Question 1 The circular flow diagram of economic activity is a model of the:
a) flow of goods, services, and payments between households and firms.
b) role of unions and government in the economy.
c) interaction among taxes, prices, and profits.
d) influence of government on business behaviour.

Question 2 Which of the following best characterizes the circular flow of income?
a) Businesses buy resources from the government, and households buy goods and services from businesses.
b) Households buy factors of production from businesses, and businesses buy goods and services from households.
c) The government purchases resources from businesses and households and then sells goods and services to businesses and households.
d) Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses.

Question 3 In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of:
a) producers and input suppliers.
b) producers and government planning committees.
c) all consumers.
d) buyers and sellers.

Question 4 If macroeconomics looks at the economy as a whole, it focuses on which of the following?
a) unemployed people
b) business firms
c) households
d) the division of labor
Chapter 6 Random

Question 5 GDP is:
a) the value of all final goods and services produced by a government.
b) the sum of all currency and coins in circulation.
c) the value of all final good and services produced anywhere in the world by a nation's firms.
d) the value of all final goods and services produced domestically.

Question 6 A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle are:
a) trough, expansion, recession, peak
b) expansion, trough, recession, peak
c) expansion, peak, recession, trough
d) contraction, recession, expansion, boom

Question 7 _______________, which can be approximated by the growth of gross domestic product, ultimately determines the prevailing standard of living in a country.
a) Trade balance
b) Education
c) Inflation
d) Economic growth

Question 8 The gap between exports and imports in a nation's economy is called the ___________.
a) trade surplus
b) trade balance
c) trade inventory
d) trade deficit

Question 9 In 1980 Denmark had a GDP of $70 billion (measured in U.S. dollars) and a population of 5.1 million. In 2000, Denmark had a GDP of $160 billion (measured in U.S. dollars) s and a population of 5.3 million. By what percentage did Denmark's GDP per capita rise between 1980 and 2000?
a) 219%
b) 128%
c) 45.4%
d) 120%

Question 10 Country Alpha and Country Beta initially have the same real GDP per capita. Country Alpha experiences no economic growth, while Country Beta grows at a sustained rate of 5 percent. In 14 years, Country Alpha's GDP will be approximately _________ that of Country Beta.
a) triple
b) one-half
c) one-fourth
d) double

Question 11 Increased investment alone will guarantee economic growth.
a) This is a true statement, because growth occurs only with savings.
b) This is a false statement, because economic growth hinges on the quality and type of investment as well as the human capital and improvements in technology.
c) This is a true statement, because money is the only resource needed for growth.
d) This is a false statement, because an economy must rely on capital injections from abroad.

Question 12 Which of the following is unlikely to affect the rate of economic growth?
a) the quantity of available resources
b) technological change
c) the level of government spending
d) the quality of available resources

Question 13 A nation's prosperity is sometimes measured in terms of ___________.
a) economic output
b) GDP per capita
c) GDP
d) GNP

Question 14 If the unemployment rate is 8 percent, then this means:
a) 8 percent of the labor force is unemployed.
b) 8 percent of the population age over sixteen is unemployed.
c) 8 percent of the population is unemployed.
d) the number of unemployed persons equals 8 percent of the employed persons.

Question 15 A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be:
a) structurally unemployed.
b) frictionally unemployed.
c) cyclically unemployed.
d) underemployed.

Question 16 The type of unemployment that occurs because of a recession is called:
a) frictional unemployment.
b) seasonal unemployment.
c) cyclical unemployment.

d) the natural rate of unemployment.

Question 17 The situation where the buying power of money in terms of goods and services increases is called:
a) inflation.
b) deflation.
c) hyperinflation.
d) stationary pricing.

Question 18 In the 1970s and 1980s, labor unions commonly negotiated wage contracts that had _______________________ which guaranteed that their wages would keep up with inflation.
a) cost of living adjustments
b) wage protection clauses
c) inflation protection plans

d) inflation ceiling guarantees

Question 19 If the price index moves from 107 to 110, the rate of inflation is:
a) 2.8%
b) 30%
c) 3%
d) 28%

Question 20 The unemployment rate in a town in which 65,400 persons are employed and 11,000 are unemployed equals:
a) 11%.
b) 16.8%.
c) 20.2 %.
d) 14.4%.