Chapter #7 Review Questions [Macroeconomics]

Which of the following transactions would be included in GDP? A) Peter buys a newly constructed house. B) Olivia receives a tax refund of $500. C) Nick buys $5,000 worth of stock in Microsoft. D) Mary buys a used book for $5 at a garage sale.

A

A large underground economy results in an A) understated GDP. B) understated GDP price index. C) overstated GDP. D) overstated GDP price index.

A

If intermediate goods and services were included in GDP, A) the GDP would be overstated. B) the GDP would be understated. C) nominal GDP would exceed real GDP. D) the GDP would then have to be deflated for changes in the price level.

A

The GDP tends to A)understate economic welfare because it does not take into account increases in leisure. B)understate economic welfare because it includes expenditures undertaken to offset or correct pollution. C)overstate economic welfare because it does not include certain nonmarket activities such as the productive work of housewives. D)overstate economic welfare because it does not reflect improvements in product quality.

A

Transfer payments are A) excluded when calculating GDP because they do not reflect current production. B) included when calculating GDP because they increase the spending of recipients. C) excluded when calculating GDP because they only reflect inflation. D)included when calculating GDP because they are a category of investment spending.

A

Value added refers to A)the difference between the value of a firm's output and the value of the inputs it has purchased from others. B)the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output. C) any increase in GDP that has been adjusted for adverse environmental effects. D) the excess of gross investment over net investment.

A

Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is A) $40. B) $30. C) $70. D) $110.

B

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Other things equal, the information suggests that the production capacity in economy A) A is growing less rapidly than that in economy B. B) C is growing more rapidly than that in economy B. C) B is growing more rapidly than that in either economy A or C. D) A is growing more rapidly than that in either economy B or C

B

GDP excludes A) positive changes in inventories. B) the market value of unpaid work in the home. C) the production of nondurable goods. The table contains data for a hypothetical single-product economy. Real GDP in year D) the production of services.

B

Government purchases include government spending on A) government consumption goods only. B) government consumption goods and public capital goods. C) public capital goods only. D) government consumption goods, public capital goods, and transfer payments.

B

Net exports are A) imports less exports. B) exports less imports. C) exports plus imports. D) that portion of consumption and investment goods sent to other countries.

B

Nominal GDP is adjusted for price changes through the use of A) exchange rates. B) the GDP price index. C) the Producer Price Index (PPI). D) the Consumer Price Index (CPI).

B

Real GDP refers to A)GDP data that embody changes in the price level but not changes in physical output. B) GDP data that have been adjusted for changes in the price level. C)the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. D) GDP data that do not reflect changes in both physical output and the price level.

B

Suppose that inventories were $40 billion in 2015 and $50 billion in 2016. In 2016, national income accountants would A)add $45 billion (= $90/2) to other elements of investment in calculating total investment. B) add $10 billion to other elements of investment in calculating total investment. C)subtract $10 billion from other elements of investment in calculating total investment. D)subtract $45 billion (= $90/2) from other elements of investment in calculating total investment.

B

Which of the following is not economic investment? A) construction of a suburban housing project B) the purchase of 100 shares of AT&T by a retired business executive C) the piling up of inventories on a grocer's shelf D) the purchase of a new drill press by the Ajax Manufacturing Company

B

A price index is A)the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period. B) a ratio of real GDP to nominal GDP. C) a comparison of the current price of a market basket to a fixed point of reference. D) a comparison of real GDP in one period relative to another.

C

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Based on this information, positive net investment is occurring in A) economy A only. B) economy B only. C) economy C only. D) economies A and B only.

C

Final goods and services refers to A) goods and services whose value has been adjusted for changes in the price level. B) the excess of U.S. exports over U.S. imports. C) goods and services purchased by ultimate users, rather than for resale or further processing. D) goods and services that are unsold and therefore added to inventories.

C

Nominal GDP is A)the amount of production that occurs when the economy is operating at full employment. B) the sum of all monetary transactions that occur in the economy in a year. C)the sum of all monetary transactions involving final goods and services that occur in the economy in a year. D) money GDP adjusted for inflation.

C

The National Income and Product Accounts (NIPA) help economists and policymakers to A) measure what is occurring in each specific labor market. B) determine which firms are likely to succeed or fail. C)follow the long-run course of the economy to determine whether it has grown or stagnated. D) accomplish all of these.

