Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Nominal GDP is GDP in a given year 1)A) valued in the prices of that year. B) valued in the prices of the base year.C) adjusted for inflation. D) adjusted for anticipated inflation.

2) The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that 2)A) total spending in 2010 was around $14.6 trillion.B) total income in 2010 was around $14.6 trillion.C) the value of output in 2010 was around $14.6 trillion.D) all of the above are true.

Table 8-8

YearGuns

Produced Price of GunsButter

Produced Price of Butter 2005 80 $5 40 $4 2011 90 6 60 10

Consider the following data for Tyrovia, a country that produces only two products: guns and butter.

3) Refer to Table 8-8. Nominal GDP for Tyrovia in 2011 equals 3)A) $1,140. B) $880. C) $690. D) $560.

4) The output of Mexican citizens who work in Texas would be included in the 4)A) gross national product of Mexico.B) gross national product of the United States.C) gross domestic product of Mexico.D) net national product of the United States.

5) Disposable personal income equals personal income 5)A) plus government transfer payments.B) minus personal tax payments plus government transfer payments.C) minus government transfer payments plus personal tax payments.D) minus personal tax payments.

6) In 2010, which component of GDP had a negative value? 6)A) government spending B) net exportsC) consumption D) investment

7) In the United States since the mid-1980s, consumption as a percentage of GDP has 7)A) dropped by more than half. B) remained the same.C) increased. D) slowly decreased.

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8) In May 2009, Ford Motor Company's sales were down 20 percent from a year earlier. These eventswere caused by

8)

A) an economic recession. B) a reduction in advertising.C) declining quality of service. D) an economic expansion.

9) National income equals gross national product minus 9)A) inventories. B) changes in inventories.C) imports. D) depreciation.

10) Which of the following is not directly counted in GDP? 10)A) consumer goods B) government purchasesC) investment expenditures D) intermediate goods

11) Which of the following statements about the underground economy is true? 11)A) Income that is earned but not reported as income for tax purposes is included in the

calculation of GDP.B) Excluding underground economy production from measured GDP causes errors in GDP

growth estimates in the long run.C) Most transactions that occur in the underground economy are included in the calculation of

GDP.D) The underground economy in developing countries amounts to less than 10% of measured

GDP.

12) A country in which a significant fraction of domestic production takes place in foreign-ownedfactories and facilities is most likely a country where

12)

A) GDP is equal to GNP. B) GDP is much larger than GNP.C) GDP is not comparable to GDP. D) GNP is much larger than GDP.

13) Which of the following could cause nominal GDP to decrease, but real GDP to increase? 13)A) The price level rises and the quantity of final goods and services produced falls.B) The price level rises and the quantity of final goods and services produced rises.C) The price level falls and the quantity of final goods and services produced rises.D) The price level falls and the quantity of final goods and services produced falls.

14) Gross domestic product understates the total production of final goods and services because of theomission of

14)

A) inflation. B) the underground economy.C) intermediate goods. D) exports.

15) If real GDP in 2011 (using 2002 prices) is lower than nominal GDP of 2010, then 15)A) prices in 2011 are lower than prices in 2010.B) nominal GDP in 2011 equals nominal GDP in 2010.C) real GDP in 2011 is larger than real GDP in 2010.D) prices in 2011 are higher than prices in 2010.

16) Depreciation is 16)A) the value of the decrease in business inventory stocks.B) the value of worn-out equipment, machinery, and buildings.C) the value of the addition to the capital stock.D) the decline in the value of the stock market, net of dividends.

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17) Investment, as defined by economists, would include the purchase of a 17)A) government bond. B) computer by an accounting firm.C) corporate bond. D) share of stock in ExxonMobil.

18) To calculate GDP by the expenditure method, one must add 18)A) labor, natural resources, entrepreneurship, and capital.B) wages, rents, interest, and profits.C) consumption spending, investment spending, government spending and exports.D) consumption spending, investment spending, government spending and net exports.

19) The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact of thedecline in working hours

19)

A) decreases U.S. GDP and increases the well-being of a typical working person in the U.S.B) increases U.S. GDP and decreases the well-being of a typical working person in the U.S.C) decreases U.S. GDP and decreases the well-being of a typical working person in the U.S.D) increases U.S. GDP and increases the well-being of a typical working person in the U.S.

