Microeconomics Test 2

The GDP deflator is equal to A) real GDP divided by nominal GDP. B) nominal GDP divided by real GDP, multiplied by 100. C) nominal GDP divided by real GDP. D) real GDP divided by nominal GDP, multiplied by 100.

B

The GDP deflator is a measure of the A) total production of the economy adjusted for inflation. B) total production of the economy unadjusted for inflation. C) average level of prices of final goods and services in the economy. D) average level of prices of intermediate goods and services in the economy.

C

The relationship between real GDP per capita and labor productivity is as follows. Real GDP per capita equals: A) Real GDP/Workers x Worker/Population B) Population/Workers x Workers/Real GDP C) Real GDP/Workers x Population/Real GDP D) Real GDP x Population/Workers

A

When is nominal GDP higher than real GDP? A) For years after the base year. B) For years before the base year. C) Only during the base year. D) Never.

A

Which of the following are NOT considered part of government purchases? A) welfare benefits. B) teachers' salaries paid by a local government. C) a tank purchased by the federal government. D) a bridge purchased by the state government.

A

Which of the following is a final good? A) The tractor used by a farmer to cultivate his fields. B) The coffee beans used in making Starbucks coffee. C) All of the components used in building a car. D) A good excluded from the value of GDP.

A

Which of the following is subtracted from national income to get to personal income? A) retained earnings. B) personal interest income. C) depreciation. D) personal taxes.

A

Personal income is national income minus A) depreciation. B) net factor income to the rest of the world. C) the amount of national income not going to households. D) imports.

C

Proprietors' income is A) the income of unincorporated businesses. B) the income of all businesses-incorporated and unincorporated. C) the income of sole proprietorship's. D) the income of partnerships.

C

Real GDP will increase A) only if the price level rises. B) only if the price level falls. C) only if the quantity of final goods and services produced rises. D) if either the price level rises or the quantity of final goods and services produced rises.

C

Saving rates tend to ________ during boom times and ________ during recession periods. A) rise; rise. B) rise; fall. C) fall; rise. D) fall; fall.

C

The largest income components of GDP is A) proprietors' income. B) rental income. C) compensation of employees. D) corporate profit.

C

The production of goods and services is best represented by: A) the output of perfectly competitive firms. B) aggregate employment. C) GDP. D) the difference of imports from exports.

C

The year used in counting GDP is called: A) The audit year. B) The financial year. C) The fiscal year. D) The calendar year.

C

Total income in an economy is equal to A) GDP minus net exports. B) income minus taxes. C) the sum of wages, interest, rent and profit. D) firm revenues.

C

Value added by one firm equals A) the firm's cost of intermediate goods. B) the value of sales of the firm. C) the value of sales minus the cost of intermediate goods. D) the profits of the firm.

C

When nominal GDP equals real GDP, the GDP deflator equals: A) zero. B) 1. C) 100. D) the value of inflation.

C

Which of the following are the two main factors affecting the standard of living? A) Saving and investment. B) Depreciation and capital per hour of work. C) Capital accumulation and total factor productivity. D) Wealth and consumption.

C

Which of the following equations correctly measures GDP in an economy? A) GDP = C+I+G+X B) GDP = C+net I+G+(X-M) C) GDP = C+I+G+(X-M) D) GDP = C+G+I-taxes

C

Which of the following is the expression for real GDP per capita? A) Real GDP/Workers B) Workers/Population C) Real GDP/Population D) Stock of capital/Hours of work

C

Which of the following would increase gross private domestic investment in an economy? A) an increase in the shares of Apple stock households own. B) an increase in the number of workers Apple hires. C) an increase in the level of Apple's inventory. D) an increase in the number of highway construction projects the government is funding.

C

Which specific government policies are supported by economists to encourage the production and dissemination of new knowledge? A) Higher rates of saving, improved labor productivity, and increased capital accumulation. B) Better enforcement of the rule of law, less corruption, and reliance in the market system. C) Patents and copyrights, subsidies for education, and competitive grants for basic research. D) Higher capital per hour of work, technological change, and real GDP per capita.

C

________ is/are the payment for the factor of production ________. A) Wages; capital. B) Interest; labor. C) Profit; entrepreneurship. D) Rent; capital.

C

A final good is one that A) is used in the production of another good. B) is a natural resource used to produce a good. C) is purchased as an input in the production process. D) is purchased by its final user.

D

A key discovery in economics concerning economic growth is that: A) Entrepreneurship and research and development are not as important as increasing the amount of inputs in production, such as labor, capital, and natural resources. B) Economic growth requires the accumulation of labor, capital, and natural resources. C) The key to economic growth lies in increasing capital per hour of work. D) Capital accumulation must be accompanied by technological change.

