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75) A south sea island produces only coconuts. In 2012, the price of a coconut is $1 and the
quantity produced is 200. In 2013, the price of a coconut is $1.50 and the quantity
produced is 250. 2012 is the base year. Real GDP in 2013 is ________.
A) $375
B) $350
C) $200
D) $250
E) $1.50
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
76) The diference between nominal GDP and real GDP is
A) the indirect taxes used in their calculations.
B) the prices used in their calculations.
C) that nominal GDP includes the depreciation of capital and real GDP does not.
D) that nominal GDP includes net exports of goods and services and real GDP includes net
imports.
E) that real GDP includes the depreciation of capital and nominal GDP does not.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
5.3 The Use and Limitations of Real GDP
1) GDP is
A) a perfect measure of the standard of living.
B) a perfect measure of the value of production.
C) a measure which includes the value of all newly produced goods and services.
D) an imperfect measure of the standard of living.
E) the only factor that afects our standard of living.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
51
2) Even though it is not a perfect measure, economists can use real GDP to
i. compare how the value of the goods and services produced in China have changed
over the past 10 years.
ii. look at the length of recessions and expansions in the United States.
iii. compare the standard of living in China versus the standard of living in Vietnam.
A) ii only
B) i, ii and iii
C) i and iii
D) i and ii
E) ii and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
3) Although imperfect, which of the following is used as a measure of the standard of
living?
A) real GDP ÷ population
B) real GDP × population
C) nominal GDP × population
D) nominal GNP ÷ population
E) nominal GNP × population
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
4) In the United States, between 1961 and 2011, there has been
i. a consistent , non-changing growth rate of potential GDP per person.
ii. an increase in the standard of living based on real GDP per person.
iii. luctuations in real GDP per person around potential GDP per person.
A) ii only
B) i, ii and iii
C) i and ii only
D) ii and iii
E) i only
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
52
5) In 1961, real GDP totaled $575 billion and in 2011 it totaled $1,255 billion. Between
1961 and 2011, the population increased from 50 million to 100 million. Between 1961 and
2011, the standard of living based on real GDP per person
A) increased from $11,500 to $12,550.
B) increased by over 300 percent.
C) increased by about 118 percent.
D) decreased from $125,500 to $28,750.
E) decreased by 9 percent.
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
6) If we use GDP to measure our standard of living, then our procedure is
A) inaccurate because our standard of living does not depend only on goods and services.
B) accurate because our standard of living depends solely on goods and services.
C) inaccurate because our standard of living has nothing to do with goods and services.
D) inaccurate because our standard of living only depends on used goods and services.
E) accurate only if we use nominal GDP rather than real GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
7) The business cycle describes
A) the change in potential GDP over time.
B) the change in the standard of living across countries.
C) the behavior of real GDP over time.
D) the behavior of nominal GDP over time.
E) the behavior of GNP over time.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
53
8) The business cycle is deined as
A) changes in the stock market.
B) changes in inancial markets.
C) persistent growth in potential GDP.
D) irregular ups and downs in production and jobs.
E) the period of time during which the unemployment rate is rising.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
9) The relationship between real GDP and potential GDP over the business cycle can be
best summarized by which of the following statements?
A) Real GDP luctuates around potential GDP.
B) Real GDP is always equal to potential GDP.
C) Real GDP cannot be greater than potential GDP.
D) Real GDP cannot be less than potential GDP.
E) Real GDP cannot be equal to potential GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
10) Over the business cycle,
A) potential GDP luctuates around its trend.
B) real GDP luctuates around its trend.
C) only potential GDP luctuates around its trend and real GDP remains equal to its trend.
D) only real GDP luctuates around its trend and potential GDP remains equal to its trend.
E) neither real GDP nor potential GDP luctuates because they just grow smoothly along
their trends.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
54
11) During the business cycle,
A) real GDP luctuates around nominal GDP.
B) nominal GDP luctuates around real GDP.
C) real GDP luctuates around its trend.
D) trend GDP luctuates around real GDP.
E) real GDP falls after the trough.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
12) A business cycle has two turning points, which are the
A) recession and trough.
B) peak and recession.
C) trough and peak.
D) expansion and recession.
E) peak and expansion.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
13) The business cycle has two phases,
A) expansion and peak.
B) recession and trough.
C) peak and trough.
D) recession and expansion.
