Q1. The total resource cost of goods and services produced by the U. S. economy is known as a. real GDP b. personal income c. national wealth d. national income Q2. The difference between GDP and final sales equals a. depreciation b. exports c. imports d. net inventory change Q3. Current disposable income can be adjusted for price changes and population changes to yield real per capita disposable income. a. true b. false Q4. If a lawn service mows your grass, it is included in the GDP. a. true b. false Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered a(n) a. final good b. intermediate good c. consumer good d. capital consumption allowance Q6. Imports constitute a minus figure in national income accounting. a. true b. false Q7. The total value added in the production of a final good a. exceeds the price of the final good b. equals the price of the final good c. exceeds the total payments made to owners of productive resources used in the production d. both (b) and (c) Q8. The GDP is reported on a monthly basis by the Department of Commerce. a. true b. false Q9. Transfer payments are added to NI in the process of determining personal income. a. true b. false Q10. U.S. gross domestic product is converted to U.S. gross national product by a. adding the value of output produced by U.S.-owned resources in foreign countries b. subtracting the value of output produced by U.S.-owned resources in foreign countries c. subtracting the value of output produced in the United States by foreign-owned resources d. both (a) and (c) Q11. Final sales are always larger than the GDP. a. true b. false Q12. Because of the value of things produced inside households, (building your own desk, mowing your own lawn, etc.) a. the GDP value is automatically adjusted upward to reflect this b. the GDP value is automatically adjusted downward to reflect this c. Official GDP is surely smaller than true total output d. Official GDP is surely larger than true total output Q13. A government surplus may trigger a decline in the money supply. a. true b. false Q14. Real wages are determined by multiplying money wages by the CPI. a. true b. false Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred payment. a. true b. false Q16. An increase in the money supply always causes an increase in the price level. a. true b. false Q17. Your nominal wages rose during the same period from $200 a week to $260. By how much did your real income rise? a. 30 percent b. 16.7 percent c. 8.33 percent d. 12 percent Q18. In the past 10 years or so, average real wages of U.S. workers in nonagricultural industries have a. increased about 40 percent b. increased slightly c. remained about the same d. declined Q19. If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10 percent, the banking system can increase the money supply by a maximum of a. $50,000 b. $500 c. $5,000 d. $4,500 Q20..

1. Q1. The total resource cost of goods and services produced by the U. S. economy is known as
a. real GDP
b. personal income
c. national wealth
d. national income
Q2. The difference between GDP and final sales equals
a. depreciation
b. exports
c. imports
d. net inventory change
Q3. Current disposable income can be adjusted for price changes and population changes to yield
real per capita disposable income.
a. true
b. false
Q4. If a lawn service mows your grass, it is included in the GDP.
a. true
b. false
Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered
a(n)
a. final good
b. intermediate good
c. consumer good
d. capital consumption allowance
Q6. Imports constitute a minus figure in national income accounting.
a. true
b. false
Q7. The total value added in the production of a final good
a. exceeds the price of the final good
b. equals the price of the final good

2. c. exceeds the total payments made to owners of productive resources used in the production
d. both (b) and (c)
Q8. The GDP is reported on a monthly basis by the Department of Commerce.
a. true
b. false
Q9. Transfer payments are added to NI in the process of determining personal income.
a. true
b. false
Q10. U.S. gross domestic product is converted to U.S. gross national product by
a. adding the value of output produced by U.S.-owned resources in foreign countries
b. subtracting the value of output produced by U.S.-owned resources in foreign countries
c. subtracting the value of output produced in the United States by foreign-owned resources
d. both (a) and (c)
Q11. Final sales are always larger than the GDP.
a. true
b. false
Q12. Because of the value of things produced inside households, (building your own desk,
mowing your own lawn, etc.)
a. the GDP value is automatically adjusted upward to reflect this
b. the GDP value is automatically adjusted downward to reflect this
c. Official GDP is surely smaller than true total output
d. Official GDP is surely larger than true total output
Q13. A government surplus may trigger a decline in the money supply.
a. true
b. false
Q14. Real wages are determined by multiplying money wages by the CPI.
a. true
b. false

3. Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred
payment.
a. true
b. false
Q16. An increase in the money supply always causes an increase in the price level.
a. true
b. false
Q17. Your nominal wages rose during the same period from $200 a week to $260. By how much
did your real income rise?
a. 30 percent
b. 16.7 percent
c. 8.33 percent
d. 12 percent
Q18. In the past 10 years or so, average real wages of U.S. workers in nonagricultural industries
have
a. increased about 40 percent
b. increased slightly
c. remained about the same
d. declined
Q19. If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10
percent, the banking system can increase the money supply by a maximum of
a. $50,000
b. $500
c. $5,000
d. $4,500
Q20. The effect of a change in the money supply on economic activity may be offset by a change
in velocity.
a. true
b. false
Q21. The current base period for the CPI is

