Download Questions to Measuring a Nation`s Income

1.Macroeconomists study
a. the decisions of individual households and
firms.
b. the interaction between households and
firms.
c. economy-wide phenomena.
d. regulations imposed on firms and unions.
2. Which of the following questions is more likely
to be studied by a microeconomist 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 national production and income
increase in some periods and not in others?
d. How rapidly is GDP currently increasing?
3. 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.
4. 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
5. GDP
a. is used to monitor the performance of the
overall economy but is not the single best
measure of a society’s economic wellbeing.
b. is used to monitor the performance of the
overall economy and is the single best
measure of a society’s economic wellbeing.
c. is not used to monitor the performance of
the overall economy but is the single best
measure of a society’s economic wellbeing.
d. is not used to monitor the performance of
the overall economy and is not the single
best measure of a society’s economic wellbeing.
6. Gross domestic product measures
a. income and expenditures.
b. income but not expenditures.
c. expenditures but not income.
d. neither income nor expenditures.
7. Expenditures on a nation’s domestic production
a. are less than its domestic production.
b. are equal to its domestic production.
c. are greater than its domestic production.
d. could be less than, equal to, or greater than
its domestic production.
8. Income generated by a nation’s domestic
production
a. is less than its domestic production.
b. is equal to its domestic production.
c. is greater than its domestic production.
d. could be less than, equal to, or greater than
its domestic production.
9.For an economy as a whole,
a. wages must equal profit.
b. consumption must equal saving.
c. income must equal expenditure.
d. the number of buyers must equal the
number of sellers.
10. Because every transaction has a buyer and a
seller,
a. GDP is more closely associated with an
economy’s income than it is with an
economy’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 circularflow diagram.
d. firms’ profits are necessarily zero in a
simple circular-flow diagram.
11. For an economy as a whole, income must equal
expenditure because
a. the number of firms is equal to the number
of households in an economy.
b. individuals can only spend what they earn
each period.
c. every dollar of spending by some buyer is a
dollar of income for some seller.
d. every dollar of saving by some consumer is
a dollar of spending by some other
consumer.
12.If an economy’s GDP falls, then it must be the
case that the economy’s
a. income falls and saving rises.
b. income and saving both fall.
c. income falls and expenditure rises.
d. income and expenditure both fall.
13.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 of the economy’s labor
force.
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.
14. In a simple circular-flow diagram, 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.
15. In a simple circular-flow diagram, households
buy goods and services with the income they
get from
a. wages.
b. rents.
c. profits.
d. All of the above are correct.
16. In the actual economy, goods and services are
purchased by
a. households, but not firms or the
government.
b. households and firms, but not the
government.
c. households and the government, but not
firms.
d. households, firms, and the government.
17. GDP is defined as the
a. value of all goods and services produced
within a country in a given period of time.
b. 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. value of all final goods and services
produced within a country in a given period
of time.
d. 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.
18. Which of the following is a way to compute
GDP?
a. add up the wages paid to all workers
b. add up the quantities of all final goods and
services
c. add up the market values of all final goods
and services
d. add up the difference between the market
values of all final goods and services and
then subtract the costs of producing those
goods and services
19.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. quantities purchased by a typical urban
household.
d. profits from producing goods and services.
20. In computing GDP, market prices are used to
value final goods and services because
a. market prices do not change much over
time, so it is easy to make comparisons
between years.
b. market prices reflect the values of goods
and services.
c. market prices reflect the quantity sold.
d. None of the above is correct; market prices
are not used in computing GDP.
21. If the price of a Blu-Ray Disc player is three
times the price of an MP3 player, then a BlueRay Disc player contributes
a. more than three times as much to GDP as
does a MP3 player.
b. less than three times as much to GDP as
does a MP3 player.
c. exactly three times as much to GDP as does
a MP3 player.
d. None of the above is necessarily correct.
22.Which of the following is included in GDP?
a. the market value of rental housing services,
but not the market value of owner-occupied
housing services.
b. the market value of owner-occupied
housing services, but not the market value
of rental housing services
c. both the market value of rental housing
services and the market value of owneroccupied housing services
d. neither the market value of owner-occupied
housing services nor the market value of
rental housing services.
