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University of Maryland, Baltimore County - ECON 102 Chapter 10 Measuring a Nation's Income Multiple Choice 1)Macroeconomists study a

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University of Maryland, Baltimore County - ECON 102

Chapter 10

Measuring a Nation's Income

Multiple Choice

1)Macroeconomists study

a. decisions of households and firms.

b. the interaction of households and firms.

c. economy-wide phenomena.

d. regulations on firms and unions.

 

 

2. Which of the following newspaper headlines would be more closely related to what micro economists study than to what macroeconomists study?

a. Unemployment rate rises from 5 percent to 5.5 percent.

b. Real GDP grows by 3.1 percent in the third quarter.

c. Retail sales at stores show large gains.

d. The price of oranges rises after an early frost.

 

 

3. Statistics that are of particular interest to macroeconomists

a. are widely reported by the media.

b. are largely ignored by the media.

c. include the equilibrium prices of individual goods and services.

d. do not include statistics for countries outside of North America.

 

 

4. Which of the following questions is more likely to be studied by a micro economist than a macroeconomist?

a. Why do prices in general rise by more in some countries than in others?

b. Why do wages differ across industries?

c. Why do production and income increase in some periods and not in others?

d. How rapidly is GDP currently increasing?

 

 

5. Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

a. the effect of taxes on the prices of airline tickets, the profitability of automobile-manufacturing firms, and employment trends in the food-service industry

b. the price of beef, wage differences between genders, and antitrust laws

c. how consumers maximize utility, and how prices are established in markets for agricultural products

d. the percentage of the labor force that is out of work, and differences in average income from country to country

 

 

6. We would expect a macroeconomist, as opposed to a microeconomist, to be particularly interested in

a. explaining how economic changes affect prices of particular goods.

b. devising policies to deal with market failures such as externalities and market power.

c. devising policies to promote low inflation.

d. identifying those markets that are competitive and those that are not competitive.

 

 

7. The basic tools of supply and demand are

a. useful only in the analysis of economic behavior in individual markets.

b. useful in analyzing the overall economy, but not in analyzing individual markets.

c. central to microeconomic analysis, but seldom used in macroeconomic analysis.

d. central to macroeconomic analysis as well as to microeconomic analysis.

 

 

8. Which of the following statistics is usually regarded as the best single measure of a society’s economic well-being?

a. the unemployment rate

b. the inflation rate

c. gross domestic product

d. the trade deficit

 

 

9. For an economy as a whole,

a. income is greater than expenditure

b. expenditure is greater than income.

c. income is equal to expenditure.

d. GDP measures income more precisely than it measures expenditure.

 

 

10. Which of the following statements about GDP is correct?

a. GDP measures two things at once: the total income of everyone in the economy and the unemployment rate.

b. Money continuously flows from households to government and then back to households, and GDP measures this flow of money.

c. GDP is to a nation’s economy as household income is to a household.

d. All of the above are correct.

 

 

11. Which of the following statements about GDP is correct?

a. GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services.

b. Money continuously flows from households to firms and then back to households, and GDP measures this flow of money.

c. GDP is generally regarded as the best single measure of a society’s economic well-being.

d. All of the above are correct.

 

 

12. Gross domestic product serves as a measure of two things:

a. the total spending of everyone in the economy and the total saving of everyone in the economy.

b. the total income of everyone in the economy and the total expenditure on the nation's output of goods and services.

c. the value of the nation's output of goods and services for domestic citizens and the value of the nation's output of goods and services for the rest of the world.

d. the nation's saving and the nation's investment.

 

 

13. If a nation’s GDP rises, then it must be the case that the nation’s

a. income and expenditure both rise.

b. income and saving both rise.

c. income rises, but expenditure may rise or fall.

d. saving rises, but income may rise or fall.

 

 

14. Because every transaction has a buyer and a seller,

a. GDP is more closely associated with a nation’s income than it is with a nation’s expenditure.

b. every transaction contributes equally to an economy’s income and to its expenditure.

c. the number of firms must be equal to the number of households in a simple circular-flow diagram.

d. firms’ profits are necessarily zero in a simple circular-flow diagram.

 

 

15. In a simple circular-flow diagram total income and total expenditure are

a. never equal because total income always exceeds total expenditure.

b. seldom equal because of the ongoing changes in an economy’s unemployment rate.

c. equal only when one dollar is spent on goods for every dollar that is spent on services.

d. always equal because every transaction has a buyer and a seller.

 

 

16. Firms use the money they get from a sale to

a. pay wages to workers.

b. pay rent to landlords.

c. pay profit to the firms’ owners.

d. All of the above are correct.

 

 

17. For an economy, expenditure is equal to income because

a. by law firms must pay out all their revenue as income to someone.

b. for every sale there is a buyer and a seller.

c. prices of individual goods and services change, but the average price level stays the same.

d. None of the above is correct; expenditure is not always equal to income for an economy.

 

 

18. For an economy as a whole,

a. wages must equal profit.

b. consumption must equal saving.

c. income must equal expenditure.

d. household spending on goods must equal household spending on services.

 

 

19. When a firm sells a good or a service, the sale contributes to the nation’s income

a. only if the buyer of the good or service is a household.

b. only if the buyer of the good or service is a household or another firm.

c. whether the buyer of the good or a service is a household, another firm, or the government.

d. We have to know whether the item being sold is a good or a service in order to answer the question.

 

 

20. GDP is defined as

a. the market value of all goods and services produced within a country in a given period of time.

b. the market value of all goods and services produced by the citizens of a country, regardless of where they are living in a given period of time.

c. the market value of all final goods and services produced within a country in a given period of time.

d. the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

 

 

21. GDP is defined as the market value of all final goods and services produced

a. by the citizens of a country, regardless of where they live, in a given period of time; this definition focuses on GDP as a measure of total income.

b. by the citizens of a country, regardless of where they live, in a given period of time; this definition focuses on GDP as a measure of total expenditure.

c. within a country in a given period of time; this definition focuses on GDP as a measure of total income.

d. within a country in a given period of time; this definition focuses on GDP as a measure of total expenditure.

 

 

22. Gross domestic product is defined as

a. the market value of all final goods and services produced within a country in a given period of time.

b. the market value of all tangible goods produced within a country in a given period of time.

c. the quantity of all final goods and services supplied within a country in a given period of time.

d. the quantity of all final goods and services demanded within a country in a given period of time.

 

 

23. To compute GDP, we

a. add up the wages paid to all workers.

b. add up the costs of producing all final goods and services.

c. add up the market values of all final goods and services.

d. take the difference between the market value of all final goods and services and the cost of producing those final goods and services.

 

 

24. In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,

a. values of goods and services based on surveys of consumers.

b. market prices.

c. consumer and producer surpluses.

d. costs of producing goods and services.

 

 

25. In computing GDP, market prices are used to value final goods and services because

a. market prices reflect the values of goods and services.

b. market prices do not change much over time, so it is easy to make comparisons between years.

c. if market prices are out of line with how people value goods, the government sets price ceilings and price floors.

d. None of the above is correct; market prices are not used in computing GDP.

