chapter 6 review

16. Which of these statements about GDP is NOT true? A. GDP is the output produced by workers and resources owned by residents of a nation. B. Money received for services is included in GDP. C. GDP is calculated using market values. D. GDP does not include all goods, just final ones.

A. GDP is the output produced by workers and resources owned by residents of a nation. FEEDBACK: It is Gross National Product and not Gross Domestic Product that measures the output produced by workers and resources owned by residents of a nation. Services are included in GDP, GDP is indeed calculated using market values, and only final goods are counted.

10. Which of the following is the largest component of GDP? A. consumer spending B. investment spending C. government spending D. net exports

A. consumer spending FEEDBACK: Spending by households and firms on consumable goods and services far exceeds spending by the government or spending by firms on tools, plants, and equipment.

1. Gross Domestic Product (GDP) is the total market value of all A. final goods and services produced annually within a country's borders. B. final and intermediate goods and services produced annually within a country's borders. C. intermediate goods and services produced annually within a country's borders. D. final goods and services produced every month within a country's borders.

A. final goods and services produced annually within a country's borders. FEEDBACK: Gross domestic product (GDP) is the market value of all final goods and services produced within a nation during a specific period of time--typically a year. GDP is the primary measure of a nation's output: it is the sum of all the output from coffee shops, doctors' offices, software firms, fast-food restaurants, and all other firms that produce goods and services within a nation's borders.

14. Which of the following would be included in U.S. GDP? A. the sale of a song written by a Californian to a customer in Kansas B. the sale of bolts to Ford that are used on the wheels of the vehicles they sell C. the sale of 1,000 shares of IBM stock D. the sale of an antique car at an auction

A. the sale of a song written by a Californian to a customer in Kansas FEEDBACK: A song that is sold is considered a sale of a good. It is included in the U.S. GDP. Bolts to be used in wheels would be considered an intermediate good, so they are not included in GDP, since the value of the wheel assemblies will be included in the final market value of the vehicle. The sale of financial assets is not included in GDP either. Finally, the sale of a used good such as an antique car is not counted, because the good's value was already counted when the good was sold as new.

3. Suppose that Country A has the levels of consumption, investment, government spending, imports, and exports shown in the table. Calculate country A's GDP. Consumption $140 Investment $50 Government Spending $30 Imports $20 Exports $10 A. $190 B. $210 C. $220 D. $250

B. $210 FEEDBACK: Gross Domestic Product is the sum of consumption, investment, government spending, and net exports (exports minus imports). In this problem, that means we sum $140 + $50 + 30 + $10 - $20 = $210.

5. Suppose the country Inflatistan had a nominal GDP of $48 billion in 2013 and a nominal GDP of $114 billion in 2019. If the price level was 100 in 2019 and 190 in 2013, what was the real GDP in 2019 (using 2013 dollars)? A. $31.6 billion B. $60.0 billion C. $91.2 billion D. $216.6 billion

B. $60.0 billion FEEDBACK: To find real GDP, we need to adjust nominal GDP for the increase in the price level. We divide $114 billion by 190 (price level in 2019) and then multiply by the 2013 price level of 100, as follows: ($114 billion ÷ 190) × 100 = $60 billion.

15. Which of the following would be studied by a macroeconomist? A. whether a local business decides to hire another worker B. the unemployment rate C. whether Microsoft will choose to expand its business into a new country D. whether airline companies are colluding to keep their prices high

B. the unemployment rate FEEDBACK: Whether a local business decides to hire another worker is a microeconomic decision, as it involves just one business. Microsoft's decision, even though it's considering expanding its business into a new country, is also related only to Microsoft; this would be considered by a microeconomist. Whether airline companies are colluding, while the issue involves multiple companies, is also studied by a microeconomist: it involves just one sector of the economy, the airline industry. It doesn't involve multiple markets.

4. Suppose that Country B has the levels of consumption, investment, government spending, imports, and exports shown in the table. Calculate country B's GDP. Consumption $90 Investment $50 Government Spending $30 Imports $20 Exports $50 A.$140 B. $170 C.$200 D. $240

C. $200 FEEDBACK: Gross Domestic Product is the sum of consumption, investment, government spending, and net exports (exports minus imports). In this problem, that means we sum $90 + $50 + 30 + $50 - $20 = $200.