E) expansion and trough.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
55
14) Based on the igure above, in which quarter or quarters did a recession occur?
A) between 2012, 2nd quarter to 2013, 2nd quarter and also between 2014, 2nd quarter to
the end of the igure
B) in 2013, 2nd quarter
C) between 2013, 2nd quarter to 2014, 2nd quarter
D) between 2014, 1st quarter to 2014 2nd quarter
E) after 2013, 2nd quarter
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Revised
AACSB: Relective thinking
15) Based on the igure above, in which quarter or quarters did an expansion occur?
A) between 2012, 2nd quarter to 2013, 2nd quarter and also between 2014, 2nd quarter to
the end of the igure
B) in 2013, 2nd quarter
C) between 2013, 2nd quarter to 2014, 2nd quarter
D) in 2014, 2nd quarter
E) There are no expansions illustrated in the igure.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
56
16) Based on the igure above, in which quarter or quarters did a trough occur?
A) between 2012, 2nd quarter to 2013, 2nd quarter and also between 2014, 2nd quarter to
the end of the igure
B) in 2013, 2nd quarter
C) between 2013, 2nd quarter to 2014, 2nd quarter
D) in 2014, 2nd quarter
E) There are no troughs illustrated in the igure.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
17) Based on the igure above, in which quarter or quarters did a peak occur?
A) between 2012, 2nd quarter to 2013, 2nd quarter and also between 2014, 2nd quarter to
the end of the igure
B) in 2013, 2nd quarter
C) between 2013, 2nd quarter to 2014, 2nd quarter
D) in 2014, 2nd quarter
E) There are no peaks illustrated in the igure.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
18) A standard deinition of recession is
A) a period of expansion in many sectors of the economy.
B) an increase in GDP that lasts for at least 6 months.
C) a decrease in GDP that lasts for at least 6 months.
D) an increase in unemployment from one month to the next.
E) a period of time when the unemployment rate exceeds 6.5 percent.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
57
19) In order to be classiied as a recession, a contraction of general economic activity must
last at least
A) one year.
B) six months.
C) one period.
D) one quarter.
E) None of the above because recessions do not have a minimum length.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
20) A recession conventionally is deined as a decrease in
A) real GDP that lasts for at least six months.
B) the growth rate of real GDP that lasts for at least six months.
C) potential GDP that lasts for at least six months.
D) real GDP that lasts for at least three months.
E) the inlation rate that lasts for at least six months.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
21) A recession runs from the
A) peak of the business cycle to its trough.
B) peak of the business cycle to a recovery.
C) expansion of a business cycle to its peak.
D) trough of a business cycle to its peak.
E) trough of a business cycle to its expansion.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
58
22) The U.S. economy is experiencing falling output, falling employment, falling incomes
and rising unemployment. These conditions best describe a business cycle ________.
A) expansion
B) peak
C) trend
D) recession
E) trough
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
23) The U.S. economy is experiencing rising output, rising employment, rising incomes and
falling unemployment. These conditions best describe a business cycle ________.
A) expansion
B) peak
C) trend
D) recession
E) trough
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
24) The NBER describes a recession as
A) "a period of signiicant decline in total output, income, employment, and trade, usually
lasting from six months to a year."
B) "a decrease in real GDP for two successive quarters."
C) "a decrease in potential GDP for at least six months."
D) "a decrease in the standard of living for at least one year."
E) "a one year period with increases in the unemployment rate."
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
59
25) The Great Moderation describes the period
A) of relatively steady growth in real GDP between 1991 and 2008.
B) of relatively steady growth in real GDP after the year 2000.
C) between 2000 and 2008 when potential GDP did not increase.
D) between 1990 and 2005 when real GDP grew signiicantly more slowly than did
potential GDP.
E) of very slow growth in real GDP after 1990.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
26) Which of the following describe the United States economy in 2008 and and the start of
2009?
A) The economy was in an expansion.
B) The economy was in a recession.
C) Real GDP per person increased.
D) Real GDP reached a peak.
E) None of the above answers is correct.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
27) U.S. real GDP
A) precisely measures the improving standard of living in the United States.
B) measures the change in the price level over time.
C) excludes the value of underground production and leisure time.
D) is not as accurate as nominal GDP when measuring standard of living changes over
time.
E) includes the value of underground production but excludes the value of leisure time.
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
60
