Econ 101 - Chapter 2

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B

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Calculate Nominal and Real GDP, percent increase of GDP and CPI

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GDP

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GDP price deflator

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b

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Jim's Nursery produces and sells $1100 worth of flowers. Jim uses no intermediate inputs. He pays his workers $700 in wages, pays $100 in taxes and pays $200 in interest on a loan. Jim's profit is A) $100. B) $200. C) $400. D) $800

A) $100.

Acme Steel Co. produces 1000 tons of steel. Steel sells for $30 per ton. Acme pays wages of $10,000. Acme buys $15,000 worth of coal, which is needed to produce the steel. Acme pays $2,000 in taxes. Acme's contribution to GDP is A) $15,000. B) $20,000. C) $30,000. D) $45,000

A) $15,000.

We know the following about a tie manufacturer: tie sales $1,300, cotton purchases $750, wages $400, interest on business loans $100, and profits $50. What is the contribution to GDP of this producer using the income approach? A) $550 B) $500 C) $450 D) $400

A) $550

We learn the following about a ski resort: ticket sales $100M, snow making expenses $70M, wages $20M, interest on business loans $5M, and profits $5M. What is the contribution to GDP using the product approach? A) $70M B) $80M C) $95M D) $100M

A) $70M

The income-expenditure identity is best paraphrased as A) all spending generates income. B) all profits are used for investment spending. C) on average, consumers cannot save. D) on average, government can spend no more than what it collects in income taxes

A) all spending generates income.

GDP and GNP may differ A) because some income generated by domestic production may be received as income by foreign residents. B) because some intermediate good inputs are imported. C) because some workers are illegal aliens. D) whenever tariff rates become excessively high

A) because some income generated by domestic production may be received as income by foreign residents.

All of the following present significant problems with measuring real GDP and the price level except A) changes in absolute price levels. B) changes in relative price levels. C) changes in the quality of goods over time. D) the introduction of new goods.

A) changes in absolute price levels.

Approaches to measuring GDP include all of the following except the A) cost approach. B) product approach. C) income approach. D) expenditure approach

A) cost approach.

A price index can be computed by A) dividing a nominal variable by its real counterpart. B) dividing a real variable by its real counterpart. C) subtracting the nominal variable from its real counterpart. D) subtracting the real variable from its nominal counterpart

A) dividing a nominal variable by its real counterpart.

The components of investment expenditures include all of the following except A) financial investment. B) residential investment. C) non-residential investment. D) inventory investment

A) financial investment.

When there is rapid inflation, A) growth in nominal GDP exceeds growth in real GDP. B) growth in real GDP exceeds growth in nominal GDP. C) growth in real GDP and nominal GDP are roughly equal. D) there can never be any growth in nominal GDP

A) growth in nominal GDP exceeds growth in real GDP.

If real GDP grows faster than nominal GDP, it is a sign that A) inflation is negative. B) there is no inflation C) there is inflation, but little. D) there is galloping inflation

A) inflation is negative.

GDP may inaccurately measure the value of aggregate output because it may not properly account for A) production in the underground economy and the true value of government production. B) the true value of government production and the proper value of purchases and sales of used goods. C) the proper value of purchases and sales of used goods and depreciation of consumer durables. D) the depreciation of consumer durables and production in the underground economy

A) production in the underground economy and the true value of government production.

An example of a flow would be the A) rate at which water goes down the drain. B) amount of water in a bathtub. C) percentage of pollutants in tap water. D) pressure of water in a pipe.

A) rate at which water goes down the drain.

Discouraged workers are A) those who have given up looking for work, even though they would like to be employed. B) those who quit working because they are dissatisfied with their jobs. C) those unmotivated workers who bring down a country's productivity. D) those who would like to find a second job to supplement their income, but have not yet found one.

A) those who have given up looking for work, even though they would like to be employed.

To study a macroeconomy, we need to use real data because A) we want to get rid of the illusion of price effects. B) we want to concentrate on the production of real goods, as opposed to services. C) it is then easier to take logarithms. D) it is the only way to reconcile the three approaches to measuring GDP

A) we want to get rid of the illusion of price effects.