20) Which of the following is not an example of a transfer payment? 20)A) unemployment insurance paymentsB) social security payments to disabled personsC) social security payments to retireesD) health insurance payments to an army private

21) If the quantity of goods and services produced in the economy decreases, 21)A) it may be possible for nominal GDP to increase.B) nominal GDP would certainly increase.C) it may be possible for real GDP to increase.D) real GDP would certainly increase.

22) If an American firm opens a production facility in India, the total value of the production will beincluded in the

22)

A) gross domestic product of India.B) national income of the United States.C) gross domestic product of the United States.D) national income of India.

23) The purchase by a foreign government of an airplane produced in the United States is included inU.S.

23)

A) net exports. B) investment expenditures.C) government purchases. D) consumption expenditures.

24) Which of the following would be directly counted in GDP in 2012? 24)A) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new

country-style homeB) kitchen cabinets purchased from Home Depot in 2012 to be installed in a house built in 1997C) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house

built in 1950D) none of the above

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25) The Philippines and Vietnam have roughly the same size population. Suppose the GDP of thePhilippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude

25)

A) it is not possible to make a good comparison of the economic well being of a typicalindividual in the 2 countries without additional information.

B) a typical person in Vietnam is 10 times as well off as the typical person in the Philippines.C) a typical person in Vietnam is more than 10 times as well off as the typical person in the

Philippines.D) a typical person in Vietnam is less than 10 times as well off as the typical person in the

Philippines.

26) The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, thecost of goods and services is

26)

A) 105% higher in year 2 than in year 1. B) 5% higher in year 1 than in year 2.C) 105% higher in year 1 than in year 2. D) 5% higher in year 2 than in year 1.

27) If GDP calculations included measurements of pollution and environmental damage, GDP valueswould most likely be

27)

A) unchanged from their values without these measurements.B) greater than their values without these measurements.C) less than their values without these measurements.D) meaningless, since GDP values without these measurements would no longer be of value.

28) During a business cycle expansion, total production ________ and total employment ________. 28)A) increases; decreases B) decreases; decreasesC) increases; increases D) decreases; increases

29) Recent estimates put the size of the underground economy in the United States at ________ ofmeasured GDP.

29)

A) 2 percent B) 8 percent C) 13 percent D) over 50 percent

Scenario 8-1

CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediategoods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoeto a consumer for $1,200.

30) Refer to Scenario 8-1. The value of each canoe in gross domestic product equals 30)A) $1,200. B) $800. C) $500. D) $400.

31) Real GDP is GDP in a given year 31)A) valued in the prices of the base year. B) valued in the prices of that year.C) adjusted only for unanticipated inflation. D) adjusted only for anticipated inflation.

32) Which of the following statements is true? 32)A) GDP accounting rules do not adjust for production that pollutes the economy.B) GDP growth distributes income equally to people in the economy.C) A decrease in the crime rate increases GDP as people will spend more on security.D) Household production is counted in GDP as it amounts to real production.

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Table 8-3

Consumption expenditures $800Investment expenditures 200Government purchases 300Exports 100Imports 200Wages 800

33) Refer to Table 8-3. Consider the data above (in billions of dollars) for an economy: Gross domesticproduct (in billions of dollars) for this economy equals

33)

A) $2,200. B) $1,600. C) $1,400. D) $1,200.

34) In the first half of 2011, automobile sales in the United States were lower than they were in the firsthalf of 2010. The decrease in auto sales impacts GDP because new automobiles are counted as________ when purchased by households and ________ when purchased by businesses.

34)

A) consumption; investment B) investment; consumptionC) durable goods; nondurable goods D) nondurable goods; durable goods

35) Increases in real GDP would overstate the increase in the well-being of a country over time if, overthat time period, the

35)

A) crime rate decreased.B) amount of pollution decreased.C) price level increased.D) average hours worked per week increased.

36) Which of the following headlines would be more closely related to what macroeconomists studythan what microeconomists study?

36)

A) Real GDP grows by 2.3% in the second quarter.B) The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years.C) Airlines raise ticket prices in response to rising fuel costs.D) Avocado prices rise due to a late frost in California.

37) If prices in the economy rise, then 37)A) the purchasing power of a dollar stays constant.B) the purchasing power of a dollar declines.C) the purchasing power of a dollar cannot be determined.D) the purchasing power of a dollar rises.

