Wednesday, April 28, 2010

WH II Honors: 29 April 2010

Current Events:

None today because of the Quiz.

The Ch. 17 Section 1 Quiz is today. Be sure to put your name on the Quiz. You may write on the Quiz. If you finish early you may take out non-History material.

Ch. 17 Sec. 2 Quiz is on Monday. Be sure to consider the Quiz Prep Page.

Chapter 18: Nationalism Around the World, 1919–1939

Gandhi's March to the Sea

Section 1 Nationalism in the Middle East
World War I was the final blow for an Ottoman Empire in its decline since the late eighteenth century. One of its final acts was an act of genocide, the slaughter of Armenians seeking independence. Nationalist leaders in the collapsing empire established the independent states of Turkey, Iran, and Saudi Arabia. Britain and France withdrew their promised support for Arab nationalists and set up British mandates in Iraq and Jordan, and French mandates in Lebanon and Syria. Saudi Arabia had vast supplies of newly discovered oil and suddenly attracted Western oil companies that would bring the kingdom untold wealth. Palestine became a site of conflict beginning with the British Balfour Declaration of 1917, which declared Palestine the site for a Jewish homeland. Tensions between Jews and Muslims only worsened as Jewish immigrants fleeing Nazi persecution flooded Palestine.

Note Taking

Reading and Listening Skill: Identify Causes and Effects

Record reasons for the rise of nationalism in Africa and the Middle East and its effects in a chart like the one below.

Decline and Fall of the Ottoman Empire

Impact of World War I
Nationalist movements brought immense changes to the Middle East in the aftermath of World War I. The defeated Ottoman empire was near collapse in 1918. Its Arab lands, as you may have read, were divided between Britain and France. However, in Asia Minor, the Turkish peninsula between the Black Sea and the Mediterranean Sea, Turks resisted Western control and fought to build a modern nation.

Massacre of the Armenians

"1915 Armenian genocide" resolution approved, 2:51

The U.S. House of Representatives' Foreign Affairs Committee has passed a resolution recognizing the 1915 Armenian massacre as genocide. The Turkish President says the decision is unacceptable and is not regarded by the Turkish people as of any value.

Emergence of the Turkish Republic
In 1920, the Ottoman sultan reluctantly signed the Treaty of Sèvres, in which the empire lost its Arab and North African lands. The sultan also had to give up some land in Asia Minor to a number of Allied countries, including Greece. A Greek force landed in the city of Smyrna (now Izmir) to assert Greece’s claims. Turkish nationalists, led by the determined and energetic Mustafa Kemal, overthrew the sultan, defeated the Greeks, and declared Turkey a republic. Kemal negotiated a new treaty. Among other provisions, the treaty called for about 1.3 million Greeks to leave Turkey, while some 400,000 Turks left Greece.
Kemal later took the name Atatürk (ah tah turk), meaning “father of the Turks.” Between 1923 and his death in 1938, Atatürk forced through an ambitious program of radical reforms. His goals were to modernize Turkey along Western lines and to separate religion from government. To achieve these goals, Atatürk mandated that Islamic traditions in several fields be replaced with Western alternatives (see Biography).

Atatürk (1881–1938)

President Kennedy - Speech about Ataturk, 1:56

“Atatürk” is the name that Mustafa Kemal gave himself when he ordered all Turkish people to take on surnames, or last names. It means “Father of the Turks.” In 1920, he led Turkish nationalists in the fight against Greek forces trying to enforce the Treaty of Sèvres, establishing the borders of the modern Republic of Turkey. Once in power, he passed many reforms to modernize, Westernize, and secularize Turkey. Atatürk is still honored throughout Turkey today—his portrait appears on postage and all currency. Why is Atatürk considered the “Father of the Turks”?

Reading Check


How did the Ottoman Empire finally end?

The Modernization of Turkey

Atatürk’s Reforms in Turkey

*Replaced Islamic law with European model
*Replaced Muslim calendar with Western (Christian) calendar
*Moved day of rest from Friday to Sunday
*Closed religious schools and opened state schools
*Forced people to wear Western-style clothes
*Replaced Arabic alphabet with Latin alphabet
*Gave women the right to vote and to work outside the home.

Westernization Transforms Turkey

Atatürk’s government encouraged industrial expansion. The government built railroads, set up factories, and hired westerners to advise on how to make Turkey economically independent.

