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Econ 203
Review - 2
Ch.2 & Ch .5
 True or False questions :
1. All goods and services exchanged in the current period are included in this
year’s GDP. (F)
2. Microeconomics is concerned with the whole economy or its major sectors.
(F).
3. Economics is the social science concerned with the efficient use of scarce
resources to achieve maximum satisfaction of economic wants. (T).
4. Macroeconomics is concerned with the whole economy or its major sectors
(T).
.
5. The four factors of production are land, labor, capital, and government
services. (F).
6. In the circular flow model, households function on the selling side of the
resource market and the buying side of product markets. (T).
7. Measuring the performance of our economy is important to macroeconomic
policymakers in setting goals and developing policy recommendations. (T)
8. All goods and services exchanged in the current period are included in this
year’s GDP. (F)
9. If we counted the value of intermediate goods as well as the full value of the
final products in GDP, we would be double counting. (T)
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10. Following the expenditure method, GDP = C + I + G + X. (F).
11. Purchases of stock are included as part of investment in the national income
accounts. (F).
12. . . . Fixed investments include all spending on capital goods as well as on
residential construction (houses). (T).
13. Net exports are a small proportion of GDP and sometimes appear negative.
(T).
14. Scarcity is a problem only for the poor. (F).
15. Net investment = gross investment – depreciation (T).
16. When someone makes an expenditure for a good or service, that spending
creates income for someone else. (T)
17. The net income of foreigners must be added to GDP to get GNP. (F).
18. A machine produced in Germany by a United States company would show up
in the GDP of U S. (F).
19. Nonmarket transactions, the underground economy, and the value of leisure
are all omitted from official measures of GDP. (T).
20. If total spending rises from one year to the next, then the economy must be
producing a larger output of goods and services. (F).
21. If total spending rises from one year to the next, then prices at which goods
and services are sold must be higher. (F).
22. If total spending rises from one year to the next, then 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. (T)
23. An American company owns a fast food restaurant in France. The value of
goods and services it produces is included in both France and U.S. GDP. (F).
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24. An American company owns a fast food restaurant in France. The value of
goods and services it produces in France GDP, but not U.S. GDP. (T)
25. The sale of used goods is not included in GDP. (T)
26. The estimated rental value of owner occupied housing is included in GDP
(T)
.
27. T he sale of stocks and bonds is included in GDP. (F).
28. Real GDP evaluates current production at current prices. (F).
29. Real GDP evaluates current production at the prices that prevailed in some
specific year in the past. (T)
30. Glass currently produced and used by automobile factory as an automobile
side-window should be counted in GDP. (F).
31. Economic resources are classified as: land, capital, labor and money. (F).
32. GDP or Gross domestic product, is the market value of all final goods and
services produced within a country in a given time period. (T)
33. If you buy a new home, it is counted as part of C . . . (F)
34. Purchases of stock are included as part of investment in the national income
accounts. (F)
35. In a country with a growing population, real GDP per capita could be falling at
the same time that real GDP was rising. (T)
36. National income is a measure of the income earned by owners of resources
and available for spending after taxes. (F)
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Multiple Choice questions:
1-If everything else remaining the same, if government expenditure increases by $20
billion and imports increase by $5 billion, then GDP
a- increases by $15 billion
b- increases by $20 billion
c- increases by $25 billion
d- decreases by $5 billion
2- Gross domestic product is equal to the sum of consumption expenditure,
investment, government expenditure, and:
a)
b)
c)
d)
Net taxes.
Net exports.
Saving.
Profits
3- Macroeconomics focuses on :
a) The individual units that make up the whole of the economy .
b) Studies of how individual markets and industries are organized .
c) Total output and the general level of prices in the economy .
4- Macroeconomics focuses on :
A) The individual units that make up the whole of the economy .
B) Studies of how individual markets and industries are organized .
C) Total output and the general level of prices in the economy .
D) How a business determines how much of a product to produce.
5- In every economic system, choices must be made because resources are :
a)
b)
c)
d)
limited, but economic wants are not
limited, and so are economic wants
Unlimited, but economic wants are limited .
Limited, and so are economic wants.
6- Which is the correct match of an economic resource and payment for that resource ?
a) land and profit
b) labor and rent income
c) capital and interest income
d) entrepreneurial ability and wages
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7- In the circular flow model, households:
a)
b)
c)
d)
Buy products and resources.
