ECO 2013 Final Exam - Questions and Answers In computing GDP, market prices are used to value final goods and services because a. market prices reflect the values of goods and services to the buyer. b. market prices do not change much over time, so it is easy to make comparisons between years. c....
In computing GDP, market prices are used to value final goods and services because
a. market prices reflect the values of goods and services to the buyer.
b. market prices do not change much over time, so it is easy to make comparisons
between years.
c. if market prices are out of line with how people value goods, the government sets
price ceilings and price floors.
d. None of the above is correct; market prices are not used in computing GDP.
Economists generally use gross domestic product to measure a nation's total output
because it
a. equals the sales value of all transactions conducted during a period and, thus, can be
easily calculated.
b. is the best available measure of the market value of all final goods and services
produced during a period.
c. is unaffected by changes in the prices of products over time.
d. is a reliable indicator of the social progress of a nation over time.
Which of the following will most likely occur during the contractionary phase of a
business cycle?
a. Real GDP rises, and the unemployment rate falls.
b. Real GDP declines, and the rate of inflation rises.
c. The sales of most businesses decline, and the unemployment rate rises.
d. Inflation rises, and employment/population ratio falls.
Which of the following about business cycles is true?
a. A "depression" is a recession that is mild and relatively brief.
b. The expansions and contractions of real world business cycles last varying lengths of
time.
c. The timing of business fluctuations is regular and, therefore, easily predictable.
d. During the recessionary phase of the business cycle, the rate of unemployment is
generally quite low.
If money were not used as a medium of exchange,
a. we would have to barter goods for other goods, which would make trade more difficult
and less frequent.
b. our standard of living would probably improve.
, c. the transaction costs of exchange would be lower.
d. economic efficiency would increase.
Which of the following would cause the actual deposit expansion multiplier to be less
than its potential?
a. the general public holding of funds in the form of currency rather than bank deposits
b. the holding of excess reserves by commercial banks
c. the general public holding of funds in the form of coins rather than bills
d. both a and b
Which of the following lists two things that both increase the money supply?
a. make open market purchases (buy bonds) and raise the reserve requirement ratio
b. make open market purchases (buy bonds) and lower the reserve requirement ratio
c. make open market sales (sell bonds) and raise the reserve requirement ratio
d. make open market sales (sell bonds) and lower the reserve requirement ratio
Assuming a 20 percent legal reserve requirement, a new deposit of $10,000 in a
commercial bank will place that bank in a position to lend out an additional
a. $2,000.
b. $8,000.
c. $10,000.
d. $50,000.
Suppose you transfer $1,000 from your checking account to your savings account. How
does this action affect the M1 and M2 money supplies?
a. M1 and M2 are both unchanged.
b. M1 falls by $1,000, and M2 rises by $1,000.
c. M1 is unchanged, and M2 rises by $1,000.
d. M1 falls by $1,000, and M2 is unchanged.
Which of the following best describes the crowding-out effect?
a. An increase in government expenditures will cause taxes to rise, which will reduce
both aggregate demand and output.
b. An increase in borrowing by the government will push interest rates upward, which
will lead to a reduction in private spending.
c. An increase in borrowing by the government will decrease the money supply and,
thereby, reduce aggregate demand.
d. An increase in government expenditures will cause the general level of prices to fall
and, thereby, reduce aggregate demand and output.
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