Chapter 7 Macro Exam Practice

Which of the following items is the best example of a final good?

Apple juice sold in a grocery store.

__________________ is the largest spending component of GDP usually accounting for around _________ percent of U.S. GDP.

Consumption, 70

Suppose that there is an increase in imports from the rest of the world to Country ABC. What impact would this have on the GDP of Country ABC, ceteris paribus?

Country ABC's GDP would fall.

In 2016, Leah purchased a house built in the 1950s for $500,000 and paid realtors a commission of $30,000 for the services provided to make the transaction take place. What was the impact of this transaction on GDP in 2016?

GDP increased by $30,000 Some exchanges that take place in an economy are not included in GDP. Among the trades not included are certain nonmarket goods and services, underground activities, sales of used goods, purely financial transactions, government transfer payments, and leisure. The purchase of a house that was built in a previous year would not be included in GDP. However, the services provided by the realtors involved in the sale of the house would be included in GDP.

Net domestic product is equal to

GDP minus the capital consumption allowance

A simple circular flow diagram shows that ______________ equals __________________.

GDP, total income

Which of the following statements is false?

Investment is the largest expenditure component of GDP

Country X has a higher GDP than country Y. What does this mean?

It means the total market value of all final goods and services produced annually in country X is greater than the total market value of all final

Which of the following is an example of a nonmarket good or service?

Laura cuts her friend Michelle's hair in exchange for Michelle giving Laura a facial.

Suppose you have data on durable goods, services, inventory investment, government purchases, exports, and imports. Can you compute GDP?

No, you would also need to have data on nondurable goods and fixed investment to compute GDP.

Suppose you have data on national income, undistributed corporate profits, transfer payments, and corporate profits taxes. Can you compute disposable income?

No, you would also need to have data on social insurance taxes and personal taxes to compute disposable income.

The standard definition of "recession" defines a recession as occurring when

Real GDP has declined for two consecutive quarters.

Economic growth has occurred if

Real GDP in one year exceeds the Real GDP in the previous year.

Which of the following is an example of income received but not earned?

Social Security benefits

Which of the following would definitely not be included in GDP?

The exchange of stocks and bonds for money.

Which of the following illustrates double counting?

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

Retained earnings is part of which component of National Income?

a. corporate profits

Based on the data from a hypothetical country presented in the following table (shown in billions), what was the country's economic growth rate in 2012?

2.36 percent GDP is measured in current year prices and Real GDP is measured in base year prices. Real GDP is thus a better measure for tracking economic growth. The economic growth rate is the percentage change in Real GDP from one period to another. In this problem the calculation would be as follows: [(16,961.7 - 14,616.4)/14,616.4] x 100.

Exhibit 7-1 Year GDP ($ billion) Real GDP ($ billion) 2014 $1,203 $987 2015 $1,350 $1,055 Refer to Exhibit 7-1. What was the economic growth rate for this economy in 2015?

6.9% [($1,055 - 987)/987] x 100 = 6.9%.

Investment is equal to

c. fixed investment plus inventory investment. d. the purchases of new capital goods plus the purchases of new residential housing plus inventory investment. e. c and d

The capital consumption allowance refers to

capital goods being used up in production through natural wear, obsolescence, and accidental destruction.

National income is the sum of

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

The three components that make up corporate profits are

dividends, corporate profits taxes, and undistributed corporate profits.

Gross Domestic Product (GDP) is the total market value of

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

Real GDP is GDP that has been stated

in base year prices.

Refer to the exhibit. GDP in 2015 is equal to

none of the above

According to economists, leisure is ______________ in GDP calculations because it is_______________.

not counted, too difficult to measure

Real GDP rises when _________________ rises, while GDP rises when ___________________ rises, and so ____________ is the better gauge of an economy's health.

output, output or the price level, Real GDP

The expenditure approach to measuring GDP sums

personal income, national income, and the capital consumption allowance.

National income equals the compensation of employees plus

proprietors' income, corporate profits, rental income, and net interest.

Consumption is equal to the sum of spending on durable goods, nondurable goods, and ______ while investment is equal to fixed investment plus ___________________.

services, inventory investment

The term disposable income refers to

the portion of income that can be used for consumption or saving.

Which of the following is omitted from GDP?

the trading of stocks and bonds

Suppose buyers don't buy as many units of output as firms have produced. The unsold units find their way into ____________________ and as a result investment rises and so does GDP.

unplanned inventory investment

Which of the following would definitely not be counted in the measurement of GDP?

value of the services of a person who cooks his or her own food

The expansion phase of the business cycle refers to that part of the business cycle

when Real GDP rises above the previous peak of the business cycle

If Real GDP was $12,454 billion in year 2 and it had been $12,323 billion in year 1, then what was the approximate economic growth rate during this period?