ANS: A

 

26. Which of the following is not included in GDP?

a. unpaid cleaning and maintenance of houses

b. services such as those provided by lawyers and hair stylists

c. the estimated rental value of owner-occupied housing

d. production of foreign citizens living in the United States

 

 

27. Which of the following transactions adds to U.S. GDP for 2006?

a. In 2006, Ashley sells a car that she bought in 2002 to William for $5,000.

b. An American management consultant works in Mexico during the summer of 2006 and earns the equivalent of $30,000 during that time.

c. When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent. John and Jennifer got married in 2006 and they bought a house that, according to reliable estimates, could be rented for $1,600 per month.

d. None of the above transactions adds to GDP for 2006.

 

 

28. Which of the following transactions adds to U.S. GDP for 2006?

a. In 2006, Marvin Windows manufactures 20 windows that will eventually be installed in an office building in Minneapolis. The windows remain in Marvin’s inventory at the end of 2006.

b. An Irish marketing consultant works in Boston during the summer of 2006 and earns $30,000 during that time.

c. When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent. John and Jennifer got married in 2006 and they bought a house that, according to reliable estimates, could be rented for $1,600 per month.

d. All of the above transactions adds to GDP for 2006.

 

 

29. The value of the housing services provided by the economy's owner-occupied houses is

a. included in GDP and the estimated rental values of the houses is used to place a value on these housing services.

b. included in GDP and the actual mortgage payments made on the houses is used to estimate the value of these rental services.

c. excluded from GDP since these services are not sold in any market.

d. excluded from GDP since the value of these housing services cannot be estimated with any degree of precision.

ANS: A

 

30. Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units.

a. The rent was included in GDP; the purchases of the condominiums are not included in GDP.

b. The rent was included in GDP, and so are the purchases of the condominiums.

c. The rent was not included in GDP; the purchases of the condominiums are included in GDP.

d. The rent was not included in GDP, and neither are the purchases of the condominiums.

ANS: A

 

31. Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion?

a. GDP necessarily increases.

b. GDP necessarily decreases.

c. GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP.

d. GDP is unaffected because previously the rent payments were included in GDP, and now the rent payments are replaced in GDP by the estimate of the value of housing services.

 

 

32. Estimates of the values of which of the following non-market goods or services are included in GDP?

a. the value of unpaid housework

b. the value of vegetables and other foods that people grow in their gardens

c. the estimated rental value of owner-occupied homes

d. All of the above are included.

 

 

33. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has

a. reduced measured GDP.

b. not affected measured GDP.

c. increased measured GDP only to the extent that the value of the restaurant meals exceeded the value of meals

previously cooked at home.

d. increased measured GDP by the full value of the restaurant meals.

 

 

34. Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

a. caused GDP to fall.

b. not caused any change in GDP.

c. caused GDP to rise.

d. probably changed GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted.

 

 

35. Ralph pays someone to mow his lawn, while Mike mows his own lawn. Regarding these two practices, which of the following statements is correct?

a. Only Ralph’s payments are included in GDP.

b. Ralph’s payments as well as the estimated value of Mike’s mowing services are included in GDP.

c. Neither Ralph’s payments nor the estimated value of Mike's mowing services is included in GDP.

d. Ralph’s payments are definitely included in GDP, while the estimated value of Mike’s mowing services is included in GDP only if Mike voluntarily provides his estimate of that value to the government.

 

 

36. If Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself, then GDP

a. necessarily rises.

b. necessarily falls.

c. will be unaffected because the same service is produced in either case.

d. will be unaffected because car maintenance is not included in GDP.

 

 

37. A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

a. necessarily raises GDP.

b. necessarily decreases GDP.

c. doesn't change GDP because gambling is never included in GDP.

d. doesn't change GDP because in either case his income is included.

 

 

38. If a state made a previously-illegal activity such as gambling or prostitution legal, then, other things equal, GDP

a. necessarily decreases.

b. necessarily increases.

c. doesn't change because both legal and illegal production are included in GDP.

d. doesn't change because these activities are never included in GDP.

 

 

39. Which of the following statements is correct?

a. The value of all intermediate goods and final goods is included in GDP.

b. The value of intermediate goods is included in GDP only if those goods were produced in the previous year.

c. The value of intermediate goods is included in GDP only if those goods are added to firms’ inventories to be used or sold at a later date.

d. The value of intermediate goods is never included in GDP.

 

 

40. A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a bicycle, which it sells for $200. Taken together, these two transactions contribute

a. $100 to GDP.

b. $200 to GDP.

c. between $200 and $300 to GDP, depending on the profit earned by the bicycle company when it sold the

bicycle.

d. $300 to GDP.

 

 

41. The total sales of all firms in the economy for a year

a. equals GDP for the year.

b. is larger than GDP for the year.

c. is smaller than GDP for the year.

d. equals GNP for the year.

 

 

42. Grapes are

a. always counted as an intermediate good.

b. counted as an intermediate good only if they are used to produce another good such as wine.

c. counted as an intermediate good only if they are consumed.

d. counted as an intermediate good, whether they are used to produce another good or consumed.

 

 

43. One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?

a. GDP increases by $1.50.

b. GDP increases by $3.50.

c. GDP increases by $6.00.

d. GDP increases by $7.50.

 

 

44. Gasoline is considered a final good if it is sold by a

a. gasoline station to a bus company that operates a bus route between San Francisco and Los Angeles.

b. pipeline operator to a gasoline station in San Francisco.

c. gasoline station to a motorist in Los Angeles.

d. All of the above are correct.

 

 

45. Goods that go into inventory and are not sold during the current period are

a. counted as intermediate goods and so are not included in current period GDP.

b. counted in current GDP only if the firm that produced them sells them to another firm.

c. included in current period GDP as inventory investment.

d. included in current period GDP as consumption.

 

 

46. ABC Company produces ink and sells it to XYZ Company, which makes pens. The ink produced by ABC Company is called

a. an inventory good.

b. a transitory good.

c. a preliminary good.

d. an intermediate good.

 

 

47. The local Chevrolet dealership has an increase in inventory of 25 cars in 2006. In 2007 it sells all 25 cars. Which of the following statements is correct?

a. The full value of the increased inventory will be counted as part of GDP in 2006, and the value of the cars sold in 2007 will not cause 2007 GDP to increase.

b. The value of the increased inventory will not affect 2006 GDP; instead, the full value of the inventory will be counted as part of 2007 GDP.

c. The value of the increased inventory will be counted as part of 2006 GDP and the value of the cars sold in 2007 will increase 2007 GDP.

d. One-half of the value of the increased inventory will be counted as part of 2006 GDP and the other one-half of the value will be counted as part of 2007 GDP.

 

 

48. A movie company makes 500,000 DVDs of one of its latest releases. It sells 300,000 of them before the end of the second quarter, and holds the others in its warehouse. How will the 200,000 unsold DVDs be treated in the GDP statistics?

a. Since the DVDs eventually will be bought by consumers, they are included as consumption in the second quarter.

b. Since the DVDs were not purchased this quarter, they will be counted as an increase in third-quarter GDP.

c. The DVDs will be counted as a change in inventory in the second quarter and so will be included in secondquarter GDP.

d. The DVDs will be counted as a change in inventory in the second quarter, and when sold in the third quarter will raise third-quarter GDP.

