Macroeconomics Ch. 6
Katrina pays $40 for a meal at a fancy restaurant. The ingredients used in it probably cost the restaurant $10. The restaurant's value added to GDP by the sale of this meal is a. $30 b. $40 c. $70 d. $40 plus the wages paid the chef and waiters e. $40 plus the profit earned by the restaurant's owner
a. $30
Which of the following transactions is not included in GDP? a. Someone sells drugs in a vacant lot. b. Someone sells drugs in a pharmacy. c. A doctor treats a patient for drug addiction. d. A drug addict spends two months in a drug rehabilitation center. e. The drug addict buys cough medicine
a. Someone sells drugs in a vacant lot.
GDP reflects many things; however, it does not reflect the depletion of natural resources, leisure, or many things we as individuals do for ourselves. a. True b. False
a. True
If a firm's inventory decreases, the GDP counts the net decrease as a reduction in investment. a. True b. False
a. True
If nominal GDP for a particular year is $4 trillion and real GDP for that year is $3 trillion, then the GDP price index is 133. a. True b. False
a. True
If the depreciation of capital stock over a year is subtracted from the investment (I) in that year, the result is the net investment (NI) a. True b. False
a. True
Recent estimates of the size of the underground economy are that it is equivalent of 7.5 percent of GDP. a. True b. False
a. True
The main function of financial markets is to direct consumers' saving to firms that use it for investment spending. a. True b. False
a. True
Transfer payments are an injection into the circular flow. a. True b. False
a. True
Whenever there is inflation, the increase in nominal GDP will overstate growth in the economy. a. True b. False
a. True
Net exports is the value of a. exports minus the value of imports b. imports minus the value of exports c. imports minus tariffs d. exports minus tariffs e. exports plus the value of imports minus depreciation
a. exports minus the value of imports
U.S. imports are a. not added to U.S. GDP because they are produced abroad b. added to U.S. GDP because they are consumed domestically c. added to U.S. GDP because they represent an increase in inventories d. added to U.S. GDP as government purchases because the government decides what goods may be imported e. not added to U.S. GDP because they are intermediate goods
a. not added to U.S. GDP because they are produced abroad
Which of the following would be included in GDP? a. payment of the monthly telephone bill by Mr. Laconic b. the purchase of corporate stock by Steven Jones c. the purchase of a used limousine by Harold Abel d. the value of a pair of mittens your mother knitted for you e. the $300 George saved because he painted his own garage
a. payment of the monthly telephone bill by Mr. Laconic
The final market value of a good is a. the sum of values added at all stages of production b. the value added at one stage of production c. greater than the sum of all the values added at all stages of production d. less than the sum of all the values added at all stages of production e. less than the price for which it is sold
a. the sum of values added at all stages of production
To determine the CPI, you would need to know the a. current market basket at current- and base-year prices b. base-year market basket at current- and base-year prices c. current market basket at current prices and base-year market basket at base-year prices d. current market basket at base-year prices only e. current market basket at current prices only
b. base-year market basket at current- and base-year prices
Real GDP is the same thing as a. total spending on all goods and services b. constant-dollar GDP c. net domestic product d. nominal GDP adjusted for taxes e. domestic income
b. constant-dollar GDP
U.S. exports are a. not included in U.S. GDP because they are consumed abroad b. included in U.S. GDP because they are produced domestically c. included in U.S. GDP because they represent an increase in inventories d. included in U.S. GDP as government purchases because the government decides what goods may be exported e. not included in U.S. GDP because they are not subject to a tariff
b. included in U.S. GDP because they are produced domestically
Which of the following is not included in GDP? a. the value of the restoration of an old painting b. interest payments on the national debt c. the cost of a new vending machine d. government expenditure on a new bridge e. a purchase of legal services by a household
b. interest payments on the national debt
In order to convert nominal GDP to real GDP, we must divide a. real GDP by the price index times 100 b. nominal GDP by the price index times 100 c. the price index by nominal GDP d. the price index by real GDP e. nominal GDP by real GDP
b. nominal GDP by the price index times 100
If the GDP deflator is 100 this year, a. there has been no inflation during the year b. the price level is the same as it was in the base year c. the price level is one hundred times what it was in the base year d. the price level is double what it was in the base year e. the inflation rate has been 100 percent per year since the base year
b. the price level is the same as it was in the base year
Gross Domestic Product includes final goods and services, but not intermediate goods because a. intermediate goods are not part of investment spending b. the value of the intermediate goods is already included in the value of the final goods c. the value of the intermediate goods is already included as inventory investment d. intermediate goods are only produced by government e. intermediate goods are not current production