23. 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 are used to place a
value on these housing services.
b. included in GDP, and the actual mortgage
payments made on the houses are 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.
24. Ryan lives in an apartment where he pays
$7,000 a year in rent. Alexis lives in a house
that could be rented for $14,000 a year. How
much do these housing services contribute to
GDP?
a. $21,000
b. $14,000
c. $7,000
d. $0
25. Most goods and services produced at home
a. and most goods and services produced
illegally are included in GDP.
b. are included in GDP while most goods and
services produced illegally are excluded
from GDP.
c. are excluded from GDP while most goods
and services produced illegally are included
in GDP
d. and most goods and services produced
illegally are excluded from GDP.
26. GDP excludes most items that are produced
and sold illegally and most items that are
produced and consumed at home because
a. the quality of these items is not high enough
to contribute value to GDP.
b. measuring them is so difficult.
c. the government wants to discourage the
production and consumption of these items.
d. these items are not reported on income tax
forms.
27. 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 services provided by major
household appliances purchased in a
previous period
c. the estimated rental value of owneroccupied homes
d. All of the above are included in GDP.
28. 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 by the value of the
restaurant meals.
d. increased measured GDP by the value
added by the restaurant’s preparation and
serving of the meals.
29. Over time, people have come to rely more on
market-produced goods and services and less
on goods and services 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 measured GDP to fall.
b. not caused any change in measured GDP.
c. caused measured GDP to rise.
d. probably changed measured GDP, but in an
uncertain direction; the direction of the
change depends on the difference in the
quality of the cleaning that has resulted.
30.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 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.
31. Susan switches from going to Speedy Lube for
an oil change to changing the oil in her car
herself. Which of the following is correct?
The value of changing the oil is
a. included in GDP whether Susan pays
Speedy Lube to change it or changes it
herself.
b. included in GDP if Susan pays Speedy
Lube to change it but not if she changes it
herself.
c. included in GDP if Susan changes it herself,
but not if she pays Speedy Lube to change
it.
d. not included in GDP whether Susan pays
Speedy lube to change it or she changes it
herself.
32. Rachel babysits for her sister for no pay. When
she babysits for someone else she charges $8 an
hour. When is Rachel’s babysitting included
in GDP?
a. When she babysits for her sister and when
she babysits for someone else.
b. When she babysits for her sister, but not
when she babysits for someone else.
c. When she babysits for someone else, but
not when she babysits for her sister.
d. Neither when she babysits for her sister nor
for someone else.
33. Which of the following is not included in GDP?
a. carrots grown in your garden and eaten by
your family
b. carrots purchased at a farmer’s market and
eaten by your family
c. carrots purchased at a grocery store and
eaten by your family
d. None of the above are included in GDP.
34. 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. raises GDP.
b. 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.
35. Which of the following is included in GDP?
a. medical marijuana purchased from a
government-run pharmacy by a glaucoma
patient
b. recreational marijuana purchased from a
drug dealer by a college student
c. recreational marijuana produced and
consumed by a man in his attic
d. All of the above are included in GDP.
36. Darin grows and sells marijuana to Jennifer.
Thomas is an organic farmer who sells broccoli
to Jennifer. Marijuana is an illegal good and
broccoli is a legal good. Assume that if
Jennifer marries either, they give her what they
use to sell her. Which of the following
statements is consistent with the way GDP is
computed?
a. GDP will fall if Jennifer marries either
Darin or Thomas..
b. GDP will fall if Jennifer marries Darin but
not if she marries Thomas.
c. GDP will fall if Jennifer marries Thomas
but not if she marries Darin.
d. GDP remains the same whether Jennifer
marries Darin or Thomas.
37. Spots, Inc. produces ink and sells it to Write on
Target, which makes pens. The ink produced
by Spots, Inc. is called
a. an inventory good.
b. a transitory good.
c. a final good.
d. an intermediate good.
