AP Economics: Ch. 15 Multiple Choice 67 Sample Questions

Ch. 15 Multiple Choice 67 Sample Questions

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1. The reason the government collects aggregate economic statistics on the economy is that:
A) aggregate data are less prone to political bickering.
B) the law requires it.
C) aggregate statistics are less costly to compute.
D) different firms experience the business cycle differently.


2. An example of an indicator tracked by macroeconomists is:
A) the price of apples.
B) gross domestic product.
C) employment in the mining industry.
D) the production of laptops.


3. Which of the following events has exerted a strong influence on the development of macroeconomic theory?
A) Great Depression
B) fall of feudalism
C) periods of rapid deflation
D) excessive government budgetary surplus


4. The Great Depression:
A) occurred in the period before World War I.
B) led economists to begin studying macroeconomic activity.
C) was caused by hyperinflation.
D) can be cured by administering Prozac to the entire population.


5. Whose analysis serves as the foundation of modern macroeconomics?
A) Milton Friedman
B) John Maynard Keynes
C) Adam Smith
D) Joseph Schumpeter


6. Which of the following occurrences is NOT referred to as a major event that has shaped macroeconomic ideas?
A) massive budget deficits
B) hyperinflation
C) large trade deficits
D) Great Depression


7. One of the reasons excessive budget deficits create a macroeconomic problem is that:
A) savers quit saving money because the interest rate declines.
B) businesses quit investing because the interest rate increases.
C) consumers quit spending because taxes are too high.
D) government quits spending because taxes are too low.


8. The Employment Act of 1946:
A) was an attempt to reduce the unemployment rate to zero percent.
B) made the federal government officially responsible for the national goal of full employment.
C) was later repealed by the Humphrey-Hawkins Act.
D) unintentionally resulted in high inflation.


9. According to the Full Employment and Balanced Growth Act of 1978, all of the following are macroeconomic goals EXCEPT:
A) full employment.
B) price stability.
C) economic growth.
D) interest rate stability.


10. Major macroeconomic data in the early 1980s show:
A) high unemployment and high inflation.
B) high unemployment and low inflation.
C) low unemployment and high inflation.
D) low unemployment and low inflation.


11. For the last 45 years, the growth of the U.S. GDP has varied between approximately:
A) –4% and +7%.
B) 0% and 2%.
C) –25% and +25%.
D) 7% and 10%.


12. A business cycle is:
A) the periodic fluctuation of economic activity.
B) the engine of economic growth.
C) a period lasting about 50 years.
D) identical to the consumption life cycle.


13. Each business cycle has the same basic elements of peak, recession, trough, and recovery. Furthermore:
A) the business cycle cannot be on an upward trend.
B) no two business cycles are exactly alike in cause and duration.
C) the business cycle has a steady cycle of ten years.
D) the recession and recovery are of equal duration and magnitude.


14. In order, the four phases of the business cycle are:
A) peak, recession, expansion, and trough.
B) trough, expansion, recession, and peak.
C) peak, recession, trough, and expansion.
D) trough, recession, expansion, and peak.


15. The high point of a business cycle is called the:
A) trough.
B) expansion.
C) recession.
D) peak.


16. A recession historically lasts between:
A) 6 and 16 months.
B) 2 and 4 years.
C) 1 and 11 years.
D) 2 and 3 months.


17. During a typical economic recovery:
A) inflation drops.
B) people become pessimistic.
C) unemployment drops.
D) incomes fall.


18. U.S. business cycles since 1950 have shown:
A) expansions to be just as lengthy as recessions.
B) expansions to be longer than recessions.
C) expansions to be shorter than recessions.
D) stable unemployment rates.


19. Which organization dates business cycles?
A) Federal Reserve
B) National Bureau of Economic Research
C) Bureau of Commerce and Labor Department
D) Bureau of Economic Analysis


20. Since 1983, the intensity of the business cycle has been reduced due to all but which of the following factors?
A) reduction in the size of the budget deficit relative to real GDP
B) better supply chain management
C) increasing shift to a service economy
D) technological improvements in computers and communications


21. Since 1982, recessions have:
A) disappeared from the American economy.
B) become more severe.
C) become less severe.
D) not changed.


22. In the last few decades, recessions have been becoming less pronounced. However, at the same time:
A) rising interest rates have reduced the strength of the expansions.
B) inflation has rapidly accelerated.
C) fewer jobs have been created during economic recoveries.
D) the unemployment rate has risen considerably during periods of expansion.


