Economic Challenges Study Guide

1. All of the following account for the growing income gap EXCEPT

a decline in unions.
lessening wage advantages for the well educated.
a shift from married-couple families to single-parent families.
a shift in employment from the manufacturing to the service industry.

2. What do most economists believe about the future of business cycles?

Advances in technology have brought business cycles to an end.
Business cycles will grow more extreme, with higher peaks and deeper troughs.
Economists have made no predictions about the concept of the business cycle.
Business cycles will continue to drive our economy in the future, but the Federal Reserve may be able to better cushion the economy from the worst extremes.

4. How is nominal GDP converted into real GDP?

by adding all incomes earned in an economy to total expenditures by consumers, businesses, and government
by adding up all of the real purchases made in the economy
by adding the contributions of American-owned factories in foreign countries
through eliminating the effects of price increases on GDP growth

5. An accurate statement about the Great Depression would be that

it was a recession that became a depression because of World War II.
it was the most severe economic downturn in the history of industrial capitalism.
its effects and duration would have been even worse if it weren’t for a strong economy in Japan and Europe at the time.
it was set off because of a sharp and unexpected rise in interest rates.

6. The calculation of GDP would include

the income of a person who pays rent by babysitting for the homeowner’s children.
the price of the steel used to build a new hotel.
the income of a high school English teacher.
the sale of a 25-year-old house.

7. The largest sector of the macroeconomy is the

government sector. / consumer sector.
investment sector. / foreign sector.

8. In a typical business cycle, what stage immediately follows a peak?

contraction / trough
expansion / growth

9. GDP expressed in constant, or unchanging, prices is called

net national product. / real GDP.
price level. / nominal GDP.

10. According to the demand-pull theory, inflation is caused by

consumers. / workers.
producers. / government.

11. Products that would be used in calculating GDP include

toys manufactured in China at a factory owned by a U.S. company.
plastic manufactured in a factory in Kentucky and sold to toy manufacturers around the world to make plastic toys.
cotton cloth manufactured in India and sold to clothes makers in the United States.
cars manufactured in Tennessee at a factory owned by a Japanese automobile company.

12. Which of the following would be counted in this year’s GDP?

The value of a television produced last year but sold this year
The value of a loan taken out this year
The bonus check a worker receives this year
The value of a savings bond sold by the federal government to investors this year

13. According to the cost-push theory, inflation is caused by

government. / workers.
consumers. / producers.

14. Which of the following is an example of a final good or service?

Coffee beans a coffee shop purchases to make coffee
A cake purchased from a bakery for a wedding
Lumber purchased by a construction company to use in building houses
Wheat a bakery purchases to make bread

15. Unemployment that is directly related to swings in the business cycle is

cyclical unemployment. / seasonal unemployment.
frictional unemployment. / structural unemployment.

16. An index that reports on price changes for about 90,000 goods and services is the

implicit GDP price deflator. / producer price index.
current GDP. / consumer price index.

Essay

Critical Thinking

31.Analyzing Information Describe the four phases of the typical business cycle.

32.Making Predictions Identify and explain three reasons for income inequality. Which do you think is most important? Why?

*** There will be 30 multiple choice questions and 2 short essays on your test on Weds. April 3rd.

All of the questions not on this study guide are DBQ’s.