 

 

49. Until recently, George lived in a home that was newly constructed in 2005. In 2005, he paid $200,000 for the brand new house. He sold the house in 2006 for $225,0000. Which of the following statements is correct regarding the sale of the house?

a. The 2006 sale increased 2006 GDP by $225,000 and had no effect on 2005 GDP.

b. The 2006 sale increased 2006 GDP by $25,000 and had no effect on 2005 GDP.

c. The 2006 sale increased 2006 GDP by $225,000; furthermore, the 2006 sale caused 2005 GDP to be revised upward by $25,000.

d. The 2006 sale affected neither 2005 GDP nor 2006 GDP.

 

 

50. Darla, a Canadian citizen, works only in the United States. The value that her labor contributes to U.S. output is

a. included in both U.S. GDP and U.S. GNP.

b. included in U.S. GDP, but it is not included in U.S. GNP.

c. included in U.S. GNP, but it is not included in U.S. GDP.

d. included in neither U.S. GDP nor U.S. GNP.

 

 

51. Greg, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

a. included in both U.S. GDP and U.S. GNP.

b. included in U.S. GDP, but it is not included in U.S. GNP.

c. included in U.S. GNP, but it is not included in U.S. GDP.

d. included in neither U.S. GDP nor U.S. GNP.

 

 

52. Anna, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included

a. in U.S. GDP, but it is not included in German GDP.

b. in German GDP, but it is not included in U.S. GDP.

c. in both German GDP and U.S. GDP.

d. in neither German GDP nor U.S. GDP.

 

 

53. Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $17,000 and sold it to Tyler for $20,000. Later that year, Tyler sold the car to Camille for $15,000. By how much did these transactions contribute to U.S. GDP for the year?

a. $17,000

b. $20,000

c. $35,000

d. $52,000

 

 

54. Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $2,000. Neither firm had any inventory at the beginning of 2006. During that year, Cowhide produced enough leather for 20 couches. Couches, Inc. bought 80% of that leather for $16,000 and promised to buy the remaining 20% for $4,000 in 2007. Couches, Inc. produced 16 couches during 2006 and sold each one during that year for $2,000. What was the economy's GDP for the year?

a. $32,000

b. $36,000

c. $40,000

d. $52,000

 

 

55. An Italian company operates a pasta restaurant in the U.S. The profits from this pasta restaurant are included in

a. U.S. GNP and Italian GNP.

b. U.S. GDP and Italian GDP.

c. U.S. GDP and Italian GNP.

d. U.S. GNP and Italian GDP.

 

 

56. Which of the following examples of production of goods and services would count as part of U.S. GDP?

a. Samantha, a Canadian citizen, grows sweet corn in Minnesota and sells it to a grocery store in Canada.

b. Ian, an American citizen, grows peaches for his family in the back yard of their Atlanta home.

c. Brian, an American citizen, grows marijuana in his Seattle home and sells it to his friends and neighbors.

d. None of the above examples of production would count as part of U.S. GDP.

 

 

57. An American company operates a fast food restaurant in Romania. Which of the following statements is accurate?

a. The value of the goods and services produced by the restaurant is included in both Romanian GDP and U.S. GDP.

b. One-half of the value of the goods and services produced by the restaurant is included in Romanian GDP, and the other one-half of the value is included in U.S. GDP.

c. The value of the goods and services produced by the restaurant is included in Romanian GDP, but not in U.S. GDP.

d. The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in Romanian GDP.

 

 

58. Which of the following items is included in GDP?

a. the sale of stocks and bonds

b. the sale of used goods

c. the sale of services such as those performed by a doctor

d. All of the above are included in GDP.

 

 

59. Which of the following items is included in GDP?

a. the sale of stocks and bonds

b. the estimated rental value of owner-occupied housing

c. unpaid production of goods and services at home

d. All of the above are included in GDP.

 

 

60. Which of the following items is included in U.S. GDP?

a. goods produced by foreign citizens working in the United States

b. the difference in the price of the sale of an existing home and its original purchase price

c. known illegal activities

d. None of the above is included in GDP.

ANS: A

 

61. Which of the following items is counted in U.S. GDP?

a. final goods and services that are purchased by the U.S. federal government

b. intermediate goods that are produced in the U.S. but which are unsold at the end of the GDP accounting period

c. goods and services produced by foreign citizens working in the U.S.

d. All of the above are included in U.S. GDP.

 

 

62. Which of the following items is included in U.S. GDP?

a. the estimated value of production accomplished at home, such as backyard production of fruits and vegetables

b. the value of illegally-produced goods and services

c. the value of cars and trucks produced in foreign countries and sold in the U.S.

d. None of the above is included in U.S. GDP.

 

 

63. Which of the following values would be reflected in U.S. GDP for 2006?

a. the rent that John, an American citizen, would have paid on his home in New York in 2006 had he not owned that home

b. the rent that Sarah, an American citizen, paid on her apartment in San Francisco in 2006

c. the value of the legal services provided by Carlos, an attorney and a Mexican citizen, who lived in Houston and practiced law there in 2006

d. All of the above are correct.

 

 

64. U.S. GDP and U.S. GNP are related as follows:

a. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

b. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens abroad.

c. GNP = GDP + Value of exported goods - Value of imported goods.

d. GNP = GDP - Value of exported goods + Value of imported goods.

 

 

65. How is Net National Product (NNP) calculated?

a. Saving is subtracted from the total income of a nation’s citizens.

b. Saving is subtracted from the total income of a nation’s permanent residents.

c. Depreciation losses are subtracted from the total income of a nation’s citizens.

d. Depreciation losses are subtracted from the total income of a nation’s permanent residents.

 

 

66. In the national income accounts, depreciation is called

a. “consumption of fixed capital.”

b. “total tax depreciation.”

c. “consumption of circulating capital.”

d. “loss due to wear.”

 

 

 

67. Which government entity prepares the U.S. national income accounts?

a. the Federal Reserve System

b. the Department of Treasury

c. the Department of Commerce

d. the Council of Economic Advisers

 

 

68. National income is defined as

a. GDP minus losses from depreciation.

b. GDP plus personal income.

c. GDP minus taxes paid by U.S. residents.

d. the total income earned by a nation's residents in the production of goods and services.

 

 

69. National income differs from net national product in that it includes business subsidies and excludes

a. profits of corporations.

b. indirect business taxes.

c. retained earnings of corporations.

d. depreciation.

 

 

70. The income that households and noncorporate businesses receive is called

a. personal income.

b. net national product.

c. disposable personal income.

d. national income.

 

 

71. Unlike national income, personal income

a. includes retained earnings, corporate income taxes and social insurance contributions, and excludes interest and transfer payments received by households from government.

b. excludes retained earnings, corporate income taxes, social insurance contributions, and interest and transfer payments received by households from government.

c. excludes retained earnings, corporate income taxes and social insurance contributions, and includes interest and transfer payments received by households from government.

d. includes retained earnings, corporate income taxes, social insurance contributions, and interest and transfer payments received by households from government.