b. the value of the intermediate goods is already included in the value of the final goods
Which of the following would not be included in GDP? a. you hire someone to fix a leaky faucet b. you clean the house before relatives visit c. the value of housing services if you own your own home d. an unplanned drop in business inventories e. the Federal government buys U.S. soybeans to ship to Russia
b. you clean the house before relatives visit
If the CPI is 160 one year and 175 the next, the annual rate of inflation as measured by the CPI is approximately a. 4.5 percent b. 8.6 percent c. 9.4 percent d. 15 percent e. 175 percent
c. 9.4 percent
Which of the following is true regarding Gross Domestic Product? a. It can only be measured from the flow of total spending. b. It can only be measured from the flow of total income in the economy. c. It can be measured either from total spending or total expenditure. d. It is calculated by computing total spending and total income; the larger of the two figures is counted as GDP. e. It can only be measured from the stock of total wealth.
c. It can be measured either from total spending or total expenditure.
Which of the following would not be included in the calculation of GDP? a. Jim purchases a new automobile. b. Joe pays a plumber $100 to fix a broken pipe. c. Sandy, who is on welfare, receives $100 in food stamps. d. Kurt purchases an airline ticket for $500 just before a big reduction in fares. e. Laurie pays $15 for a haircut.
c. Sandy, who is on welfare, receives $100 in food stamps.
GDP is not a perfect measure of material well-being because it ignores a. production of goods and services by the government b. goods produced in the United States but shipped overseas c. negative externalities d. consumer spending on services e. business spending on equipment
c. negative externalities
Which of the following would not be included in the definition of investment spending as a component of GDP? a. the purchase of robots by Motor Magic Manufacturing b. the construction of a new office building by the Mountain City Real Estate Company c. the purchase of General Motors stock by Donald Trump d. the purchase of a new pizza oven by H and R Pizza e. an unexpected rise in inventories at Randle Manufacturing
c. the purchase of General Motors stock by Donald Trump
Aggregate income is defined as a. the sum of income earned by all laborers in the world economy b. the sum of income earned by all workers in the private sector c. the total income of all individuals who contribute resources to the market production of output d. total income after all income taxes but before paying other payroll taxes e. total income after purchases of necessities
c. the total income of all individuals who contribute resources to the market production of output
Which of the following is not considered a component of government purchases in calculating GDP? a. the cost of a new federal prison b. the cost of building a new road c. unemployment compensation payments d. payments made to plow public roads after a snowstorm e. the cost of police protection
c. unemployment compensation payments
GDP does not include the a. increase in business inventories in the period b. expenditures by government for newly produced goods and services in a given period c. value of all transactions in the economy during a given period d. value of final output during a given period e. household spending on electricity
c. value of all transactions in the economy during a given period
Depreciation refers to a decrease in the value of a durable good caused by a. an increase in the price level b. changes in the depreciation allowance c. wear and tear over time d. changes in tax law e. a decrease in its resale value
c. wear and tear over time
Which of the following correctly states the leakages-injections approach to GDP? a. DI + (NT) = C + I + G + (X - M) b. S + C + T = DI c. S + C + (NT) = I + G + (X - M) d. S + (NT) + M = I + G + X e. S + (NT) = I + G + (X - M)
d. S + (NT) + M = I + G + X
Computation of GDP, denoted by Y, as the sum of its expenditure components is given by the formula a. Y=C+I+G+M b. Y=C+X+G+I c. Y=(C-I)+G+X+M d. Y=C+I+G+(X-M) e. Y=C+I+G-M
d. Y=C+I+G+(X-M)
The largest component of aggregate expenditure is a. government purchases b. transfer payments c. imports d. consumption e. investment
d. consumption
To accurately measure the growth rate of output between two years, one should use a. gross domestic product b. net domestic product c. real net investment d. real gross domestic product e. disposable income
d. real gross domestic product
Which of the following is not a component of aggregate expenditure? a. exports b. investment c. imports d. transfer payments e. government purchases
d. transfer payments
Net domestic product (NDP) is computed by a. GDP minus G b. GDP minus transfers c. GDP minus depreciation investment d. NDP=C+NI+G+(X-M) e. Both (c) and (d) above
e. Both (c) and (d) above
How does net domestic product (NDP) differ from gross domestic product (GDP)? a. GDP includes expenditures for gross products that pollute the environment; NDP does not. b. GDP is gross because it values spending on each good and service in dollar terms; NDP excludes taxes. c. GDP includes exports; NDP omits exports. d. GDP includes all government spending; NDP subtracts taxes. e. GDP includes that part of the capital stock used up in the production process; NDP does not.