To achieve his reforms, Atatürk ruled with an iron hand. To many Turks, he was a hero who was transforming Turkey into a strong, modern power. Others questioned Atatürk’s dictatorial powers and complete rejection of religion in laws and government. They believed that Islam could play a constructive role in a modern, civil state.

In 1924, Atatürk, as part of his reforms, constitutionally abolished the institution of the Caliphate. The title was then taken up by King Hussein bin Ali of Hejaz, leader of the Arab Revolt, but his kingdom was defeated and annexed by Ibn Saud in 1925. The title has since been inactive.

A summit was convened at Cairo in 1926 to discuss the revival of the Caliphate, but most Muslim countries did not participate and no action was taken to implement the summit's resolutions.

Though the title was adopted by the King of Morocco and by Mullah Mohammed Omar, former head of the now-defunct Taliban regime of Afghanistan, neither claimed any legal standing or authority over Muslims outside the borders of their respective countries. The closest thing to a Caliphate in existence today is the Organization of the Islamic Conference (OIC), an international organization with influence founded in 1969 consisting of the governments of most Muslim-majority countries.

Rashad Hussain is the current American representative to the OIC, the nominal Caliphate in the world today.

In 2004, Hussain was on a panel discussion on civil rights at a Muslim Students Association conference in Chicago. With him on the panel was Laila Al-Arian, a daughter of Sami Al-Arian, who on March 2, 2006, entered a guilty plea to a charge of conspiracy to help the Palestinian Islamic Jihad, a "specially designated terrorist" organization, and was sentenced to 57 months in prison, and ordered deported following his prison term. During the panel discussion, and following Laila Al-Arain's comments, Hussain made critical statements about the U.S. terror prosecution of Sami Al-Arian, as well as other Muslim terrorism suspects, characterizing them as "politically motivated persecutions."

Hussain later acknowledged that he was accurately quoted in 2004 as calling the treatment of Sami al-Arian as an example of “politically motivated persecutions.” Hussain made the admission after Politico acquired an audio recording of the Muslim Students Association event, and his comments.

Reading Check


What radical step did Ataturk Take to modernize Turkey?

The Beginnings of Modern Iran

The success of Atatürk’s reforms inspired nationalists in neighboring Persia (present-day Iran). Persian nationalists greatly resented the British and Russians, who had won spheres of influence over Persia in 1907. In 1925, an ambitious army officer, Reza Khan, overthrew the shah. He set up his own dynasty, with himself as shah.

Like Atatürk, Reza Khan rushed to modernize Persia and make it fully independent. He built factories, roads, and railroads and strengthened the army. He forced Persians to wear Western clothing and set up modern, secular schools. In addition, he moved to replace Islamic law with secular law and encouraged women to take part in public life. Muslim religious leaders fiercely condemned Reza Khan’s efforts to introduce Western ways to the nation.

Reza Khan also persuaded the British company that controlled Persia’s oil industry to give Persia a larger share of the profits and insisted that Persian workers be hired at all levels of the company. In the decades ahead, oil would become a major factor in Persia’s economy and foreign policy.

Reading Check


How was Reza Shah Pahlavi's modernization of Persia different from Ataturk's transformation of Turkey?

Arab Nationalism

Oil became a major factor throughout the Middle East during this period. The use of gasoline-powered engines in various vehicles during World War I showed that oil was the fuel of the future. Foreign companies began to move into the Middle East to exploit its large oil reserves.

Partly in response to foreign influence, Arab nationalism grew after World War I and gave rise to Pan-Arabism. This nationalist movement was built on the shared heritage of Arabs who lived in lands from the Arabian Peninsula to North Africa. Today, this area includes Syria, Jordan, Iraq, Egypt, Algeria, and Morocco. Pan-Arabism emphasized the common history and language of Arabs and recalled the golden age of Arab civilization. The movement sought to free Arabs from foreign domination and unite them in their own state.

The Middle East, 1920s, Cf.

Map Skills

Population movements and foreign influences changed the Middle East after World War I.

1. Locate

(a) Turkey (b) Persia (c) Palestine (d) the Persian Gulf

2. Human-Environment Interaction

What natural resource was discovered in the Middle East around this time? What effect did its discovery have on the region?

3. Make Inferences

List the ways foreign influence affected the Middle East in the 1920s.

