Macroeconomics : Chapter 8 Practice Quizzes

In the equation that sums up the information on the components of GDP, Y = C + I + G + NX, which component has the largest dollar value?

C

To calculate personal income from national income, which of the following must be done by the BEA?

add government transfer payments

Which of the following is true about the consumption component of U.S. GDP last year?

Consumer spending on services was greater than the sum of spending on durable and nondurable goods.

When accounting for exports and imports in GDP, which of the following is correct?

Exports are added to the other categories of expenditures. Imports are added to the other categories of expenditures. Both exports and imports are added to the other categories of expenditures. Both exports and imports are subtracted from the other categories of expenditures. Answer: A

Which of the following is not true of GDP?

GDP includes both intermediate and final goods

If we add up the value of every final good and service produced in the economy, we must get a total that is exactly equal to the value of

all of the income in the economy.

Household production and the underground economy

are important but unaccounted for in the Commerce Department's estimate of GDP.

Which of the following is counted in the gross private domestic investment category used by the Bureau of Economic Analysis when measuring GDP?

business fixed investment residential investment changes in business inventories all of the above Answer: D

How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP?

by adding the value in dollar terms of all of the final goods and services produced domestically

When a consumer purchases a new computer, how is that purchase counted in GDP?

by counting only the value of the computer and ignoring the value of the components

Which of the following would be considered a factor of production?

capital natural resources entrepreneurship all of the above Answer: D

Largest component of GDP

consumption

Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics?

medical care education a haircut a new house Answer: D

Disposable personal income is equal to

national income minus corporate retained earnings plus government transfer payments minus personal tax payments

In an economy with rising prices, compared to the base year,

nominal GDP is larger than real GDP in years after the base year.

Using the year 2000 as the base year, and assuming that prices during the 1990s were lower on average than prices in 2000, we can conclude that

nominal GDP was lower than real GDP in the 1990s.

Which of the following is counted in this year's GDP?

only this year's production of goods and services

If the GDP deflator has a value of 105.0, then

prices have risen 5% since the base year.

Over time, prices may change relative to each other. To allow for this, the Bureau of Economic Analysis calculates

real GDP and the price deflator using chain weights.

Total income in the economy equals the sum of wages, interest, _________ and ________.

rent; profit

The total national income actually received by a country's residents is

smaller than the value of GDP.

How would most economists respond to the following comment: Not counting household production or production in the underground economy is a serious shortcoming of GDP.

Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to see how the economy is performing over short periods of time.

Suppose that the base year is 2000 and we want to calculate real GDP for 2009. Which procedure would you use?

Multiply the quantities in 2009 by the prices in 2000, and add up the results.

In calculating GDP, which levels of government spending are included in government purchases?

spending by federal, state, and local governments

Gross domestic product is best defined as

the market value of all final goods and services produced in a country during a period of time

Real GDP is

the production of goods and services valued at base year prices

Which of the following is included in the economist's definition of investment?

the purchase of new machines, factories, or houses the purchase of a share of stock the purchase of a rare coin or deposit in a savings account all of the above Answer: A

Which of the following is a macroeconomic study?

the study of how fast prices in general are increasing

An important conclusion to draw from the circular-flow diagram is that

we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income.

Which of the following is true about the government purchases component of U.S. GDP last year?

The entire amount was composed of federal government purchases because state and local governments are not included. Most of the spending on education and law enforcement occurs at the federal level. Purchases by the federal government are greater than purchases by state and local governments. Purchases by state and local governments are greater than purchases by the federal government. Answer: D

Which of the following are not considered of "final goods," as used in the definition of GDP?

intermediate goods

In many developing countries, the informal sector is ________ because taxes are ________ and government regulations are ___________.

large; high; extensive

What happens if we measure GDP by adding up the value of every good and service produced in the economy?

GDP is overestimated because of double counting.

When a significant fraction of domestic production is done by firms owned by foreigners, a country's difference between GDP and GNP is as follows:

GDP will be much larger than GNP.

If Americans still worked 60 hour weeks, as they did in 1890,

GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.

In the circular-flow diagram, who supplies factors of production in exchange for income?

Households

Which of the following is not a shortcoming of GDP as a measure of welfare?

It does not include the value of leisure. It is not adjusted for the effects of pollution caused by the production of goods and services. It only counts final goods and services and not intermediate goods. It is not adjusted for crime and other social problems Answer: C

Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?

Real GDP

Which of the following do we subtract from GNP to obtain NNP?

depreciation

As the value of a country's GDP increases, the country is likely to

devote more resources to pollution reduction.

The best measure of the income households actually have available to spend is

disposable personal income

Growth in the economy is almost always measured as

growth in real GDP

Fill in the blank. The flow of funds from ___________ into the financial system makes it possible for government and firms to borrow.

households