 

 

72. Disposable personal income is the income that

a. households have left after paying taxes and non-tax payments to the government.

b. businesses have left after paying taxes and non-tax payments to the government.

c. households and noncorporate businesses have left after paying taxes and non-tax payments to the government.

d. households and businesses have left after paying taxes and non-tax payments to the government.

 

 

73. Retained earnings is the part of income that

a. households retain after paying taxes.

b. businesses retain after paying taxes.

c. corporations have earned but have not used to invest in plant, equipment, and inventories.

d. corporations have earned but have not paid out to their owners.

 

 

Use the following table to answer the following questions.

Table 10-1. The data pertain to the nation of Simplia for the year 2006.

 

74. Refer to Table 10-1. GNP for Simplia is

a. $96.

b. $100.

c. $105.

d. $110.

 

 

75. Refer to Table 10-1. The market value of all final goods and services produced within Simplia in 2006 is

a. $96.

b. $100.

c. $105.

d. $110.

 

 

76. Refer to Table 10-1. NNP for this economy is

a. $100.

b. $96.

c. $90.

d. $88.

 

 

77. Refer to Table 10-1. National income for this economy is

a. $96.

b. $92.

c. $90.

d. $88.

 

 

78. Refer to Table 10-1. Personal income for this economy is

a. $91.

b. $81

c. $80.

d. $51.

 

 

79. Refer to Table 10-1. Disposable personal income for this economy is

a. $61

b. $56.

c. $47.

d. $41.

 

 

80. How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)?

a. GNP = GDP minus losses from depreciation

b. GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S.

c. GNP = GDP + income earned by corporations

d. GNP = GDP - indirect business taxes + business subsidies

 

 

81. In a certain small country, the unit of currency is the huck. That country’s government recently announced that “GDP amounted to 400 million hucks in the quarter that just ended.” Assuming this country has adopted American GDP accounting conventions, this statement means that GDP, after seasonal adjustment, actually amounted to

a. 100 million hucks in the quarter that just ended.

b. 100 million hucks over the last four quarters, including the one that just ended.

c. 400 million hucks in the quarter that just ended.

d. 400 million hucks over the last four quarters, including the one that just ended.

 

 

82. In a certain small country, the unit of currency is the huck. That country’s government recently announced that “GDP amounted to 400 million hucks in the quarter that just ended.” Assuming this country has adopted American GDP accounting conventions, this statement means that GDP,

a. without seasonal adjustment, amounted to 100 million hucks in the quarter that just ended.

b. with seasonal adjustment, amounted to 100 million hucks in the quarter that just ended.

c. without seasonal adjustment, amounted to 400 million hucks in the quarter that just ended.

d. with seasonal adjustment, amounted to 400 million hucks in the quarter that just ended.

 

 

83. Suppose the government reports that U.S. GDP was about $13 trillion dollars in the most recent quarter. What is the correct interpretation of this number?

a. This number reflects the actual value of final goods and services produced in that quarter.

b. This number was obtained by taking the actual value of final goods and services produced in that quarter, then seasonally adjusting that value.

c. This number was obtained by taking the actual value of final goods and services produced in that quarter, then multiplying that value by 4.

d. This number was obtained by taking the actual value of final goods and services produced in that quarter, then seasonally adjusting that value and multiplying it by 4.

 

 

84. In the nation of Paolaland, quarterly GDP is always higher in the second quarter than in other quarters. In order to account systematically for this predictable second-quarter jump in GDP, Paolaland's government statisticians will a. employ a statistical procedure called seasonal adjustment.

b. report a four-quarter moving average of GDP rather than the one-quarter figure.

c. report GNP rather than GDP.

d. report personal income rather than GDP.

 

 

85. The statistical discrepancy that regularly arises in national income accounting refers to the slight difference between

a. personal income and personal disposable income.

b. total household payments to the government and taxes paid to the government.

c. the income and expenditure approaches to the calculation of GDP.

d. the quarterly and annual approaches to the calculation of GDP.

 

 

86. For monitoring fluctuations in the national economy, which measure of income is best?

a. GDP

b. NNP

c. national income

d. It does not matter very much which measure we use.

 

 

87. The component of GDP called consumption consists of

a. household spending on durable goods, but not household spending on nondurable goods or on services.

b. household spending on durable and nondurable goods, but not household spending on services.

c. household spending on durable and nondurable goods as well as household spending on services.

d. spending by households and business firms on durable and nondurable goods as well as spending by households and business firms on services.

 

 

88. Consumption consists of spending by households on goods and services, with the exception of

a. purchase of intangible services.

b. purchases of durable goods.

c. purchases of new houses.

d. All of the above are exceptions.

 

 

89. For the purpose of calculating GDP, investment is spending on

a. stocks, bonds, and other financial assets.

b. real estate and financial assets.

c. new capital equipment, inventories, and structures, including new housing.

d. capital equipment, inventories, and structures, excluding household purchases of new housing.

 

 

90. The value of goods added to a firm's inventory in a certain year is treated as

a. consumption, since the goods will be sold to consumers in another period.

b. saving, since the goods are being saved until they are sold in another period.

c. investment, since GDP aims to measure the value of the economy's production.

d. spending on durable goods, since the goods could not be inventoried unless they were durable.

 

 

91. Household spending on education is included in

a. consumption, although it might be argued that it would fit better in investment.

b. investment, although it might be argued that it would fit better in consumption.

c. government spending, based on the fact that most higher-education students attend publicly-supported colleges and universities.

d. None of the above is correct; in general, household spending on services is not included in any component of GDP.

 

 

92. Government purchases include spending on goods and services by

a. the federal government only.

b. state and federal governments only.

c. local, state and federal governments.

d. local, state and federal governments, as well household spending by employees of those governments.

 

 

93. If you buy a burger and fries at your favorite fast food restaurant,

a. neither GDP nor consumption will be affected because you would have eaten at home had you not bought the meal at the restaurant.

b. GDP will be higher, but consumption spending will be unchanged.

c. GDP will be unchanged, but consumption spending will be higher.

d. both GDP and consumption spending will be higher.

 

 

94. Consider two items that might be included in GDP: (1) The estimated rental value of owner-occupied housing; and (2) purchases of newly-constructed homes. How are these two items accounted for when GDP is calculated?

a. Both item (1) and item (2) are included in the consumption component of GDP.

b. Item (1) is included in the consumption component, while item (2) is included in the investment component.

c. Item (1) is included in the investment component, while item (2) is included in the consumption component.

d. Only item (2) is included in GDP and it is included in the investment component.

 

 

95. Which of the following examples of household spending are categorized as investment rather than consumption?

a. expenditures on new housing

b. expenditures on intangibles items such as medical care

c. expenditures on durable goods such as automobiles and refrigerators

d. All of the above are correct.

 

 

96. During the current quarter, a firm produces consumer goods and adds some of those goods to the firm’s inventory rather than selling them. The value of the goods added to inventory is

a. not included in the current quarter GDP.

b. included in the current quarter GDP as investment.

c. included in the current quarter GDP as consumption.

d. included in the current quarter GDP as a statistical discrepancy.

