Question

answer the following questions

Q21.When the economy experiences an expansion, it is most likely the case that-------------------------------

1. GDP is increasing, unemployment is increasing, and inflation is decreasing.
2. GDP is increasing, unemployment is decreasing, and inflation is increasing.
3. GDP is decreasing, unemployment is decreasing, and inflation is increasing.
4. GDP is decreasing, unemployment is decreasing, and inflation is decreasing.

Q22. GDP is an important economic measurement because it

1. provides valuable data on unemployment rates
2. measures the combined total of all intermediate and final goods produced.
3. measures all final goods and services produced by a country.
4. includes all economic activity, including financial transactions and purchases of used goods

Q23. Suppose a miner harvests a ton of iron ore, an iron smelter turns the iron ore into steel, and a car manufacturer turns the steel into a car.  If the miner adds a value of $1000, the iron smelter sells the steel for $3500, and the car manufacturer sells the car for $9000, how much has been added to GDP? --------------------------------------------------------------------

Q24. To accurately compare GDP between different years, what must be removed from GDP?

1. Investment spending        b. The value-added amount                  c. Government spending      d. Changes in price caused by inflation

Q25.When using the income approach to calculate GDP, the following are necessary components EXCEPT --------------------

1. wages.                                 B. interest paid to lenders.             C.  Consumer expenditures.                    D.  profits.

Q26. The difference between demand-pull inflation and cost-push inflation is that----------------------------------------------

a. demand-pull inflation is caused by a drop in aggregate demand and cost-push inflation is caused by a rise in aggregate supply.

b. demand-pull inflation is caused by a drop in aggregate supply and cost-push inflation is caused by a rise in aggregate demand.

c. demand-pull inflation is caused by a rise in aggregate supply and cost-push-inflation is caused by a drop in aggregate demand

d. demand-pull inflation is caused by a rise in aggregate demand and cost-push inflation is caused by a drop in aggregate supply.

Q27. Most policy makers try to achieve an inflation rate of around 2%-3% because--------------------------------------

a. both lenders and borrowers have come to expect these levels of inflation.

b. this ensures the economy will run at full employment.

c. it is high enough to avoid the problems of deflation, but low enough to avoid most problems associated with inflation.

d. it is ideal to have expected inflation equal unexpected inflation.

Q28. Human capital refers to----------------------------------------------

a. the infrastructure and machinery used to create a good or service.           b. the money businesses spend on machinery and finances.

c. the sophistication of the tools used in production.                                    d. the training, knowledge, education, and expertise of a worker.

Q29. If the unemployment rate is 6 percent and the number of employed is 188 million, then the labor force equals ------------- million.

Q30. Which of these are motives for holding money? More than one answer may be correct.

(a) Speculative demand             (b) Legal tender laws             (c) Effective demand                     (d) Precautionary demand  

(e) Aggregate demand                                        (f) Transactions demand                         (g) Exchange demand

Q34. What are some of the costs of inflation? More than one answer is possible.

(a) People might find themselves in higher tax brackets without earning more in real income.

(b) Frequent price changes impose costs on business owners who have to print new price menus.  

(c) People holding cash experience a diminution in the value of their holdings.

(d) Wages set in nominal terms are slow to adjust, so real wages might decline.  

(e) People lose time and resources by having to make monetary transactions more frequently.

(f) Everyday financial transactions are complicated by uncertainty about future prices.

Q35. Which of these variables tend to have large fluctuations during business cycles? More than one answer is possible.

(a) Interest rates        (b) Employment             (c) Wages                 (d) Inflation       (e) Output        (f) Consumption      (g) Investment

Q36. Assume that last year the consumer price index (CPI) was 150 and a household's nominal income was $30,000. If the CPI this year is 160, to be as well off as last year, the household should have an increase in nominal income of --------------------------                 

Q37. The natural rate of unemployment is defined as the unemployment rate that exists when the economy --------------------------

(A) is neither growing nor shrinking                  (B) has zero inflation         (C) has only cyclical and structural unemployment

(D) has no trade deficit or government deficit                         (E) produces at the full-employment output level

Q38. Gross domestic product is defined as which of the following?

(A) The total amount of output produced by an economy in a given time period

(B) The total market value of all output produced by an economy in a given time period

(C) The total market value of all final goods and services produced by an economy in a given time period

(D) The total value of all final goods and services sold in the domestic market in a given time period

(E) The total market value of all final goods and services produced by an economy minus the market value of final goods and services exported to other nations in a given time period

Q39. Assume that land can be used either for producing grain or for grazing cattle to produce beef. The opportunity cost of converting an acre from cattle grazing to grain production is the

(A) market value of the extra grain that is produced   (B) total amount of beef produced   (C) amount by which beef production decreases

(D) number of extra bushels of grain that’s produced                     (E) profits generated by the extra production of grain

Q40. Increases in real income per capita are made possible by

(A) improved productivity                     (B) a high labor/capital ratio                               (C) large trade surpluses

(D) stable interest rates                                                         (E) high protective tariffs

Answer 1

(Q21) Option (b)

When an economy expand, its aggregate demand rises, shifting AD curve to right. Real GDP and price level will increase, and higher real GDP will decrease unemployment.

(Q22) Option (c)

GDP measures the market value of all final goods and services produced within the economy in a given period.

(Q23) $9,000

Addition to GDP ($) = Value added by miner + value added by iron smelter + Value added by manufacturer

= 1,000 + (3,500 - 1,000) + (9,000 - 3,500) = 1,000 + 2,500 + 5,500 = 9,000

(Q24) Option (d)

Comparison is done between real GDP which is inflation-adjusted GDP.

NOTE: As per Answering Policy, 1st 4 questions are answered.