Chapter 8 Test Questions

Emily is a writer. She buys pens and paper for $20 and writes a 500-page novel that she sells to a publishing company for $500,000. If the publisher prints 1 million copies that sell for $25 each, what is the contribution to GDP of Emily's novel? a. $25 million b. $20 million c. $500000 d. $50000

a. $25 million

An example of a transfer payment is a. A welfare payment b. A purchase of a new bridge in Alaska c. A teacher's paycheck d. A paycheck for a member of the National Guard

a. A welfare payment

Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and government expenditures are $2 billion. If GDP is $14 billion, which of the following could be true regarding exports and imports in the economy? a. Exports are $15 billion, and imports are $10.5 billion. b. Exports are $9 billion, and imports are $6 billion. c. Exports are $4.5 billion, and imports are $2 billion. d. Exports are $6 billion, and imports are $8.5 billion.

a. Exports are $15 billion, and imports are $10.5 billion

1. National income is equal to a. GDP minus depreciation b. Disposable personal income plus depreciation plus personal taxes. c. Personal income minus personal taxes. d. GNP plus depreciation.

a. GDP minus depreciation

1. Assuming that the United States is the domestic economy, ________ are goods and services produced by ________ and purchased by ________. a. Imports; foreign countries; the US b. Imports; foreign countries; foreign countries c. Exports; foreign countries; the US d. Exports; the US; the US

a. Imports; foreign countries; the US

1. Disposable personal income is defined as a. Personal income less personal taxes b. personal income less transfer payments plus personal taxes. c. personal income less depreciation. d. personal income less personal taxes plus indirect sales taxes.

a. Personal income less personal taxes

1. How are intermediate goods treated in the calculation of GDP? a. Their value is not counted separately, but included as part of the value of the final good for which they are an input. b. They are included only if they are imported. c. Their value is counted separately, and their value is also included as part of the value of the final good for which they are an input. d. Their value is counted separately, but is not included as part of the value of the final good for which they are an input.

a. Their value is not counted separately, but included as part of the value of the final good for which they are an input.

1. Which of the following would increase GNP in the United States? a. an increase in the production of U.S.-owned General Motors cars made in Mexico b. an increase in the production of Mexican-owned Grupo Minsa corn in the U.S. c. an increase in the production of Japanese-owned Toyota cars in the U.S. d. an increase in the production of Japanese-owned Toyota cars in Mexico

a. an increase in the production of U.S.-owned General Motors cars made in Mexico

A car that is produced in 2010 is not sold until 2011. According to the definition of GDP, in which year's GDP should it be counted? a. Half of the sales price will count as part of 2010 GDP and half will count as part of 2011 GDP. b. 2010 c. 2011 d. The production cost will count as part of 2010 GDP while the sales price will count as part of 2011 GDP.

b. 2010

Investment spending includes spending on a. Food b. Changes in business inventories c. Stocks d. Transfer payments

b. Changes in business inventories

Which of the following is a true statement about the impact of World War II on the U.S. economy? a. U.S. GDP decreased dramatically from 1941 to 1945. b. Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP. c. Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP. d. Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP.

b. Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP.

Between 2008 and 2009, if an economy's exports rise by $8 billion and its imports fall by $8 billion, by how much will GDP change between the two years, all else equal? a. The increase in exports is offset by the decrease in imports, so there is no change in net exports and no effect on GDP. b. Net exports will increase GDP by $16 billion. c. Net exports will increase GDP by $8 billion. d. Net exports will decrease GDP by $8 billion.

b. Net exports will increase GDP by $16 billion.

