Chapter 7 - V.F. Economics Review

55. Refer to Exhibit 7-2. Assuming that 1990 is the base year, Real GDP in 2012 is

$92.

108. Refer to Exhibit 7-3. Net exports is equal to

-$200.

112. Refer to Exhibit 7-5. What was Country Z's economic growth rate between year 2 and year 3?

-3.0%

39. Refer to Exhibit 7-1. Which of the following summations represents net domestic product?

GDP - $295

3. Which of the following illustrates double counting?

The total market value of the steel used to produce a car and the total market value of the car itself are summed.

63. Which of the following goods is an intermediate good?

lettuce that a restaurant buys to put on sandwiches; tires that a car company buys to put on the cars it produces

74. Increases in import spending

lower GDP.

33. Disposable income is

that portion of personal income that can be used for consumption and saving.

52. The base year is the year

that serves as a reference point or benchmark.

104. In 1820, the country with the highest per capita GDP was

the Netherlands.

109. Refer to Exhibit 7-3. GDP is equal to

$11,450.

106. Refer to Exhibit 7-3. Consumption is equal to

$9,700.

37. Depreciation refers to a decrease in the value of a good caused by

"wear and tear" of capital goods over time.

92. Suppose that consumption spending is $4,200 billion, spending on durable goods is $1,200 billion, and spending on services is $2,000 billion. What does spending on nondurable goods equal?

$1,000 billion

107. Refer to Exhibit 7-3. Investment is equal to

$1,050.

94. Suppose that nondurable goods spending is $200 billion, durable goods spending is $400 billion, new residential housing spending is $500 billion, and spending on services is $700 billion. What does consumption equal?

$1,300 billion

69. Look at the following data: durable goods = $200 billion; nondurable goods = $350 billion; services = $600 billion; fixed investment + inventory investment = $200 billion; government purchases = $400 billion; exports = $30 billion; imports = $79 billion. GDP is equal to

$1,701 billion.

70. Look at the following data: consumption = $915 billion; exports = $40 billion; imports = $33 billion; inventory investment = $123 billion; fixed investment = $500 billion; government purchases = $300 billion. GDP is equal to

$1,845 billion.

80. An economy produces 10X, 20Y, and 30Z in a year. Base-year prices for these goods are $1, $2, and $3, respectively. Current-year prices for these goods are $2, $3, and $4, respectively. What is Real GDP?

$140

45. In 2011, the U.S. GDP was approximately

$15.27 trillion.

49. Suppose there are five goods in the economy, A-E. The current-year quantity of each is 10A, 20B, 30C, 40D, and 50E. Current-year prices are $1 for each unit of A, $2 for each unit of B, $3 for each unit of C, $4 for each unit of D, and $5 for each unit of E. Base-year prices are $1 for each good. Real GDP in the current year equals _________ and GDP equals _________.

$150; $550

17. Suppose the total market value of all final goods and services produced this year in economy X is $4 million. Of the $4 million worth of goods, $3 million is sold and $1 million is held in inventory. For this year, the GDP for economy X is

$4 million.

78. Look at the following data: personal income = $4,900 billion; personal taxes = $900 billion; transfer payments = $980 billion. What is disposable income?

$4,000 billion

38. Refer to Exhibit 7-1. Which of the following summations represents GDP using the expenditure approach?

$4,150 + $751 + $850 + $331 + $300 - $320

44. Refer to Exhibit 7-1. What is the value of disposable income?

$4,207

43. Refer to Exhibit 7-1. What is the value of personal income?

$4,252

42. Refer to Exhibit 7-1. What is the value of national income?

$4,542

41. Refer to Exhibit 7-1. What is the value of net domestic product?

$5,767

56. Refer to Exhibit 7-2. GDP in 1990 is

$51.

40. Refer to Exhibit 7-1. What is the value of gross domestic product?

$6,062

73. Look at the following data: GDP = $11,920 billion; investment = $2,100 billion; exports = $500 billion; government purchases = $1,450 billion; consumption = $8,500 billion. What does import spending equal?

$630 billion

95. Suppose that fixed investment is $550 billion and (total) investment is $630 billion. What does inventory investment equal?

$80 billion

91. Suppose that net exports are -$300 billion and exports are $500 billion. Imports equals

$800 billion.

54. Refer to Exhibit 7-2. GDP in 2012 is

$86.

