Macroeconomics Chapter 7 Questions

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

A

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

A

A nation's gross domestic product (GDP)... A) is the dollar value of all final output produced within the borders of the nation during a specific period of time. B) is the dollar value of all final output produced by its citizens, regardless of where they are living. C) can be found by summing C + In + S + Xn. D) is always some amount less than C + Ig + G + Xn.

A

Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700. Donita sells the dresses for $1,200 to kids attending the prom. The total contribution to GDP of this series of transactions is... A) $1,200. B) $500. C) $2,300. D) $1,100.

A

GDP excludes... A) the market value of unpaid work in the home. B) the production of services. C) the production of nondurable goods. D) positive changes in inventories.

A

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

A

If nominal GDP rises, A) real GDP may either rise or fall. B) we can be certain that the price level has risen. C) real GDP must fall. D) real GDP must also rise.

A

In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are... A) not counted. B) counted as investment spending. C) counted as government spending. D) counted as consumption spending.

A

In national income accounting, government purchases include... A) purchases by federal, state, and local governments. B) purchases by the federal government only. C) government transfer payments. D) purchases of goods for consumption but not public capital goods.

A

Net exports are negative when... A) a nation's imports exceed its exports. B) the economy's stock of capital goods is declining. C) depreciation exceeds domestic investment. D) a nation's exports exceed its imports.

A

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

A

The largest component of national income is... A) compensation of employees. B) rents. C) interest. D) corporate profits.

A

The smallest component of aggregate spending in the United States is... A) net exports. B) government purchases. C) investment. D) consumption.

A

Which of the following best defines disposable income? A) income received by households less personal taxes B) the before-tax income received by households C) all income earned by resource suppliers for their current contributions to production D) the market value of the annual output net of consumption of fixed capital

A

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

A

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

B

If depreciation exceeds gross investment, A) the economy's stock of capital may be either growing or shrinking. B) the economy's stock of capital is shrinking. C) the economy's stock of capital is growing. D) net investment is zero.

B

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock... A) may have either increased or decreased. B) increased by $65 billion. C) increased by $55 billion. D) decreased by $55 billion.

B

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

B

In the second quarter (three-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. We can conclude that... A) nominal income declined by more than personal income. B) the price level rose by more than nominal GDP. C) real wages declined by more than real GDP. D) the price level fell by more than real GDP.

B

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

B

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

B

Real GDP measures... A) current output at current prices. B) current output at base year prices. C) base year output at current prices. D) base year output at current exchange rates.

B

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

B

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

B

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

B

Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being? A) the services of used-car dealers B) the child-care services provided by stay-at-home parents C) the construction of new houses D) government expenditures on military equipment

B

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

B

Which of the following is an intermediate good? A) the purchase of gasoline for a ski trip to Colorado B) the purchase of baseball uniforms by a professional baseball team C) the purchase of a pizza by a college student D) the purchase of jogging shoes by a professor

B

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

B

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

C

In 1933, net private domestic investment was a minus $6.0 billion. This means that... A) gross private domestic investment exceeded depreciation by $6.0 billion. B) the economy was expanding in that year. C) the production of 1933's GDP used up more capital goods than were produced in that year. D) the economy produced no capital goods at all in 1933.

C

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because... A) of changes in trade deficits and surpluses. B) the length of the workweek has declined historically. C) the price level may change over time. D) depreciation may be greater or smaller than gross investment.

C

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

C

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

C

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

C

Suppose the total monetary value of all final goods and services produced in a particular country in 2015 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that... A) GDP in 2015 is $450 billion. B) NDP in 2015 is $450 billion. C) GDP in 2015 is $500 billion. D) inventories in 2015 fell by $50 billion.

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) of $7 million occurred. B) of $25 million occurred. C) of $18 million occurred. D) has not occurred.

C

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

C

The largest component of total expenditures in the United States is... A) net exports. B) government purchases. C) consumption. D) gross investment.

C

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

C

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

C

(Consider This) Capital is a... A) low, whereas gross investment and depreciation are stocks. B) flow, as are gross investment and depreciation. C) stock, as are gross investment and depreciation. D) stock, whereas gross investment and depreciation are flows.

D

In 2012, Trailblazer Bicycle Company produced a mountain bike that was delivered to a retail outlet in November 2012. The bicycle was sold to E.Z. Ryder in March 2013. This bicycle is counted as.. A) consumption in 2012 and as negative investment in 2013. B) negative investment in 2012 and as consumption in 2013. C) negative investment in 2012 and as investment in 2013. D) investment in 2012 and as negative investment in 2013.

D

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

D

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

D

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

D

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production? A) the services of health care workers B) the services of military personnel C) the construction of new buildings D) goods and services produced in the underground economy

D

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

D