SAMPLE TEST ONE FOR ECON 102: SECTIONS 5 (PLEASE NOTE THAT ONLY THE PORTION
OF CHAPTER 5 COVERED IN CLASS WILL BE ON THE EXAM.)
1)
A)
B)
C)
D)
On a production possibility curve, economic growth is represented by
a movement downward along the production possibility curve.
a movement upward along the production possibility curve.
an outward shift of the production possibility curve.
an inward shift of the production possibility curve.
2)
A)
B)
C)
D)
____ gross domestic product is the value of ____ linked back to the prices of a single year.
Real; total production
Real; production possibilities
Nominal; the consumer price index
Nominal; total production
3)
A)
B)
C)
D)
The series of ups and downs the economy tends to move in is called
the business cycle.
a recession.
a depression.
economic growth.
4)
A)
B)
C)
D)
During an economic expansion, real GDP ____ and unemployment ____.
increases; increases
increases; decreases
decreases; increases
decreases; decreases
5)
A)
B)
C)
D)
In the above figure, the distance between points S and T represents
an expansion.
a trough.
a peak.
a recession.
6)
A)
B)
C)
D)
The distinction between a flow and a stock is that the former measures
liquid items, while the latter measures solid items.
an account on a monthly basis, while the latter measures it on an annual basis.
a value in dollars, while the latter measures it in real terms.
a quantity per unit of time, while the latter measures a quantity that exists at a point in time.
7)
A)
B)
C)
D)
In the above figure, flow E represents ____.
household borrowing.
government borrowing.
net taxes.
government lending.
8)
A)
B)
C)
D)
In the above figure, flow B represents ____.
household purchases of goods and services.
household borrowing.
household income.
firms’ payments for labor services.
9)
A)
B)
C)
D)
In the above figure, household income is shown by flow
A.
B.
C.
F.
10)
A)
B)
C)
D)
In the above figure, consumption expenditure is shown by flow
A.
B.
D.
F.
11)
A)
B)
C)
D)
Two methods of measuring GDP are
the income approach and the expenditure approach.
the income approach and the receipts approach.
the goods approach and the services approach.
the saving approach and the investment approach.
12)
The components of the expenditure approach to measuring GDP include all of the following
EXCEPT
A) net exports.
B) government purchases of goods and services.
C) investment.
D)
13)
A)
B)
C)
D)
the implicit payments for unpaid household work.
Transfer payments are not included in GDP because
their market value cannot be accurately determined.
they do not generate additional income.
they are not purchases of goods or services.
their value is included in government expenditure.
Item
Government purchases of
goods and services
Compensation of employees
Gross private domestic
investment
Rental income
Personal consumption
expenditures
Net interest
Net exports of goods and
services
Indirect business taxes and
depreciation
Billions of dollars
250
1,675
325
20
1425
40
100
300
14)
The above table shows some (but not all) national income accounting data for hypothetical
country. According to these data, the value of GDP is ____ billion.
A) $2100.
B) $1850.
C) $2000.
D) $2050.
15)
If imports are $100 million less than exports, government purchases are $500 million, consumer
expenditures are $1 billion, and gross investment spending is $500 million, then GDP is
A) $1 billion.
B) $1.9 billion.
C) $2 billion.
D) $2.1 billion.
16)
A)
B)
C)
D)
Goods and services used as inputs by another firm are called
value added goods.
intermediate goods.
national income goods.
final goods.
17)
A)
B)
Which of the following expressions equals GDP?
compensation of employees + consumption + depreciation + net investment.
compensation of employees + net interest + rental income + depreciation + corporate profits +
proprietors’ income + indirect taxes – subsidies.
compensation of employees + net exports + depreciation + corporate profits.
compensation of employees + gross investment + rental income + depreciation + corporate profits +
indirect taxes – subsidies.
C)
D)
18)
Gross domestic product is the sum of factor incomes ____ indirect business taxes minus subsidies
____ depreciation.
A) plus; plus
B) plus; minus
C) minus; plus
D) minus; minus
Item
Dollars
Net interest
239
Government purchases
136
of goods and services
Compensation of
1,735
employees
Rental income
37
Proprietors’ income
128
Indirect taxes minus
259
subsidies
Corporate profits
194
Exports of goods and
249
services
Imports of goods and
289
services
Depreciation
333
19)
Using the data in the above table, gross domestic product as calculated by the income approach
equals ____.
A) $2,333
B) $2,592
C) $2,925
D) $2,205
20)
A)
B)
C)
D)
GDP counts only final goods and services because
this method avoids including any goods that are produced this year and sold next year.
this method avoids double counting of goods going through several stages of production.
this amount can be more easily determined in the marketplace.
this method avoids understating the value of GDP produced during a given year.
