GDP and Business Cycle Quiz

Question 1

What is GDP?

Answer 1

The dollar value of all final goods and services produced within a country’s borders in a given year.

Question 2

What are intermediate goods?

Answer 2

Goods used to produce final goods; not counted in GDP.

Question 3

What is the Expenditure Approach to calculating GDP?

Answer 3

Adds up spending on consumer goods, business goods, government goods, and net exports.

Question 4

What is the Income Approach to calculating GDP?

Answer 4

Adds up all incomes earned in the economy.

Question 5

What is Nominal GDP?

Answer 5

GDP measured in current prices, without adjusting for inflation.

Question 6

What is Real GDP?

Answer 6

GDP measured using constant prices from a base year, adjusted for inflation.

Question 7

Why do economists prefer Real GDP over Nominal GDP?

Answer 7

Real GDP gives a more accurate view by removing the effects of inflation.

Question 8

What is one limitation of GDP?

Answer 8

It does not measure happiness, leisure, or underground economic activity.

Question 9

What is Gross National Product (GNP)?

Answer 9

The market value of goods and services produced by U.S. citizens and businesses worldwide.

Question 10

What is Net National Product (NNP)?

Answer 10

GNP minus depreciation (wear and tear on capital).

Question 11

What is National Income (NI)?

Answer 11

NNP minus sales and excise taxes.

Question 12

What is Personal Income (PI)?

Answer 12

Total pre-tax income paid to U.S. households.

Question 13

What is Disposable Personal Income (DPI)?

Answer 13

Personal income minus taxes; money households can spend.

Question 14

What is Aggregate Supply?

Answer 14

Total goods and services available in the economy at all price levels.

Question 15

What is Aggregate Demand?

Answer 15

Total goods and services demanded at all price levels.

Question 16

What happens when Aggregate Demand rises?

Answer 16

Lower price levels increase consumer purchasing power, increasing demand.

Question 17

What is a Business Cycle?

Answer 17

The periodic expansion and contraction of real GDP over time.

Question 18

What are the 4 phases of the business cycle?

Answer 18

Expansion, Peak, Contraction, Trough.

Question 19

What happens during Expansion?

Answer 19

Real GDP rises; economy grows.

Question 20

What happens at the Peak?

Answer 20

Real GDP reaches its highest point.

Question 21

What happens during Contraction?

Answer 21

Real GDP falls; unemployment rises.

Question 22

What happens at the Trough?

Answer 22

Real GDP stops falling; lowest point.

Question 23

What is a Recession?

Answer 23

A prolonged period of economic contraction.

Question 24

What is a Depression?

Answer 24

A very severe and long-lasting recession.

Question 25

What are Leading Indicators?

Answer 25

Economic signs that predict future changes in the business cycle, like stock market trends and home sales.

Question 26

Name two causes of a recession.

Answer 26

High inflation and external shocks like war.

Question 27

What is Capital Deepening?

Answer 27

Increasing the amount of capital per worker through investment or training.

Question 28

How does saving money lead to economic growth?

Answer 28

Savings provide banks with funds to loan to businesses for investment, leading to more capital deepening.

Question 29

What is Technological Progress?

Answer 29

Producing more output without using more inputs, through innovation and better efficiency.

Question 30

Give an example of an External Shock.

Answer 30

Oil supply disruption, war, or natural disaster.

Question 31

How do interest rates affect the business cycle?

Answer 31

Low interest rates encourage investment and job growth; high rates slow the economy.

Question 32

What is Real GDP per capita?

Answer 32

Real GDP divided by the total population; best measure of standard of living.

Question 33

What is one flaw in using GDP per capita to measure quality of life?

Answer 33

It ignores non-economic factors like safety, happiness, and environment.

Question 34

What is the Underground Economy?

Answer 34

Economic activity that is not reported to the government, like black market sales.

Question 35

What is an example of a Nonmarket Activity not counted in GDP?

Answer 35

Mowing your own lawn or babysitting your own children.