Table 8-10

YearOrangesProduced

Price ofOranges

ShirtsProduced Price of Shirts

2009 1,800 $0.90 110 $30.00 2011 2,000 1.00 110 35.00

Consider the data shown above for Vicuna, a country that produces only two products: oranges and shirts.

38) Refer to Table 8-10. Real GDP for Vicuna for 2009 using 2011 as the base year equals 38)A) $4,620. B) $5,100. C) $5,650. D) $5,850.

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39) The GDP deflator is a measure of the 39)A) total production of the economy adjusted for inflation.B) total production of the economy unadjusted for inflation.C) average level of prices of intermediate goods and services in the economy.D) average level of prices of final goods and services in the economy.

40) National income equals gross domestic product 40)A) plus sales taxes. B) minus the consumption of fixed capital.C) plus government transfer payments. D) minus government transfer payments.

41) Macroeconomics, as opposed to microeconomics, includes the study of what determines the 41)A) wages paid to employees by Dell.B) price charged for laptop computers by Dell.C) average price levels of goods and services in the economy.D) quantity of Dell employees.

42) Suppose, in 2012, you purchased a house built in 2003. Which of the following would be includedin the gross domestic product for 2012?

42)

A) the value of the services of the real estate agentB) the value of the house in 2012C) the value of the house in 2012 minus depreciationD) the value of the house in 2003

43) In the circular flow model, the value of total income for an economy ________ the value of totalproduction.

43)

A) equals B) is greater thanC) may be greater than or less than D) is less than

44) The GDP deflator is the 44)A) ratio of nominal GDP to real GDP multiplied by 100.B) ratio of real GDP to nominal GDP multiplied by 100.C) difference between nominal GDP and real GDP multiplied by 100.D) difference between real GDP and nominal GDP multiplied by 100.

45) Which of the following is not true about the composition of GDP in 2010? 45)A) Imports are greater than exports.B) The majority of consumer spending is on durable goods.C) Purchases made by state and local governments are greater than purchases made by the

federal government.D) Business fixed investment is the largest component of investment.

46) The purchase of a new house is included in 46)A) consumption expenditures. B) investment expenditures.C) net exports. D) government purchases.

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Table 8-2

Product Quantity PriceShoes 40 $60.00DVDs 100 18.00Tomatoes 2,000 1.00Ketchup 300 4.00

47) Refer to Table 8-2. Suppose that a simple economy produces only four goods and services: shoes,DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchupand the other half of the tomatoes are purchased by households. Using the information in theabove table, nominal GDP for this simple economy equals

47)

A) $7,400. B) $6,400. C) $5,800. D) 2,440 units.

Table 8-12

Year Nominal GDP Real GDP 2009 $13,399 $12,976 2010 14,078 13,254 2011 14,441 13,312

48) Refer to Table 8-12. Consider the following data on nominal GDP and real GDP (values are inbillions of dollars): The GDP deflator for 2010 equals

48)

A) 94.1. B) 105.1. C) 106.2. D) 108.5.

49) The size of the underground economy would tend to increase if the government of a country 49)A) legalized prostitution.B) decreased government regulations on businesses.C) increased income tax rates.D) legalized marijuana.

50) Which of the following is not a durable good? 50)A) clothing B) furniture C) automobile D) refrigerator

51) If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is 51)A) 12.5. B) 80. C) 125. D) 800.

52) Which of the following goods is directly counted in GDP? 52)A) the lettuce that Subway purchases for its sandwichesB) the plastic bags that Subway purchases to wrap its sandwichesC) a 12-inch Subway sandwich purchased by a studentD) the bread that Subway purchases for its sandwiches

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Answer KeyTestname: CHAPTER 8 REVIEW

1) A2) D3) A4) A5) D6) B7) C8) A9) D

10) D11) B12) B13) C14) B15) A16) B17) B18) D19) A20) D21) A22) A23) A24) B25) A26) D27) C28) C29) B30) A31) A32) A33) D34) A35) D36) A37) B38) C39) D40) B41) C42) A43) A44) A45) B46) B47) B48) B49) C50) A

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Answer KeyTestname: CHAPTER 8 REVIEW

51) C52) C

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