1999 quantity
CDs
10 discs
Gasoline
200 gallons
1998
1999
price
price
$16 per
$12 per
disc
disc
$1.00 per $1.25 per
gallon
gallon
21)
If 1998 is the base year, what is the average price level (GDP deflator) of the goods for 1999 in the
above table?
A) 97.3.
B) 102.8.
C) 128.0.
D) Zero because the price of CDs fell and the price of gasoline increased.
22)
A)
B)
C)
D)
All people in the working-age population can be divided into
labor force participants.
either employed, unemployed, or not in the labor force.
either over-employed or under-employed.
potential employees.
23)
Which of the following people would be considered unemployed by the Bureau of Labor
Statistics?
I.
Mrs. X retires from her job at the age of 55 and does not look for another job.
II. Mr. Y was laid off from his job as a welder, but expects to be rehired in 8 months.
A) I only.
B) II only.
C) Both I and II.
D) Neither I nor II.
24)
In the U.S. in 1996, the population was 265.5 million and the working age population was 200.6
million. There were 133.9 million people in the labor force and 126.7 of them were considered employed.
The unemployment rate equaled ____.
A) 7.2 percent
B) 5.4 percent
C) 3.6 percent
D) 33 percent
25)
A)
B)
C)
D)
The employment-to-population ratio equals
(labor force)/(working-age population) x 100.
(number of people employed)/(labor force) x 100.
(number of people with full-time jobs)/(labor force) x 100.
(number of people employed)/(working-age population) x 100.
26)
A)
B)
C)
E)
To prevent frictional unemployment, we would have to
eliminate recessions.
eliminate the business cycle.
prevent people from leaving their jobs.
make sure everyone went to college.
27)
A)
B)
C)
D)
A person quits her job in order to spend time looking for a better-paying job. This is an example of
frictional unemployment.
cyclical unemployment.
seasonal unemployment.
structural unemployment.
28)
A)
B)
C)
D)
An individual is structurally unemployed if
there is a recession and the individual is laid off.
the individual wants to work just during certain months of the year.
the individual quits a job in order to search for a better one.
the individual lacks marketable job skills.
29)
A)
B)
C)
D)
Unemployment that is caused by recessions is called
frictional unemployment.
cyclical unemployment.
downtime unemployment.
structural unemployment.
30)
When the economy is operating at full employment, the natural rate of unemployment is greater
than zero. This full employment level of unemployment consists of
A) only cyclical unemployment.
B) only frictional and structural unemployment.
C) only frictional and cyclical unemployment.
C) only structural and cyclical unemployment.
31)
A)
B)
C)
D)
If unemployment is at the natural rate, then there
is no cyclical unemployment.
is no frictional unemployment.
will be cyclical and frictional unemployment but not structural unemployment.
will be only cyclical unemployment.
32)
A)
B)
C)
D)
An unemployment rate of zero cannot be expected because
there are some people who do not want to work.
there will always be discouraged workers.
some portion of the labor force will always be between jobs.
cyclical unemployment will always exist.
33)
A)
B)
C)
D)
In the above figure, economic growth is shown as the movement from point
A to point B.
C to point D.
B to point D.
None of the above because it is not possible to show economic growth using a production possibility
frontier
34)
A)
B)
C)
D)
The term “business cycle” most closely refers to the
fluctuating profits of firms.
fiscal year.
accounting period used by firms.
alternating periods of expansions and recessions.
35)
An observer of the economy notices that over the past 12 months the unemployment rate has
fallen from 7.0 percent to 6.5 percent. During the same time, the rate of growth in real GDP has been
positive. From this information we might conclude that
A) inflation is not occurring.
B) an expansion is occurring in the economy.
C) a recession is in progress.
D) a trough in the business cycle will soon be reached.
36)
A)
B)
C)
D)
A government budget deficit occurs when
U.S. consumers buy more than U.S. producers produce.
foreign holdings of American assets exceed American holdings of foreign assets.
government spending is more than what it collects in taxes.
the value of U.S. imports exceed the value of U.S. exports.
37)
An economist giving a lecture mentions that positive net investment creates growth in capital
equipment, which increases worker productivity. In this statement a flow variable is ____ and a stock
variable is ____.
A) net investment; capital
B) capital; productivity
C) productivity; net investment
D) capital; net investment
38)
A)
B)
C)
D)
The circular flow diagram shows that
the flow of payments to the resources used to produce goods and services exceeds the flow of
payments for final goods and services.
product and resource markets are independent.
the total amount of income generated by the economy equals the total purchases of final goods and
services.
consumption expenditure equals saving.