38. A farmer sells $50,000 of apples to individuals
who take them home to eat and $75,000 of
apples to a company that uses them all to
produce cider. How much of the farmer’s sales
will be included as apples in GDP?
a. $0
b. $50,000
c. $75,000
d. $125,000
39. Sam, an American citizen, prepares meals for
his family at home. Ellen, a Canadian citizen,
commutes to the U.S. to help prepare meals at a
restaurant in Idaho. Whose value of services
preparing meals is included in U.S. GDP?
a. Sam’s and Ellen’s.
b. Sam’s but not Ellen’s.
c. Ellen’s but not Sam’s.
d. Nether Sam’s nor Ellen’s.
for $3.00 to consumers. A second bag of flour
is sold for $1 to a grocery store who sells it to a
consumer for $2.00. Taking these four
transactions into account, what is the effect on
GDP?
a. GDP increases by $3.00.
b. GDP increases by $5.00.
c. GDP increases by $6.00.
d. GDP increases by $7.00.
40. Grapes are considered intermediate goods
a. whether the purchaser uses them to make
wine to sell or eats them.
b. if the purchaser uses them to make wine to
sell others but not if the purchaser eats
them.
c. if the purchaser eats them, but not if the
purchaser uses to them to make wine to sell.
d. None of the above is correct.
45. A painter pays $500 for paint he uses to repaint
a house. He then presents a bill for $1200 that
covers his time and expenses to the
homeowner. How much do these transactions
add to GDP?
a. $500
b. $700
c. $1200
d. $1700
41. 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.
46. 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 $3,000.
Neither firm had any inventory at the beginning
of 2009. 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 2010. Couches, Inc. produced 16 couches
during 2009 and sold each one during that year
for $3,000. What was the economy's GDP for
2009?
a. $48,000
b. $52,000
c. $64,000
d. $68,000
42. A steel company sells some steel to a bicycle
company for $150. The bicycle company uses
the steel to produce a bicycle, which it sells for
$250. Taken together, these two transactions
contribute
a. $150 to GDP.
b. $250 to GDP.
c. between $250 and $400 to GDP, depending
on the profit earned by the bicycle company
when it sold the bicycle.
d. $400 to GDP.
43. Al’s Aluminum Company sells $1 million
worth of aluminum to Shiny Foil Company,
which uses the aluminum to make aluminum
foil. Shiny Foil Company sells $4 million
worth of aluminum foil to households. The
transactions just described contribute how
much to GDP?
a. $1 million
b. $3 million
c. $4 million
d. $5 million
44. One bag of flour is sold for $1.00 to a bakery,
which uses the flour to bake bread that is sold
47. In 2009, Corny Company grows and sells $2
million worth of corn to Tasty Cereal
Company, which makes corn flakes. Tasty
Cereal Company produces $6 million worth of
corn flakes in 2009, with sales to households
during the year of $4.5 million. The unsold
$1.5 million worth of corn flakes remains in
Tasty Cereal Company’s inventory at the end
of 2009. The transactions just described
contribute how much to GDP for 2009?
a. $4.5 million
b. $6 million
c. $6.5 million
d. $8 million
48. Whip-It manufactures blenders. In 2009 it had
$50,000 of blenders in inventory. In 2010 it
sold $300,000 of blenders to consumers and
had $40,000 of blenders in inventory. How
much did blenders produced by Whip-it add to
GDP in 2010?
a. $340,000
b. $310,000
c. $300,000
d. $290,000
a. The 2008 sale increased 2008 GDP by
$225,000 and had no effect on 2005 GDP.
b. The 2008 sale increased 2008 GDP by
$25,000 and had no effect on 2005 GDP.
c. The 2008 sale increased 2008 GDP by
$225,000; furthermore, the 2008 sale caused
2005 GDP to be revised upward by
$25,000.
d. The 2008 sale affected neither 2008 GDP
nor 2005 GDP.
49. Which of the following domestically produced
items is not included in GDP?
a. a bottle of shampoo
b. a hairdryer
c. a haircut
d. All of the above are included in GDP.