113. Refer to Exhibit 7-5. What was Country Z's economic growth rate between year 3 and year 4?

2.3%

82. If Real GDP was $8,742 billion in year 2 and it had been $8,509 billion in year 1, what was the approximate economic growth rate during this time period?

2.74 percent

58. The typical U.S. business cycle, measured peak to peak, lasts approximately

4 to 5 years.

111. Refer to Exhibit 7-5. What was Country Z's economic growth rate between year 1 and year 2?

5.3%

90. Consumption expenditures in the U.S. usually account for approximately __________ percent of GDP.

70

79. Which of the following statements is true?

All three; National income accountants consider the portion of corporate profits that is used to pay corporate profits taxes to be income earned by households but not received.; Net domestic product (NDP) is a smaller dollar amount than GDP; Personal income includes transfer payments.

98. When computing national income, which of the following is included in compensation of employees?

All; wages and salaries paid to employees, employers' contributions to Social Security and employee benefit plans, the monetary value of fringe benefits, tips, and paid vacations

81. Why do economists prefer to compare Real GDP figures for various years instead of GDP figures?

Because when GDP in one year is higher than in another year, there is no way to tell why it is higher. Is it because output is higher, prices are higher, etc.? This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because output is higher.

27. Which of the following statements is true?

Both; Capital consumption allowance is also known as depreciation and; A sales tax is an example of an indirect business tax.

75. Which of the following statements is false?

Corporate profits is the largest component of national income.

46. Sophia just bought shares of stock in IBM for $20,000 and paid a $300 commission to her broker. How did this impact GDP?

GDP increased by $300.

72. Which of the following statements is true?

Government purchases includes the spending on goods and services by all levels of government (federal, state, and local).

32. Which of the following statements is true?

Indirect business taxes are not part of national income because they are not considered a payment to a factor of production.

64. Which of the following does GDP omit?

Jack purchases $2,300 worth of stock in company X., Bob mows his lawn and washes and irons his shirts., Helen receives $4,000 a year in Social Security payments.

103. In 1900, the country with the highest per capita GDP was

New Zealand.

76. You have data for compensation of employees, proprietors' income, rental income, and net interest. Can you compute national income?

No, since data on corporate profits is missing.

71. Suppose you have data on durable goods, nondurable goods, fixed investment, government purchases, exports, and imports. Can you compute GDP?

No, since data on inventory investment and services are missing.

62. If GDP in year 1 is the same dollar amount as the GDP in year 2, does it follow that Real GDP in year 1 is the same as Real GDP in year 2?

No, since prices may not be the same in the two years.

77. Which of the following is the correct equation for computing personal income?

Personal income = National income - undistributed corporate profits - social insurance taxes - corporate profits taxes + transfer payments

57. "Economic growth" has occurred if the

Real GDP this year exceeds the Real GDP of last year.

96. In the business cycle, what is the difference between the recovery phase and the expansion phase?

The expansion phase is the period when Real GDP increases beyond the recovery phase.*

12. Which of the following statements is false?

The market value of all nonmarket goods is omitted from GDP.

93. Suppose that inventory investment is $20 billion and (total) investment is $680 billion. What does purchases of newly produced capital goods equal?

There is not enough information to answer this question.*

110. Refer to Exhibit 7-4. Did Country A experience a recession (based on the standard definition) in 2012?

Yes, because Real GDP declined during two consecutive quarters in 2012

67. Is it possible for a country with a relatively large GDP to have a relatively small per-capita GDP?

Yes, since the country with a relatively large GDP could have a relatively large population.

97. Which of the following is always a characteristic of the contraction phase of the business cycle?

a decline in Real GDP

19. Leisure is

a good that is not counted in GDP.

47. Which of the following would not be included in the calculation of this year's GDP?

a headlight bulb purchased by Ford Motor Co. from a supplier

5. Which of the following items is a final good?

a sweater purchased by someone in a department store

15. To macroeconomists, investment is mainly the purchases of goods and services

by businesses.

101. Germany has a ____________________ GDP than Austria and has a _____________________ GDP per capita than Austria.

a. larger; smaller

31. Net domestic product is the total value of

all final goods and services produced within a country's borders in a year minus capital consumption allowance.

61. Which of the following is a macroeconomic measurement used to gauge macroeconomic activity?

all of the above (Net domestic product, national income, personal income, disposable income.)

83. Which of the following statements is true?

all three; Another name for capital consumption allowance is depreciation; When there are two consecutive quarterly declines in Real GDP the economy is said to be in recession (based on the standard definition); The expansion of a business cycle refers to increases in Real GDP beyond the recovery.