C

The ZZZ Corporation issued $25 million in new common stock in 2016. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment A) has not occurred. B) of $7 million occurred. C) of $18 million occurred. D) of $25 million occurred.

C

The agency responsible for compiling the National Income Product Accounts for the U.S. economy is the A) Council of Economic Advisers. B) National Bureau of Economic Research. C) Bureau of Economic Analysis. D) Bureau of Labor Statistics.

C

The fact that nominal GDP has risen faster than real GDP A) suggests that the base year of the GDP price index has been shifted. B) tells us nothing about what has happened to the price level. C) suggests that the general price level has risen. D) suggests that the general price level has fallen.

C

The system that measures the economy's overall performance is formally known as A) business cycle measurement. B) final output and income statistics. C) national income accounting. D) GDP assessment.

C

Tom Atoe grows fruits and vegetables for home consumption. This activity is A) included in GDP because it reflects production. B) excluded from GDP in order to avoid double counting. C) productive but is excluded from GDP because no market transaction occurs. D) excluded from GDP because an intermediate good is involved.

C

What is the difference between national income and personal income? A)National income includes income earned both in the United States and abroad, while personal income only includes that income earned within the borders of the United States. B)National income represents before-tax income, while personal income measures how much is available for spending after all taxes have been subtracted. C)National income represents income earned by American-owned resources, while personal income measures received income, whether earned or unearned. D) personal taxes

C

When an economy's production capacity is expanding, A) net exports is always a positive amount. B) DI exceeds PI. C) gross domestic investment exceeds depreciation. D) nominal GDP, but not necessarily real GDP, is rising.

C

Which of the following do national income accountants consider to be investment? 1 A) the purchase of corporate bonds B) the purchase of an automobile for private, nonbusiness use C) the purchase of a new house D) the purchase of gold coins

C

A nation's gross domestic product (GDP) A) can be found by summing C + S + G + Xn. B) is always some amount less than its NDP. C)is the dollar value of the total output produced by its citizens, regardless of where they are living. D) can be found by summing C + Ig + G + Xn

D

GDP can be calculated by summing A) consumption, investment, government purchases, exports, and imports. B) consumption, investment, wages, and rents. C) consumption, investment, government purchases, and imports. D) consumption, investment, government purchases, and net exports.

D

GDP is the A)monetary value of all goods and services, final and intermediate, produced in a specific year. B) monetary value of all economic resources used in producing a year's output. C) national income minus all nonincome charges against output. D)monetary value of all final goods and services produced within the borders of a nation in a particular year.

D

If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that A) the economy's production capacity is expanding. B) nominal GDP is rising but real GDP is declining. C) the economy is importing more than it exports. D) net investment is negative.

D

In national income accounting, the consumption category of expenditures includes purchases of A) changes in business inventories. B) consumer durable goods and consumer nondurable goods but not services. C) both new and used consumer goods. D) consumer durable goods, consumer nondurable goods, and services

D

In national income accounting, the consumption category of expenditures includes purchases of A) consumer durable and nondurable goods but not services. B) consumer nondurable goods and services but not consumer durable goods. C) both new and used consumer goods. D) automobiles for personal use but not houses.

D

National income accountants can avoid multiple counting by A) including transfer payments in their calculations. B) counting both intermediate and final goods. C) only counting intermediate goods. D) only counting final goods.

D

National income measures A)the amount of wage, rent, interest, and profits income actually received by households. B) the after-tax income of resource suppliers. C)nominal GDP after it has been inflated or deflated for changes in the value of the dollar. D)the total of all sources of private income plus government revenue from taxes on production and imports.

D

The amount of after-tax income received by households is measured by A) personal income. B) discretionary income. C) national income. D) disposable income.

D

The concept of net domestic investment refers to A)the difference between the market value and book value of outstanding capital stock. B) gross domestic investment less net exports. C)the amount of machinery and equipment used up in producing the GDP in a specific year. D)total investment less the amount of investment goods used up in producing the year's output.

D

Which of the following is a final good or service? A) Chevrolet windows purchased by a General Motors assembly plant B) fertilizer purchased by a farm supplier C) diesel fuel bought for a delivery truck D) a haircut purchased by a father for his 12-year-old son

D