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Eco 302c Intermediate Macro Spring 2007 Quiz #1 1. Suppose a country produces 2 goods – milk and butter. Milk production during 2006 was 1000 liters, butter production was 100 kg. 200 liters of milk were added and 10 kg of butter were subtracted from inventories of unsold goods during the year. The price of a liter of milk is €1, the price of a kilogram of butter is €4. Three liters of milk are used up in the production of each kilogram of butter. The final goods output of each industry in 2006 was: a. b. c. d. e. milk €800; butter €440. milk €1000; butter €400. milk €700; butter €400. milk €1000; butter €100. none of the above. 2. When a firm sells more output than it produced during the year, the difference is reflected in a reduction of the amount of inventory of unsold goods. This is recorded in the national income and product accounts as: a. b. c. d. e. depreciation. consumption. negative investment. intermediate goods. an adjustment to previous year’s GDP. 3. The value of output produced in a country during a year is _____; the income earned by a country’s citizens is _____; the difference is due to _____ . a. b. c. d. e. GDP GNP GNP GDP GNP GDP GDP GNP none of the above. use of intermediate goods in production net factor payments unearned income depreciation of capital 4. One way to compute GDP is to add the output of final goods across industries. When industry A purchases the output of industry B as an intermediate good in order to produce its own output (as when a boat-builder purchases wood), the final goods output of industry A is: a. b. c. d. e. partially assigned to industry B. not affected. reduced by the value of purchases of goods from industry B. reduced by the value of goods used up from industry B. none of the above. Output Y Labor N 5. The reason the economy’s production function becomes flatter as one moves to the right in the diagram above is that: a. b. c. d. e. labor becomes more expensive as output rises. firms must hire lower quality workers when output rises. firms choose to replace workers with capital as output rises. the marginal product of labor declines when more capital is added.. none of the above. 6. The depletion of the value of natural resources – such as when a forest is cut down for wood or oil is pumped out of the ground – is accounted for in GDP calculations by: a. eliminating the income received for payments for resource extraction from the incomes added to calculate GDP. b. added to the “depreciation of capital” that is added to firms’ profits in the incomes-approach to GDP. c. subtracting the value of resource depletion from the industry’s value-added. d. treating the resource depletion as if it were an intermediate good. e. none of the above.