1.Which of the following is NOT a reason to study economics? a. two consecutive quarters.

a. to understand society and global affairs b. a year.

b. to learn how to make lots of money c. six consecutive quarters.
c. to be an informed voter d. three consecutive quarters.
d. to learn a way of thinking
10.A prolonged and deep recession is called
2.Among the fundamental concepts in economics are a. a business cycle.
a. opportunity cost. b. a stagflation.
b. marginalism. c. hyperinflation.
c. efficient markets. d. a depression.
d. all of the above
11.Unemployment generally ________ during recessions and
3.Which of the following is the best definition of economics? ________ during expansions.
a. the study of how consumers spend their income a. falls; rises.
b. the study of how individuals and societies choose to use b. falls; falls.
the scarce resources that nature and previous generations c. rises; rises.
have provided d. rises; falls.
c. the study of how business firms decide what inputs to hire
and what outputs to produce 12.Which of the following statements is FALSE?
d. the study of how the federal government allocates tax a. Business cycles are always symmetric the length of an
dollars expansion is the same as the length of a contraction.
b. The rate of change in economic activity is used to assess
4.A period of very rapid increase in the overall price level is whether an economy is expanding or contracting.
known as c. Short-term ups and downs in the economy are known as
a. stagnation. business cycles.
b. depression. d. During a recession, output and employment are falling.
c. stagflation.
d. hyperinflation. 13.I. GDP is a good measure of economic well-being because
people prefer higher incomes to lower incomes.
5.The term business cycle refers to the II. Consumer Price Index (CPI) is a measure of the overall cost
a. short-term ups and downs in the level of economic activity. of the goods and services bought by a typical consumer.
b. short-term ups and downs in the price level. a. Both statements are true
c. long-term trends in the price level. b. Both statements are false
d. long-term trends in the level of economic activity. c. Only statement I is true
d. Only statement II is true
6.A period during which aggregate output rises is known as
a(n) 14.I. Nominal Interest Rates is the interest rate corrected for
a. expansion. the effects of inflation
b. recession. II. Real Interest Rates is the interest rate as usually reported
c. inflation. without a correction for the effects of inflation
d. hyperinflation. a. Both statements are true
b. Both statements are false
7.In a business cycle, a peak represents the end of ________ c. Only statement I is true
and a trough represents the end of ________. d. Only statement II is true
a. a depression; an expansion
b. a trough; a peak 15.I. Total expenditure in the economy must equal the total
c. a recession; an expansion income in the economy because every transaction has a
d. an expansion; a recession buyer and a seller.
II. Transfer payments are cash payments made by the
government to people who do not supply goods, services, or
8.In a business cycle, a peak represents the end of labor in exchange for these payments.
a. an expansion. a. Both statements are true
b. a depression. b. Both statements are false
c. trough. c. Only statement I is true
d. a recession d. Only statement II is true

16.I. Firms receive income from firms and the government,

9.It has become conventional to classify an economic purchase goods and services from firms, and pay taxes to the
downturn as a recession when aggregate output declines for government.
II. Households receive payments from households and the
government for goods and services. 25.I. Durable goods are goods that last a relatively long time,
a. Both statements are true such as cars and household appliances.
b. Both statements are false II. Nondurable goods are services that are used up fairly
c. Only statement I is true quickly, such as food and clothing.
d. Only statement II is true a. Both statements are true
b. Both statements are false
17.The total market value of all final goods and services c. Only statement I is true
produced within a given period by factors of production d. Only statement II is true
located within a country is
a. gross national product. 26.I. Firms receive income from firms and the government,
b. net national product. purchase goods and services from firms, and pay taxes to the
c. net national income. government.
d. gross domestic product. II. Households receive payments from households and the
government for goods and services.
18.Gross domestic product measures a. Both statements are true
a. the total spending of everyone in the economy. b. Both statements are false
b. the value of all output in the economy. c. Only statement I is true
c. the total income of everyone in the economy. d. Only statement II is true
d. all of the above
27.The total market value of all final goods and services
19.The GDP includes produced within a given period by factors of production
a. the value of all final goods and services. located within a country is
b. the value of all intermediate goods and services. a. gross national product.
c. the value of both intermediate and final goods and b. net national product.
services. c. net national income.
d. the value of all transactions. d. gross domestic product.
28.Gross domestic product measures
20.The equation for GDP using the expenditure approach is a. the total spending of everyone in the economy.
a. GDP = C + I + G + (IM - EX). b. the value of all output in the economy.
b. GDP = C + I + G + EX + IM. c. the total income of everyone in the economy.
c. GDP = C + I + G + (EX - IM). d. all of the above
d. GDP = C + I + G - EX - IM.
29.The GDP includes
21.The single largest expenditure component in GDP is a. the value of all final goods and services.
a. consumption. b. the value of all intermediate goods and services.
b. government spending. c. the value of both intermediate and final goods and
c. investment. services.
d. net exports. d. the value of all transactions.

22.Nominal GDP measures the value of all goods and services 30.The equation for GDP using the expenditure approach is
a. in current dollars/pesos. a. GDP = C + I + G + (IM - EX).
b. in constant dollars/pesos. b. GDP = C + I + G + EX + IM.
c. without inflation. c. GDP = C + I + G + (EX - IM).
d. in fixed dollars/pesos. d. GDP = C + I + G - EX - IM.

23.Gross domestic product measured in terms of the prices of 31.The single largest expenditure component in GDP is
a fixed, or base, year is a. consumption.
a. current GDP. b. government spending.
b. base GDP. c. investment.
c. real GDP. d. net exports.
d. nominal GDP.

24.Real GDP is gross domestic product measured

a. in the prices of a base year. 32.Nominal GDP measures the value of all goods and services
b. at a constant output level but at current prices. a. in current dollars/pesos.
c. in current dollars. b. in constant dollars/pesos.
d. as the difference between the current year's GDP and last c. without inflation.
year's GDP. d. in fixed dollars/pesos.
33.Gross domestic product measured in terms of the prices of
a fixed, or base, year is
a. current GDP.
b. base GDP.
c. real GDP.
d. nominal GDP.

34.Real GDP is gross domestic product measured

a. in the prices of a base year.
b. at a constant output level but at current prices.
c. in current dollars.
d. as the difference between the current year's GDP and last
year's GDP.

35.I. Durable goods are goods that last a relatively long time,
such as cars and household appliances.
II. Nondurable goods are services that are used up fairly
quickly, such as food and clothing.
a. Both statements are true
b. Both statements are false
c. Only statement I is true
d. Only statement II is true