1. Gross domestic product (GDP) can be best described as:
A. the total value of all goods and services produced within the economy.
B. the total income earned by all households, firms, and the government.
C. the total aggregate income earned by all households, all companies, and the government within the economy over a specific time period, usually a year.
2. Which of the following best describes a recessionary gap?
A. Aggregate demand has increased and real GDP is more than potential GDP.
B. Aggregate demand has decreased and real GDP is less than potential GDP.
C. Aggregate demand has increased and real GDP is less than potential GDP.
3. Consider the following Solow growth accounting equation:
Potential output growth = 2.0 + 0.8 * Growth of Labor + 0.3 * Growth of capital
The coefficient on the growth rate of labor (0.8) in this equation is best interpreted as:
A. the labor force participation rate.
B. the marginal productivity of labor.
C. the share of income earned by labor.