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Econ test 2

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A soft drink cost $.85 in 2014. The value for the CPI in 1965 is 60.2 and the value of the CPI for 2014 is 236.2, what is the price of a soft drink in 1965 dollars? A. $0.18 B. $0.20 C. $0.22 D. $0.24

$0.22 ($0.85x (60.2/236.2)

Suppose the consumer price index is 89 in 2008, 94 in 2010, 100 in 2012, and 103 in 2014. If Social Security benefits were $1,000 in 2008 and we indexed them for inflation, the Social Security benefits would have been ________ in 2012. A. $1,000 B. $1,056.18 C. $1,123.60 D. $1,157.30

$1,123.60 ($1,000 x 100/89)

The price of a soft drink from a vending machine in 2014 is $1.25. Given the value for the CPI in 1955 and the value of the CPI for 2014, which of the following is correct to find the price of a soft drink in 1955 dollars? A. $1.25 x (CPI2014 /CPI1955) B. $1.25 x (CPI2014 - CPI1955) C. $1.25 x (CPI2014 + CPI1955) D. $1.25 x (CPI1955/CPI2014)

$1.25x (CPI 1955/CPI 2014)

$1157.30

Portland Sardines produced $14 million worth of cans of sardines. In producing these cans of sardines, it purchased $2 million dollars' worth of tin from foreign countries and paid workers who reside in Canada but commuted to the U.S. $1 million, all other labor was provided by U.S. residents. How much of the company's production was included in U.S. GDP?

$12 million

a farmer sells $50,000 worth of apples to individuals who take them home to eat, $75,000 worth to a company that uses them all to produce apple juice, and $100,000 worth of apples to a grocery store that sells all of them to households. how much of the farmer's sales will be included as apples in GDP? A. $50,000 B. $175,000 C. $225,000 D. $150,000

$150,00

A farmer sells $50,000 worth of apples to individuals who take them home to eat, $75,000 worth to a company that uses them all to produce apple juice, and $100,000 worth of apples to a grocery store that sells all of them to households. How much of the farmer's sales will be included as apples in GDP?

$150,000

Tom lives in an apartment where he pays $8,000 a year in rent. Sarah lives in a house that could be rented for $10,000 a year. How much do these housing services contribute to GDP?

$18,000

Susan sells a house built several years ago. The house sells for $300,000, but $20,000 of this is her real estate agents' commission fee. How much does this transaction add to GDP?

$20,000

John plows snow from driveways. He spends $2 on gas and charges $25 each time he plows. What's the total contribution to GDP each time John plows a driveway?

$25

John plows snow from driveways. He spends $2 on gas and charges $25 each time he plows. whats the total contribution to GDP each time john plows a driveway A. $2 B. $25 C. $27 D. $23

$25 (price paid includes the price of gasoline and johns time. Gas is an intermediate good)

In 2014, a farmer grew and sold $2 million worth of green beans to a company that froze and bagged them. The company produces $4 million worth of bags of frozen beans in 2014, with sales to households during the year of $3 million. The unsold $1 million worth of frozen beans remains in the company's inventory. The transactions just described contribute how much to GDP for 2014?

$4 million

Refer to the Table. The market value of all final goods and services produced within Urshek in 2015 is

$400

If in some year real GDP was $45 billion and the GDP deflator was 130, what was nominal GDP?

$58.5 billion

If in some year real GDP was $45 billion and the GDP deflator was 130, what was nominal GDP? $58.5 billion $34.6 billion $15 billion $30.3 billion

$58.5 billion (The GDP deflator = 100 X nominal GDP/real GDP. So 130 = 100 x nominal GDP/$45 billion. So 1.3 = nominal GDP/$45 billion and $58.5 = nominal GDP.)

Suppose the consumer price index is 89 in 2008, 94 in 2010, 100 in 2012, and 103 in 2014. If Social Security Benefits were $1,000 in 2014 and we index them for inflation, the Social Security benefits would have been ________ in 2008. A. $864.08 B. $886.04 C. $970.87 D. $1,000

$864.08 ($1,000 x 89/103)

The government of a country, which has adopted American GDP accounting conventions, reported that seasonally adjusted GDP in third quarter was $36 billion at an annual rate. This means that the seasonally-adjusted market value of all final goods and services produced within this country in the third quarter was

$9 billion GDP is measured at annual rates by multiplying the seasonally adjusted quarterly output by 4.

the government of a country, which has adopted American GDP accounting conventions, reported that seasonally adjusted GDP in third quarter was $36 billion at an annual rate. this means that the seasonally-adjusted market value of all final goods and services produced within this country in the third quarter was? A. $3 billion B. $12 billion C. $36 billion D. $9 billion

$9 billion (36/4=9 GDP is measured at annual rates by multiplying seasonally adjusted quarterly output by 4)

$9 billion.