 

 

97. During the third quarter of 2006, a firm produces consumer goods and adds some of those goods to its inventory. During the fourth quarter of that year, the firm sells the goods at a retail outlet, with the result that the value of its inventory at the end of the fourth quarter is smaller than the value of its inventory at the end of the third quarter. These actions affect which component(s) of fourth-quarter GDP?

a. These actions affect only consumption, and they affect consumption positively.

b. These actions affect only investment, and they affect investment positively.

c. These actions affect consumption positively and investment negatively.

d. These actions affect both consumption and investment positively.

 

 

98. A U.S. publisher purchases new computers that were manufactured in the U.S. This purchase by itself makes

a. a positive contribution both to investment and to GDP.

b. a positive contribution both to consumption and to GDP.

c. a positive contribution to GDP, but it does not affect investment or consumption.

d. a positive contribution to investment, but it does not affect GDP.

ANS: A

 

99. A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,

a. U.S. investment and GDP increase, but German GDP is unaffected.

b. U.S. investment and German GDP increase, but U.S. GDP is unaffected.

c. U.S. investment, U.S. GDP, and German GDP are unaffected, because tractors are intermediate goods.

d. U.S. investment, U.S. GDP, and German GDP all increase.

ANS: A

 

100. If a U.S. citizen buys a television made in Korea by a Korean firm,

a. U.S. net exports decrease and U.S. GDP decreases.

b. U.S. net exports are unaffected and U.S. GDP decreases.

c. U.S. net exports are unaffected and U.S. GDP is unaffected.

d. U.S. net exports decrease and U.S. GDP is unaffected.

 

 

101. Steph buys a designer dress produced by an American-owned fashion shop in France. As a result, U.S. consumption increases, U.S. net exports

a. decrease, U.S. GDP is unaffected, and U.S. GNP increases.

b. decrease, U.S. GDP increases, and U.S. GNP is unaffected.

c. decrease, U.S. GNP increases, and French GDP is unaffected.

d. are unaffected, U.S. GDP is unaffected, and French GDP increases.

 

102. A German citizen buys an automobile produced in the United States by a Japanese company. As a result,

a. U.S. net exports increase, U.S. GNP and GDP are unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.

b. U.S. net exports, GNP, and GDP increase, Japanese GDP increases, German net exports decrease, and German GDP is unaffected.

c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GDP and GNP are unaffected.

d. U.S. net exports, GNP, and GDP are unaffected, Japanese GNP increases, German net exports decrease, and German GDP and GNP fall.

 

 

103. After the terrorist attacks on September 11, 2001, governments within the United States raised expenditures to increase security at airports. These purchases of goods and services are

a. not included in GDP since they do not represent production.

b. not included in GDP since the government will have to raise taxes to pay for them.

c. included in GDP since government expenditures are included in GDP.

d. included in GDP only to the extent that the federal government, rather than state or local governments, paid for them.

 

 

104. The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,

a. U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP and GNP are unaffected.

b. U.S. government purchases increase by $30,000; U.S. GNP increases by $30,000; and U.S. GDP and U.S. net exports are unaffected.

c. U.S. government purchases; and U.S. net exports, GDP, and GNP are unaffected.

d. U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; U.S. GNP increases by $30,000; and U.S. GDP is unaffected.

 

 

105. A wind farm in Iowa buys a large turbine generator from a Swedish-owned factory located in Connecticut that uses workers who live in Connecticut. As a result,

a. U.S. investment, GDP, and GNP all increase by the same amount.

b. U.S. investment increases, but GDP and GNP are unaffected by the purchase.

c. U.S. investment and GDP increase by the same amount, but U.S. GNP increases by a smaller amount.

d. U.S. investment and GNP increase by the same amount, but U.S. GDP increases by a smaller amount.

 

 

106. A transfer payment is

a. a payment for moving expenses a worker receives when he or she is transferred by an employer to a new location.

b. a payment that is automatically transferred from your bank account to pay a bill or some other obligation.

c. a form of government spending that is not made in exchange for a currently produced good or service.

d. the benefit that a person receives from an expenditure by government minus the taxes that were collected by government to fund that expenditure.

 

 

107. Which of the following represents a transfer payment?

a. You transfer $1,000 from your bank account to a mutual fund.

b. The government sends your grandfather his Social Security check.

c. The bank transfers $10 in quarterly interest to your savings account.

d. Your employer automatically transfers $100 each month from your wages to a non-taxable medical spending account.

 

 

108. The U.S. government pays an economist at the U.S. Department of Commerce $50,000 in salary in 2006. The economist then retires. In 2007, the government pays him $30,000 in retirement benefits. Which of the following is correct?

a. Each payment will be included in GDP as government purchases for the respective years.

b. The 2006 payment is included in 2006 GDP as government purchases, but the 2007 payment is not included in 2007 GDP.

c. The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government transfer payments.

d. The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is allocated to previous years' GDP according to the amount of work performed by the economist each year.

 

 

109. To encourage formation of small businesses, the government could provide subsidies; these subsidies

a. would be included in GDP because they are part of government expenditures.

b. would be included in GDP because they are part of investment expenditures.

c. would not be included in GDP because they are transfer payments.

d. would not be included in GDP because the government raises taxes to pay for them.

 

 

110. Transfer payments are

a. included in GDP because they represent income to individuals.

b. included in GDP because the income eventually will be spent on consumption.

c. not included in GDP because they are not payments for currently produced goods or services.

d. not included in GDP because taxes will have to be raised to pay for them.

 

 

111. A transfer payment is a payment made by

a. consumers, but not in exchange for a tangible product.

b. firms, but not in exchange for capital equipment.

c. foreigners, but not in exchange for a domestically-produced good or service.

d. government, but not in exchange for a currently produced good or service.

 

 

112. Social Security payments are

a. included in GDP because they represent payments for work performed in the past.

b. included in GDP because they represent potential consumption.

c. excluded from GDP because they are not private pensions.

d. excluded from GDP because they do not represent current government purchases of goods and services.

 

 

113. Unemployment compensation is

a. part of GDP because it represents income.

b. part of GDP because the recipients must have worked in the past to qualify.

c. not part of GDP because it is a transfer payment.

d. not part of GDP because the payments reduce business profits.

 

 

114. Which of the following is included in the consumption component of U.S. GDP?

a. purchases of staplers, paper clips, and telephones by U.S. business firms

b. purchases of natural gas by U.S. households

c. purchases of newly constructed homes by U.S households

d. All of the above are correct.

 

 

115. Which of the following is included in the investment component of GDP?

a. households’ purchases of newly constructed homes

b. net additions to firms’ inventories

c. firms’ purchases of capital equipment

d. All of the above are correct.

 

 

116. Which of the following items is counted as part of government purchases?

a. The federal government pays the salary of a Navy officer.

b. The state of Nevada pays a private firm to repair a Nevada state highway.

c. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.

d. All of the above are correct.

 

 

117. Which of the following items is counted as part of government purchases?

a. The federal government pays $2,000 in Social Security benefits to a retired person.

b. The city of Des Moines, Iowa pays $10,000 to a tree-trimming firm to trim trees along city boulevards.

c. The state of Iowa pays $1,000 to help a low-income family pay its medical bills.

d. All of the above are correct.