54. In early2010 Molly paid $200,000 for a house
built in 2000. She spent $30,000 on new
materials to remodel the house. Although
Molly lived in the house after she remodeled it,
its rental value rose. Which of the following
contributed to real GDP in 2010?
a. the price of the house, the cost of
remodeling materials, the increase in rental
value
b. the price of the house and the cost of
remodeling materials, but not the increase in
rental value
c. the costs of the remodeling materials and
the increase in rent, but not the price of the
house
d. None of the above are correct.
50. Which of the following is not included in GDP?
a. a can of bug spray
b. the services of an exterminator
c. the honey produced and sold by a beekeeper
d. All of the above are included in GDP.
51. Transactions involving items produced in the
past, such as the sale of a 5-year-old
automobile by a used car dealership or the
purchase of an antique rocking chair by a
person at a yard sale, are
a. included in current GDP because GDP
measures the value of all goods and services
sold in the current year.
b. included in current GDP but valued at their
original prices.
c. not included in current GDP because it is
difficult to determine their value.
d. not included in current GDP because GDP
only measures the value of goods and
services produced in the current year.
52. Which of the following transactions would be
included in GDP for 2010?
a. In February 2010, Amanda sells a 1996
Honda Accord to Isabella.
b. In February 2010, Amanda buys a ticket to
visit a zoo in Florida. She visits the zoo in
April 2011.
c. In December 2010, Isabella eats onions that
she harvested from her backyard garden in
October 2010.
d. All of the above are correct.
53. George lived in a home that was newly
constructed in 2005 for which he paid
$200,000. In 2008 he sold the house for
$225,000. Which of the following statements
is correct regarding the sale of the house?
55. Tom and Lilly rented a house for $12,000 last
year. At the start of the year they bought the
house they had been renting directly from the
owner for $250,000. They believe they could
rent it for $12,000 this year, but stay in the
house. How much does Tom and Lilly’s
decision to buy the house change GDP?
a. it reduces GDP by $12,000
b. it does not change GDP
c. it raises GDP by $238,000
d. it raises GDP by $250,000
56. Sally purchases a classic 1964 car she saw for
sale on someone’s lawn. She then purchases
some new parts and spends 120 hours
refurbishing the car which she keeps. Which
of the following is included in GDP?
a. the amount she paid to buy the car
b. the amount she paid to buy new parts
c. the value of her time repairing the car
d. All of the above are included.
57.Tyler and Camille both live in Oklahoma. A newcar dealer in Oklahoma bought a new car from
the manufacturer for $18,000 and sold it to
Tyler for $22,000. Later that year, Tyler sold
the car to Camille for $17,000. By how much
did these transactions contribute to U.S. GDP
for the year?
a. $18,000
b. $22,000
c. $39,000
d. $57,000
58. Consider two cars manufactured by Chevrolet
in 2009. During 2009, Chevrolet sells one of
the two cars to Sean for $24,000. Later in the
same year, Sean sells the car to Kati for
$19,000. The second automobile, with a
market value of $30,000, is unsold at the end of
2010 and it remains in Chevrolet’s inventory.
The transactions just described contribute how
much to GDP for 2009?
a. $24,000
b. $43,000
c. $54,000
d. $73,000
59. Which of the following is included in U.S.
GDP?
a. the value of production by a Singaporean
working in the U.S.
b. the value of production by an American
working in Singapore
c. Both (a) and (b) are correct.
d. Neither (a) nor (b) is correct.
60. Sheri, a U.S. citizen, works only in Germany.
The value she adds to production in Germany is
included
a. in both German GDP and U.S. GDP.
b. in German GDP, but is not included in U.S.
GDP.
c. in U.S. GDP, but is not included in German
GDP.
d. in neither German GDP nor U.S. GDP.
61. Martin, a U.S. citizen, travels to Mexico and
buys a newly manufactured motorcycle made
there. His purchase is included in
a. both Mexican GDP and U.S. GDP.
b. Mexican GDP, but it is not included in U.S.
GDP.
c. U.S. GDP, but it is not included in Mexican
GDP.
d. neither Mexican GDP nor U.S. GDP.
62. An American company operates a fast food
restaurant in Paris, France. Which of the
following statements is accurate?
a. The value of the goods and services
produced by the restaurant is included in
both French GDP and U.S. GDP.
b. The value added by American workers and
equipment in France is included in U.S.