e. GDP includes that part of the capital stock used up in the production process; NDP does not.
Which is not a shortcoming of GDP accounting? a. It ignores the underground economy. b. It excludes household production. c. It excludes the value of leisure time. d. It ignores changes in population. e. It has no mechanism for adjusting the figures for inflation.
e. It has no mechanism for adjusting the figures for inflation.
Which of the following would not increase U.S. GDP? a. increased demand in Costa Rica for California-made personal computers b. increased demand in Alabama for California-made personal computers c. increased production of computers in California, but no increase in the number sold d. increased shipments of computers from the U.S. to Canada e. increased shipments of Ghanian cocoa to the United States on Greek vessels
e. increased shipments of Ghanian cocoa to the United States on Greek vessels
The immediate effect on GDP of Ibrahim's purchase of a government bond is a. a decrease in consumption because Ibrahim has less money to spend b. an increase in government spending c. an increase in investment d. a decrease in investment because less money is available to him for further investment e. nonexistent, since no real goods and services have been produced
e. nonexistent, since no real goods and services have been produced
Which of the following would be included in this year's GDP? a. one hundred shares of IBM stock that Tony Hanks bought this May b. the used car Tracey sold to Justin c. George Garcia's purchase of a fishing rod and reel at a garage sale d. the $20 Sharon Johnson gave Dennis O'Brien as a reward for finding her lost wedding ring e. that bucket of Kentucky Fried Chicken you bought this July
e. that bucket of Kentucky Fried Chicken you bought
Which of the following is the best indicator of the performance of the national economy? a. the federal government budget deficit b. the stock of capital goods (machinery) in the nation c. the size of the nation's stock of money d. the balance of trade with other nations e. the flow of new goods and services produced in the nation
e. the flow of new goods and services produced in the nation
Suppose that 1986 is our base year (price index equals 100) and that the 2000 price index was 200. If nominal GDP was $6.2 trillion in 2000, what was real GDP that year (measured in 1986 dollars)? a. $3.1 trillion b. $6.2 trillion c. $12.4 trillion d. $18.6 trillion e. $24.3 trillion
a. $3.1 trillion
Exports are an injection into the circular flow. a. True b. False
a. True
If currently illegal drugs are made legal, GDP will increase. a. True b. False
a. True
If price of bread went up from $3.00 in 2005 to $3.60 in 2009, then the average annual inflation rate for bread over the 4-year period 2005-2009 was a. 60% b. 5% c. 25% d. 4% e. 30%
b. 5%
If the CPI rises in one year from 220 to 230, the inflation rate is 10 percent. a. True b. False
b. False
Taxes are an injection into the circular flow. a. True b. False
b. False
If the CPI this year is 162 and last year it was 170, what do we know about the inflation rate this year? a. It is positive. b. It is negative. c. It has decreased since last year. d. It has increased since last year. e. It is the same as last year.
b. It is negative.