If a particular measure of real GDP consistently underestimates growth in real GDP, then the rate of inflation as measured by the GDP deflator A) will consistently be overestimated. B) will consistently be underestimated. C) will be overestimated and underestimated equally often. D) cannot be calculate

A) will consistently be overestimated.

Suppose that the government collects $3 million in taxes, pays $2 million in social security benefits, pays $0.5 million in interest on the national debt, and pays workers $1 million to sit at their desks and work as little as possible. The government's contribution to GDP is A) $0. B) $1 million. C) $3 million. D) $3.5 million

B) $1 million.

Gelato ice cream maker shows the following on its balance sheet: revenue $200M, wages $100M, milk expenses $50M, strawberry purchases $5M, and taxes $25M. What is Gelato's contribution to GDP using the income approach? A) $100M B) $125M C) $145M D) $200M

B) $125M

Assume that in an economy with 200M inhabitants, 90M work, 4M are looking for a job, 3M receive unemployment insurance compensation, and 6M receive unemployment insurance compensation and are looking for a job. What is the unemployment rate? A) 13% B) 10% C) 6.5% D) 5%

B) 10%

Assume that in an economy with 200M inhabitants, 90M work, 4M are looking for a job, 3M receive unemployment insurance compensation, and 6M receive unemployment insurance compensation and are looking for a job. What is the participation rate? A) 51.5% B) 50% C) 45% D) 38.5%

B) 50%

Construction of chain-weighted real GDP employs the technique of a A) Hilfindahl index. B) Fisher index. C) Gini index. D) Body mass index

B) Fisher index.

A furniture maker used to buy its wood, but has now bought the lumber company. How does this impact GDP? A) It reduces it. B) It does not change. C) It increases it. D) We cannot tell.

B) It does not change.

The principal printed source for reporting the U.S. National Income and Product Accounts is called the A) Monthly Labor Review. B) Survey of Current Business. C) Current Population Survey. D) GDP Statistical Review

B) Survey of Current Business.

Private disposable income is equal to A) Y + TR + INT - T. B) Y + NFP +TR + INT - T. C) Y - TR - INT + T. D) Y + CA - G.

B) Y + NFP +TR + INT - T.

In the United States, real GDP is currently calculated using A) a variable-weighting scheme. B) a chain-weighting scheme. C) a fixed-weighting scheme. D) an autoregressive scheme.

B) a chain-weighting scheme.

To compute a monthly consumer price index, we need A) data about consumption habits in every month. B) data about item prices every month. C) fixed exchange rates. D) the GDP or GNP deflator

B) data about item prices every month.

The income components of GDP include all of the following except A) wage income. B) foreign income. C) net interest income. D) after-tax profits

B) foreign income.

Additions to the nation's capital stock are brought about through A) the current account surplus. B) investment. C) investment and the current account surplus. D) investment and the government budget surplus

B) investment.

The base year matters for the computation of real GDP because A) otherwise we cannot compute growth rates. B) it determines the relative weights of goods in GDP. C) it allows an international comparison of GDP. D) it establishes a target for macroeconomic policy

B) it determines the relative weights of goods in GDP.

The product approach to measuring GDP values government production at A) market prices. B) its cost of production. C) its estimated value to society. D) the total amount of taxes it collects

B) its cost of production.

Investment spending is A) less volatile than consumption spending. B) much more volatile than consumption spending. C) equally as volatile as government spending. D) equally as volatile as GDP

B) much more volatile than consumption spending.

Recently, consumption has comprised approximately A) one-half of GDP. B) two-thirds of GDP. C) three-fourths of GDP. D) four-fifths of GDP

B) two-thirds of GDP.

Jim's Nursery produces and sells $1100 worth of flowers. Jim uses no intermediate inputs. He pays his workers $700 in wages, pays $100 in taxes and pays $200 in interest on a loan. Jim's contribution to GDP is A) $900. B) $1000. C) $1100. D) $1800

C) $1100.

