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eco ch 13

True/False
Indicate whether the sentence or statement is true or false.
 

1. 

The purpose of national income accounting is to determine how healthy the American economy is.
 

2. 

The statistics used in computing GDP are completely accurate.
 

3. 

Gross domestic product disregards depreciation.
 

4. 

National income measures all the money people have available to save or spend.
 

5. 

Personal income includes welfare payments and unemployment compensation.
 

6. 

Aggregates are the sum of individual parts in the economy.
 

7. 

Aggregate demand may decrease if higher taxes are imposed.
 

8. 

Deflation increases foreign demand for U.S. goods.
 

9. 

Inflation causes the purchasing power of your money to go up.
 

10. 

If the price of a specific product goes up, and all other prices stay the same, producers will want to supply less to the marketplace.
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

11. 

In determining the GDP,
a.
a dollar is used as the common measure.
b.
the quantity of items produced is added up.
c.
the quality of goods is considered.
d.
both new and used goods are included.
 

12. 

In computing the GDP, which category of the economy represents expenditures on tools, machines, and buildings used to produce goods?
a.
consumer sector
c.
government sector
b.
investment sector
d.
net exports
 

13. 

Net Domestic Product (NDP) is a better measure of the economy's productivity than GDP because it accounts for
a.
unpaid work.
c.
quality of goods.
b.
depreciation.
d.
government spending.
 

14. 

Welfare payments and other assistance payments that a state or the federal government makes to individuals are called
a.
net exports.
c.
wages.
b.
corporate profits.
d.
transfer payments.
 

15. 

The economic indicator that measures the actual amount of money income that people have to save or spend is called
a.
national income.
c.
disposable personal income.
b.
personal income.
d.
net domestic product.
 

16. 

When inflation occurs, the purchasing power of the dollar
a.
goes down.
c.
is not affected.
b.
goes up.
d.
cannot be measured.
 

17. 

Which of the following provides a point of comparison for current prices?
a.
market basket
c.
base year
b.
price deflator
d.
price index
 

18. 

The consumer price index compares
a.
quality of goods.
c.
price levels.
b.
income levels.
d.
quantity of goods.
 

19. 

Which of the following is likely to follow an increase in the producer price index ?
a.
deflation
c.
shortages of goods
b.
increase in the consumer price index
d.
increase in purchasing power
 

20. 

Gross domestic product that has been adjusted for inflation is called
a.
a base year.
c.
real GDP.
b.
a price deflator.
d.
deflation.
 

21. 

Aggregate demand is related to
a.
price.
c.
supply.
b.
price level.
d.
savings.
 

22. 

As the price level in the nation's economy decreases,
a.
purchasing power increases.
c.
supply increases.
b.
purchasing power decreases.
d.
foreign demand on goods decreases.
 

23. 

With inflation, the purchasing power of money
a.
goes up.
c.
is nonexistent.
b.
is not affected.
d.
goes down.
 

24. 

Which of the following describes what happens when the price level goes up and wages do not?
a.
producers will want to supply less to the marketplace
b.
producers will want to supply more to the marketplace
c.
overall profits will decrease
d.
profits will not be affected
 

25. 

What is determined when the aggregate demand curve crosses the aggregate supply curve?
a.
equilibrium price
c.
aggregate demand
b.
aggregate supply
d.
GDP price deflator
 

26. 

An economic boom is
a.
a period of prosperity.
c.
a sudden drop in stock prices.
b.
the same thing as a trough.
d.
a downward trend in the economy.
 

27. 

When GDP levels off and begins to decline, the economy is entering
a.
a peak part of the business cycle.
b.
an economic boom.
c.
the contraction part of the business cycle.
d.
a depression.
 

28. 

Any period of at least six months, during which real GDP does not grow is
a.
an expansion.
c.
a trough.
b.
a recession.
d.
a depression.
 

29. 

The increase in economic activity that follows the lowest point in the business cycle is called a
a.
recovery.
c.
depression.
b.
trough.
d.
peak.
 

30. 

Which of the following describes the United States economy in the 1990s?
a.
small ups and downs
c.
prolonged growth
b.
recurring recessions
d.
serious downturn
 

Completion
Complete each sentence or statement.
 

31. 

____________________ is the prolonged rise in the general price level of goods and services.
 

 

32. 

____________________ is the real goods and services that money can buy.
 

 

33. 

The group of items used to compile the consumer price index is called a ____________________.
 

 

34. 

Most of the prices included in the ____________________ are in mining, manufacturing, and agriculture.
 

 

35. 

The ____________________ includes prices for food, housing, transportation, clothing, education, recreation, and medical care.
 

 

36. 

A ____________________ is a period when millions are out of work and many businesses fail.
 

 

37. 

Peaks and troughs are clear phases of a ____________________.
 

 

38. 

The ups and downs in an economy are called _________________________.
 

 

39. 

If the real GDP does not grow for at least six months, the economy is in a ____________________.
 

 

40. 

The increase in total economic activity that follows a trough is called ____________________.
 

 

Matching
 
 
Match each item with the correct statement below.
a.
national income accounting
b.
gross domestic product
c.
net domestic product
d.
national income
e.
personal income
 

41. 

total dollar value of all final goods and services produced in a nation in a single year
 

42. 

total income that individuals receive before personal taxes are paid
 

43. 

measurement of the national economy's performance
 

44. 

value of the nation's total output minus the total value lost through depreciation on equipment
 

45. 

total income earned by everyone in the economy
 
 
Match each item with the correct statement below.
a.
inflation
b.
purchasing power
c.
consumer price index
d.
market basket
e.
producer price index
 

46. 

real goods and services that money can buy
 

47. 

measure of the change in price over time that U.S. producers charge for goods and services
 

48. 

prolonged rise in the general price level of goods and services
 

49. 

representative group of goods and services used to compile the consumer price index
 

50. 

measure of the change in price over time of a specific group of goods and services used by the average household
 
 
Match each item with the correct statement below.
a.
aggregates
b.
aggregate demand
c.
aggregate demand curve
d.
aggregate supply
e.
aggregate supply curve
 

51. 

total quantity of goods and services in the entire economy that all citizens will demand at any single time
 

52. 

sum of all the individual parts in the economy
 

53. 

graph showing the relationship between aggregate quantity supplied and the average of all prices
 

54. 

real domestic output of producers based on the rise and fall of the price level
 

55. 

graph showing the relationship between the aggregate quantity demanded and the average of all prices
 
 
Match each item with the correct statement below.
a.
business cycle
b.
peak
c.
recession
d.
depression
e.
expansion
 

56. 

part of the business cycle in which economic activity slowly increases
 

57. 

major slowdown of economic activity
 

58. 

period of prosperity in which economic activity is at its highest point
 

59. 

irregular changes in the level of total output measured by real GDP
 

60. 

part of the business cycle in which the nation's output does not grow for at least six months
 



 
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