8.What is the name for the situation that's occurring when economic activity is declining (or is growing at a negative rate)? A. the peak B. an economic expansion C. an economic contraction D. the trough

C. an economic contraction FEEDBACK: An economy is said to be going through an economic contraction when it is shrinking. An economic expansion occurs when the economy is growing at a strong pace. The business cycle describes how there are economic expansions and contractions in an economy.

6. Suppose you watch a show about flowers on televison. If you went out and bought a greenhouse in order to grow and sell flowers, then the greenhouse would be counted as what when measuring GDP? A. consumer spending B. government spending C. investment spending D. transfer payments

C. investment spending FEEDBACK: Investment is private spending on the tools, plant, and equipment used to produce future output. Investment can be something as simple as the purchase of a shovel, a tractor, or a personal computer to help a small business produce goods and services for its customers. But investment also includes more complex endeavors, such as the construction of large factories. The greenhouse would be considered investment spending.

7. The business cycle consists of several stages or phases. Which is the correct sequence? A. peak, contraction, expansion, trough B. peak, trough, contraction, expansion C. peak, contraction, trough, expansion D. contraction, peak, trough, expansion

C. peak, contraction, trough, expansion FEEDBACK: The peaks and troughs divide the business cycle into two phases: expansions and contractions. An economic expansion occurs from the bottom of a trough to the next peak, when economic activity is increasing. After a certain period, the economy enters a recession, or an economic contraction--the period extending from the peak downward to the trough. During this phase, economic activity is declining. During expansions, jobs are relatively easy to find and average income levels climb. During contractions, more people lose their jobs and income levels often fall.

2. Residents of several European countries spend less time working and more time on leisure activities than do people in the United States. How is this leisure time accounted for in Gross Domestic Product measurements? A. Leisure time is added to GDP using the average market wage for labor in that country. B. A value for leisure time is added to a country's GDP using a market wage that is a weighted average of the country's average hourly wage rate and that of the rest of the world. C. Leisure time is a value-added element in the calculation of the total value of labor. D.Leisure time doesn't factor in a country's GDP.

D. Leisure time doesn't factor in a country's GDP. FEEDBACK: Leisure time, while valuable, doesn't get accounted for in GDP. This could be considered a shortcoming of GDP as a measurement of a country's standard of living.

12. Which of the following would NOT be included in the U.S. GDP? A. commissions paid to E-Trade because they facilitated a stock trade B. money earned by Las Vegas casinos for providing services to gamblers C. money paid to a local pharmacy for a flu shot D. clothes sold by a family on eBay

D. clothes sold by a family on eBay FEEDBACK: Commissions paid to financial companies for their services are included in GDP, although the value of the stock itself would not be included. Similarly, revenues earned from services by Las Vegas casinos are also included. A flu shot would be considered a good, so that's included in GDP as well. The clothes have already been produced and sold at an earlier time, so they are not included in GDP.

11. Which of the following would NOT be a use for GDP data? A. measuring economic growth B. measuring living standards C. measuring business cycles D. measuring inflation

D. measuring inflation FEEDBACK: GDP data is often used to measure economic growth, living standards, and business cycles. Even though real GDP is adjusted for inflation, this is a use of inflation as part of measuring GDP--not the other way around.

9. Which of the following is NOT a component of Gross Domestic Product? A. investment B.consumption C. net exports D. transfer payments

D. transfer payments FEEDBACK: Using the expenditure method, GDP is the sum of consumption, investment, government spending, and net exports. Transfer payments are payments the government makes to households--including as welfare payments, social security, and unemployment insurance--that do not count as GDP, since they are not direct purchases of new goods and services.

13. Which of the following would NOT be studied by a macroeconomist? A. a country's gross domestic product B. a country's inflation rate C. why exchange rates fluctuate D. why the price of lemonade decreased

D. why the price of lemonade decreased FEEDBACK: Macroeconomists study the big picture created by all markets, so they would study inflation (the overall increase in all prices), the gross domestic product (total output for an economy), and the exchange rates, which show the prices of currencies in other countries. The price of lemonade changing concerns just one market.