GDP and the value added by French
workers and equipment is added to French
GDP.
c. The value of the goods and services
produced by the restaurant is included in
French 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 French GDP.
63. 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 U.S. GDP.
64. Which of the following items is included 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 that 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.
65. Which of the following is not included in U.S.
GDP?
a. additions of newly produced output to
inventory
b. production of U.S citizens working in
foreign countries.
c. the estimated rental value of owneroccupied housing
d. the value of food purchased from a grocery
store to make meals at home without pay
66.U.S. GDP
a. includes production of foreigners working
in the U.S. and production by U.S. residents
working in foreign countries.
b. includes production of foreigners working
in the U.S. but excludes production by U.S.
residents working in foreign countries.
c. excludes production of foreigners working
in the U.S. but includes production by U.S.
residents working in foreign countries.
d. excludes production of foreigners working
in the U.S. and production by U.S. residents
working in foreign countries.
67. GDP is equal to
a. the market value of all final goods and
services produced within a country in a
given period of time.
b. Y.
c. C + I + G + NX.
d. All of the above are correct.
68. The consumption component of GDP includes
spending on
a. durable goods and nondurable goods, but
not spending on services.
b. durable goods and services, but not
spending on nondurable goods.
c. nondurable goods and services, but not
spending on durable goods.
d. durable goods, nondurable goods, and
services.
69. Consumption consists of spending by
households on goods and services, with the
exception of
a. purchases of intangible services.
b. purchases of durable goods.
c. purchases of new houses.
d. spending on education.
70. Which of the following is included in the
consumption component of GDP?
a. household purchases of appliances.
b. household purchases of medical care.
c. household purchases of food.
d. All of the above are included in the
consumption component of GDP.
71. Which of the following is an example of a
durable good?
a. a refrigerator
b. a quart of motor oil
c. a business suit
d. a can of soup
72. Which of the following is not an example of a
durable good?
a. a refrigerator
b. an automobile
c. a business suit
d. a furnace
73. When economists refer to intangible items, they
are referring to such things as
a. illegal goods, and the value of such items is
included in GDP.
b. illegal goods, and the value of such items is
excluded from GDP.
c. hair styling and dental care, and the value of
such items is included in GDP.
d. hair styling and dental care, and the value of
such items is excluded from GDP.
74. 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.
75. Which of the following is included in the
consumption component of U.S. GDP?
a. purchases of staplers, paper clips, and pens
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.
76. If you buy a burger and fries at your favorite
fast food restaurant,
a. then neither GDP nor consumption will be
affected because you would have eaten at
home had you not bought the meal at the
restaurant.
b. then GDP will be higher, but consumption
spending will be unchanged.
c. then GDP will be unchanged, but
consumption spending will be higher.
d. then both GDP and consumption spending
will be higher.
77.For the purpose of calculating GDP, investment is
spending on
a. stocks, bonds, and other financial assets.
b. real estate and financial assets such as
stocks and bonds.
c. capital equipment, inventories, and
structures, including household purchases of
new housing.
d. capital equipment, inventories, and
structures, excluding household purchases
of new housing.
78. What word do economists use to refer to the
purchase of goods that will be used in the
future to produce more goods and services?
a. capital
b. consumption
c. investment
d. costs
79. 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.
80. Which of the following is included in the
investment component of GDP?
a. spending to build new houses
b. spending to build new factories
c. spending on business equipment such as
welding equipment
d. All of the above are included in the
investment component of GDP.
81. Which of the following is included in the
investment component of GDP?
a. spending on new residential construction
and spending on stocks and bonds
b. spending on new residential construction
but not spending on stocks and bonds
c. spending on stocks and bonds but not
spending on new residential construction
d. neither spending on stocks and bonds nor
spending on new residential construction
82. The Carters’ oldest son attends Big State
University. He and his parents pay all his fees
and tuition. These payments count in GDP as
a. investment.
b. government spending.
c. consumption of services.
d. consumption of durable goods.
83. 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.