Sell products and resources.
Buy products and sell resources.
Sell products and buy resources.
8- The simple circular flow model shows that workers, entrepreneurs, and the owners of
land and capital offer their services through :
a) Product markets .
b) Resource markets .
c) Employment agencies .
d) Business firms.
9- In product markets :
a)
b)
c)
d)
Households sell products to business firms .
Households sell resources to business firms .
Businesses sell resources to households .
Businesses sell goods and services to households.
10- The money income of households consists of the sum of :
a)
b)
c)
d)
Wages plus salaries.
Consumption expenditures plus profits .
Wages plus rents plus interest plus profits .
Consumption expenditures plus costs of resources.
10) In calculating GDP, we must
a)
b)
c)
d)
add the market value of imports and subtract the market value of exports.
add the market value of exports and subtract the market value of imports.
exclude net exports of goods and services (NX).
add the value of the goods produced outside of the United States by American firms.
11- Economic growth is measured by changes in
a)
b)
c)
d)
e)
. Nominal GDP.
. The money supply.
. Real GDP per capita.
The rate of unemployment.
. None of the above.
12- . A business cycle reflects changes in economic activity, particularly real GDP. The
stages of a business cycle in order are
a) Expansion, peak, contraction, and trough.
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b) Expansion, trough, contraction, and peak.
c) Trough, expansion, contraction, and peak.
13- All of the following are capital resources expect:
a)
b)
c)
d)
A warehouse
A tractor
100 shares of stocks in IBM
A computer
14- An example of an intermediate product is
a) The purchase of tires by Ford Motor Company to put on its Ford Explorers.
b) The purchase of wood by a home construction firm.
c) The purchase of leather by a shoe manufacturer.
d) d. All of the above are examples of intermediate products.
14) The expenditure approach to measuring GDP is done by using data on only
a) consumption expenditure and investment.
b) consumption expenditure, investment, government expenditure on goods and
services, and net exports of goods and services.
c) consumption expenditure, investment, and government expenditures.
d) wages, rent, interest, and profit.
15- An example of a transfer payment is
a)
b)
c)
d)
Profit.
Rent.
Unemployment benefits.
Government purchases.
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16) Based on the data in the table above, what does GDP equal?
a)
b)
c)
d)
$10,200 billion
$10,400 billion
$10,000 billion
$9.8000
16- . GDP is defined as the
a) Value of all final goods and services produced in a country in a period of time.
b) Value of all final goods produced in a country in a period of time.
c) Value of all goods and services produced in a country in a period of time.
d) Value of all final services produced in a country in a period of time.
17- The expenditure measure of GDP accounting adds together
a)
b)
c)
d)
Consumption, interest, government purchases, and net exports.
Consumption, government purchases, wages and salaries, and net exports.
Consumption, investment, government purchases, and net exports.
Wages and salaries, rent, interest, and profits.
17) The table gives data for a nation. What is the amount of the country's GDP?
a)
b)
c)
d)
e)
$6,000 billion
$6,200 billion
$6,600 billion
$6,900 billion
$5,800 billion.
18- Investment includes
a) Fixed investment.
b) Fixed investment plus government investment.
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c) Fixed investment plus additions to business inventories.
d) Fixed investment plus subtractions from business inventories.
e) Fixed investment plus government investment plus additions to business
inventories.
19-. Which of the following is not included in government purchases?
a. government purchases of investment goods
b. transfer payments
c. government spending on services
d. None of the above is included in government purchases.
20-. A negative amount of net exports in the GDP expenditures accounting means
a. Exports are less than imports.
b. Imports are less than exports.
c. The sum of this period’s exports and imports has declined from the previous period.
d. Net exports have declined from the previous period.
21- . Disposable income is
a.
b.
c.
d.
A measure of the market value of total output.
A measure of the income households have to spend before paying taxes.
A measure of the income households have to spend after paying taxes.
A measure of household income from investment income, such as dividends and capital
gains.
22- Disposable personal income will increase when
a.
b.
c.
d.
Taxes rise and transfer payments rise.
Taxes rise and transfer payments fall.
Taxes fall and transfer payments rise.
Taxes fall and transfer payments fall.
22) In 2009 in the kingdom of Saudi Arabia, net domestic product at factor cost was
$11,091 billion. Additionally, rent was $2,000 billion, profits were $1,000 billion, and
interest was $358 billion. Hence wages were
a)
b)
c)
d)
e)
$7,733 billion.