86. What does annual economic growth refer to?

annual increases in Real GDP

51. Real GDP is always measured in

base-year dollars.

99. In the survey of Harvard University students noted in the text, the majority of students chose to

be poorer in absolute terms, as long as they could be richer in relative terms.

89. Which of the following statements is false?

both; Consumption includes spending on durable goods but not spending on services, Investment includes fixed investment but not inventory investment.

68. Country A has a higher GDP than country B. What does this mean?

both; It means that on a per-capita basis the residents of country A are relatively better off (in terms of the goods and services they have available to them) than the residents of country B.; It means that the total market value of the final goods and services produced in country A is greater than the total market value of the final goods and services produced in country B.

26. Capital consumption allowance refers to

capital goods being used up in production through natural wear, obsolescence, and accidental destruction.

23. National income equals

compensation of employees + proprietors' income + corporate profits + rental income + net interest.

24. The largest component of national income in the United States is

compensation of employees.

36. In the United States, the largest expenditure component in GDP is

consumption expenditures.

16. The expenditure approach to measuring GDP sums

consumption, investment, government purchases, and net exports.

87. The sum of durable goods, nondurable goods, and services equals

consumption.

60. A recession is always part of a

contraction.

25. If a person receives a (stock) dividend check, in the calculation of national income this is part of

corporate profits.

10. Gross Domestic Product is computed by using

current-year prices.

114. Refer to Exhibit 7-5. During year 3, Country Z experienced economic _____________ and _________________.

decline; inflation (rising price level)

35. To derive net domestic product (NDP) from gross domestic product (GDP), we must subtract

depreciation or capital consumption allowance from GDP.

2. In the definition of GDP, the words "total market value" refer to total

dollar value at current prices.

88. Investment equals inventory investment added to

either; fixed investment or business purchases of new capital goods and purchases of new residential housing.

20. The two ways of measuring Gross Domestic Product are the __________ approach and the __________ approach.

expenditure; income

13. Net exports equals

exports minus imports.

18. Government purchases consist of the total dollar amount(s) spent on goods and services by the

federal, state, and local governments.

1. Gross Domestic Product (GDP) is the total market value of all

final goods and services produced annually within a country's borders.

53. Real GDP is the value of all __________ goods and services produced in a given year in __________ prices.

final; base-year

22. Business firms make which of the following two types of investment?

fixed investment and inventory investment

28. An example of income received but not earned is

government transfer payments.

30. In the United States, which is the largest dollar figure?

gross domestic product

50. Real GDP is GDP

in base-year prices.

66. Suppose that in year 1 every adult in the country works 40 hours a week and GDP is $6.7 trillion. In year 2 every adult in the country works 45 hours a week and GDP is $7.5 trillion. Which of the following statements is true?

none of the above

48. If in the process of calculating GDP, the market value of all intermediate goods is added to the market value of all final goods, this would

overstate the actual value of GDP.

84. What is the proper sequence of the phases of a business cycle?

peak, contraction, trough, recovery, expansion

21. Investment is equal to all purchases of newly produced capital goods

plus changes in business inventories plus purchases of new residential housing.

100. GDP can rise as a result of a rise in __________________, and Real GDP can rise as a result of a rise in _______________________.

prices or output; output only.

14. Macroeconomists define consumption as

purchases by the household sector.

85. A business cycle refers to the

recurrent swings (up and down) in Real GDP.

102. In 1820 the country with the highest per capita GDP was ______________________. In 1900 the country that ranked #1 in terms of per capita GDP was ___________________ and fifty years later the top ranking was held by _________________________.

the Netherlands; New Zealand; the United States.

105. In 1950, the country with the highest per capita GDP was

the United States.

34. Personal income is

the amount of income that individuals actually receive.

8. Which of the following would not be included in the measurement of GDP?

the increased value of shares of stock

7. Which of the following is counted in GDP?

the services of a real estate broker

6. Underground activities are not counted in GDP because

there are no written records of underground activities.

4. The best reason economists take only final goods and services into account when calculating GDP is that

they want to avoid the problem of double counting.

59. The standard definition of "recession" is

two consecutive quarters of falling Real GDP.

29. An example of income earned but not received is

undistributed profits.

65. The sale of __________ goods is omitted from current GDP because __________.

used goods; these goods were counted in an earlier year

9. Which of the following would definitely not be included in the measurement of GDP?

value of the services of a person who mows his or her own lawn