chapter 7 econ

Increases in import spending Select one: a. raise GDP. b. lower GDP. c. are always balanced off in GDP by changes in exports. d. may raise or lower GDP.

lower GDP.

Disposable income is Select one: a. equal to GDP minus the capital consumption allowance. b. that portion of personal income that can be used for consumption and saving. c. the sum of all payments to suppliers of the factors of production. d. the amount of income that individuals actually receive. e. another term for personal income.

that portion of personal income that can be used for consumption and saving.

Refer to Exhibit 7-1. What is the value of disposable income? Select one: a. $3,618 b. $4,795 c. $3,727 d. $4,207 e. $4,017

$4,207

Gross Domestic Product is computed by using Select one: a. base-year prices. b. wholesale prices. c. previous-year prices. d. current-year prices.

current-year prices.

Real GDP is GDP Select one: a. in current-year prices. b. in base-year prices. c. in GDP-prices. d. in that year's prices.

in base-year prices.

Depreciation refers to a decrease in the value of a good caused by Select one: a. an increase in the price level. b. a decrease in the price level. c. "wear and tear" of capital goods over time. d. the depreciation allowance. e. a decrease in purchasing power.

"wear and tear" of capital goods over time.

Look at the following data: consumption = $915 billion; exports = $40 billion; imports = $33 billion; inventory investment = $123 billion; fixed investment = $500 billion; government purchases = $300 billion. GDP is equal to Select one: a. $1,632 billion. b. $1,466 billion. c. $1,911 billion. d. $1,845 billion. e. none of the above

$1,845 billion.

An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2, and $3, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP? Select one: a. $180 b. $200 c. $140 d. $240 e. none of the above

$140

Suppose there are five goods in the economy, A-E. The current-year quantity of each is 10A, 20B, 30C, 40D, and 50E. Current-year prices are $1 for each unit of A, $2 for each unit of B, $3 for each unit of C, $4 for each unit of D, and $5 for each unit of E. Base-year prices are $1 for each good. Real GDP in the current year equals _________ and GDP equals _________. Select one: a. $550; $150 b. $130; $530 c. $150; $550 d. $530; $130 e. none of the above

$150; $550

Look at the following data: personal income = $4,900 billion; personal taxes = $900 billion; transfer payments = $980 billion. What is disposable income? Select one: a. $3,200 billion b. $4,000 billion c. $4,980 billion d. $1,880 billion e. There is not enough information to answer the question.

$4,000 billion

Refer to Exhibit 7-1. What is the value of personal income? Select one: a. $4,252 b. $4,388 c. $5,072 d. $3,996 e. $4,207

$4,252

Refer to Exhibit 7-1. What is the value of national income?

$4,542

Refer to Exhibit 7-1. What is the value of net domestic product?

$5,767

Refer to Exhibit 7-1. What is the value of gross domestic product?

$6,062

If Real GDP was $8,742 billion in year 2 and it had been $8,509 billion in year 1, what was the approximate economic growth rate during this time period? Select one: a. 9.73 percent b. 2.67 percent c. 3.58 percent d. 2.74 percent

2.74 percent

he typical U.S. business cycle, measured peak to peak, lasts approximately Select one: a. 4 to 5 years. b. 8 to 10 years. c. 1 to 3 years. d. 6 months to 2 years.

4 to 5 years.

Refer to Exhibit 7-5. What was Country Z's economic growth rate between year 1 and year 2? Select one:

5.3%

Why do economists prefer to compare Real GDP figures for various years instead of GDP figures? Select one: a. Because when GDP in one year is higher than in another year, there is no way to tell why it is higher. Is it because output is higher, prices are higher, etc.? This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because output is higher. b. Because when GDP in one year is higher than in another year, there is no way of knowing if the quality of goods produced is higher in one year than the other. This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because the quality of the goods produced is higher. c. Actually the question is incorrect. Economists prefer to compare GDP figures instead of Real GDP figures. d. Because Real GDP is easier to compute than GDP. e. Because when GDP in one year is higher than in another year, there is no way to tell if the quality of life is higher in one year than the other. This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because the quality of life is higher.

