Exam 2 Chapter 7 Flashcards
The term “business cycle” most closely refers to the
Answers:
accounting period used by firms.
fiscal year.
alternating periods of expansions and recessions.
fluctuating profits of firms
alternating periods of expansions and recessions.
If depreciation is less than gross investment, then net investment is
Answers:
positive.
zero.
negative.
This situation could never occur because it is impossible for depreciation to be less than gross investment.
positive.
The word “final” in the definition of GDP refers to
Answers:
the time period when production took place.
valuing production at market prices.
not counting intermediate goods or services.
counting the intermediate goods and services used to produce GDP.
not counting intermediate goods or services.
Two methods of measuring GDP are
Answers:
the income approach and the receipts approach.
the income approach and the expenditure approach.
the goods approach and the services approach.
the saving approach and the investment approach.
the income approach and the expenditure approach.
Which of the following is NOT included in real GDP?
Answers:
production of services, such as the services of doctors
production of goods that last more than one year, such as television sets
production in the home
production of goods that do not last more than one year, such as gasoline
production in the home
Nominal GDP is the value of final goods and services
Answers:
produced in foreign countries but consumed in the domestic country.
at the prices of a base year.
at the prices of the immediately previous year.
at the prices of that year.
at the prices of that year.
GDP equals Answers: the value of the aggregate production in a country during a given time period. aggregate income. aggregate expenditure. all of the above.
all of the above.
Gross domestic product is a measure of the total value of all
Answers:
consumer income in an economy over a period of time.
sales in an economy over a period of time.
final goods and services produced in an economy over a period of time.
capital accumulation in an economy over a period of time.
final goods and services produced in an economy over a period of time.
Which of the following is NOT part of the expenditure approach to measuring GDP? Answers: gross private domestic investment net interest personal consumption expenditures net exports of goods and services
net interest
Gross investment is equal to Answers: depreciation plus net investment. net investment plus capital stock. depreciation minus net investment. net investment minus capital stock.
depreciation plus net investment.
GDP equals
C + I + G + (X - M).
The use of purchasing power parity prices
Answers:
increases the amount by which U.S. GDP is larger than that of any other nation.
weakens the validity of cross country comparisons of economic welfare.
decreases the real GDP per person statistics published by the International Monetary Fund.
accounts for differences in the prices of the same goods in different countries when measuring real GDP.
accounts for differences in the prices of the same goods in different countries when measuring real GDP.
Depreciation is defined as the
Answers:
increase in the stock of capital due to investment by firms.
decrease in the stock of capital due to investment by firms.
increase in the stock of capital due to wear and tear.
decrease in the stock of capital due to wear and tear.
decrease in the stock of capital due to wear and tear.
In the expenditure approach to GDP, the largest component is
Answers:
gross private domestic investment.
government expenditure on goods and services.
net exports.
personal consumption expenditures.
personal consumption expenditures.
Intermediate goods are excluded from GDP because
Answers:
the premise of the question is incorrect because intermediate goods are directly included in calculating GDP.
their inclusion would involve double counting.
their inclusion would understate GDP.
they represent goods that have never been purchased so they cannot be counted.
their inclusion would involve double counting.
Gross private domestic investment is a component of which approach to measuring GDP? Answers: linking approach incomes approach output approach expenditure approach
expenditure approach
Which of the following is NOT part of GDP calculated using the expenditure approach?
Answers:
Social Security payments made to the elderly
expenditures by the federal government for national defense
General Motors’ purchases of new capital equipment
the purchase of new homes by consumers
Social Security payments made to the elderly
GDP declines during Answers: the movement from peak to trough. the movement from below potential GDP back to potential GDP. the movement from trough to peak. a decrease in unemployment.
the movement from peak to trough.
Two methods of measuring GDP are
Answers:
the goods approach and the services approach.
the saving approach and the investment approach.
the income approach and the receipts approach.
the income approach and the expenditure approach.
the income approach and the expenditure approach.
The series of ups and downs the economy tends to move in is called Answers: a recession. economic growth. a depression. the business cycle.
the business cycle.
The largest component of national income is Answers: corporate profits. rental income. proprietors' income. compensation of employees.
compensation of employees.
A trough is the
Answers:
lower turning point of a business cycle when a recession begins.
upper turning point of a business cycle when an expansion begins.
upper turning point of a business cycle when a recession begins.
lower turning point of a business cycle when an expansion begins.
lower turning point of a business cycle when an expansion begins.
Question – Given the following:
Consumption of fixed capital (depreciation) $1,257
Rents $120
Indirect business taxes less subsidies $682
Social security contributions $800
Corporate income taxes $500
Undistributed Corporate Profits-retained earnings $274
Transfer payments $2,000
Personal income taxes $1,500
Compensation of employees (wages) $7,650
Net interest $571
Profits-(Corporate and Proprietors Income) $1,668
Personal Consumption expenditures $8,000
Gross private domestic investment $1,855
Government purchases $1,843
Net Exports (X-M) $300
Statistical discrepancy $50
What is GDP (Expenditure Approach)?
$11,998
the long-run maximum sustainable level of production that can be produced is Answers: potential GDP. nominal GDP. real GDP. actual GDP.
potential GDP.
An indirect tax is exemplified by Answers: a subsidy. an income tax. a sales tax. None of the above answers is correct.
a sales tax.
Question – Given the following:
Consumption of fixed capital (depreciation) $1,257
Rents $120
Indirect business taxes less subsidies $682
Social security contributions $800
Corporate income taxes $500
Undistributed Corporate Profits-retained earnings $274
Transfer payments $2,000
Personal income taxes $1,500
Compensation of employees (wages) $7,650
Net interest $571
Profits-(Corporate and Proprietors Income) $1,668
Personal Consumption expenditures $8,000
Gross private domestic investment $1,855
Government purchases $1,843
Net Exports (X-M) $300
Statistical discrepancy $50
What is Net Domestic Income at factor prices?
$10,009
Which expressions equals GDP?
compensation of employees + net interest + rental income + depreciation + corporate profits + proprietors’ income + indirect taxes - subsidies
An expansion occurs when the level of real GDP is Answers: decreasing. increasing. at a cyclical trough. at a cyclical peak.
increasing.