$9,091 billion.
$10,091 billion.
$8,091 billion.
$12,091 billion.
23- . Nominal GDP is
a. The base year market value of all final goods and services produced domestically
during a given period.
b. The current year market value of all final goods and services produced
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domestically during a given period.
c. Usually less than real GDP.
d. The current year market value of domestic production of intermediate goods.
24- GDP is calculated including
a. Intermediate products but not final products.
b. Manufactured goods but not services.
c. Final products but not intermediate products.
d. Only goods purchased by consumers in a given year.
24) Adding wages, interest, rent, and profits yields
a)
b)
c)
d)
gross domestic product.
gross domestic product at factor cost.
net domestic product at factor cost.
GNP.
25- 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.
26- 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, hence, it excludes the value of services.
27- Which of the following is included in GDP?
a)
b)
c)
d)
the sale of stocks and bonds
the estimated rental value of owner occupied housing
unpaid production of goods and services at home
All of the above are correct.
28- To compare the standard of living of one country to another, economists use:
a) .Per capita GDP
b) B. Real GDP
c). Nominal GDP
d). Output per worker
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29- Intermediate goods and services:
a. Include used goods.
b. Are double counted in GDP.
c. Are used to produce final goods & services.
d. Are included in GDP.
29) Using the information in the table above, what does GDP equal?
a)
b)
c)
d)
e)
$365 billion
$350 billion
$650 billion
$380 billion
GDP cannot be calculated without information on the amount of investment
30- Depreciation equals :
a.
b.
c.
d.
Net investment minus gross investment.
Capital minus gross investment.
Capital minus net investment.
Gross investment minus net investment.
31- Which of the following items is not a component of the expenditure approach to
measuring US GDP:
a. Social security payments made by the government.
b. Purchases of US made aircraft by Europeans.
c. Purchases of new computers by businesses and firms.
d. Purchases made by families.
32- Which of the following items is not a component of the income approach to
measuring GDP:
a. Social security contributions.
b. Purchases of new computers by businesses and firms.
c. Transfer payments made by the government.
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d. B &c.
33- Real GDP is not a good indicator of economic welfare ( the improvement in the
standard of living) because it:
a.
b.
c.
d.
Excludes the underground economy.
Measures the value of time spent working but not the value of leisure time.
Does not include the pollution created by steel mills.
All the above.
34. Which of the following are most likely to be classified by economists as consumer
durable goods?
a.
b.
c.
d.
stocks, bonds, EE savings bonds,
automobiles, furniture, CD players
Drugs, magazines, newspapers.
Food, soft drinks.
35. We can be certain that net exports fall if
a.
b.
c.
d.
Both exports and imports rise.
Both exports and imports fall.
Exports rise and imports fall.
Exports fall and imports rise.
36-. If the United States imported $1.5 billion worth of goods and services and sold
$2.9 billion worth of goods and services outside its borders, net exports would equal
a)
b)
c)
d)
_$4.4 billion.
$4.4 billion.
$1.4 billion.
_$1.4 billion.
37- Which of
a.
b.
c.
d.
the following is not considered a factor payment?
interest
rent
profit
transfer payments
38- . Nominal GDP is
a. The base year market value of all final goods and services produced domestically
during a given period.
b. The current year market value of all final goods and services produced
domestically during a given period.
c. Usually less than real GDP.
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d. The current year market value of domestic production of intermediate goods.
38) The business cycle is defined as
a)
b)
c)
d)
changes in the stock market.
changes in financial markets.
persistent growth in potential GDP.
irregular ups and downs in production and jobs.
39- Nominal GDP differs from real GDP in that
a. Nominal GDP tends to increase when total production of output in the economy
increases, while real GDP does not.
b. Nominal GDP is measured in base year prices, while real GDP is measured in current
year prices.
c. Nominal GDP is measured in current year prices, while real GDP is measured in
base year prices.
d. Real GDP excludes taxes paid to the government, while nominal GDP does not.
40- Which of the following transactions should be included in GDP for 2003:
a. Glass currently produced and used by GM as an automobile side-window.
b. Glass currently produced and sold directly to households.
c. A used set of glasses made in 2000.
41- if you have this data : GDP= 1000 , Consumption Expenditure(C)= 400,
Investment(I) = 200 , Government Expenditure( G) = 300, Exports= 150 then you can
say that :
a.
b.
c.
d.