You are a baker. You paid $150K in wages, $50K for dough, $20K for power, $5K in interest for a business loan, $25K in taxes, and made a profit of $10K. How much did you contribution to GDP using the product approach? A) $80K B) $85K C) $190K D) $260K

C) $190K

Pamela's bakery produces 500 loaves of bread in a given year. Pamela pays $100 for flour and yeast, pays $600 in wages, pays $50 in interest on an existing loan, and pays $100 in taxes to the government. One of Pamela's bread slicing machines, which cost $75 each, wears out over the course of the year and must be scrapped. Pamela's profit for the year equals $75. Pamela's bread, therefore, sells for A) $0.50 per loaf. B) $1.00 per loaf. C) $2.00 per loaf. D) cannot tell, insufficient information

C) $2.00 per loaf.

Here is what we know about a household: wages $25,000, unemployment insurance benefits $3,000, dividend income $4,000, income tax $5,000. What is the contribution to GDP of this household following the expenditure approach? A) $24,000 B) $25,000 C) $28,000 D) $29,000

C) $28,000

Acme Steel Co. produces 1000 tons of steel. Steel sells for $30 per ton. Acme pays wages of $10,000. Acme buys $15,000 worth of coal, which is needed to produce the steel. Acme pays $2,000 in taxes. Acme's profit is A) $0. B) $2,000. C) $3,000. D) $15,000

C) $3,000.

Suppose we have the following information about a car manufacturer: car sales $1000M, steal purchases $600M, wages $300M, interest on business loans $50M, and profits $50M. What is its contribution to GDP using the product approach? A) $1000M B) $600M C) $400M D) $350M

C) $400M

Suppose that GDP is equal to 1000, national saving is equal to 200, the current account deficit is equal to 100, and the government budget deficit is equal to 50. Private savings must equal A) 150. B) 200. C) 250. D) 300.

C) 250.

When we try to measure real GDP and the price level, if we underestimate the growth in real GDP, we will A) always underestimate the rate of inflation. B) sometimes underestimate the rate of inflation. C) always overestimate the rate of inflation. D) sometimes overestimate the rate of inflation

C) always overestimate the rate of inflation.

In the period 1950-2000, the inflation rate in the U.S. CPI has A) varied very little. B) been less variable than the inflation rate in the GDP price deflator. C) been more variable than the inflation rate in the GDP price deflator. D) been substantially equal to the inflation rate in the GDP price deflator every year

C) been more variable than the inflation rate in the GDP price deflator.

Suppose that the BMW plant in Spartanburg, SC, produces $10 million worth of vehicles in a given year. Of this total amount, $1 million in profits are returned to the owners of the company in Germany. The $1 million in profits A) contributes to both U.S. GDP and U.S. GNP. B) contributes to U.S. GNP, but not U.S. GDP. C) contributes to U.S. GDP, but not U.S. GNP. D) contributes to neither U.S. GDP, nor U.S. GNP

C) contributes to U.S. GDP, but not U.S. GNP.

Additions to inventory are A) not counted as an expenditure in GDP accounting. B) counted as an intermediate input. C) counted as a component of investment spending. D) subtracted from sales revenue in calculating profit income

C) counted as a component of investment spending.

Problems with interpreting the unemployment rate as a measure of labor market tightness include A) biases in the CPI and dissatisfied workers. B) dissatisfied workers and discouraged workers. C) discouraged workers and variations in how intensively the unemployed search for work. D) variations in how intensively the unemployed search for work and biases in the CPI.

C) discouraged workers and variations in how intensively the unemployed search for work.

The components of consumption expenditures include all of the following except A) nondurable goods consumption. B) durable goods consumption. C) government consumption. D) services.

C) government consumption.

The GDP deflator is a broader measure of the price level than the CPI because A) it covers sales tax. B) it covers rents. C) it covers investment. D) it factors out fluctuations in seasonal items

C) it covers investment.

In recent years, which of the following has comprised less than 5% of GDP? A) imports B) exports C) net exports D) none of the above

C) net exports

The three approaches to measuring GDP are called the A) accounting approach, the income approach, and the expenditure approach. B) product approach, the cost approach, and the expenditure approach. C) product approach, the income approach, and the expenditure approach. D) accounting approach, the statistical approach, and the income approach

C) product approach, the income approach, and the expenditure approach.

To calculate value added, we need to subtract A) only the cost of domestically-produced intermediate inputs. B) only the cost of foreign-produced intermediate inputs. C) the cost of domestic- and foreign-produced intermediate inputs. D) total imports

C) the cost of domestic- and foreign-produced intermediate inputs.

