal GDP for that economy in the same year.
• may be greater than or less than GDP for that economy in the same year.
• will always exceed GDP for that economy in the same year.

Which of the following is not included in personal consumption expenditures?

Multiple Choice

• new furniture and appliances bought by homeowners
• payments for cable and Internet services to homes
• purchases of mutual funds by consumers
• food purchased at supermarkets

Real GDP measures the

Multiple Choice

• total dollar value of all goods and services produced within the borders of a country using current prices.
• value of final goods and services produced within the borders of a country, adjusted for price changes.
• total dollar value of all goods and services consumed within the borders of a country, ed for price changes.
• value of all goods and services produced in the world, using current prices.

Which of the following is not an effect of inflation that is troublesome to consumers?

Multiple Choice

• Household incomes may be rising slower than the overall prices.
• The purchasing power of people’s savings would decrease.
• Workers’ wages may be rising faster than the overall price level.
• Their standard of living will fall if their household has a fixed nominal income.

Prices tend to be sticky because

Multiple Choice

• firms are worried that frequent price changes would annoy consumers.
• most firms have agreements with each other to fix prices at profit-maximizing levels.
• government controls most prices.
• foreign competition discourages domestic firms from price changes.

Refer to the figures. Which figure(s) represent(s) a situation where prices are sticky?

Multiple Choice

• A only
• B only
• both A and B
• neither A nor B

Which of the following statements is true?

Multiple Choice

• Short-run economic fluctuations are made worse because prices are flexible.
• Short-run economic fluctuations would be less severe if prices were inflexible.
• If prices were fully inflexible, there would be no short-run economic fluctuations.
• If prices were fully flexible, there would be no short-run economic fluctuations.

In economics, the word “shocks” refers to

Multiple Choice

• situations where firms’ expectations are not met.
• any change in the demand for goods and services.
• any change in the supply of goods and services.
• a decrease in real GDP.

Personal Consumption Expenditures     $400

Government Purchases   128

Gross Private Domestic Investment      88

Net Exports    7

Net Foreign Factor Income    0

Consumption of Fixed Capital      43

Taxes on Production and Imports  50

Compensation of Employees  369

Rents      12

Interest    15

Proprietors’ Income       52

Corporate Income Taxes 36

Dividends       24

Undistributed Corporate Profits    22

Statistical Discrepancy   0

Refer to the accompanying national income data for the economy. All figures are in billions of dollars. The gross domestic product for this economy is

Multiple Choice

• $584.
• $592.
• $609.
• $623.

Personal Consumption Expenditures     $400

Government Purchases   128

Gross Private Domestic Investment      88

Net Exports    7

Net Foreign Factor Income    0

Consumption of Fixed Capital      43

Taxes on Production and Imports  50

Compensation of Employees  369

Rents      12

Interest    15

Proprietors’ Income       52

Corporate Income Taxes 36

Dividends       24

Undistributed Corporate Profits    22

Statistical Discrepancy   0

Refer to the accompanying national income data for the economy. All figures are in billions of dollars. The national income is

Multiple Choice

• $561.
• $573.
• $580.
• $530.

Refer to the figure. Assuming this market is representative of the economy as a whole, a positive demand shock will

Multiple Choice

• increase both the price level and the quantity of output produced.
• increase output but leave prices unchanged.
• lower the price level but leave output unchanged.
• raise the price level but leave output unchanged.

Which of the following is not a factor that increases short-run price stickiness?

Multiple Choice

• Consumers tend to prefer stable prices.
• Stable prices make it easier for consumers to plan their spending.
• A firm can lower its price without fear that rival firms will also lower their prices.
• Firms try to avoid price wars.

Personal income will equal disposable income when

Multiple Choice

• corporate profits are zero.
• personal taxes are zero.
• transfer payments are zero.
• Social Security contributions are zero.

“Corporate profits” in the national income accounts consists of the following, except

Multiple Choice

• retained earnings.
• interest.
• dividends.
• corporate income taxes.

Modern economic growth refers to countries that have experienced an increase in

Multiple Choice

• real GDP over time.
• nominal GDP over time.
• real output spread evenly across all sectors of the economy.
• output per person.

Which among the following countries had the highest GDP per person in 2017?

Multiple Choice

• Switzerland
• United States
• Japan
• China

An economy is enlarging its stock of capital goods

Multiple Choice

• when net investment exceeds gross investment.
• when gross investment exceeds depreciation.
• whenever gross investment is positive.
• when depreciation exceeds gross investment.

The National Income and Product Accounts (NIPA) help economists and policymakers to

Multiple Choice

• determine which firms are likely to succeed or fail.
• follow the long-run course of the economy to determine whether it has grown or stagnated.
• measure what is occurring in each specific labor market.
• accomplish all of these.

Which of the following is not an effect of inflation that is troublesome to consumers?

Multiple Choice

• Household incomes may be rising slower than the overall prices.
• The purchasing power of people’s savings would decrease.
• Workers’ wages may be rising faster than the overall price level.
• Their standard of living will fall if their household has a fixed nominal income.