39)
If the U.S. spends ____ on foreign goods and services than foreigners spend on U.S.-made goods
and services, the U.S. ____.
A) more; borrows from the rest of the world.
B) more; lends to the rest of the world.
C) less; must save more.
D) less; borrows from the rest of the world.
40)
The components of the expenditure approach to measuring GDP include all of the following
EXCEPT
A) net exports.
B) government purchases of goods and services.
C) investment.
D) the implicit payments for unpaid household work.
41)
A)
B)
C)
D)
GDP does not directly include intermediate goods because
intermediate goods are not valuable.
intermediate goods are not useful to consumers.
that would count the intermediate goods twice.
that would understate the true size of GDP.
42)
A)
B)
C)
D)
The calculation of the final goods and services sold in an economy would NOT include
the purchase of a lawnmower by a household.
General Motors’ purchases of tires for new automobiles.
Ford Motor Company's purchase of a new industrial robot to be used to produce cars.
the purchase of a service by a household.
Item
Personal consumption
expenditure
Gross private domestic
investment
Government purchases
of goods and services
Exports of goods and
services
Imports of goods and
services
Net taxes
Billions of dollars
100
10
50
30
30
50
43)
The above table shows data from the GDP accounts of Hypothetica. Hypothetica’s GDP is ____
billion.
A) $270.
B) $210.
C) $190.
D) $160.
44)
A)
B)
C)
D)
Which of the following is NOT a part of the income approach to determining GDP?
rental income.
gross private domestic investment.
net interest.
indirect business taxes.
45)
A)
B)
C)
D)
The GDP deflator is
an index that measures real production.
a measure of the average level of prices of all goods and services included in GDP.
an index used to calculate inflation at the wholesale level.
the least used price index because it is so costly to calculate.
46)
The ____ is the total number of people aged 16 years and older (and not in jail, hospital or
institutional care) while the ____ is the number of people employed and the unemployed.
A) labor force; working-age population
B) labor force participation rate; labor force
C) working-age population; labor force
D) working-age population; labor force participation rate
47)
A)
B)
C)
D)
Which of the following individuals is counted as an unemployed worker in the United States?
an individual who works ten hours part-time but would like to work full-time.
a worker who has quit looking for work because he or she is convinced that no jobs are available.
an individual who in the past month actively looked for work without finding it.
a person working in the home without pay.
48)
A)
B)
C)
D)
Suppose the money wage rate increases from $10 to $12. If nothing else changes,
the real wage increases.
the real wage decreases.
the quantity of goods and services that an hour of work can buy increases.
Both answers A and C are correct.
49)
Suppose that Matt quits a job with the XYZ Corporation in order to look for more rewarding
employment. Matt would be best be considered as
A) still being employed.
B) included in the economy’s “hidden employment.”
C) frictionally unemployed.
D) cyclically unemployed.
50)
Suppose that over a period of years the country of Quasiland switched from being an
agriculturally-based economy to a technologically-based economy. As a result, many people lost jobs
because they lacked the correct skills. These people would be considered part of
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) discouraged workers.
51)
Suppose the country of Quasiland experienced a decrease in real GDP and people were laid off
from their jobs. The people would be considered part of
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) discouraged workers.
52)
When economists speak of full employment, they refer to the case in which the sum of frictional
and structural unemployment is
A) falling over time.
B) equal to zero.
C) equal to the actual amount of unemployment.
D) greater than the level of deficient demand unemployment.
53)
A)
B)
C)
D)
54)
A)
B)
C)
D)
A feature of a stock variable and a flow variable is that
a stock is a quantity per unit of time and a flow is a quantity that exists at a point in time.
a stock is a quantity that exists at a point in time and a flow is a quantity per unit of time.
a stock only measures the value of goods and services produced in a country during a given time
period.
an example of a stock variable is real GDP and an example of a flow variable is consumption
expenditure.
If our exports are $1.2 billion and our imports are $1.7 billion,
the U.S. is lending to the rest of the world.
U.S. national saving is too high.
the U.S. is borrowing from the rest of the world.
U.S. investment must decrease.
55)
A)
B)
C)
D)
Aggregate expenditures include all of the following EXCEPT
consumption of food.
purchases of intermediate goods.
purchases of a piece of capital equipment.
purchases of guns by the government.
Government purchases of goods
and services
Depreciation
Gross private domestic investment
Personal income taxes
Net taxes
Net exports of goods and services
Personal consumption expenditures
Net interest
56)
A)
B)
C)
D)
From the data in the above table, GDP equals
$1,120.
$1,280.
$1,290.
$1,360.
57)
A)
B)
C)
D)
An intermediate good is one that is purchased by
consumers for their own consumption.
firms to produce other goods.
government for its own consumption.
foreign residents.