84. 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. intermediate goods, and so is not included
in that year’s GDP.
c. investment, since GDP aims to measure the
value of the economy's production that year.
d. spending on durable goods, since the goods
could not be inventoried unless they were
durable.
85. 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.
86. Government purchases include spending on
goods and services by
a. the federal government, but not by state or
local governments.
b. federal and state governments, but not by
local governments.
c. federal, state, and local governments.
d. federal, state, and local governments, as
well as household spending by employees
of those governments.
87. 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.
88. A form of government spending that is not
made in exchange for a currently produced
good or service is called
a. a transfer payment.
b. consumption.
c. investment.
d. None of the above is correct.
89. Transfer payments
a. are payments that flow from government to
households.
b. are not made in exchange for currently
produced goods or services.
c. alter household income, but they do not
reflect the economy’s production.
d. All of the above are correct.
90. Transfer payments are
a. included in GDP because they represent
income to individuals.
b. included in GDP because they 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.
91. 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. You make a payment to get legal documents
showing you purchased a previously owned
home.
d. Your employer automatically transfers $100
each month from your wages to a nontaxable medical spending account.
92. 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.
93. 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 purchases.
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.
94. 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
collects taxes to pay for them.
c. included in GDP since government
expenditures on goods and services 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.
95. 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 Athens, Ohio pays $10,000 to a
tree-trimming firm to trim trees along city
boulevards.
c. The state of Nebraska pays $1,000 to help a
low-income family pay its medical bills.
d. All of the above are correct.
96. Net exports equal
a. exports plus imports.
b. exports minus imports.
c. imports minus exports.
d. GDP minus imports.
97. 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.
98.If a U.S. citizen buys a dress made in Nepal by a
Nepalese firm, then
a. U.S. consumption increases, U.S. net
exports decrease, and U.S. GDP decreases.
b. U.S. consumption increases, U.S. net
exports decrease, and U.S. GDP is
unaffected.
c. U.S. consumption decreases, U.S. net
exports increase, and U.S. GDP increases.
d. U.S. consumption decreases, U.S. net
exports increase, and U.S. GDP is
unaffected.
99. The city of Ann Arbor Michigan buys a police
car manufactured in Germany. In the GDP
accounts this transaction is included in
a. in government expenditures and exports.
b. government expenditures and imports.
c. exports, but not government expenditures.
d. imports, but not government expenditures.
100. A Texas household receives a Social Security
check for $500, which it uses to purchase a
$460 television made in Korea by a Korean
firm and a $40 dinner at a local restaurant. As
a result, U.S. GDP
a. does not change.
b. increases by $40.
c. increases by $540.
d. increases by $1000.
101. In the economy of Ukzten in 2010,
consumption was $1000, exports were $100,
government purchases were $450, imports were
$150, and investment was $350. What was
Ukzten’s GDP in 2010?
a. $1750
b. $1850
c. $1900
d. $2050
102. In the economy of Ukzten in 2010,
consumption was $5000, exports were $100,
government purchases were $900, imports were
$200, and investment was $1000. What was
Ukzten’s GDP in 2010?
a. $6700
b. $6800
c. $7000
d. $7200
103. 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. goods and services must be selling at higher
prices.
c. either the economy must be producing a
larger output of goods and services, or
goods and services must be selling at higher
prices, or both.
d. employment or productivity must be rising.
104. If the prices of all goods and services produced
in the economy rose while the quantity of all
goods and services stayed the same, which
would rise?
a. both real GDP and nominal GDP
b. real GDP but not nominal GDP
c. nominal GDP but not real GDP
d. neither nominal GDP nor real GDP
105. When studying changes in the economy over
time, economists want a measure of the total
quantity of goods and services the economy is
producing that is not affected by changes in the
prices of those goods and services. In other
words, economists want to study
a. nominal GDP.
b. real GDP.
c. the GDP deflator.
d. GNP.
106. Changes in nominal GDP reflect
a. only changes in prices.
b. only changes in the amounts being
produced.
c. both changes in prices and changes in the
amounts being produced.
d. neither changes in prices nor changes in the
amounts being produced.