D

If prices are rising on average, then A) real GDP will always be equal to nominal GDP. B) real GDP will be greater than nominal GDP in the years after the base year. C) real GDP will be less than nominal GDP in the years before the base year. D) real GDP will be greater than nominal GDP in the years before the base year.

D

If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years? A) 270%. B) 50%. C) 5%. D) 2.7%.

D

In the early theories of growth, which of the following is a successful strategy to achieve sustained economic growth? A) increase the population and labor force. B) add more capital (machines). C) both a and b above. D) neither a nor b above.

D

In the value added approach to counting GDP, as seen in the firm-level example, the cumulative value of sales is equal to: A) the value of aggregate spending. B) total factor income. C) the cumulative expenses of the firms. D) all of the above.

D

Personal consumption expenditures in billions of dollars are A) $1,000. B) $1,300. C) $1,500. D) $2,000.

D

Real GDP is GDP in a given year A) adjusted only for anticipated inflation. B) adjusted only for unanticipated inflation. C) valued in the prices of that year. D) valued in the prices of the base year.

D

The personal saving rate is A) the difference between total personal spending and personal saving. B) the difference between personal income and disposable personal income. C) the ratio of personal income to personal saving. D) the percentage of disposable personal income that is saved.

D

The total value of all capital goods newly produced in a given period is A) the change in business inventories. B) depreciation. C) net investment. D) gross investment.

D

To measure real GDP, we use the prices of a single year, called: A) the standard year. B) the benchmark year. C) the fiscal year. D) the base year.

D

Which of the following are the main determinants of total factor productivity? A) The stock of knowledge, the level of technology, and the quality of labor. B) The quality of government and social institutions. C) Geography and the quality of the financial system. D) All of the above.

D

An example of an intermediate good would be A) the bread that goes into a sub sandwich that is sold by Quiznos. B) the soda pop sold by Quiznos. C) a sub sandwich sold by Quiznos. D) the potato chips sold by Quiznos.

A

Dilusion occurs when A) Capital remains constant while labor increases, so the capital-labor ratio decreases. B) Labor remains constant while capital increases, so the capital-labor ratio decreases. C) Capital remains constant while labor decreases, so the capital labor ratio decreases. D) Capital remains constant while labor decreases, so the capital labor ratio increases.

A

GDP measures the value of production: A) In the current year only. B) In the period starting on the base year until the current year. C) By adding value of production in the current year to production in all previous years. D) For a predetermined number of years, which may vary according to government.

A

Government spending ________ is included in gross domestic product. A) at federal, state, and local levels of government. B) at the federal level of government only. C) at state and local levels of government only. D) on defense goods only.

A

If real GDP per capita grows at a rate of 5% per year, how long will it take for real GDP per capita to double? A) 14 years. B) 20 years. C) 1400 years. D) 3.5 years.

A

In the catch-up theory of growth, A) poor countries grow fast and should catch up to rich countries. B) rich countries grow fast and should catch up to other rich countries. C) poor countries catch up to other poor countries. D) rich countries catch up while poor countries are left behind.

A

In the circular flow model, the value of total income for an economy ________ the value of total production. A) equals. B) is greater than. C) is less than. D) may be greater than or less than.

A

In the circular flow model, the value of total production for an economy ________ the value of total expenditures on final goods and services. A) equals. B) is greater than. C) is less than. D) may be greater than or less than.

A

Net investment is A) gross investment minus depreciation. B) gross investment plus depreciation. C) depreciation minus gross investment. D) GNP minus final sales.

A

Nominal GDP equals the value of expenditures, measured in: A) current dollars. B) constant dollars. C) constant prices. D) current markets.

A

The circular flow diagram shows that A) the value of total income is equal to the total value of expenditures on final goods and services. B) firms pay households wages, and households receive transfer payments from firms. C) households spend all their income on goods and services. D) GDP will be less than the total value of expenditures on final goods and services in the economy.

A

The largest component of spending in GDP is A) consumption spending. B) investment spending. C) government spending. D) net export spending.

A

The value added by the automobile dealer equals A) $7,000. B) $15,000. C) $18,000. D) $25,000.

A

Which component of consumption spending is the greatest in a typical economy? A) services. B) durable goods. C) non-durable goods. D) new housing.

A

Which of the following is the expression for labor productivity? A) Real GDP/Workers B) Workers/Population C) Real GDP/Population D) Stock of captial/Hours of work

A

Which of the following measures includes the value of output produced by foreign firms within a country? A) Gross Domestic Product. B) Gross National Product. C) Both of the above. D) None of the above.