4. a. 1967
b. 1977
c. 1982–1984
d. 1990
Q22. In the circular flow, an increase in the money supply tends to result when
a. planned I equals planned S
b. planned I is less than planned S
c. planned I is greater than planned S
d. there is a surplus government budget
Q23. COLA is a form of indexation.
a. true
b. false
Q24. The total checkable deposits a bank may have can be determined by dividing its reserves by
the reserve requirement.
a. true
b. false
Q25. The Financial Services Modernization Act
a. reinforced the Glass Steagall Act
b. prevented mergers of banks
c. eliminated barriers between banks, brokerage houses, and insurance companies
d. eliminated all banking regulations
Q26. Each Federal Reserve Bank has its own board of directors.
a. true
b. false
Q27. The most frequently used tool of U.S. monetary policy is
a. the discount rate
b. the reserve requirement
c. open-market operations
d. moral suasion

5. Q28. When the Fed conducts open-market operations, it primarily uses
a. Treasury bills
b. long-term U.S. government bonds
c. bonds of publicly traded corporations
d. overnight loans of major banks
Q29. The Board of Governors of the Federal Reserve System has
a. 6 members
b. 7 members
c. 1 member from each Federal Reserve Bank
d. 20 members
Q30. If the Fed desires to increase checkable deposits, it may lower the reserve requirement.
a. true
b. false
Q31. The interest rate at which banks borrow excess reserves from each other is known as the
a. prime rate
b. federal funds rate
c. discount rate
d. T-bill rate
Q32. If member banks need to borrow reserves, they must do so through the discount window.
a. true
b. false
Q33. The Fed Chairman appears before Congress semi-annually to present the Monetary Policy
Report.
a. true
b. false
Q34. In terms of the total number of payments, which of the following comprises the largest
share?
a. cash
b. personal checks
c. debit cards

6. d. credit cards
Q35. By buying government securities, the Federal Open Market Committee adds to member
banks' reserves.
a. true
b. false
Q36. More than 50 percent of commercial banks in the United States belong to the Federal
Reserve System.
a. true
b. false
Q37. The Federal Reserve System is built around
a. 4 regional banks
b. 6 regional banks
c. 12 district banks
d. 1 bank with several branches
Q38. The time lags lead monetarists to contend that monetary policy is counterproductive.
a. true
b. false
Q39. The marginal propensity to consume is
a. the fraction of an increase in income that would be spent on consumer goods
b. the additional desire people have for consumer goods
c. the fraction of a person's total income normally spent for consumer goods
d. the change in consumption resulting from a $1 change in the price level
Q40. The consumption function shows
a. how fast the economy is consuming its capital
b. that the amount of national income determines the rate at which the economy consumes its
resources
c. that households' incomes determine how much the households will spend for consumer
goods
d. the rate at which people actually use up their consumer goods

7. Q41. In the simple Keynesian model, if output exceeds aggregate expenditures,
a. there will be no response from businesses
b. inventories will decrease and businesses will increase output
c. inventories will increase and businesses will increase output
d. inventories will increase and businesses will decrease output
Q42. If planned construction investment increases by $30 billion and the MPC is two-thirds, total
output will increase by
a. $30 billion
b. $20 billion
c. $45 billion
d. $90 billion
Q43. "A given change in business investment will cause a larger change in equilibrium output."
This statement describes an important Keynesian concept called the
a. multiplier effect
b. marginal propensity to consume
c. marginal propensity to invest
d. consumption function
Q44. In the multiplier formula, 1/MPS equals the multiplier.
a. true
b. false
Q45. The classical economists held that chronic unemployment was likely.
a. true
b. false
Q46. As income increases, the absolute level of planned consumption will increase.
a. true
b. false
Q47. The new classical school contends that government fiscal policy is better than monetary
policy in controlling inflation.
a. true
b. false

8. Q48. Higher price levels are associated with lower aggregate expenditure at every level of
income.
a. true
b. false
Q49. Any time that planned leakages exceed planned injections, the economy will expand.
a. true
b. false
Q50. According to the Keynesian model, increased foreign spending for U.S. goods is likely to
a. reduce total employment in the United States
b. increase total employment in the foreign country
c. reduce total output in the United States
d. increase total output in the United StatesQ1. The total resource cost of goods and services
produced by the U. S. economy is known as
a. real GDP
b. personal income
c. national wealth
d. national income
Q2. The difference between GDP and final sales equals
a. depreciation
b. exports
c. imports
d. net inventory change
Q3. Current disposable income can be adjusted for price changes and population changes to
yield real per capita disposable income.
a. true
b. false
Q4. If a lawn service mows your grass, it is included in the GDP.
a. true
b. false

9. Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered
a(n)
a. final good
b. intermediate good
c. consumer good
d. capital consumption allowance
Q6. Imports constitute a minus figure in national income accounting.
a. true
b. false
Q7. The total value added in the production of a final good
a. exceeds the price of the final good
b. equals the price of the final good
c. exceeds the total payments made to owners of productive resources used in the production
d. both (b) and (c)
Q8. The GDP is reported on a monthly basis by the Department of Commerce.
a. true
b. false
Q9. Transfer payments are added to NI in the process of determining personal income.
a. true
b. false
Q10. U.S. gross domestic product is converted to U.S. gross national product by
a. adding the value of output produced by U.S.-owned resources in foreign countries
b. subtracting the value of output produced by U.S.-owned resources in foreign countries
c. subtracting the value of output produced in the United States by foreign-owned resources
d. both (a) and (c)
Q11. Final sales are always larger than the GDP.
a. true
b. false
Q12. Because of the value of things produced inside households, (building your own desk,

10. mowing your own lawn, etc.)
a. the GDP value is automatically adjusted upward to reflect this
b. the GDP value is automatically adjusted downward to reflect this
c. Official GDP is surely smaller than true total output
d. Official GDP is surely larger than true total output
Q13. A government surplus may trigger a decline in the money supply.
a. true
b. false
Q14. Real wages are determined by multiplying money wages by the CPI.
a. true
b. false
Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred
payment.
a. true
b. false
Q16. An increase in the money supply always causes an increase in the price level.
a. true
b. false
Q17. Your nominal wages rose during the same period from $200 a week to $260. By how
much did your real income rise?
a. 30 percent
b. 16.7 percent
c. 8.33 percent
d. 12 percent
Q18. In the past 10 years or so, average real wages of U.S. workers in nonagricultural industries
have
a. increased about 40 percent
b. increased slightly
c. remained about the same
d. declined

11. Q19. If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10
percent, the banking system can increase the money supply by a maximum of
a. $50,000
b. $500
c. $5,000
d. $4,500
Q20. The effect of a change in the money supply on economic activity may be offset by a
change in velocity.
a. true
b. false
Q21. The current base period for the CPI is
a. 1967
b. 1977
c. 1982–1984
d. 1990
Q22. In the circular flow, an increase in the money supply tends to result when
a. planned I equals planned S
b. planned I is less than planned S
c. planned I is greater than planned S
d. there is a surplus government budget
Q23. COLA is a form of indexation.
a. true
b. false
Q24. The total checkable deposits a bank may have can be determined by dividing its reserves
by the reserve requirement.
a. true
b. false
Q25. The Financial Services Modernization Act
a. reinforced the Glass Steagall Act

12. b. prevented mergers of banks
c. eliminated barriers between banks, brokerage houses, and insurance companies
d. eliminated all banking regulations
Q26. Each Federal Reserve Bank has its own board of directors.
a. true
b. false
Q27. The most frequently used tool of U.S. monetary policy is
a. the discount rate
b. the reserve requirement
c. open-market operations
d. moral suasion
Q28. When the Fed conducts open-market operations, it primarily uses
a. Treasury bills
b. long-term U.S. government bonds
c. bonds of publicly traded corporations
d. overnight loans of major banks
Q29. The Board of Governors of the Federal Reserve System has
a. 6 members
b. 7 members
c. 1 member from each Federal Reserve Bank
d. 20 members
Q30. If the Fed desires to increase checkable deposits, it may lower the reserve requirement.
a. true
b. false
Q31. The interest rate at which banks borrow excess reserves from each other is known as the
a. prime rate
b. federal funds rate
c. discount rate
d. T-bill rate

13. Q32. If member banks need to borrow reserves, they must do so through the discount window.
a. true
b. false
Q33. The Fed Chairman appears before Congress semi-annually to present the Monetary Policy
Report.
a. true
b. false
Q34. In terms of the total number of payments, which of the following comprises the largest
share?
a. cash
b. personal checks
c. debit cards
d. credit cards
Q35. By buying government securities, the Federal Open Market Committee adds to member
banks' reserves.
a. true
b. false
Q36. More than 50 percent of commercial banks in the United States belong to the Federal
Reserve System.
a. true
b. false
Q37. The Federal Reserve System is built around
a. 4 regional banks
b. 6 regional banks
c. 12 district banks
d. 1 bank with several branches
Q38. The time lags lead monetarists to contend that monetary policy is counterproductive.
a. true
b. false