Arabs were outraged by the European-controlled mandates set up at the Paris Peace Conference. During World War I, Arabs had helped the Allies against the Central Powers, especially the Ottoman empire. In return for their help, the Allies led the Arabs to believe that they would gain independence after the war. Instead, the Allies carved up the Ottoman lands, giving France mandates in Syria and Lebanon and Britain mandates in Palestine and Iraq. Later, Britain gave a large part of the Palestinian mandate, Trans-Jordan to Abdullah for a kingdom.

Arabs felt betrayed by the West—a feeling that has endured to this day. During the 1920s and 1930s, their anger erupted in frequent protests and revolts against Western imperialism. A major center of turmoil was the British mandate of Palestine. There, Arab nationalists and Jewish nationalists, known as Zionists, increasingly clashed.

Reading Check


How were many Middle Eastern states created after World War I?

The Problem of Palestine

Two Views of One Place

Posters encouraged visitors and settlers to go to Palestine. At the same time, Palestinian Arabs tried to limit Jewish settlement in the area.
The Arab-Israeli Conflict: A Brief History

Since Roman times, Jews had dreamed of returning to the land of Judea, or Israel. In 1897, Theodor Herzl (hurt sul) responded to growing anti-Semitism, or prejudice against Jewish people,in Europe by founding the modern Zionist movement. His goal was to rebuild a Jewish state in Palestine. Among other things, violent pogroms against Jews in Russia prompted thousands of them to migrate to Palestine. They joined the small Jewish community that had lived there since biblical times.

During World War I, the Allies made two conflicting sets of promises. First, they promised Arabs their own kingdoms in former Ottoman lands, including Palestine. Then, in 1917, the British attempted to win the support of European Jews by issuing the Balfour Declaration. In it, the British advocated the idea of setting up “a national home for the Jewish people” in Palestine. The declaration noted, however, that “nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine.” Those communities were Arab. The stage was thus set for conflict between Arab and Jewish nationalists.

Vocabulary Builder

advocated—(ad vuh kayt id) v. supported or favored

From 1919 to 1940, tens of thousands of Jews immigrated to Palestine due to the Zionist movement and the effects of anti-Semitism in Europe. Despite great hardships, Jewish settlers set up factories, built new towns, and established farming communities. At the same time, the Arab population almost doubled. Many were immigrants from nearby lands. As a result, Palestine's population included a changing mix of newcomers. The Jewish population, which was less than 60,000 in 1919, grew to about 400,000 in 1936, while the Muslim population increased from about 568,000 in 1919 to about 1 million in 1940.

At first, some Arabs welcomed the money and modern technical skills that the newcomers brought with them. But as more Jews moved to Palestine, tensions between the two groups developed. Jewish organizations tried to purchase as much land as they could, while Arabs sought to slow down or stop Jewish immigration. Religious differences between Jews and Arabs heightened tensions. Arabs attacked Jewish settlements, hoping to discourage settlers. The Jewish settlers established their own military defense force. For the rest of the century, Arab and Jews fought over the land that Arabs called Palestine and Jews called Israel.

Reading Check


Why did the Balfour Declaration produce problems in Palestine?

Chapter 18 References

The End of the British Empire, Cf.

Video clips of Gandhi and other Indian leaders

The life of Gandhi

Find out more about African independence

The Arab-Israeli Conflict: A Brief History

Middle East


Section 2 Preview

Ch. 17 Sec. 2 Quiz is on Monday. Be sure to consider the Quiz Prep Page.

How To Take Effective Notes
Email to

Thursday: p. 557

Reading Check


How did Heisenberg's uncertainty principle challenge the Newtonian worldview?

Section 4 Assessment, #4

AP Economics: 29 April 2010

Current Events:

Obamaville: Tent City In New York Set Up In Hopes For Elevator Job

Chapter 26

Chapter 26 Open Economy Macroeconomics
Chapter Overview
After covering the balance of payments, this chapter examines how exchange rates are determined and then relates them back to the current and capital accounts. Fixed and flexible exchange rate systems are then discussed in the context of monetary and fiscal policy effectiveness in an open economy.

Chapter Outline

Currency Appreciation and Depreciation, p. 677, Slides 13 & 14

China Currency Revaluation Debate, 2:03

China Commerce Minister says appreciation of currency will do little improve balance of payments. Better cooperation in helping increase U.S. exports to China is discussed.

Determinants of Exchange Rates, p. 678, Slide 15

What Determines the Foreign Exchange Rate?, 2:13

To determine the foreign exchange rate for different currencies, check the local paper for exchange rates, and pay attention to the inflation rate. Avoid exchanging money with countries that spend more money than they bring in with advice from a financial consultant in this free video on currency exchange.