 

 

118. Which of the following sub-components of GDP can be either positive or negative?

a. inventory investment

b. spending on services

c. government purchases

d. All of the above are correct.

 

 

119. Which of the following components or sub-components of GDP can be either positive or negative?

a. consumers' spending on durable goods

b. firms' spending on capital equipment

c. net exports

d. All of the above are correct.

 

 

120. In 2004, U.S. GDP was almost

a. $8 trillion.

b. $12 trillion.

c. $24 trillion.

d. $44 trillion.

 

 

121. In 2004, GDP per person in the United States was about

a. $22,000.

b. $31,000.

c. $40,000.

d. $57,000.

 

 

122. In the United States in 2004, consumption represented approximately

a. 40 percent of GDP.

b. 50 percent of GDP.

c. 60 percent of GDP.

d. 70 percent of GDP.

 

 

123. In 2004, U.S. net exports were

a. positive and about 2 percent the size of GDP.

b. positive and about 5 percent the size of GDP.

c. negative and about 2 percent the size of GDP.

d. negative and about 5 percent the size of GDP.

 

 

124. In the United States in 2004, purchases of capital equipment, inventories, and structures amounted to about

a. 6 percent of GDP.

b. 10 percent of GDP.

c. 16 percent of GDP.

d. 25 percent of GDP.

 

 

125. In 2004, U.S. government purchases of goods and services amounted to about

a. 19 percent of GDP.

b. 23 percent of GDP.

c. 27 percent of GDP.

d. 33 percent of GDP.

 

 

126. In 2004 in the U.S., the four components of GDP matched up with their relative importance as follows:

a. C: 50 percent of GDP; I: 18 percent of GDP; G: 27 percent of GDP; NX: 5 percent of GDP.

b. C: 60 percent of GDP; I: 9 percent of GDP; G: 33 percent of GDP; NX: -2 percent of GDP.

c. C: 70 percent of GDP; I: 16 percent of GDP; G: 19 percent of GDP; NX: -5 percent of GDP.

d. C: 75 percent of GDP; I: 14 percent of GDP; G: 17 percent of GDP; NX: -6 percent of GDP.

 

 

127. If net exports is a negative number for a particular year, then

a. the value of firms’ inventories declined over the course of the year.

b. consumption exceeded the sum of investment and government purchases during the year.

c. the value of goods sold to foreigners exceeded the value of foreign goods purchased during the year.

d. the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year.

 

 

128. An identity is an equation that

a. describes an equilibrium.

b. pertains to macroeconomics, not to microeconomics.

c. must be true by the way the variables in the equation are defined.

d. involves final goods, not intermediate goods.

 

 

129. In the equation Y = C + I + G + NX,

a. Y represents the economy’s total expenditure.

b. C represents household expenditures on services and durable goods.

c. all of the variables are always positive numbers.

d. All of the above are correct.

ANS: A

 

130. For a certain economy in 2005, GDP was $2,000; investment was $400; government purchases were $300; and net exports were $70. It follows that consumption was

a. $1,370.

b. $1,330.

c. $1,230.

d. 60 percent of GDP.

 

 

131. In a certain economy in 2005, households spent $1,000 on goods and services; purchases of capital equipment, inventories, and structures amounted to $350; government spent $450 on goods and services; and the value of imports exceeded the value of exports by $50. It follows that 2005 GDP for this economy was

a. $1,750.

b. $1,850.

c. $1,950.

d. $2,100.

 

 

132. In a certain economy in 2005, GDP amounted to $5,000; consumption amounted to $3,000; government purchases were equal to investment; and the value of imports exceeded the value of exports by $200. It follows that government purchases amounted to

a. $900.

b. $1,100.

c. $1,250.

d. $1,325.

 

 

133. In a certain economy in 2005, the value of imports amounted to 80 percent of the value of exports. Consumption, investment, and government purchases added up to $5,000. The market value of all final goods and services produced within the economy was $5,500. It follows that the economy exported

a. $500 worth of goods and services.

b. $1,000 worth of goods and services.

c. $1,500 worth of goods and services.

d. $2,500 worth of goods and services.

 

 

134. In a certain economy in 2005, government purchases exceeded investment by $2,000; investment amounted to 1/6 of GDP; consumption amounted to 1/2 of GDP; and the economy’s imports exceeded its exports by $500. It follows that GDP amounted to

a. $4,500.

b. $7,500.

c. $9,000.

d. $10,500.

 

 

135. In a given year an economy has consumption of $3,000, investment of $2,000, government purchases of $1,500, exports of $500, imports of $600, taxes of $1200, transfer payments of $400, and depreciation of $300. This economy’s GDP is

a. $6,400.

b. $7,000.

c. $7,600.

d. $8,900.

 

 

136. In 2004, government purchases of goods and services were

a. larger than consumption, but smaller than investment.

b. larger than investment, but smaller than consumption.

c. smaller than both consumption and investment.

d. larger than both consumption and investment.

 

 

137. If total spending rises from one year to the next, then

a. the economy must be producing a larger output of goods and services.

b. prices at which goods and services are sold must be higher.

c. either the economy must be producing a larger output of goods and services, or the prices at which goods and services are sold must be higher, or both.

d. employment or productivity must be rising.

 

 

138. Real GDP

a. evaluates current production at current prices.

b. evaluates current production at the prices that prevailed in some specific year in the past.

c. is not a valid measure of the economy's performance, since prices change from year to year.

d. is a measure of the value of goods only; it excludes the value of services.

 

 

139. Which of the following statements about GDP is correct?

a. Nominal GDP values production at current prices, whereas real GDP values production at constant prices.

b. Nominal GDP values production at constant prices, whereas real GDP values production at current prices.

c. Nominal GDP values production at market prices, whereas real GDP values production at the cost of the resources used in the production process.

d. Nominal GDP consistently underestimates the value of production, whereas real GDP consistently overestimates the value of production.

 

 

140. If real GDP doubles and the GDP deflator doubles, then nominal GDP

a. remains constant.

b. doubles.

c. triples.

d. quadruples.

 

 

Table 10-2. The information in the table pertains to the country of Ophir.

 

141. Refer to Table 10-2. From this information we can conclude that

a. real GDP was higher in 2006 than in 2005, and real GDP was higher in 2005 than in 2004.

b. real GDP was higher in 2005 than in 2004, and real GDP was higher in 2005 than in 2006.

c. real GDP was higher in 2004 than in 2005, and real GDP was higher in 2005 than in 2006.

d. real GDP was higher in 2004 than in 2006, and real GDP was higher in 2005 than in 2004.

 

 

142. Refer to Table 10-2. Which of the following statements do we know to be correct?

a. Total spending in Ophir increased throughout the period.

b. Household spending in Ophir increased throughout the period.

c. The production of goods and services increased in Ophir throughout the period.

d. All of the above are correct.

 

 

143. Refer to Table 10-2. The inflation rate in Ophir was

a. 5 percent between 2004 and 2005, and 4.76 percent between 2005 and 2006.

b. 5 percent between 2004 and 2005, and 5 percent between 2005 and 2006.

c. 50 percent between 2004 and 2005, and 50 percent between 2005 and 2006.

d. 100 percent between 2004 and 2005, and 105 percent between 2005 and 2006.