Which of the following would not be an expenditure on a final good or service? a. a farmer's purchase of a pound of hamburger b. a medical clinic's purchase of flu vaccine c. a factory's purchase of a spot welding machine d. the purchase of a cup of coffee at a restaurant e. a college student's purchase of a textbook for a medieval history class
b. a medical clinic's purchase of flu vaccine
Suppose a loaf of bread sold for $3.00 in 2008. The price of bread then increases to $3.60 in 2009. The price index for bread in 2009, using 2008 as the base, is a. ($3.60/$3.00) = 1.20 b. ($3.00/$3.60) × 100 = 83.33 c. ($3.60/$3.00) × 100 = 120 d. ($3.00/$3.00) × 100 = 100 e. ($0.60/$3.00) × 100 = 20
c. ($3.60/$3.00) × 100 = 120
The price index in the base year always equals a. 0 b. 1 c. 100 d. infinity e. 0.01
c. 100
If the price index for 2008 was 100 and the price index for 2009 was 109, then how much did prices change between 2008 and 2009? a. 1 percent increase b. 8 percent increase c. 9 percent increase d. 12 percent increase e. 12 percent decrease
c. 9 percent increase
Which of the following would not be included in GDP as government purchases? a. The local government repairs the roads. b. The state government funds a state university. c. The federal government sends out Social Security checks. d. The federal government pays a lawyer as a public defender. e. The state government buys computer time.
c. The federal government sends out Social Security checks.
Gross Domestic Product equals the a. total output of all goods and services produced by resources located in the U.S. b. market value of all goods and services produced by resources located in the U.S. c. market value of all final goods and services produced by resources located in the U.S. d. value added to the economy by intermediate goods and services minus original cost e. value of total sales of goods and services produced in the U.S.
c. market value of all final goods and services produced by resources located in the U.S.
If the real GDP equals $100 billion this year and nominal GDP is $200 billion, the price level since the base year has increased a. $200 billion b. 50 percent c. $100 billion d. 100 percent e. 200 percent
d. 100 percent
Use the following data to calculate GDP: consumption = $5,000; gross investment = $800; government purchases = $700; exports = $30; imports = $60; transfer payments = $340. a. GDP = $7,400 b. GDP = $7,740 c. GDP = $3,140 d. GDP = $6,470 e. GDP cannot be determined due to insufficient data
d. GDP = $6,470
If real GDP in a particular year is $5,000 trillion and nominal GDP in that same year is $4,000 trillion, then the a. CPI is 125 b. economic activity has decreased 20 percent c. GDP price index is 125 d. GDP price index is 80 e. economy has grown by 20 percent
d. GDP price index is 80
Rhonda sells a house she has owned for 15 years. To make it more marketable, she buys carpeting and has it professionally installed, and buys wallpaper that her daughter hangs. Which items would be included in this year's GDP? a. the sale price of the house b. the sale price of the house, carpeting, and wallpaper and the installation fee for the carpet c. the sale price of the house, carpeting, and wallpaper, the installation fee for the carpet, and the opportunity cost of Rhonda's daughter's time d. the sale price of the house, carpeting, and wallpaper, the installation fee for the carpet, and the opportunity cost of Rhonda's time e. the sale price of the wallpaper and carpeting and the installation fee for the carpet
e. the sale price of the wallpaper and carpeting and the installation fee for the carpet
When a refrigerator worth $1,000 is produced and sold, its contribution to the GDP is measured on the expenditure side by its sale price and on the income side by a. the wages earned by the workers in the firm that produced it b. the wages earned by the workers and the profits earned by the owners of the firm that produced it c. wages, interest, and rent paid by the firm's owners to those who contributed to making the refrigerator d. wages, interest, and rent paid by the firm's owners to those who contributed to making the refrigerator, less taxes e. wages, interest, and rent paid by the firm's owners, plus the profit they kept for themselves
e. wages, interest, and rent paid by the firm's owners, plus the profit they kept for themselves