Expert: Roger Groh
Bio: Roger Groh is the founder of Groh Asset Management.

Exchange Rates and the Current Account, p. 678, Slide 16

Exchange rates, 1:45

Changes in Inflation Rates, p. 678

Changes in Domestic Disposable Income, p. 678
Exchange Rates and the Capital Account, p. 679, Slide 17
Interest Rate Changes, p. 679, Slide 18
Exchange Rate Changes
Exchange Rates and Aggregate Supply and Demand
Checkpoint: Exchange Rates
Monetary and Fiscal Policy in an Open Economy
Fixed and Flexible Exchange Rate Systems
Policies Under Fixed Exchange Rates
Policies Under Flexible Exchange Rates
Checkpoint: Monetary and Fiscal Policy in an Open Economy
Ideas for Capturing Your Classroom Audience

Do some international comparison shopping. Visit the Web sites of
in the United States and in the United Kingdom ( Find the
price in pounds and then translate it to U.S. dollars using the current exchange
rate. You can also do this by pointing out the two prices, one in Canadian dollars
and one in U.S. dollars, listed for greeting cards and paperback books.
Chapter Checkpoints
The Balance of Payments
Question: Ronald McKinnon, writing in the April 20, 2006 issue of The Wall Street
Journal, notes, China's saving is even higher than its own extraordinary high
domestic investment of 40% of GDP. . . . The result is that China (like many other
countries in Asia) naturally runs an overall current account surplus. . . .Why would this be true? (Hint: look back at the discussion on the relationship between federal and trade deficits in the chapter on Deficits and the Public Debt.)

The point is to check that students can: apply the extended “leakages and injections” approach to the analysis of the cited article.
Exchange Rates
Question: If China were to revalue its currency by 10% so in effect the yuan appreciated by 10%, would this have an impact on the U.S. current account?

The point is to check that students can: integrate the understanding of the effect of changes in currency values on imports and exports and therefore on the current account.
Monetary and Fiscal Policy in an Open Economy
Question: The United States seems to rely more on monetary policy to maintain stable prices, low interest rates, low unemployment, and healthy economic growth.
Does the fact that the United States has really embraced global trade (imports and
exports combined are over 25% of gross domestic product) and we have a flexible
(floating) exchange rate help explain why monetary policy seems more important
than fiscal policy?

The point is to check that students can: understand how the exchange rate system
(fixed or flexible) impacts the effectiveness of monetary and fiscal policy.
Examples Used in the End-of-Chapter Questions
Question 2 refers to remittances. For a map illustrating the amounts of remittances to various countries see the Web site of the Multilateral Investment Fund from the Inter-American Development Bank. The site is located on the Web at:
Question 4 asks “how are most exchange rates determined?” and the answer is by
supply and demand in free markets. China has been viewed as an exception, but in
2005 the Chinese government took an important step toward allowing its currency
to float. For more information see the story by Peter S. Goodman in The
Washington Post titled, “China Ends Fixed-Rate Currency: Administration Hails
Policy Shift” (July 22, 2005, page A01, available on the Web at: http://www
Question 11 refers to the devaluation of Zimbabwe’s currency in mid-2006. But they
“only” (in simple terms) removed three 0’s. Turkey, in January 2005, took six 0’s off in the “redenomination” of their currency. Learn more about Turkey (and how things have worked out) on this site from the BBC:
For Further Analysis
Using the AS/AD Model to Explore the Impacts of Changes in the Value of the
The example provided in the student handout can be used as an in-class small group
exercise or as an individual in-class exercise. It is designed to complement and
extend the text’s material exchange rates and their effect on the U.S. economy using the AS/AD model. The exercise begins with the analysis described by Figure 4 in the chapter and then has students consider the opposite case (of dollar appreciation).
The exercise concludes asking students to evaluate the differing effects and
address the question of “what’s better” for the U.S. economy: a strong dollar or a
weak dollar?
The format of the exercise asks students to demonstrate their understanding by
analyzing a reverse situation to that described in the text. It also provides a chance to introduce students to the debates about economics and to get them to think about whether appreciation or depreciation is better for an economy and whether it benefits or hurts certain portions of society.
If you wish to elaborate on the analysis you can ask students to consider financial effects such as capital flows and the interest rate; this material is covered in the chapter. You may wish to supplement the assignment with current articles about the value of the dollar and views as to whether the U.S. government should “manage” the dollar more than it does at present. Other points that could be addressed include how long the long run really is and whether the short-run effects may swamp the long run. Stone’s section in microeconomics about the different definitions of time in economics is very useful.
Web-Based Exercise
This example can be used as a small group exercise or as an individual exercise. The exercise provides an opportunity for students to apply the material in the chapter about purchasing power parity and the Big Mac Index to get a feel for forecasting exchange rates. The exercise asks students to look at the Big Mac Index data from some previous period(s) and see if the currencies noted as “overvalued” subsequently depreciated and if those noted as “undervalued” subsequently appreciated.
You can change how extensive this assignment is by adding more past periods of
time or supplementing the Big Mac data with articles about various currencies
explaining the factors affecting them.
Students may also be intrigued by The Economist’s “lattenomics” that uses
Starbucks coffee instead of burgers. A video clip and explanation are among the
resources on the site at
PPP and the Big Mac
As described in the text, the Big Mac Index published by The Economist has always
been meant to be a humorous and intuitive way to explain purchasing power parity.
However, as simple as it is, the Big Mac Index has been pretty good at predicting the future course of some currencies. Visit the Web site for the Big Mac Index at and answer the following:
Collect data to answer the following:
1) Pick three currencies that were listed as overvalued at the time and three
that were listed as undervalued. Have those currencies subsequently moved
in the indicated directions?
2) Describe the limitations of the Big Mac Index.