Net Exports = 150
imports = 150
transfer payments = 150
None of the above.
41) The business cycle has two phases,
a.
b.
c.
d.
e.
expansion and peak.
recession and trough.
peak and trough.
recession and expansion.
expansion and trough.
42- if you have this data : GDP= 1500 , , Investment(I) = 300 , Government
Expenditure( G) = 500, Exports= 180 , import= 80 then you can say that :
a. C= 600
b. C= 500
c. N x= 360
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d. All of the above.
43) A recession runs from the
a.
b.
c.
d.
peak of the business cycle to its trough.
peak of the business cycle to a recovery.
expansion of a business cycle to its peak.
trough of a business cycle to its peak.
43- if you have this data, Consumption Expenditure(C)=800, Investment(I) = 350 ,
Government Expenditure( G) =400, Exports= 150, Net Exports = 100,then you can say
that :
a.
b.
c.
d.
import = 50
GDP = 1650.
All of the above.
None of the above.
44- when Net investment = 150 , Gross Investment = 250, you can say that :
a.
b.
c.
d.
Depreciation = 150
Depreciation = 350
Depreciation = 100
All of the above.
45- if you have this data Net domestic product at factor cost = 1800 , indirect taxes =
130 , subsidies = 50 , depreciation.= 30 you can say that :
a.
b.
c.
d.
Gross Domestic Product ( GDP) =1910
Gross Domestic Product ( GDP) =1880
Gross Domestic Product ( GDP) =1980
Gross Domestic Product ( GDP) =1750
46 - if you have this data Gross Domestic Product ( GDP) = 1800, subsidies =30, Net
domestic product at market value = 1750, you can say that :
a.
b.
c.
d.
Net domestic product at factor cost= 1770
Net domestic product at factor cost = 1720
Depreciation = 30
Depreciation = 50
47- if you have this data Gross Domestic Product ( GDP) = 1800, net factor income
received from abroad = 500, you can say that :
a. Gross National Product = 2300
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b. Gross National Product= 1300
c. Depreciation = 500
d. Depreciation =1300
48) ________ the owners of the factors of production, while ________ what
amounts of those factors to hire.
a.
b.
c.
d.
Households are; firms determine
Households are; the government determines
The government is; firms determine
Firms are; households determine
49) In the circular flow model. a market
a.
b.
c.
d.
requires a physical location for buyers and sellers to get together.
is any arrangement that brings buyers and sellers together.
must include a written contract between buyers and sellers.
is only a place to purchase groceries.
50) The decisions of firms and households are
a.
b.
c.
d.
e.
coordinated by markets.
made independently of one another.
controlled by but not totally coordinated by the government.
unexplainable by the circular flow model.
coordinated by but not totally controlled by the government.
51) The circular flow model is used to show the
a.
b.
c.
d.
e.
flow of renewable natural resources.
recycling process of production materials.
expansions and contractions of economic activity.
flow of expenditures and incomes in the economy.
flow of supply and the flow of demand.
52) The circular flow model shows the
a. distribution of income and consumption goods across income levels.
b. combinations of the factors of production needed to produce goods and services.
c. flow of expenditure and incomes that arise from the households', firms', and
governments' decisions.
d. flow of natural resources from firms to the private market to government and back to
firms.
e. distribution of income to the different factors of production.
53) In the circular flow model, there are two types of markets: the ________
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market and the ________ market.
a.
b.
c.
d.
e.
producers; consumers
households; firms
service; goods
goods; factor
supply; demand
54) In the circular flow model, consumption goods are bought and sold in the
a.
b.
c.
d.
goods market.
financial market.
factor markets.
government market.
e. monetary flows.
55) In the circular flow model, which of the following is on the buying side in the
goods market?
i. firms
ii. households
iii. federal, state, and local governments
a.
b.
c.
d.
e.
i only.
ii only.
iii only.
i and ii.
ii and iii.
56) In the circular flow model, which of the following is on the selling side in the
goods market?
a. federal, state, and local governments
b. only households
c. exporters
d. only firms
e. both firms and households
57) The circular flow model shows that goods and services flow from
a.
b.
c.
d.
businesses to households.
households to business.
the factor market to businesses.
the goods market to businesses.
58) In the circular flow model, which of the following owns the factors of
production?
