All of the following are components of the formula used to calculate gross domestic product, except:
A. Household income.
B. Foreign net export spending.
C. Government spending.
D. Gross investment.
Correct Answer: A
Explanation:
Choice "a" is correct. Gross domestic product (GDP) is calculated in two different ways. The first, which is
the expenditure approach and can be used to answer this question, is the mnemonic GICE, or government
purchases plus private domestic investment plus personal consumption expenditures plus net exports.
Household income is the only one of the answers that is not included in this mnemonic.
Choice "b" is incorrect. Foreign net export spending is included in the mnemonic (E) for GDP; although, it
is called simply net exports in the mnemonic and not foreign net export spending.
Choice "c" is incorrect. Government spending is included in the mnemonic (G) for GDP.
Choice "d" is incorrect. Gross investment is included in the mnemonic (I) for GDP, although it is called
private domestic investment in the mnemonic.
Question 562:
Which of the following actions is the acknowledged preventive measure for a period of deflation?
A. Increasing interest rates.
B. Increasing the money supply.
C. Decreasing interest rates.
D. Decreasing the money supply.
Correct Answer: B
Explanation: Choice "b" is correct. Deflation is a general decline in the overall price level (i.e., when the inflation rate is negative). Increasing the money supply causes the overall price level to rise. As a result, it helps eliminate deflation. Choice "a" is incorrect. Increasing interest rates causes aggregate demand to shift left. As a result, the aggregate price level will fall even further. This will exasperate deflation. Choice "c" is not wrong but it is not as good an answer as "b". A decrease in interest rates causes the aggregate demand curve to shift right. As a result, the aggregate price level will rise. This helps eliminate deflation. However, there are times when interest rates are already so low that lowering interest rates is not an option. Thus, the preferred or "acknowledged" preventative measure for deflation is increasing the money supply. Choice "d" is incorrect. Decreasing the money supply causes the overall price level to fall. This would obviously exasperate deflation.
Question 563:
Inflation can be caused by:
A. Increases in aggregate demand only.
B. Increases in aggregate supply only.
C. Decreases in aggregate demand and increases in aggregate supply.
D. Increases in aggregate demand and decreases in aggregate supply.
Correct Answer: D
Explanation:
Choice "d" is correct. Both an increase in aggregate demand and a decrease in aggregate supply can
cause inflation.
Choice "a" is incorrect. While an increase in aggregate demand can cause inflation, it is not the only cause
of inflation.
Choice "b" is incorrect. An increase in aggregate supply would lower the overall price level, not increase
the overall price level.
Choice "c" is incorrect. A decrease in aggregate demand would lower the overall price level, not increase
the overall price level.
Question 564:
To address the problem of a recession, the Federal Reserve Bank most likely would take which of the following actions?
A. Lower the discount rate it charges to banks for loans.
B. Sell U.S. government bonds in open-market transactions.
C. Increase the federal funds rate charged by banks when they borrow from one another.
D. Increase the level of funds a bank is legally required to hold in reserve.
Correct Answer: A
Explanation: Choice "a" is correct. During a recession, real GDP has fallen and unemployment has risen. To stimulate the economy, the Fed can lower the discount rate. This causes the money supply to increase, which, in turn, causes aggregate demand to shift right. As a result, real GDP would increase and unemployment would decrease. Choice "b" is incorrect. If the Fed sells U.S. government bonds in the open market, the money supply will decrease. This causes aggregate demand to shift left. As a result, real GDP would decrease and unemployment would increase. Choice "c" is incorrect. Increasing the federal funds rate would increase interest rates. Higher interest rates cause the aggregate demand curve to shift left. As a result, real GDP would decrease and unemployment would increase. Choice "d" is incorrect. An increase in the required reserve ratio causes the money supply to decrease. This causes aggregate demand to shift left. As a result, real GDP would decrease and unemployment would increase.
Question 565:
When the overall price level is rising, nominal interest rates tend to be:
A. Unaffected by changes in the price level.
B. Falling.
C. Rising.
D. None of the above.
Correct Answer: C
Explanation:
Choice "c" is correct. The relationship between nominal interest rates and inflation can be seen by
rearranging the equation for real interest rates as follows:
Nominal Interest Rate = Real Interest Rate + Inflation
Thus, if real interest rates do not change, a 1% increase in the inflation rate will lead to a 1% increase in
nominal interest rates.
Question 566:
Stagflation refers to:
A. A combination of rising unemployment and rising real GDP.
B. A combination of rising unemployment and a rising price level.
C. High inflation rates.
D. High unemployment rates.
Correct Answer: B
Explanation:
Choice "b" is correct. Stagflation occurs when the economy suffers a recession that is characterized by
falling output, rising unemployment, and a rising price level.
Choice "a" is incorrect. Real GDP is falling during stagflation, not rising.
Choice "c" is incorrect. High inflation rates is just one aspect of stagflation; the other is falling output and
rising unemployment.
Choice "d" is incorrect. High unemployment rates are just one aspect of stagflation; the other is a rising
overall price level (high inflation).
Question 567:
The CPI jumps from 131 in year 1 to 136.5 in year 2. What is annual inflation rate?
A. 4.2%
B. 3%
C. 1.38%
D. 13.8%
Correct Answer: A
Explanation:
Choice "a" is correct. The inflation rate is measured as:
Question 568:
The inflation rate measures:
A. The rate at which nominal GDP increases.
B. How the price of a particular good changes over time.
C. How nominal interest rate changes over time.
D. The rate at which the overall price level increases.
Correct Answer: D
Explanation:
Choice "d" is correct. The inflation rate measures the rate of increase in the overall price level in the
economy.
Choice "a" is incorrect. The inflation rate is associated with price level changes not changes in the nominal
value of output.
Choice "b" is incorrect. Inflation refers to a sustained increase in the overall price level. Not the price of a
particular good.
Choice "c" is incorrect. The inflation rate is associated with price level changes not interest rate changes.
Question 569:
If consumption is $70b, investment $50b, government spending $20b, exports $7b, and imports $5b, what is GDP?
A. $152b.
B. $138b.
C. $140b.
D. $142b.
Correct Answer: D
Explanation:
Choice "d" is correct. By the expenditure approach to measuring GDP, GDP equals: Consumption +
Nowadays, the certification exams become more and more important and required by more and more enterprises when applying for a job. But how to prepare for the exam effectively? How to prepare for the exam in a short time with less efforts? How to get a ideal result and how to find the most reliable resources? Here on Vcedump.com, you will find all the answers. Vcedump.com provide not only AICPA exam questions, answers and explanations but also complete assistance on your exam preparation and certification application. If you are confused on your CPA-TEST exam preparations and AICPA certification application, do not hesitate to visit our Vcedump.com to find your solutions here.