14. Q39. The marginal propensity to consume is
a. the fraction of an increase in income that would be spent on consumer goods
b. the additional desire people have for consumer goods
c. the fraction of a person's total income normally spent for consumer goods
d. the change in consumption resulting from a $1 change in the price level
Q40. The consumption function shows
a. how fast the economy is consuming its capital
b. that the amount of national income determines the rate at which the economy consumes
its resources
c. that households' incomes determine how much the households will spend for consumer
goods
d. the rate at which people actually use up their consumer goods
Q41. In the simple Keynesian model, if output exceeds aggregate expenditures,
a. there will be no response from businesses
b. inventories will decrease and businesses will increase output
c. inventories will increase and businesses will increase output
d. inventories will increase and businesses will decrease output
Q42. If planned construction investment increases by $30 billion and the MPC is two-thirds,
total output will increase by
a. $30 billion
b. $20 billion
c. $45 billion
d. $90 billion
Q43. "A given change in business investment will cause a larger change in equilibrium
output." This statement describes an important Keynesian concept called the
a. multiplier effect
b. marginal propensity to consume
c. marginal propensity to invest
d. consumption function
Q44. In the multiplier formula, 1/MPS equals the multiplier.
a. true

15. b. false
Q45. The classical economists held that chronic unemployment was likely.
a. true
b. false
Q46. As income increases, the absolute level of planned consumption will increase.
a. true
b. false
Q47. The new classical school contends that government fiscal policy is better than monetary
policy in controlling inflation.
a. true
b. false
Q48. Higher price levels are associated with lower aggregate expenditure at every level of
income.
a. true
b. false
Q49. Any time that planned leakages exceed planned injections, the economy will expand.
a. true
b. false
Q50. According to the Keynesian model, increased foreign spending for U.S. goods is likely to
a. reduce total employment in the United States
b. increase total employment in the foreign country
c. reduce total output in the United States
d. increase total output in the United States
Solution
Q1. The total resource cost of goods and services produced by the U. S. economy is known as
"real GDP".
Real GDP reflects value of all goods and services produced in an economy at a period of time
which is inflation adjusted.

16. Q2. The difference between GDP and final sales equals "Depreciation".
Because final sales treat depreciation into calculation while GDP stands for Gross domestic
product, where Gross implies no treatment of depreciation.
Q3. Current disposable income can be adjusted for price changes and population changes to yield
real per capita disposable income. "True".
Per capita income implies income per person and real implies not including inflation. Hence if
current disposable income is adjusted with price (inflation effect) and population, real per capita
income can be find.
Q4. If a lawn service mows your grass, it is included in the GDP. "True".
As the service would include the payment as well, thus it should be included into GDP.
Q5. In national income accounting, grain fed to a hog at a commercial hog farm is considered
a(n) "Intermediate good".
As the grain was used as a material to aid in the production of commercial, it will be treated as
intermediate.
Q6. Imports constitute a minus figure in national income accounting. "True".
National implies less of import and treat imports and exports in to calculation.
Q7. The total value added in the production of a final good "equals the price of the final good".
Q8. The GDP is reported on a monthly basis by the Department of Commerce." True".
Q9. Transfer payments are added to NI in the process of determining personal income. "True".
Personal Income equal the total income received by the members of the domestic household
sector, which may or may not be earned from productive activities during a given period of time,
usually one year. If not earned from productive activities these are tranfer payments.
Q10. U.S. gross domestic product is converted to U.S. gross national product by "adding the
value of output produced by U.S.-owned resources in foreign countries and subtracting the value
of output produced in the United States by foreign-owned resources" Option d.
option a implies adding exports and option c implies deducting imports which makes domestic to
national.
Q11. Final sales are always larger than the GDP. "True".
Final sales are prices at market price .
Q12. Because of the value of things produced inside households, (building your own desk,
mowing your own lawn, etc.) "Official GDP is surely smaller than true total output"
Because official GDP does not treats these work into calculation.
Q13. A government surplus may trigger a decline in the money supply. "True".
Q14. Real wages are determined by multiplying money wages by the CPI. "True".
Q15. The more volatile the inflation rate, the weaker the money supply as a standard of deferred
payment. "True".

17. Q16. An increase in the money supply always causes an increase in the price level. "False."
In short run, money supply increased does not effect price level.
Q17. Your nominal wages rose during the same period from $200 a week to $260. By how much
did your real income rise? "8.33%".