Suppose that in a particular year, nominal GDP is less than real GDP.

This
implies that:
A) inflation is low.
B) inflation is high.
C) the year in question is prior to the base year.
D) the year in question is after the base year.
E) the answer cannot be determined from the information given.
Answer: C

The aggregate demand curve is downward-sloping because:

A) higher prices make businesses more profitable and thus output
expands.
B) lower prices makes business conditions more attractive so that
quantities expand.
C) lower prices make some people feel wealthier and they therefore
demand more.
D) lower prices cause substitutions that increase the quantity
demanded.
E) none of the above.
Answer: C

Real GDP is generally increasing at a faster rate than nominal GDP during
periods of high inflation. This statement is:

A. True

B. False

Answer: False

The flow-of-product accounting of GDP must equal the income or earnings

accounting of GDP because:
A) depreciation is equal to the difference between gross revenues and
net payments to factors.
B) transfer payments are excluded from GDP.
C) net foreign investment can be either positive or negative.
D) money prices change and either inflate or deflate earnings or
income.
E) profit is a residual, which automatically adjusts to ensure equality.
Answer: E

An economy's capital stock must decline if:

A) consumption exceeds investment.
B) net investment is zero.
C) depreciation is greater than net investment.

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 D) depreciation is greater than gross investment.
E) government expenditures on goods and services are greater than
tax collections.
Answer: D

Real GDP is computed by:

A) subtracting depreciation costs from nominal GDP.
B) multiplying Nominal GDP by a cost-of-living increase.
C) adding the dollar value of services to Nominal GDP.
D) dividing Nominal GDP by the GDP price deflator.
E) none of the above.
Answer: D

If government and corporations could be ignored, then DI and NDP would be

identical. This statement is:

A. True

B. False

Answer: True

A straight-line consumption function cutting a 45-degree line from above

would mean that:
A) at the break-even point, but only there, MPC is 1.
B) at low levels of income, consumption exceeds income.
C) at high levels of income, saving is zero.
D) as prices increase, consumption increases.
E) as prices increase, consumption decreases.
Answer: B

When the MPC is constant:

A) there is no break-even point; there is always positive saving.
B) the MPS is constant.
C) an increase in income decreases saving.
D) a doubling of income will double consumption.
E) none of the above.
Answer: B

Credits exceeding debits in the financial account mean that a country is

borrowing more from abroad than it is lending to foreign citizens,
businesses, and governments. This statement is:

A. True

B. False

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 Answer: True

In computing the national income and national product accounts, it would be

incorrect to add together which of the following two items?

a. consumption expenditures and personal saving.

b. net investment and consumption expenditures.
c. corporate profits and net interest paid by business.
d. government purchases and consumption expenditures.
e. government purchases and wages and salaries.

Answer : e.

There would be double counting in the computation of GDP if statisticians

were to sum the:

a. value added by the iron-mining industry and the value added

by the steel manufacturing industry.
b. net increase in inventories of flour mills and the net increase
in inventories of bakeries.
c. total output of iron ore and the total output of iron.
d. value added by bakers and the value of flour mills.
e. total of consumer services purchased and the total of
investment goods produced.

Answer: c.