Even when measured accurately, GDP may be a misleading measure of economic welfare because it cannot account for A) the value of government spending and how efficiently we produce goods and services. B) how efficiently we produce goods and services and the value of non-market production. C) the value of non-market production and the consequences of an unequal distribution of income. D) the consequences of an unequal distribution of income and the value of government spending

C) the value of non-market production and the consequences of an unequal distribution of income.

The value of a producer's output minus the value of all intermediate goods used in the production of that output is called the producer's A) net output. B) accounting profit. C) value added. D) profit margin

C) value added.

Suppose that in a given country in a given year, GNP equals $2,000, investment expenditures equal $200, government expenditures equal $150, and the current account surplus equals $50. Consumption expenditures therefore equal A) $1,000. B) $1,200. C) $1,400. D) $1,600

D) $1,600

In Dakistan, 3M people work, 0.5M are unemployed and get UI benefits, 0.1M are unemployed without UI benefits and 3M have no intention to work. The unemployment rate is (to the nearest %) A) 7%. B) 9%. C) 14%. D) 17%.

D) 17%.

Suppose that GDP is equal to 1000, national saving is equal to 200, the current account deficit is equal to 100, and the government budget deficit is equal to 50. Investment must equal A) 150. B) 200. C) 250. D) 300

D) 300

Real GDP values current production at A) current year prices. B) the best estimate of next year's prices. C) the average of price levels over the entire sample period. D) base year prices

D) base year prices

Value added is equal to the value of a firm's production minus A) all of its costs of production. B) labor costs. C) investment expenditures. D) intermediate goods used in production

D) intermediate goods used in production

Inventory investment consists of A) construction expenditures, raw materials, and inventories of finished goods. B) goods in process, raw materials, and purchases of office machinery. C) raw materials, goods in process, and construction expenditures. D) inventories of finished goods, goods in process, and raw materials

D) inventories of finished goods, goods in process, and raw materials

The expenditure components of GDP include all of the following except A) consumption. B) investment. C) net exports. D) net factor payments

D) net factor payments

Suppose that g1 represents the ratio of year 2 GDP to year 1 GDP, both valued at year 1 prices. Suppose that g2 represents the ratio of year 2 GDP to year 1 GDP, both valued at year 2 prices. The ratio of chain-weighted year 2 GDP to chain-weighted year 1 GDP equals A) (g1 + g2)/2 . B) (g1 × g2)/2 . C) (sqrt(g1) +sqrt(g2) )/2 . D) sqrt(g1xg2)

D) sqrt(g1xg2)

An example of a stock would be A) real GDP. B) savings. C) investment. D) the amount of money in circulation

D) the amount of money in circulation

The primary recommendation coming from a study by Jones and Riddell suggests dividing the population into four distinct groups (instead of the current three). These groups are A) the employed, those waiting to be recalled from layoff, the unemployed, and those not in the work force. B) the employed combined with those who wish to be employed, students, retirees, and those who are not included in any of the other three groups. C) the employed, those waiting to be recalled from layoff, the discouraged workers, and those not in the work force. D) the employed, the unemployed, the discouraged workers, and those not in the work force.

D) the employed, the unemployed, the discouraged workers, and those not in the work force.

The expenditure components of GDP include all of the following except A) consumption. B) investment. C) government spending on goods and services. D) the sum of government spending on goods and services, transfer payments, and interest on the national debt

D) the sum of government spending on goods and services, transfer payments, and interest on the national debt

In recent U.S. history A) GDP has been much higher than GNP. B) GNP has been much higher than GDP. C) the difference between GNP and GDP has been very volatile. D) there has been little practical difference between GNP and GDP

D) there has been little practical difference between GNP and GDP

Government expenditures includes all of the following except A) federal defense spending. B) federal nondefense spending. C) state and local spending. D) transfers

D) transfers

Who among the following is considered to be in the labor force? A) retirees B) full-time students C) discouraged workers D) unemployed workers

D) unemployed workers

The participation rate equals

Labor Force / Total Working Age Population

The unemployment rate equals

Number Employed/Labor Force

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b

b

b


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