1.06 percent

An economy with $480 million in exports and (- $100) million in net exports has imports equal to

$580 million Exports are the total foreign spending on domestic goods, while imports are the total domestic spending on foreign goods. Net exports are the difference between a country's exports and its imports. In order for net exports to be a negative amount, it must be true that imports are greater than exports.

Look at the following data (stated in billions of dollars): consumption = $600; exports = $90; imports = $95; inventory investment = $110; fixed investment = $150; government purchases = $300. GDP is equal to __________________ billion.

$1,155 GDP is measured in current year prices and can fall because the price level has fallen, output has fallen, or both. Real GDP is measured in base year prices and can only fall when output falls. Real GDP is thus a better measure for tracking changes in the business cycle. A recession occurs in the contraction phase of the business cycle and the standard definition of "recession" states that it occurs when Real GDP has declined for two consecutive quarters.

Exhibit 7-2 Goods 1997Quantities 1997 Prices 2017 Quantities 2017 Prices fruitv 100 $1.00 120 $1.50 meat 40 $5.00 60 $6.80 clothing 65 $20.00 75 $24.00 Refer to Exhibit 7-2. Suppose that the very small economy represented in this exhibit produces and consumes only three goods: fruit, meat, and clothing. Assuming that the base year is 1997, Real GDP in 2017 equals

$1,920. Real GDP in 2017 is the value of the entire output produced annually within a country's borders using base year prices. According to the data provided in the exhibit, the country's GDP in 2017 would equal: (120 x $1.00) + (60 x $5.00) + (75 x $20.00) = $1,920.

Suppose that investment is $12.5 billion, purchases of new residential housing is $2.4 billion, and purchases of newly produced capital goods is $8.5 billion. What is the value of inventory investment?

$1.6 billion In this problem, fixed investment equals ($2.4 billion + $8.5 billion) = $10.9 billion, thus inventory investment equals ($12.5 billion - $10.9 billion) = $1.6 billion.

Exhibit 7-2 Goods 1997 Quantities 1997 Prices 2017 Quantities 2017 Prices fruit 100 $1.00 120 $1.50 meat 40 $5.00 60 $6.80 clothing 65 $20.00 75 $24.00 Refer to Exhibit 7-2. Suppose that the very small economy represented in this exhibit produces and consumes only three goods: fruit, meat, and clothing. GDP in 2017 equals

$2,388. Correct. GDP in 2017 is the value of the entire output produced annually within a country's borders using 2017 prices. According to the data provided in the exhibit, the country's GDP in 2017 would equal: (120 x $1.50) + (60 x $6.80) + (75 x $24.00) = $2,388.

Given the following data, what is the value of durable goods for this economy? Consumption = $500 billion Nondurable goods = $100 billion Services = $200 billion New residential construction = $50 billion

$200 billion Consumption is the sum of spending on durable goods, nondurable goods, and services. Consumption represents the spending done by households. In this problem, the values of consumption, nondurable goods, and services are given, which means that the value of durable goods can be computed as follows: Consumption - nondurable goods - services.

There are three goods, A - C, in the economy. The current-year quantity of each is 10A, 20B, and 50C. Current-year prices are $1 for each unit of A, $3 for each unit of B, and $4 for each unit of C. Base-year prices are $1 for each unit of A, $2 for each unit of B, and $3 for each unit of C. GDP in the current year equals _______________ and Real GDP in the current year equals ____________.

$200, $150

Refer to the exhibit. All dollar amounts are in billions. Using the expenditure approach to measuring GDP, what does GDP equal?

$4,319 billion

If a country has GDP of $80,000,000,000 and its population is 2,000,000, then its per-capita GDP is

$40,000 The term "per-capita" means "for each person." Per-capita GDP is computed by dividing a country's GDP by its population. In this problem the calculation would be made as follows: $80,000,000,000 divided by 2,000,000 = $40,000.

If there is economic growth in a country, then it follows that Real GDP is as large as it ever has been in the country. Is this true or false?

False, because Real GDP could have been larger at an earlier time, then declined, then increased (which would be evidence of economic growth), but still be less than it was than Real GDP at an earlier time.

Net domestic product is the total market value of

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

Which of the following would not cause a decrease in a country's GDP, ceteris paribus?

an increase in inventory investment

Real GDP is computed using

base-year prices.