23. One of the problems with recessions since 1982 is that:
A) they have become more severe.
B) they last longer.
C) the recovery in job creation has been slow.
D) the NBER dates them incorrectly.


24. Which of the following changes is a reason for the recent change in the characteristics of business cycles?
A) innovations in supply chain management
B) shift to manufacturing in the GDP
C) increasing effectiveness of trade barriers
D) global warming


25. The event that stimulated the U.S. government's commitment to tracking the economy's health through a national income accounting system was the:
A) Civil War and Reconstruction.
B) Panic of 1907.
C) Great Depression.
D) Oil Embargo of 1973.


26. Richard Stone is credited with inventing:
A) the idea of gross domestic product.
B) the idea of supply-side economics.
C) a system of national income accounts.
D) the wheel.


27. Simon Kuznets:
A) created the gross national product as a way of measuring a nation's economic output.
B) created the National Bureau of Economic Research.
C) was Secretary of Treasury during World War II.
D) created the hair net.


28. In the simple circular flow model:
A) income is equal to spending.
B) saving is equal to consumer spending.
C) factor payments are equal to goods and services.
D) goods and serves are equal to consumer spending.


29. A simple circular flow diagram shows that the services of the factors of production are:
A) owned by the government.
B) purchased by households.
C) purchased by businesses.
D) traded in the market for goods and services.


30. In a simple circular flow diagram, total spending on goods and services in the product market:
A) is greater than the total income earned in the resource market.
B) is less than the total income earned in the resource market.
C) is done by the government.
D) equals the total income earned in the resource market.


31. The two approaches used by government in estimating GDP are:
A) statistical and nonstatistical.
B) survey and nonsurvey.
C) income and earnings.
D) expenditure and income.


32. The total market value of all final goods and services produced in a country is called:
A) gross national product.
B) gross domestic product.
C) net national income.
D) gross national income.


33. Gross domestic product is the total market value of all:
A) final goods and services produced in the United States by labor and property.
B) final and intermediate goods and services produced in the United States by labor and property.
C) final goods produced in the United States by labor and property.
D) garbage produced in the United States.


34. What is an example of a final good?
A) tartar sauce purchased by a fish restaurant
B) corn purchased by a pig farmer
C) bacon purchased at a grocery store
D) rubber purchased by a bicycle company


35. A sheep ranch produces $30 worth of wool. A suit manufacturer produces $60 worth of suits. A retail outlet sells a suit to a customer for $180. The GDP would be:
A) $30.
B) $180.
C) $270.
D) zero, because wool suits are worthless.


36. Suppose a builder in New York City hires an Italian artist to create a major work of art made from Italian marble for an atrium. The artist learned the craft in Italy and normally resides in Rome. The value of the artist's work is included in:
A) Italy's GDP.
B) neither the Italian nor the U.S. GDP because the artist crossed international boundaries.
C) the U.S. GDP.
D) the U.S. GNP.


37. GDP measures the final value of goods and services produced to avoid the problem of:
A) disintermediation.
B) double counting.
C) production by foreign citizens working in the United States.
D) undervaluing the output produced.


38. Company DEF produces gizmos. One particular batch cost $50,000 to produce. Because market conditions were bad at the time of sale, they were sold at a loss for $40,000. The value of the gizmos included in the GDP is:
A) $10,000.
B) $40,000.
C) $50,000.
D) impossible to compute because there is negative profit.


39. If I hire a lawn service to mow my grass, the monies I pay the service are included in the GDP, whereas if I mow my own lawn, the value of this service is not included in the GDP. This fact represents a criticism of the GDP's focus on:
A) avoidance of “double counting.”
B) market-produced goods and services.
C) domestic versus national product.
D) final values of goods and services.


40. Which of the following items would be a durable good?
A) college education
B) horseradish
C) refrigerator
D) Mohawk hair cut


41. The three types of consumption are:
A) compulsive, impulsive, and deliberate.
B) durables, nondurables, and services.
C) investments, nondurables, and services.
D) investments, durables, and services.


Use the following to answer question 42:





42. (Table 15.1) Using the expenditure approach, GDP is:
A) $1,320.
B) $1,720.
C) $1,330.
D) $2,020.


43. Services constitute approximately % of GDP.
A) 70
B) 60
C) 40
D) 10


44. The largest component of GDP is:
A) consumption expenditure.
B) gross private domestic investment.
C) government spending.
D) net exports.


