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Ch. 12 Study Guide
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
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1. GDP expressed in constant, or unchanging, prices is called
A. real GDP.
C. nominal GDP.
B. price level.
D. net national product.
2. When GDP levels off and begins to decline, the economy is entering
A. a peak part of the business cycle.
B. an economic boom.
C. the contraction part of the business cycle.
D. a depression.
3. Any period of at least six months, during which real GDP does not grow is
A. an expansion.
C. a trough.
B. a recession.
D. a depression.
4. During the 1930s, the United States experienced
A. prosperity before the crash.
C. post-War boom.
B. depression.
D. very high rate of inflation.
5. An economy that experiences decreasing real GDP and increasing prices is said to suffer from
A. a recession.
C. a business cycle.
B. a depression.
D. stagflation.
6. In a typical business cycle, what stage immediately follows a peak?
A. contraction
C. trough
B. expansion
D. growth
7. Which of the following is an example of a final good or service?
A. Wheat a bakery purchases to make bread
B. Coffee beans a coffee shop purchases to make coffee
C. Lumber purchased by a construction company to use in building houses
D. A cake purchased from a bakery for a wedding
8. Business cycles in the United States
A. occur about every 6 years.
B. occur irregularly.
C. always last for at least a decade
D. are always preceded by periods of mild inflation.
9. In computing the GDP, which category of the economy represents expenditures on tools, machines, and
buildings used to produce goods?
A. consumer sector
C. government sector
B. investment sector
D. net exports
10. An example of a durable good would be
A. a used car.
C. a box of cereal.
B. a paperback book.
D. a pack of baseball cards.
11. New orders for consumer goods and changes in the number of building permits issued for private homes are
examples of
A. non-market activities
C. troughs.
B. external shocks
D. business cycle indicators.
____ 12. In determining the GDP,
A. a dollar is used as the common measure.
B. the quantity of items produced is added up.
C. the quality of goods is considered.
D. both new and used goods are included.
____ 13. Which of the following results when businesses increase capital investment?
A. increased output and job creation
C. decrease in production
B. mild recessions
D. external shocks won’t occur
____ 14. What is an example of a positive external shock to aggregate supply?
A. Good weather leads to an unusually productive harvest for corn farmers.
B. A popular new diet encourages consumers to buy more corn flakes.
C. Demand for new suburban houses increases the value of farmland.
D. China announces that it will import 50 percent more corn from the United States.
____ 15. How do fears of future economic problems affect GDP?
A. businesses will invest more money in the short term to ensure higher profits in the future;
GDP will be pushed up
B. consumers will spend more money in the short term to prevent future economic problems;
GDP will be pushed up
C. government will spend less and save money for a future economic contraction; GDP will
be reduced
D. consumers will spend less and save money in case future economic problems affect them;
GDP will be reduced
____ 16. Which of the following describes the United States economy in the 1990s?
A. small ups and downs
C. prolonged growth
B. recurring recessions
D. serious downturn
____ 17. The main economic variables that affect business cycles include all of the following EXCEPT
A. interest rates.
C. personal savings levels.
B. external events.
D. business investment levels.
____ 18. An accurate statement about the Great Depression would be that
A. it was a normal part of the business cycle.
B. it was caused primarily by overspending on government programs.
C. it ended largely because of an increase in defense spending related to World War II.
D. while its effects were severe among the lowest income levels, it had little impact on the
wealthy.
Short Answer
24. Making Predictions Explain which part of the business cycle the economy is likely to be in if new orders for
consumer goods are rising.