A

Solow's residual is also known as: A) growth accounting. B) total factor productivity. C) the capital-labor ratio. D) the growth rate of technology.

B

The marginal contribution of a unit of capital is likely to be greater and yield a higher return in a region where: A) capital is abundant. B) capital is scarce. C) capital can be substituted by labor. D) capital is the only input.

B

The total income of households is A) net national product. B) personal income. C) national income. D) production income.

B

Total factor income equals: A) the cost of intermediate goods. B) the sum of rent, wages, interest and profit. C) the total expenses of the firm. D) all of the above.

B

When calculating GDP, exports are _______ and imports are ________. A) added; added. B) added; subtracted. C) subtracted; added. D) subtracted; subtracted.

B

When economists say that capital is subject to diminishing marginal returns, they mean that: A) additional units of capital result in decreasing output. B) additional units of capital result in higher output, but the marginal increases in output are ever decreasing. C) additions of capital to the productive capacity of the economy don't contribute to economic growth. D) the importance of capital in explaining economic growth has been ever diminishing.

B

Which of the following could cause nominal GDP to increase, but real GDP to decrease? A) The price level rises and the quantity of final goods and services produced rises. B) The price level rises and the quantity of final goods and services produced falls. C) The price level falls and the quantity of final goods and services produced rises. D) The price level falls and the quantity of final goods and services produced falls.

B

Which of the following is the best definition of Gross Domestic Product? A) The historic value of all intermediate goods produced by domestic firms in an economy. B) The accounting value of all goods and services produced during a ten-year period in the economy. C) The book value of all final goods produced by both foreign and domestic firms in an economy. D) The market value of all final goods and services produced within an economy during one year.

D

Evidence suggest that: A) there has been catch up among low-income countries, but high-income countries have not been catching up. B) low-income industrial countries have been catching up to higher income industrial countries. C) the developing countries as a group have been catching up to the high-income countries as a group. D) most countries catch up precisely in accordance with the catch up theory of economic growth.

B

If disposable income is $400 billion and personal saving is $8 billion, the personal saving rate is A) 1.5%. B) 2%. C) 5%. D) 12%.

B

If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be A) equal to 100. B) greater than 100. C) less than 100. D) less than 0.

B

If the value of net exports is negative, then A) exports exceed imports. B) imports exceed exports. C) exports equal imports. D) imports are zero.

B

If you wanted to count U.S. output produced by U.S. firms in the U.S. and U.S. firms abroad, you would use: A) Gross Domestic Product. B) Gross National Product. C) Both of the above. D) None of the above.

B

In the catch up line, a country lying at the top left of the line is: A) a country with low initial level of real GDP per capita, growing slowly. B) a country with low initial level of real GDP per capita, growing rapidly. C) a country with a high initial level of real GDP per capita, growing slowly. D) a country with a high initial level of real GDP per capita, growing rapidly.

B

In the circular flow diagram, ________ supply the factors of production, and ________ goods and services. A) households; sell. B) households; buy. C) firms; sell. D) firms; buy.

B

In the growth accounting formula, which of the following are the main determinants of long-run economic growth? A) Private investment and investment in public infrastructure. B) Labor productivity, increases in capital per hour of work, and technological change. C) Steady increases in labor productivity in the short run. D) Capital, labor, and entrepreneurship.

B

An index number is a number with a base of: A) 1. B) 10. C) 100. D) 1,000.

C

Consumption expenditures do NOT include household purchases of A) medical care. B) education. C) new houses. D) durable goods.

C

If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is A) 12.5. B) 80. C) 125. D) 800.

C

If productivity growth is 2% and the growth of capital per hour or work is 2.33%, then the growth rate of technology is closer to: A) 3.22%. B) 4.33%. C) 1.3%. D) 1.77%.

C

If real GDP in 2009 was $12,703 billion, and $13,088 billion in 2010, the growth of real GDP in 2010 equals: A) 0.0294%. B) 1.03%. C) 3%. D) 97%.

C

In the theory of economic growth, the "catch up" line has these variables in its horizontal and vertical axes, respectively: A) GDP per capita in poor countries and GDP per capita in rich countries. B) Initial level of real GDP per capita, and the country's current level of income. C) Initial level of real GDP per capita, and growth in real GDP per capita over time. D) Countries that grow and countries that don't grow.

C

Investment spending includes spending on A) stocks. B) food. C) changes in business inventories. D) transfer payments.

C