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a.
b.
c.
d.
only federal, state, and local governments
only households
only firms
both firms and households
59) In the circular flow model, the factor markets are the markets in which
a.
b.
c.
d.
consumption goods and services are bought and sold.
government goods and services are provided.
land, labor, capital, and entrepreneurship are bought and sold.
investment goods and services are bought and sold.
60) As the circular flow model shows, the factors of production flow from
a.
b.
c.
d.
firms to households through the factor market.
households to firms through the factor market.
firms to households through the goods market.
households to firms through the goods market.
61) In the circular flow model, the factors of production flow in the
a.
b.
c.
d.
e.
same direction as do the rents, wages, interest, and profits.
opposite direction as do the rents, wages, interest, and profits.
opposite direction as does the government.
same direction as does the goods market.
opposite direction as does the goods market.
62) In the factor market, firms ________ and households ________.
a. hire land, labor, capital, and entrepreneurship services; purchase goods and services
b. supply land, labor, capital, and entrepreneurship services; hire land, labor, capital, and
entrepreneurship services
c. pay rent, wages, interest, and profit; earn rent, wages, interest, and profit
d. purchase goods and services; supply goods and services
63) In the circular flow model with the government sector, transfers
a.
b.
c.
d.
e.
flow in the same direction as do taxes.
flow in the opposite direction as do taxes.
to households flow in the same direction as do expenditures on goods and services.
to firms flow in the same direction as do rent, wages, interest, and profits.
flow only through the goods market.
64) Which of the following is NOT shown explicitly in the circular flow model?
a.
b.
c.
d.
the governments' purchases in the goods market
the taxes the governments collect from households
the governments' interaction with firms
the legal system
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65) In the circular flow model, rent, wages, interest, and profit paid flow from
________ through ________ to ________.
a.
b.
c.
d.
households; goods markets; firms as payment for goods
firms; factor markets; households
firms; goods markets; households
households; factor markets; firms
66) Households receive transfers from ________ and firms receive transfers from
________.
a.
b.
c.
d.
e.
government; government
firms; households
government; government and households
firms and government; government
government; no one
Matching
Match the number of each term to its correct definition:
___1. A social science that studies of how people and institutions within a
society make choices and how these choices determine the use of
society’s scarce resources.
12.Interest Income
___2. Labor, land, capital, and enterprise.
4.Intermediate goods
___3. The time and the effort expended by human beings involved in the
production process.
19.Consumption
___4. Goods used to produce other goods and services.
payments
___5. Economic goods used to produce other consumer or capital goods.
9.GDP
5.Capital goods
17.Transfer
___6. Markets in which goods and services are bought and sold
25.Depreciation
___7. Markets in which the services of factor of production are bought and
sold
1 .Economics
___8. A person who organizes and assumes the risk of a business venture.
___9. The market value of all final goods and services produced within a
country in a given time period.
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21.Trough
22.Real GDP per
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___10. Items that the firms in the country produce and sell to the rest of the
world
___11. The amount of income that is not paid in taxes or spent on
consumption
8.Entrepreneur
13.Nominal GDP
11.saving
___12. the interest that households receive on loans they make minus the
interest that households pay on their borrowing
3.Labor
___13. the value of final goods and services in a given year in terms of the
prices of that same year.
24. Gross Investment
___14. focuses on the individual parts of the economy.
___15. is a period during which aggregate output declines.
___16. Deals with the aggregates of economics, including total production,
total employment, and general price level.
___17. are payments made by the government to people who do not supply
goods, services, or labor in exchange for these payments
___18. the maximum point in the business cycle.
___19. the expenditure by households on consumption goods and services.
27. Households
18.Peak
30. Potential GDP
28. Firms
6.Goods Markets
16.Macroeconomics
14.Microeconomics
7.Factor market
26. Circular Flow
___20. items that households , firms ,and the government in the country buy
from the rest of the world.
Model
___21. the minimum point in the business cycle.
15.recession
___22. Real GDP ÷ the population.
2.resources(factors
___23. The profit of corporations + The incomes The incomes who run their
own business.
of production
___24. Net investment + depreciation.
23.Profit
___25. The difference between Gross and net product
___26. shows the income received and payments made by each sector of
the economy.
29. A market
10.Exports
20.Imports
___27. individuals or groups of people living together.
___28. the institutions that organize the production of goods & services.
___29. any arrangement that brings buyers and sellers together.
___30. the value of real GDP when all factors of production are fully
employed.
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