CH 6: The Macroeconomic Perspective

Question 1

1. Which of the following statistics is usually regarded as the best single measure of a society’s economic well-being?

A. The Unemployment Rate
B. The Inflation Rate
C. Gross Domestic Product
D. The Trade Deficit

Answer 1

C. Gross Domestic Product

Question 2

2. Gross domestic product measures

a. income and expenditures.
b. income but not expenditures.
c. expenditures but not income.
d. neither income nor expenditures.

Answer 2

A. income and expenditures.

Question 3

3. Expenditures on a nation’s domestic
   production:
   a. are less than its domestic production.
   b. are equal to its domestic production.
   c. are greater than its domestic
   production.
   d. could be less than, equal to, or greater
   than its domestic production.

Answer 3

B. are equal to its domestic production.

Question 4

4. For an economy as a whole,
   a. wages must equal profit.
   b. consumption must equal saving.
   c. income must equal expenditures.
   d. the number of buyers must equal the number of sellers.

Answer 4

C. income must equal expenditures.

Question 5

5. Because every transaction has a buyer and a
   seller,
   a. GDP is more closely associated with an
   economy’s income than it is with an
   economy’s expenditure.
   b. every transaction contributes equally
   to an economy’s income and to its
   expenditure.
   c. the number of firms must be equal to
   the number of households in a simple
   circular-flow diagram.
   d. firms’ profits are necessarily zero in a
   simple circular-flow diagram.

Answer 5

B. every transaction contributes equally
to an economy’s income and to its
expenditure.

Question 6

6. For an economy as a whole, income must
   equal expenditure because
   a. the number of firms is equal to the
   number of households in an economy.
   b. individuals can only spend what they
   earn each period.
   c. every dollar of spending by some buyer
   is a dollar of income for some seller.
   d. every dollar of saving by some
   consumer is a dollar of spending by
   some other consumer.

Answer 6

C. every dollar of spending by some buyer
is a dollar of income for some seller.

Question 7

7. If an economy’s GDP falls, then it must be
   the case that the economy’s
   a. income falls and saving rises.
   b. income and saving both fall.
   c. income falls and expenditure rises.
   d. income and expenditure both fall.

Answer 7

D. income and expenditure both fall.

Question 8

8. Which of the following statements about
   GDP is correct?
   a. GDP measures two things at once: the
   total income of everyone in the
   economy and the unemployment rate
   of the economy’s labor force.
   b. Money continuously flows from
   households to the government and
   then back to households, and GDP
   measures this flow of money.
   c. GDP is to a nation’s economy as
   household income is to a household.
   d. All of the above are correct.

Answer 8

C. GDP is to a nation’s economy as
household income is to a household.

Question 9

9. In the actual economy, goods and services
   are purchased by
   a. households, but not firms or the
   government.
   b. households and firms, but not the
   government.
   c. households and the government, but
   not firms.
   d. households, firms, and the
   government.

Answer 9

D. households, firms, and the
government.

Question 10

10. GDP is defined as the
    a. value of all goods and services
    produced within a country in a given
    period of time.
    b. value of all goods and services
    produced by the citizens of a country,
    regardless of where they are living, in a
    given period of time.
    c. value of all final goods and services
    produced within a country in a given
    period of time.
    d. value of all final goods and services
    produced by the citizens of a country,
    regardless of where they are living, in a
    given period of time.

Answer 10

C. value of all final goods and services
produced within a country in a given
period of time.