Because when GDP in one year is higher than in another year, there is no way to tell why it is higher. Is it because output is higher, prices are higher, etc.? This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because output is higher.

Which of the following statements is false? Select one: a. Domestic income is the total income earned by the people and businesses within a country's borders. b. National income is the total income earned by U.S. citizens and businesses, no matter where they reside or are located. c. Corporate profits is the largest component of national income. d. National income = compensation of employees + proprietors' income + corporate profits + rental income + net interest.

Corporate profits is the largest component of national income.

Sophia just bought shares of stock in IBM for $20,000 and paid a $300 commission to her broker. How did this impact GDP? Select one: a. It had no impact on GDP. b. GDP increased by $300. c. GDP increased by $20,000. d. GDP increased by $19,700. e. GDP increased by $20,300.

GDP increased by $300.

Which of the following statements is true? Select one: a. Indirect business taxes are a component of national income because when added to the other components of national income, the sum must equal GDP. b. Indirect business taxes must be subtracted from national income to yield a figure equal to GDP. c. Indirect business taxes are a part of national income because they are considered a payment to a factor of production. d. Indirect business taxes are not part of national income because they are not considered a payment to a factor of production.

Indirect business taxes are not part of national income because they are not considered a payment to a factor of production.

If GDP in year 1 is the same dollar amount as the GDP in year 2, does it follow that Real GDP in year 1 is the same as Real GDP in year 2? Select one: a. Yes, since prices must necessarily be the same in the two years. b. No, since equal GDP figures do not account for population. c. No, since prices may not be the same in the two years. d. Yes, since equal GDP figures do account for a change in the quality of goods produced in the two years. e. none of the above

No, since prices may not be the same in the two years.

"Economic growth" has occurred if the Select one: a. inflation rate between this year and last year is zero or less. b. GDP this year exceeds the Real GDP this year. c. unemployment rate this year is above the natural rate of unemployment. d. Real GDP this year exceeds the Real GDP of last year.

Real GDP this year exceeds the Real GDP of last year.

In the business cycle, what is the difference between the recovery phase and the expansion phase? Select one: a. The expansion phase occurs in the rising portion of the business cycle, while the recovery phase occurs in the falling portion of the business cycle. b. The expansion phase occurs in the falling portion of the business cycle, while the recovery phase occurs in the rising portion of the business cycle. c. The expansion phase is the period when Real GDP increases beyond the recovery phase. d. The expansion phase must always preceed the recovery phase.

The expansion phase is the period when Real GDP increases beyond the recovery phase.

Which of the following statements is false? Select one: a. The market value of all nonmarket goods is omitted from GDP. b. The sale of used goods is omitted from GDP. c. The market value of a person mowing his or her own lawn is omitted from GDP. d. If a good is produced but not sold, it is included in GDP.

The market value of all nonmarket goods is omitted from GDP.

7-03. Which of the following illustrates double counting? Select one: a. The total market value of the steel used to produce a car and the total market value of the car itself are summed. b. The total market value of tennis rackets and the total market value of tennis balls are summed. c. The total market value of picture frames and the total market value of camera film are summed. d. The total market value of eyeglasses and the total market value of carpet are summed. e. b and c

The total market value of the steel used to produce a car and the total market value of the car itself are summed.

Is it possible for a country with a relatively large GDP to have a relatively small per-capita GDP? Select one: a. Yes, since the country with a relatively large GDP could have a relatively large population. b. No, since countries with a relatively large GDP (such as the United States and Japan) also have relatively high per-capita GDP. c. Yes, but only under the condition that the country "produces" relatively more "bads" than other countries. d. Yes, since government transfer payments may be exorbitantly high in the country with the relatively high GDP. e. There is not enough information to answer this question.

Yes, since the country with a relatively large GDP could have a relatively large population.

Leisure is Select one: a. a good that is not counted in GDP. b. a good that is counted in GDP. c. neither a good nor a bad, and it is not counted in GDP. d. a bad as far as economists are concerned, because it is not tangible.

a good that is not counted in GDP.