45. Inventories are included in which component of GDP?
A) consumption
B) investment
C) government spending
D) Inventories are not included in GDP


46. Which of the following items is NOT included in gross private domestic investment?
A) residential housing
B) new equipment purchased by businesses
C) purchases of common stock
D) increase in business inventories


47. Economists believe that changes in investment spending are important for forecasting the business cycle because:
A) increases in investment spending raise tax revenues, which allows government to spend more.
B) investment closely reflect consumer sentiment.
C) changes in inventory show where the economy has been.
D) investment is a key determinant of economic growth.


48. Net exports equals:
A) imports divided by exports.
B) imports plus exports.
C) exports minus imports.
D) zero, by definition.


49. What component of American GDP is usually negative in boom years?
A) consumption
B) investment
C) government spending
D) net exports


50. Everything else the same, if investment expenditures rise by $300 billion and imports increase by $300 billion, then GDP:
A) increases by $600 billion.
B) increases by $300 billion.
C) decreases by $600 billion.
D) does not change.


51. Which equation summarizes the expenditures approach to measuring GDP?
A) Y = C + S
B) total spending = total income
C) GDP = C + I + G + (X – M)
D) GDP = NDP + depreciation


52. The largest component of national income is:
A) corporate profits.
B) compensation of employees.
C) proprietor's income.
D) rental income.


53. Income payments to the rest of the world are:
A) zero.
B) added to the GDP.
C) subtracted from the GDP.
D) not included in the GDP.


Use the following to answer question 54:





54. (Table 15.1) Using the income approach, national income is:
A) $1,320.
B) $1,330.
C) $1,570.
D) $1070.


55. Which of the following statements does NOT describe an adjustment to national income to obtain GDP?
A) Net exports are added to national income.
B) A capital consumption allowance is added to national income.
C) Income payments from the rest of the world are added to national income.
D) Payments U.S. corporations and residents send to foreign residents are subtracted from national income.


56. Net domestic product measures:
A) C + I + G + (X – M).
B) GDP minus depreciation.
C) GDP plus income payments from the rest of the world minus income payments to the rest of the world.
D) national income plus income payments from the rest of the world minus income payments to the rest of the world.


Use the following to answer question 57:





57. (Table 15.1) Net domestic product is:
A) $1,770.
B) $1,280.
C) $1,080.
D) $1,580.


58. Which of the following two things can people do with money received as disposable personal income?
A) pay taxes or put money into savings
B) pay taxes or spend the money
C) spend the money or put money into savings
D) pay taxes or buy government bonds


59. Last year, Marian earned $25,000, paid $2,000 in taxes, and saved $5,000. Marian's personal income is , disposable personal income is , and consumption spending is .
A) $20,000; $18,000; $13,000
B) $25,000; $23,000; $18,000
C) $25,000; $18,000; $13,000
D) $23,000; $21,000; $18,000


60. Which of the following activities is an example of a nonmarket transaction?
A) hiring a maid to clean your home
B) employing a lawn service worker to trim your bushes
C) hiring a nanny to take care of your kids
D) growing your own food in a vegetable garden


61. Which of the following items would be included in the GDP accounts?
A) personal time spent learning how to use accounting software
B) personally rotating the tires on your neighbor's car
C) caring for your aged grandmother at home
D) $50 consultation on the phone with a psychic advisor


62. Which of the following is NOT a problem in using GDP to measure standard of living?
A) failure to include environmental impacts
B) failure to include the value of nonmarket work
C) failure to include exports and imports
D) failure to include the value of investments in human capital


63. One difficulty in expanding the NIPA statistics to include nonmarket transactions is that:
A) theoretically, such transactions are not part of a nation's production.
B) there is no price to record.
C) such transactions are not a reliable indicator of what households value.
D) nonmarket transactions are typically illegal.


64. Schumpeter's term “creative destruction” describes the:
A) Luddite's destruction of machines.
B) innovative dynamism of capitalism.
C) working class movement of communism.
D) destruction of buildings.


65. The sector of the economy that may have created the boom of the 1990's was:
A) automobiles.
B) nuclear power.
C) information technology.
D) Wal-Mart.


66. According to Schumpeter, is linked to the first historical wave of innovation, and __ is linked to the second wave of innovation.
A) textiles; railroads
B) textiles; telecommunications
C) textiles; automobile
D) Macintosh computer; iPhone


67. According to Schumpeter, the most important activity that drives business cycles is:
A) consumption.
B) savings.
C) innovation.
D) government direction of the economy.