 

 

144. Refer to Table 10-3. Nominal GDP for 2007 is

a. $900.

b. $1,100.

c. $1,250.

d. $1,350.

 

 

145. Refer to Table 10-3. Nominal GDP is

a. $680 for 2006, $880 for 2007, and $1,200 for 2008.

b. $760 for 2006, $880 for 2007, and $1,000 for 2008.

c. $760 for 2006, $1,100 for 2007, and $1,600 for 2008.

d. $960 for 2006, $1,280 for 2007, and $1,300 for 2008.

 

 

146. Refer to Table 10-3. Using 2006 as the base year, for 2007,

a. real GDP is $880 and the GDP deflator is 80.

b. real GDP is $880 and the GDP deflator is 125.

c. real GDP is $950 and the GDP deflator is 95.

d. real GDP is $950 and the GDP deflator is 116.

 

 

147. Refer to Table 10-3. Using 2007 as the base year, for 2006,

a. real GDP is $760 and the GDP deflator is 100.

b. real GDP is $760 and the GDP deflator is 125.

c. real GDP is $880 and the GDP deflator is 80.

d. real GDP is $950 and the GDP deflator is 80.

 

 

148. Refer to Table 10-3. Using the GDP deflator to measure the average level of prices and using 2006 as the base year, the economy's inflation rate is

a. 20 percent for 2007 and 12.5 percent for 2008.

b. 20 percent for 2007 and 30 percent for 2008.

c. 25 percent for 2007 and 28 percent for 2008.

d. 44.7 percent for 2007 and 45.5 percent for 2008.

 

 

149. Suppose GDP consists of wheat and rice. In 2005, 20 bushels of wheat are sold at $4 per bushel, and 10 bushels of rice are sold at $2 per bushel. In 2004, the price of wheat was $2 per bushel and the price of rice was $1 per bushel. Using 2004 as the base year, it follows that, for 2005,

a. nominal GDP is $100, real GDP is $50, and the GDP deflator is 50.

b. nominal GDP is $50, real GDP is $100, and the GDP deflator is 200.

c. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

d. nominal GDP is $40, real GDP is $100, and the GDP deflator is 50.

 

 

150. Suppose that the country of Samiam produces only eggs and ham. In 2005 it produced 100 dozen eggs at $3 per dozen and 50 pounds of ham at $4 per pound. In 2004, the base year, eggs sold for $1.50 per dozen and ham sold for $5 per pound. For 2005,

a. nominal GDP is $500, real GDP is $400, and the GDP deflator is 80.

b. nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.

c. nominal GDP is $400, real GDP is $400, and the GDP deflator is 100.

d. nominal GDP is $400, real GDP is $500, and the GDP deflator is 125.

 

 

151. In the country of Mainia, only cranberries and maple syrup are produced. In 2006, 50 units of cranberries are sold at $20 per unit, and 100 units of maple syrup are sold at $10 per unit. The price of cranberries was $10 per unit and the price of maple syrup was $15 per unit in 2005, which is the base year. For 2006,

a. nominal GDP is $2,000, real GDP is $2,000, and the GDP deflator is 100.

b. nominal GDP is $2,000, real GDP is $2,500, and the GDP deflator is 125.

c. nominal GDP is $2,500, real GDP is $2,000, and the GDP deflator is 83.3.

d. None of the above is correct.

 

 

152. Suppose a small economy produces only cheese and fish. In 2005, 20 units of cheese are sold at $5 each, and 8 units of fish are sold at $50 each. In 2004, the base year, the price of cheese was $10 per unit, and the price of fish was $75 per unit. For 2005,

a. nominal GDP is $800, real GDP is $500, and the GDP deflator is 160.

b. nominal GDP is $500, real GDP is $800, and the GDP deflator is 160.

c. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5.

d. nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5.

 

 

153. Real GDP is the production of final goods and services valued at

a. current year prices.

b. constant prices.

c. expected future prices.

d. the ratio of current year prices to constant year prices.

 

 

154. Which statement represents most correctly the relationship between nominal GDP and real GDP?

a. Nominal GDP measures base-year production using base-year prices, whereas real GDP measures current production using current prices.

b. Nominal GDP measures current production using base-year prices, whereas real GDP measures current production using current prices.

c. Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices.

d. Nominal GDP measures current production using current prices, whereas real GDP measures base-year production using base-year prices.

 

 

155. Which of the following statements about nominal GDP and real GDP is accurate?

a. Nominal GDP is a better gauge of economic well-being than is real GDP.

b. Real GDP is a better gauge of economic well-being than is nominal GDP.

c. Real GDP and nominal GDP are equally good measures of economic well-being.

d. Whether real GDP or nominal GDP is a better measure of economic well-being depends on the mix of goods and services.

 

 

156. When economists talk about growth in the economy, they measure that growth with the

a. absolute change in nominal GDP.

b. percentage change in nominal GDP.

c. absolute change in real GDP.

d. percentage change in real GDP.

 

 

157. The GDP deflator is the ratio of

a. real GDP to nominal GDP multiplied by 100.

b. real GDP to the inflation rate multiplied by 100.

c. nominal GDP to real GDP multiplied by 100.

d. nominal GDP to the inflation rate multiplied by 100.

 

 

158. If nominal GDP is $10 trillion and real GDP is $8 trillion, the GDP deflator is

a. 80, and this indicates that the price level has decreased by 20 percent since the base year.

b. 80, and this indicates that the price level has increased by 80 percent since the base year.

c. 125, and this indicates that the price level has increased by 25 percent since the base year.

d. 125, and this indicates that the price level has increased by 125 percent since the base year.

 

 

159. If the GDP deflator is 200 and nominal GDP is $10,000 billion, then real GDP is

a. $5,000 billion.

b. $2,000 billion.

c. $50 billion.

d. None of the above is correct.

 

 

160. If a small country has current nominal GDP of $20 billion and a GDP deflator of 50, what is its real GDP?

a. $100 billion

b. $40 billion

c. $10 billion

d. $4 billion

 

 

161. If a small country has current nominal GDP of $25 billion and the GDP deflator is 125, what is real GDP?

a. $312.5 billion

b. $207.5 billion

c. $31.25 billion

d. None of the above is correct.

 

 

162. A country reported nominal GDP of $100 billion in 2006 and $75 billion in 2005; it reported a GDP deflator of 125 in 2006 and 120 in 2005. Between 2005 and 2006,

a. real output and the price level both rose.

b. real output rose and the price level fell.

c. real output fell and the price level rose.

d. real output and the price level both fell.

 

 

163. A country reported nominal GDP of $200 billion in 2006 and $180 billion in 2005; it reported a GDP deflator of 125 in 2006 and 105 in 2005. Between 2005 and 2006,

a. real output and the price level both rose.

b. real output rose and the price level fell.

c. real output fell and the price level rose.

d. real output and the price level both fell.

 

 

164. A country reported a nominal GDP of $115 billion in 2006 and $125 billion in 2005; it reported a GDP deflator of 85 in 2006 and a deflator of 100 in 2005. Between 2005 and 2006,

a. real output and the price level both rose.

b. real output rose and the price level fell.

c. real output fell and the price level rose.

d. real output and the price level both fell.