1. Marla is an architect who is designing a home for Chuck. Chuck is paying Marla $150 per hour to design his new home. When Chuck and Marla get married, Marla continues to work on designing the home, but she no longer charges Chuck for her work. As a result, GDP ________ because ________. a. falls; Marla's work becomes less valuable once she's married b. falls; Marla's architectural design services are no longer bought by Chuck once they're married c. rises; Marla becomes more productive once she's married d. falls; Marla's work takes place in the underground economy once she's married

b. falls; Marla's architectural design services are no longer bought by Chuck once they're married

The ________ is a measure of the price level and is calculated by dividing ________ by ________ and multiplying by 100. a. PPI; nominal GDP; real GDP b. PPI; real GDP; nominal GDP c. GDP deflator; nominal GDP; real GDP d. GDP deflator; real GDP; nominal GDP e. CPI; real GDP; nominal GDP

c. GDP deflator; nominal GDP; real GDP

Which of the following accurately describes an effect of hurricane Katrina on GDP? a. GDP would increase reflecting the decrease in production that occurred during the storm and the productive capacity lost in the storm. b. GDP would increase well-being. c. GDP would increase reflecting the costs of cleanup.

c. GDP would increase reflecting the costs of cleanup.

Which of the following is a true statement about real and nominal GDP? a. Increases in average prices do not affect the calculation of nominal GDP. b. If nominal GDP increases from one year to the next, we know that production of goods and services has risen. c. If real GDP increases from one year to the next, we know that production of goods and services has risen. d. Nominal GDP is a better measure than real GDP in comparing changes in the production of goods and service year after year.

c. If real GDP increases from one year to the next, we know that production of goods and services has risen.

If real GDP increases we know for sure that a. Prices have remained constant b. Prices have risen but output has remained constant c. Output has risen d. Prices have risen

c. Output has risen

The measure of production that values output using base-year prices is called a. Nominal GDP b. Value-added GDP c. Real GDP d. Underground GDP

c. Real GDP

Gross domestic product in the economy is measured by the a. total number of goods and services produced in the economy. b. total number of services produced in the economy. c. dollar value of all final goods and services produced in the economy. d. total number of goods produced in the economy.

c. dollar value of all final goods and services produced in the economy

1. Personal income is defined as a. national income plus retained earnings less transfer payments and less interest on government bonds. b. National income less personal taxes c. national income less retained earnings plus transfer payments and plus interest on government bonds. d. National income less depreciation

c. national income less retained earnings plus transfer payments and plus interest on government bonds.

1. the circular flow diagram shows that a. firms pay households wages, and households receive transfer payments from firms. b. household spend all their income on goods and services. c. the value of total income is equal to the total value of expenditures on final goods and services. d. GDP will be less than the total value of expenditures on final goods and services in the economy.

c. the value of total income is equal to the total value of expenditures on final goods and services.

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. 2.7%

Which of the following is counted in GDP? a. The value pf do-it-yourself work b. The value of leisure c. The value of goods and services produced in the underground economy d. The cost of a speed boat purchased by drug smugglers

d. The cost of a speed boat purchased by drug smugglers

1. Which of the following would not be included in the expenditure category called investment expenditures? a. a purchase of a copy machine by Kinko's b. spending on new houses c. the cars held in inventory on a local Ford dealer's lot d. a purchase of shares of preferred stock

d. a purchase of shares of preferred stock

1. If prices are rising on average, then a. real GDP will be less than nominal GDP in the years before the base year. b. real GDP will be greater than nominal GDP in the years after the base year. c. real GDP will always be equal to nominal GDP. d. real GDP will be greater 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.

1. The drawback to calculating real GDP using base-year prices is that a. real GDP in one year is not comparable to real GDP in another year. b. quality changes are reflected in base-year prices. c. relative prices change over time and these changes are reflected in base-year prices d. relative prices change over time and these are not reflected in base-year prices, and this distorts GDP.

d. relative prices change over time and these are not reflected in base-year prices, and this distorts GDP.

1. Home Depot sells new and used doors to contractors who build new homes. Home Depot also sells new and used doors to homeowners. Which of the following would be counted in GDP? a. the sale of a used door to a homeowner b. the sale of a new door to TapKon construction for installation into a new home c. the sale of a used door to TapKon construction for installation into a new home d. the sale of a new door to homeowner

d. the sale of a new door to homeowner