Which of the following statements is true? Select one: a. Another name for capital consumption allowance is depreciation. b. When there are two consecutive quarterly declines in Real GDP the economy is said to be in recession (based on the standard definition). c. The expansion of a business cycle refers to increases in Real GDP beyond the recovery. d. a and b e. a, b, and c

a, b, and c

Which of the following statements is true? Select one: a. National income accountants consider the portion of corporate profits that is used to pay corporate profits taxes to be income earned by households but not received. b. Net domestic product (NDP) is a smaller dollar amount than GDP. c. Personal income includes transfer payments. d. b and c e. a, b, and c

a, b, and c

Net domestic product is the total value of Select one: a. all final goods and services produced within a country's borders in a year. b. only intermediate goods produced within a country's borders in a year. c. all final goods and services produced within a country's borders in a year minus gross private domestic investment. d. only intermediate goods produced within a country's borders in a year plus gross private domestic investment. e. all final goods and services produced within a country's borders in a year minus capital consumption allowance.

all final goods and services produced within a country's borders in a year minus capital consumption allowance.

When computing national income, which of the following is included in compensation of employees? Select one: a. wages and salaries paid to employees b. employers' contributions to Social Security and employee benefit plans c. the monetary value of fringe benefits, tips, and paid vacations d. all of the above

all of the above

Which of the following is a macroeconomic measurement used to gauge macroeconomic activity? Select one: a. Net domestic product b. National income c. Personal income d. Disposable income e. all of the above

all of the above

Which of the following statements is true? Select one: a. The main items that comprise indirect business taxes include excise taxes, income taxes, and property taxes. b. Capital consumption allowance is also known as depreciation. c. A sales tax is an example of an indirect business tax. d. b and c e. a, b, and c

b and c

To macroeconomists, investment is mainly the purchases of goods and services Select one: a. by businesses. b. to hold as wealth, such as gold coins or art. c. to hold as wealth, such as stocks and bonds. d. in the period previous to the period being studied.

by businesses.

National income equals Select one: a. wages + salaries + corporate profits + net income. b. compensation of employees + proprietors' income + corporate profits + rental income + net interest. c. compensation of employees + proprietors' income + indirect business taxes + rental income + net interest. d. the monetary value of fringe benefits + tips + wages + profits + salaries. e. none of the above

compensation of employees + proprietors' income + corporate profits + rental income + net interest.

The largest component of national income in the United States is Select one: a. rental income. b. proprietors' income. c. compensation of employees. d. corporate profits. e. net interest.

compensation of employees.

In the United States, the largest expenditure component in GDP is Select one: a. gross private domestic investment. b. government purchases of goods and services. c. consumption expenditures. d. net exports. e. none of the above

consumption expenditures.

The expenditure approach to measuring GDP sums Select one: a. consumption, investment, government purchases, and net exports. b. sales, revenues, income, and wages. c. profits, compensation of employees, consumption, and investment. d. net exports, consumption, wages, and salaries. e. consumption, interest, net exports, and federal government purchases

consumption, investment, government purchases, and net exports.

Refer to Exhibit 7-5. During year 3, Country Z experienced economic _____________ and _________________. Select one: a. decline; deflation (falling price level) b. growth; inflation (rising price level) c. growth; deflation (falling price level) d. decline; inflation (rising price level)

decline; inflation (rising price level)

To derive net domestic product (NDP) from gross domestic product (GDP), we must subtract Select one: a. depreciation or capital consumption allowance from GDP. b. gross private domestic investment from GDP. c. imports from GDP. d. inventory investment from GDP. e. the statistical discrepancy from GDP.

depreciation or capital consumption allowance from GDP.

7-02. In the definition of GDP, the words "total market value" refer to total Select one: a. dollar value at base prices. b. dollar value at current prices. c. subjective value. d. objective value. e. a and d

dollar value at current prices.

The two ways of measuring Gross Domestic Product are the __________ approach and the __________ approach. Select one: a. expenditure; income b. expenditure; national product c. national product; income d. real gross domestic product; nominal gross domestic product e. net national product; personal income

expenditure; income

Net exports equals Select one: a. exports divided by imports. b. the sum of exports and imports. c. exports minus imports. d. exports during the year. e. none of the above

exports minus imports.