 

 

165. A country reported a nominal GDP of $85 billion in 2005 and $100 billion in 2004; it reported a GDP deflator of 100 in 2005 and 105 in 2004. Between 2004 and 2005,

a. real output and the price level both rose.

b. real output rose and the price level fell.

c. real output fell and the price level rose.

d. real output and the price level both fell.

 

 

166. Dave, a student who knits ski caps with tassels and sells them on the Quad, sells the same number of caps this year as last year, but at 20 percent higher prices. Which of the following statements is correct?

a. Dave must be better off than last year because his income is higher.

b. Dave cannot be better off than last year because he sold the same number of caps both years.

c. We do not have enough information to determine whether Dave is better off this year than last year.

d. Dave is better off this year only if there was no inflation over the past year.

 

 

167. A farmer produces the same output in 2004 as in 2003. His input prices increase by 50 percent, but so does his product price. We can conclude that

a. the farmer is better off in 2004.

b. the farmer was better off in 2004.

c. the farmer is equally well off in 2004 as in 2003.

d. we cannot tell whether the farmer is better off in 2004 or in 2003 without additional information.

 

 

168. Which of the following is a correct statement about the growth of real GDP in the U.S. economy?

a. Real GDP in 2004 was almost four times its 1965 level.

b. The output of goods and services grew on average about 3.2 percent per year between 1965 and 2004.

c. Continued growth in real GDP enables the typical American to enjoy greater economic prosperity than did his or her parents and grandparents.

d. All of the above are correct.

 

 

169. Which of the following statements about the growth of real GDP in the U.S. economy is correct?

a. Real GDP grew on average about 4.5 percent per year between 1965 and 2004.

b. The growth in real GDP measures the growth in the output of goods and services.

c. The growth of real GDP has been steady over time.

d. All of the above are correct.

 

 

170. Recessions are associated with which of the following?

a. increased bankruptcies

b. falling profits

c. falling output

d. All of the above are correct.

 

 

171. A recession is a period during which

a. nominal GDP declines for about two consecutive quarters.

b. nominal GDP declines for about four consecutive quarters.

c. real GDP declines for about two consecutive quarters.

d. the GDP deflator declines for about four consecutive quarters.

 

 

172. A recession is always associated with

a. declining real GDP.

b. slow but positive growth of real GDP.

c. rising inflation.

d. the end of a war.

ANS: A

 

173. GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is

a. GDP per person.

b. the consumption component of GDP.

c. government expenditures per person.

d. investment per business firm.

 

 

174. During a presidential campaign, the incumbent argues that he should be reelected because GDP grew by 12 percent during his 4-year term in office. You know that population grew by 4 percent over the period, and that the GDP deflator increased by 6 percent during the past 4 years. You should conclude that real GDP per person

a. grew by more than 12 percent.

b. grew, but by less than 12 percent.

c. was unchanged.

d. decreased.

 

 

175. The information below was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of GDP per person from highest to lowest?

a. Japan, Switzerland, United States

b. Japan, United States, Switzerland

c. United States, Switzerland, Japan

d. United States, Japan, Switzerland

 

 

176. The information below was reported by the World Bank. On the basis of this information, which list below

contains the correct ordering of GDP per person from highest to lowest?

a. Kenya, Tanzania, Zimbabwe

b. Kenya, Zimbabwe, Tanzania

c. Zimbabwe, Kenya, Tanzania

d. Zimbabwe, Tanzania, Kenya

 

 

177. Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP.

a. Therefore, GDP is not a useful measure of society's welfare.

b. GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government.

c. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.

d. GDP is still the best measure of society's welfare because these other values cannot actually be measured.

 

 

178. Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 200, and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and population of 150. What happened to the real GDP per person?

a. It more than doubled.

b. It increased, but it less than doubled.

c. It was unchanged.

d. It decreased.

 

 

179. Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?

a. It more than doubled.

b. It increased, but it less than doubled.

c. It was unchanged.

d. It decreased.

 

180. Real GDP in the United States is five times as great as it was 50 years ago, yet GDP weighs almost the same as it

did a half century ago and the population has less than doubled. These facts suggest that

a. consumers are having to settle for lower quality goods.

b. we are no longer in danger of running out of raw materials.

c. each U.S. worker is more productive, and international trade is less expensive to conduct.

d. Americans are actually consuming fewer goods per person than they did 50 years ago.

 

 

181. GDP is not a perfect measure of well-being; for example,

a. GDP incorporates a large number of non-market goods and services that are of little value to society.

b. GDP places too much emphasis on the value of leisure.

c. GDP fails to account for the quality of the environment.

d. All of the above are correct.

 

 

182. GDP is not a perfect measure of well-being; for example,

a. GDP excludes the value of volunteer work.

b. GDP does not address the distribution of income.

c. GDP does not address environmental quality.

d. All of the above are correct.

 

 

183. GDP does not reflect

a. the value of leisure.

b. the value of goods and services produced at home.

c. the quality of the environment.

d. All of the above are correct.

 PTS: 1 DIF: 1 REF: 10-5

TOP: Gross domestic product MSC: Interpretive

 

184. International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with

a. longer life expectancy and a lower percentage of the population that is literate.

b. longer life expectancy and a higher percentage of the population that is literate.

c. very nearly the same life expectancy and a lower percentage of the population that is literate.

d. very nearly the same life expectancy and a higher percentage of the population that is literate.

 

 

185. Which of the following statements is accurate?

a. In rich countries, people typically live into their late seventies, while in poor countries, people typically live only until their fifties or early sixties.

b. In rich countries, almost all citizens can read, while in poor countries, about half the population is illiterate.

c. Poor countries tend to have higher infant mortality rates, higher maternal mortality, and higher rates of child malnutrition than do rich countries.

d. All of the above are correct.

 

 

186. International data on GDP and socioeconomic variables

a. are inconclusive about the relationship between GDP and the economic well-being of citizens.

b. suggest that poor nations actually might enjoy a higher standard of living than do rich nations.

c. leave no doubt that a nation's GDP is closely associated with its citizens' standard of living.

d. indicate that there are few real differences in living standards around the world, in spite of the large differences in GDP between nations.

 

 

187. Being able to measure the behavior of the economy with statistics such as GDP

a. is useful only in the accounting sense.

b. is all that is necessary in order for us to be able to understand macroeconomics.

c. can be helpful in developing macroeconomic science, but is not useful for policymaking.

d. is a crucial step toward developing the science of macroeconomics.

 

 

188. Countries in which the underground or “shadow” economy has been estimated to account for more than 50 percent of GDP include

a. Georgia, Bolivia, and Zimbabwe.

b. Thailand, Mexico, and Argentina.

c. Japan, Bolivia, and Argentina.

d. Peru, Mexico, and the United States.

 

 

189. Which of the following serves as an example of the underground or “shadow” economy?

a. A woman barters home repairs with her neighbor.

b. A teenager babysits regularly and fails to report her income.

c. A man sells illegal drugs and fails to report his income.

d. All of the above are correct.