Corporate profits
Net interest
Indirect taxes less subsidies
Depreciation
Compensation of employees
Proprietor’s income
Rental income
Personal consumption
expenditures
Government purchases of goods
and services
Net exports of goods and
services
58)
A)
B)
C)
D)
$240
240
400
140
120
80
640
100
$200
150
230
250
1,350
150
70
1,400
500
40
Using the data in the table above, gross domestic product equals
$1,920.
$1,940.
$2,150.
$2,400.
59)
A)
B)
C)
D)
The GDP deflator equals 100 times
nominal GDP divided by real GDP.
real GDP divided by nominal GDP.
gross domestic product divided by net domestic product.
net domestic product divided by gross domestic product.
60)
A)
B)
C)
D)
Using a production possibility frontier, economic growth is represented by an
inward shift in the production possibility frontier so that less of each good can be produced.
outward shift in the production possibility frontier so that more of each good can be produced.
inward shift in the production possibility frontier so that more of each good can be produced.
outward shift in the production possibility frontier so that less of each good can be produced.
61)
A)
B)
C)
D)
A business cycle is
the pattern of short-run upward and downward movements in total production.
the increase in consumer spending that accompanies an increase in disposable income.
the cyclical change in the nation’s balance of trade.
the cyclical movement in the interest rates.
62)
An observer of the economy notices that over the last nine months the unemployment rate has
increased from 5.6 percent to 8.7 percent. During the same time the rate of growth in real gross domestic
product has become negative. From this information we might conclude that
A) inflation is probably rampant in this economy.
B) a recession is occurring in this economy.
C) an expansionary phase of the business cycle is in process.
D) a peak in the business cycle will soon be reached.
63)
A)
B)
C)
D)
In the above figure, a recession begins at point ____ and an expansion begins at point ____.
a; b
b; c
b; a
d; c
64)
A)
B)
C)
D)
When the federal government spends less than it collects in tax revenue,
it has a government budget surplus.
it must enact fiscal policy.
it must enact monetary policy.
it has a government budget deficit.
65)
A)
B)
C)
D)
When a student finishes college and begins looking for work,
cyclical unemployment increases.
structural unemployment increases.
frictional unemployment increases.
frictional and cyclical unemployment increase.
66)
When the automobile replaced horse-drawn carriages as the principal means of transportation,
firms producing horse-drawn carriages went bankrupt and permanently laid off all their workers, thereby
increasing
A) frictional unemployment.
B) structural unemployment.
C) frictional and cyclical unemployment.
D) cyclical unemployment.
67)
A)
B)
C)
D)
If a worker is temporarily laid off because the economy is in a recession,
frictional unemployment increases.
structural unemployment increases.
the size of the labor force rises.
cyclical unemployment increases.
68)
A)
B)
C)
D)
Full employment occurs when the
unemployment rate equals the natural rate of unemployment.
structural unemployment rate equals the frictional unemployment rate.
natural unemployment rate equals the frictional unemployment rate.
cyclical unemployment rate equals the natural rate of unemployment.
69)
Which of the following people would NOT be counted as unemployed in the Current Population
Survey?
A) The person has no job and has made an effort to find work in the last four weeks.
B) The person is awaiting recall to a job after being laid off.
C) The person is without a job and is making no effort to find work.
D) The person is waiting to start a new job in thirty days.
70)
The money wage rate equals $10 per hour. If the price level rises and the money wage does not
change,
A) the real wage decreases.
B) the quantity of goods and services that an hour of work can buy decreases.
C) the real wage increases.
D) Both answers A and B are correct.
71)
A)
B)
C)
D)
Frictional unemployment is the result of
technological change or foreign competition.
normal labor market turnover.
a slowdown in the rate of economic expansion.
irresponsible workers with poor work habits.
ANSWERS
1) C
2) A
3) A
4) B
5) D
6) D
7) C
8) A
9) A
10) B
11) A
12) D
13) C
14) A
15) D
16) B
17) B
18) A
19)
20)
21)
22)
23)
24)
25)
26)
27)
28)
29)
30)
31)
32)
33)
34)
35)
36)
C
B
B
B
B
B
D
C
A
D
B
B
A
C
C
D
B
C
37)
38)
39)
40)
41)
42)
43)
44)
45)
46)
47)
48)
49)
50)
51)
52)
53)
54)
A
C
A
D
C
B
D
B
B
C
C
D
C
B
C
C
B
C
55)
56)
57)
58)
59)
60)
61)
62)
63)
64)
65)
66)
67)
68)
69)
70)
71)
B
D
B
D
A
B
A
B
A
A
C
B
D
A
C
D
B