Three of these transactions are not counted in GDP. Which one is?
Government transfer payments to the elderly.
The value of services performed by a volunteer.
The purchase of a newly constructed factory.
✓
The sale of a used textbook.
Correct Answer
The purchase of a newly constructed factory.
The purchase of a newly constructed factory represents new investment and is included in GDP. The sale of a used textbook, the value of services performed by a volunteer, and government transfer payments are generally excluded from GDP calculations because they either represent a transfer of existing goods, non-market production, or income redistribution, not new production.
Question 2
Which of these does not describe a condition of the price level alone?
Stagflation
✓
Disinflation
Hyperinflation
Deflation
Correct Answer
Stagflation
Hyperinflation, deflation, and disinflation are terms that describe specific types or conditions of price level changes (extremely high inflation, sustained decrease in prices, slowing rate of inflation, respectively). Stagflation describes a macroeconomic condition characterized by simultaneous high inflation and high unemployment, not a type of inflation or price level change itself.
Question 3
Which of these is not considered one of the primary types of unemployment by economists?
Frictional unemployment
Structural unemployment
Voluntary unemployment
✓
Cyclical unemployment
Correct Answer
Voluntary unemployment
Voluntary unemployment is not a standard economic classification; individuals who voluntarily choose not to work are generally considered out of the labor force or not counted as unemployed. Frictional, structural, and cyclical unemployment are the three primary categories economists use to classify unemployment.
Question 4
Which of these is not a direct tool of fiscal policy?
Open market operations
✓
Changes in income tax rates
Government spending on infrastructure projects
Unemployment benefits
Correct Answer
Open market operations
Government spending, changes in tax rates, and unemployment benefits (as a form of government expenditure/transfer) are direct tools or components of fiscal policy. Open market operations are a tool of monetary policy, conducted by the central bank.
Question 5
Which of these is not a direct tool used by a central bank to implement monetary policy?
Changing government budget allocations
✓
Adjusting the reserve requirement
Conducting open market operations
Setting the discount rate
Correct Answer
Changing government budget allocations
Conducting open market operations, adjusting the reserve requirement, and setting the discount rate are all direct tools of monetary policy used by a central bank. Changing government budget allocations is a tool of fiscal policy, controlled by the legislative and executive branches.
Question 6
Which of these factors would not cause a shift in the aggregate demand curve?
A substantial increase in government spending
A decrease in interest rates due to monetary policy
A significant decrease in consumer confidence
An increase in the price level
✓
Correct Answer
An increase in the price level
A decrease in consumer confidence, an increase in government spending, and a decrease in interest rates all represent non-price factors that would shift the entire aggregate demand curve. An increase in the price level causes a movement along the aggregate demand curve, not a shift of the curve itself.
Question 7
Which of these factors would not cause a shift in the short-run aggregate supply (SRAS) curve?
A decrease in nominal wages
An improvement in technology
An increase in the cost of raw materials
An increase in consumer wealth
✓
Correct Answer
An increase in consumer wealth
An increase in consumer wealth primarily affects consumption and therefore shifts the aggregate demand curve. An increase in the cost of raw materials, a decrease in nominal wages, and an improvement in technology are all factors that affect the costs of production or productivity, thus shifting the short-run aggregate supply curve.
Question 8
Which of these is not typically considered a primary source of long-run economic growth?
Discovery of new natural resources
An increase in the money supply
✓
Increases in human capital
Technological advancements
Correct Answer
An increase in the money supply
Technological advancements, increases in human capital (through education and training), and discovery of new natural resources are all fundamental drivers of long-run economic growth by expanding an economy's productive capacity. An increase in the money supply primarily influences short-run aggregate demand and the price level, but does not directly contribute to long-run productive capacity or economic growth.
Question 9
Which of these is not a component of the expenditure approach to calculating Gross Domestic Product (GDP)?
Investment spending
Government transfer payments
✓
Net exports
Consumption spending
Correct Answer
Government transfer payments
The expenditure approach to GDP includes Consumption, Investment, Government Purchases, and Net Exports. Government transfer payments are not included because they do not represent production of goods and services; they are merely a redistribution of existing income.
Question 10
Which of these is not a typical economic consequence of unexpected inflation?
Increased menu costs for businesses
A decrease in the real value of fixed incomes
A redistribution of wealth from creditors to debtors
An increase in the real interest rate for lenders
✓
Correct Answer
An increase in the real interest rate for lenders
Unexpected inflation typically decreases the real value of fixed incomes, increases menu costs for businesses, and redistributes wealth from creditors to debtors (as debtors repay loans with money that has less purchasing power). It decreases the real interest rate for lenders (nominal interest rate minus inflation rate), not increases it, making this the odd one out.
Question 11
Three of these individuals are not counted in the labor force. Which one is?
A stay-at-home parent who chooses not to work outside the home.
An individual who was laid off and is actively applying for jobs.
✓
A full-time student not seeking employment.
A retired person who is not looking for work.
Correct Answer
An individual who was laid off and is actively applying for jobs.
A full-time student not seeking employment, a retired person not looking for work, and a stay-at-home parent not seeking work are all considered outside the labor force. An individual who was laid off and is actively applying for jobs is counted as unemployed and is therefore part of the labor force.
Question 12
Which of these policies is not primarily designed to directly increase aggregate supply in the long run?
Deregulation that reduces production costs for firms
Government investment in education and worker training programs
An increase in the money supply by the central bank
✓
Tax cuts for businesses that invest in new technology
Correct Answer
An increase in the money supply by the central bank
Government investment in education, tax cuts for technology investment, and deregulation are all supply-side policies aimed at increasing the economy's productive capacity and shifting the long-run aggregate supply curve. An increase in the money supply is a monetary policy tool primarily aimed at stimulating aggregate demand in the short run, not directly increasing long-run aggregate supply.
Question 13
Which of these statements about nominal and real GDP is incorrect?
Real GDP will always be higher than nominal GDP.
✓
Real GDP adjusts for changes in the price level.
If nominal GDP increases by 5% and the price level increases by 3%, real GDP has increased.
Nominal GDP uses current prices to value output.
Correct Answer
Real GDP will always be higher than nominal GDP.
Nominal GDP uses current prices, and real GDP adjusts for price level changes. If nominal GDP growth exceeds inflation, real GDP has increased. However, real GDP is not always higher than nominal GDP; if the price level has risen significantly since the base year, nominal GDP can be lower than nominal GDP, not always higher.
Question 14
Which of these scenarios would not lead to an increase in the equilibrium price level in the short run?
An increase in the money supply
Expansionary fiscal policy
A decrease in the cost of production for most firms
✓
A significant increase in consumer spending
Correct Answer
A decrease in the cost of production for most firms
A significant increase in consumer spending, expansionary fiscal policy, and an increase in the money supply all shift the aggregate demand curve to the right, leading to a higher equilibrium price level in the short run. A decrease in the cost of production for most firms shifts the short-run aggregate supply curve to the right, leading to a lower equilibrium price level.
Question 15
Which of these is not typically associated with an economic recession?
A decrease in real GDP
A sustained increase in the inflation rate
✓
A decrease in consumer and business confidence
An increase in the unemployment rate
Correct Answer
A sustained increase in the inflation rate
Economic recessions are characterized by a decrease in real GDP, an increase in the unemployment rate, and a decrease in consumer and business confidence. While inflation can occur during recessions (stagflation), a sustained increase in the inflation rate is not a typical defining characteristic; often, inflation tends to moderate or decrease during a recession due to reduced demand.