Tips from a Colleague
The most challenging part of this chapter is the material on the current and capital accounts. Students are likely to understand that if we import more than we export we have a trade deficit, but the logic of why this results in a capital account surplus is likely to elude them. You might consider a simple intuitive illustration of swapping goods. Offer to trade an inexpensive stick pen for a student’s hat or other item which has an obviously higher value. Explain that such a direct swap of goods would be similar to imports and exports. When the student suggests that the goods being traded are not equal in value, offer different amounts of money (hypothetically) to make up the difference. Explain that the willingness of someone to take U.S. money to make up the difference is analogous to the increased holdings of U.S. assets by foreigners that make up the capital account.

Ch. 26 References

JFK Confers with Advisors on Gold & the Balance of Payments

At the end of World War II, the US became the mainstay of the Bretton Woods international monetary system. Under this system, the US dollar was the key currency and interchangeable into gold at $35 per ounce. Until the late 1950s, the dollar tended to be undervalued (dollar shortage). But after that time, there was a dollar surplus and a resulting drain on the US gold supply. The standard remedy would have been a tight monetary policy and austerity. But the Kennedy administration was elected in 1960 on a platform of economic expansion. There are hours of White House tapes of Kennedy and his advisors fretting over the dollar/gold situation. This clip contains illustrative excerpt from April 18, 1963. At the meeting are JFK, Treasury Secretary C. Douglas Dillon, George Ball, and Robert V. Roosa. Kennedy can be heard responding. The speaker presenting the report is probably Dillon.

Email HW to

1. Be sure to review Chapters 20-26 (we will have Tests on this material as well, TBA). Some students have asked to be tested as close as possible after covering the material.

2. Do some international comparison shopping. Visit the Web sites of
in the United States and in the United Kingdom ( Find the
price in pounds and then translate it to U.S. dollars using the current exchange
rate. You can also do this by pointing out the two prices, one in Canadian dollars
and one in U.S. dollars, listed for greeting cards and paperback books.

3. As review for HW, typical questions that you may encounter on the actual AP Economics Macro Test are included daily:

Review Questions (Princeton):
30. The GDP Deflator differs from the CPI in that the GDP Deflator

a) is thought to slightly overestimate the inflation rate
b) uses base year quantities in its calculations
c) incorporates both current year prices and base year prices
d) incorporates current year quantities in its calculations
e) is the favored price index of the U.S. government

31. It is a monetarist point of view that

a) monetary policy should be used to fine-tune the economy
b) crowding out is not a problem
c) the money supply should be increased steadily
d) the velocity of money is unstable
e) the economy is inherently unstable

32. Inflation in excess of 50 percent per year is called

a) super inflation
b) hyperinflation
c) galloping inflation
d) creeping inflation
e) stealth inflation

AP Economics: Ch. 15 Multiple Choice 67 Sample Questions

Ch. 15 Multiple Choice 67 Sample Questions

Some sample Questions do not display properly because of the proprietary nature of their source.

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.