Gross Domestic Product (GDP) is the total market value of all Select one: a. final goods and services produced annually within a country's borders. b. final and intermediate goods and services produced annually within a country's borders. c. intermediate goods and services produced annually within a country's borders. d. final goods and services produced every month within a country's borders.

final goods and services produced annually within a country's borders.

Business firms make which of the following two types of investment? Select one: a. foreign investment and domestic investment b. fixed investment and capital investment c. investment in stocks and investment in bonds d. investment in new capital goods and investment in used capital goods to replace "worn-out" capital goods e. fixed investment and inventory investment

fixed investment and inventory investment

An example of income received but not earned is Select one: a. government transfer payments. b. undistributed profits. c. compensation of employees. d. rental income. e. a and c

government transfer payments.

In the United States, which is the largest dollar figure? Select one: a. national income b. gross domestic product c. net domestic product d. personal income

gross domestic product

What is the proper sequence of the phases of a business cycle? Select one: a. peak, contraction, trough, expansion, recovery b. peak, contraction, recovery, trough, expansion c. peak, contraction, trough, recovery, expansion d. contraction, peak, trough, recovery, expansion e. recovery, trough, peak, expansion, contraction

peak, contraction, trough, recovery, expansion

Investment is equal to all purchases of newly produced capital goods Select one: a. minus changes in business inventories. b. plus fixed investment minus inventory investment. c. plus changes in business inventories. d. plus changes in business inventories plus purchases of new residential housing.

plus changes in business inventories plus purchases of new residential housing.

GDP can rise as a result of a rise in __________________, and Real GDP can rise as a result of a rise in _______________________. Select one: a. prices or output; prices only. b. prices only; prices or output. c. prices or output; output only. d. prices or output; prices or output.

prices or output; output only.

Macroeconomists define consumption as Select one: a. purchases by the business sector. b. wearing away and breakdown of capital goods. c. the difference between imports and exports. d. purchases by the household sector.

purchases by the household sector.

A business cycle refers to the Select one: a. continued expansion in Real GDP. b. recurrent swings (up and down) in Real GDP. c. continued decline in Real GDP. d. period when Real GDP grows at unusually high rates. e. none of the above

recurrent swings (up and down) in Real GDP.

Personal income is Select one: a. equal to GDP. b. that portion of national income that can be used for consumption and saving. c. the sum of all payments to suppliers of the factors of production. d. the amount of income that individuals actually receive. e. another term for disposable income.

the amount of income that individuals actually receive.

Which of the following would not be included in the measurement of GDP? Select one: a. a bill from a car mechanic b. wages of a card dealer working in a Las Vegas casino c. commissions of a stockbroker d. the increased value of shares of stock e. c and d

the increased value of shares of stock

Which of the following is counted in GDP? Select one: a. the trading of 100 shares of Microsoft stock b. the services of a real estate broker c. government transfer payments d. the sale of a used car e. none of the above

the services of a real estate broker

Underground activities are not counted in GDP because Select one: a. some underground activities are illegal and the government doesn't want to place, for instance, drug dealers on an equal footing with small businesses. b. there are no written records of underground activities. c. of a decision made in the 1930s and no one has gotten around to changing it yet. d. although it is possible to accurately measure underground activities, it is harder than measuring above-ground activities because with the latter, one doesn't have to dig as deep.

there are no written records of underground activities.

The best reason economists take only final goods and services into account when calculating GDP is that Select one: a. this is the way things have always been done. b. they want to avoid the problem of final counting. c. they want to avoid the problem of double counting. d. this is the only way things can be done.

they want to avoid the problem of double counting.

The standard definition of "recession" is Select one: a. a period of a positive frictional unemployment rate. b. two consecutive quarters of falling Real GDP. c. the lowest point in a business cycle. d. a period of negative inflation.

two consecutive quarters of falling Real GDP.

An example of income earned but not received is Select one: a. welfare payments. b. Social Security payments. c. undistributed profits. d. a and b e. a, b, and c

undistributed profits.