Question

1The amount of goods and services the economy could produce if the labor force is fully employed is called:

A. Nominal GDP B. Real GDP C. Potential GDP D. Actual GDP

2High rates of unemployment are undesirable because they

A. lead to economic instability B. are always associated with higher levels crime and illness C. cannot be reduced through government policy D. are a cause of inflation

3Suppose a family's income increases by 10% at the same time that inflation is 8%. Then

A. the family's standard of living will increase B. the family's standard of living will not change C. the family's standard of living is not affected by inflation D. the family's standard of living will fall

4The gross domestic product:

A. Takes into account the value of security transactions B. Excludes public and private transfer payments C. Includes revenues from production by US business both in and outside the US D. None of the above

Answer 1

1. C. Potential GDP
(Full employment output is the potential GDP.)

2. A. lead to economic instability
(High unemployment causes economic instability.)

3. A. the family's standard of living will increase
(As increase in income > inflation so there is an increase in standard of living.)

4. B. Excludes public and private transfer payments
(GDP excludes transfer payments as no production takes place under this.)