
CHAPTER 7
Introduction to Economic Growth and Instability
1. Economic growth is best defined as an increase in:
A) either real GDP or real GDP per capita. C) total consumption expenditures.
B) nominal GDP. D) wealth in the economy.
2. Real GDP per capita is found by:
A) adding real GDP and population. C) dividing real GDP by population.
B) subtracting population from real GDP. D) dividing population by real GDP.
131. If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:
A) 8 percent. B) 5 percent. C) 3 percent. D) 2 percent.
132. If both the real interest rate and the nominal interest rate are 3 percent, then the:
A) inflation premium is zero. C) nominal GDP must exceed real GDP.
B) real GDP must exceed the nominal GDP. D) inflation premium also is 3 percent.
13. Given the annual rate of economic growth, the "rule of 70" allows one to:
A) determine the accompanying rate of inflation.
B) calculate the size of the GDP gap.
C) calculate the number of years required for real GDP to double.
D) determine the growth rate of per capita GDP.
25. The immediate determinant of the volume of output and employment is the:
A) composition of consumer spending.
B) ratio of public goods to private goods production.
C) level of total spending.
D) size of the labor force.
26. As it relates to economic growth, the term long-run trend refers to:
A) the long-run increase in the relative importance of durable goods in the U.S. economy.
B) the long-term expansion or contraction of business activity that occurs over 50 or 100 years.
C) fluctuations in business activity that average 40 months in duration.
D) fluctuations in business activity that occur around Christmas, Easter, and so forth.
29. During a severe recession, we would expect output to fall the most in:
A) the health-care industry. C) agriculture.
B) the clothing industry. D) the construction industry.
30. The phase of the business cycle in which real GDP declines is called:
A) the peak. B) an expansion. C) a recession. D) the trough.