107. Changes in real GDP reflect
a. only changes in prices.
b. only changes in the amounts being
produced.
c. both changes in prices and changes in the
amounts being produced.
d. neither changes in prices nor changes in the
amounts being produced.
108. Real GDP is the yearly production of final
goods and services valued at
a. current prices.
b. constant prices.
c. expected future prices.
d. the ratio of current prices to constant prices.
109. 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 values production at the cost
of the resources used in the production
process, whereas real GDP values
production at market prices..
110. Which of the following is always measured in
prices from a base-year?
a. both nominal and real GDP
b. nominal but not real GDP
c. real but not nominal GDP
d. neither nominal nor real GDP
111. Which of the following is correct?
a. Nominal GDP is always less than real GDP.
b. Nominal GDP is always greater than real
GDP.
c. Nominal GDP equals real GDP in the base
year.
d. Nominal GDP equals real GDP in all years
but the base year.
112. Which of the following statements about
nominal GDP and real GDP is correct?
a. Nominal GDP is a better gauge of economic
well-being than real GDP.
b. Real GDP is a better gauge of economic
well-being than nominal GDP.
c. Real GDP and nominal GDP are equally
good measures of economic well-being.
d. Neither nominal nor real GDP provide a
measure of economic well-being.
113. When economists talk about growth in the
economy, they measure that growth as the
a. absolute change in nominal GDP from one
period to another.
b. percentage change in nominal GDP from
one period to another.
c. absolute change in real GDP from one
period to another.
d. percentage change in real GDP from one
period to another.
114. 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.
115. Changes in the GDP deflator reflect
a. only changes in prices.
b. only changes in the amounts being
produced.
c. both changes in prices and changes in the
amounts being produced.
d. neither changes in prices nor changes in the
amounts being produced.
116. In the base year, the GDP deflator is always
a. -1.
b. 0.
c. 1.
d. 100.
117. The term economists use to describe a situation
in which the economy’s overall price level is
rising is
a. growth.
b. inflation.
c. recession.
d. expansion.
118. The inflation rate is the
a. absolute change in real GDP from one
period to another.
b. percentage change in real GDP from one
period to another.
c. absolute change in the price level from one
period to another.
d. percentage change in the price level from
one period to another.
119. If nominal GDP doubles and the GDP deflator
doubles, then real GDP
a. remains constant.
b. doubles.
c. triples.
d. quadruples.
120. If real GDP is 5,100 and nominal GDP is 4,900,
then the GDP deflator is
a. 104.1 so prices are higher than in the base
year.
b. 104.1 so prices are lower than in the base
year.
c. 96.1 so prices are higher than in the base
year.
d. 96.1 so prices are lower than in the base
year.
121. If in some year real GDP was $5 trillion and the
GDP deflator was 200, what was nominal
GDP?
a. $2.5 trillion
b. $10 trillion
c. $40 trillion
d. $100 trillion
122. If in some year real GDP was $25 billion and
the GDP deflator was 68, what was nominal
GDP?
a. $2.72 billion
b. $17 billion
c. $36.8 billion
d. $43 billion
123. If in some year nominal GDP was $18 billion
and the GDP deflator was 120, what was real
GDP?
a. $6.7 billion
b. $15 billion
c. $21.6 billion
d. $38 billion
124. If in some year nominal GDP was $20 billion
and the GDP deflator was 50, what was real
GDP ?
a. $2.5 billion
b. $10 billion
c. $40 billion
d. $100 billion
Table 10-4
The table below reports nominal and real GDP
for the U.S. from 1929 to 1932.
Year
Nominal Real GDP
GDP
1929
103.6
977
1930
91.2
892.8
1931
76.5
834.9
1932
58.7
725.8
125. Refer to Table 10-3. What is the GDP deflator
and the inflation rate for 1931?
a. 9.16, -11.5
b. 9.16, -10.3
c. 1091.37, 10.3
d. 1091.37, 11.5
126. Refer to Table 10-3. What is the GDP deflator
and the inflation rate for 1932?
a. 8.09, -11.7
b. 8.09.16, -13.3
c. 1236.46, 11.7
d. 1236.46, 13.3