Inflation Rate Year 2 Equation

(GDP deflator year 2 - GDP deflator year 1) X 100

GDP Deflator Equation

(Nominal GDP/Real GDP) X 100

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. -Federal government paychecks to soldiers -The costs of air and water pollution -The import and sale of illegal drugs from South America -The variety of goods available to consumers

-The costs of air and water pollution -The import and sale of illegal drugs from South America -The variety of goods available to consumers

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. -The loss of enjoyment people incur when scenic land is converted to commercial use -The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government -Expenditures on federal highways -The quality of goods available to consumers

-The loss of enjoyment people incur when scenic land is converted to commercial use -The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government -Expenditures on federal highways -The quality of goods available to consumers

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. -The value produced when you wash your own car at home -Funds spent by city governments to renovate their buildings -The costs of overfishing and other overly intensive uses of resources -The leisure time enjoyed by households

-The value produced when you wash your own car at home -The costs of overfishing and other overly intensive uses of resources -The leisure time enjoyed by households

Expenditures on a nation's domestic production

. are equal to its domestic production.

When conducting an open-market purchase, the Fed

. buys government bonds, and in so doing increases the money supply.

Menu costs refers to

. the cost of more frequent price changes induced by higher inflation.

Which of the following is not included in the computation of GDP?

1. 12-year-old Johnny mowing his family's lawn 2. Dave Malone buying a used car 3. Barbara Wilson buying a bond issued by General Motors 4. Ed Ferguson's receipt of a Social Security payment 5. The illegal drug transaction at the corner of Elm and Fifth

How do we measure a recession?

1. Declining GDP, 2. Declining Retail Sales, 3. Declining Employment (Rising Unemployment)

Gross domestic production is equal to A. neither the total income of everyone in the economy, nor the total expenditure on the economy's output of goods and services. B. the total expenditure on the economy's output of goods and services, but not the total income of everyone in the economy. C. the total income of everyone in the economy, but not the total expenditure on the economy's output of goods and services. D. the total income of everyone in the economy, and the total expenditure on the economy's output of goods and services.

International data on GDP and socioeconomic variables indicate that in countries with low levels of real GDP per person, socioeconomic variables indicating a better quality of life are A. significantly higher about as often as they are significantly lower for those countries with higher levels of real GDP person. B. mostly similar to those in countries with higher levels of real GDP per person. C. generally significantly higher than in countries with higher levels of real GDP per person. D. generally significantly lower than in countries with higher levels of real GDP per person.

International studies of the relationship between real GDP per person and quality of life measures find that as real GDP per person rises A. there is no significant change in either life expectancy or the percentage of the population that is literate. B. there is no significant change in life expectancy, but the percentage of the population that is literate tends to rise. C. life expectancy tends to rise, but there is no significant association with the percentage of the population that is literate. D. life expectancy and the percentage of the population that is literate tends to rise.

Last year was the base year, this year inflation was 5%. What is this year's GDP deflator? A. .95 B. 1.05 C. 95 D. 105

Sally buys used textbooks for $600 and new textbooks for $800 that are made in the U.S. As a result A. U.S. consumption purchases increase by $1,400 and U.S. GDP increases by $1,400. B. U.S. consumption purchases increase by $1,400 and U.S. GDP increases by $800. C. U.S. consumption purchases increase by $800 and U.S. GDP increases by $1,400. D. U.S. consumption purchases increase by $800 and U.S. GDP increases by $800.

Suppose you make two purchases for yourself. Which of them is included in GDP? A. Neither a haircut nor a new textbook. B. A haircut, but not a new textbook. C. A new textbook, but not a haircut. D. Both a new textbook and a haircut.

The residents of Ecuador earn $700 million of income from abroad. Residents of other countries earn $200 million in Ecuador. The earnings of Ecuadorian residents abroad are accounted for in Ecuador's A. GDP which is smaller than its GNP. B. GDP which is larger than its GNP. C. GNP which is smaller than its GDP. D. GNP which is larger than its GDP.

Which of the following are examples of transfer payments? A. neither unemployment benefits nor social security payments B. social security payments but not unemployment benefits C. unemployment benefits but not social security payments D. both unemployment benefits and social security payments

Which of the following is an example of a durable good? A. an ice cream cone B. a pair of socks C. gasoline D. a television

Which of the following is included in the consumption component of GDP? A. household purchases of food. B. household purchases of medical care. C. household purchases of appliances. D. All of the above are included in the consumption component of GDP.

Which of the following is included in the government purchases component of GDP? A. a state government repairs highways, a local government pays its police, but not the federal government buys fighter jets. B. the federal government buys fighter jets, a local government pays its police, but not a state government repairs highways. C. the federal government buys fighter jets, a state government repairs highways, but not a local government pays its police. D. the federal government buys fighter jets, a state government repairs highways, a local government pays its police

Which of the following items is included in U.S. GDP? A. both intermediate and final goods B. all known illegal activities C. the difference in the price of the sale of an existing home and its original purchase price D. goods produced by Mexican citizens working in the United States

Figure 23-1. Refer to Figure 23-1. Which of the following correctly identifies the flow of dollars? A. W, X, Y and Z B. K, M, L and N C. C, K, M and D D. A, L, N and B

D. A, L, N and B

Which of the following is not included in GDP? A. the services of an exterminator B. a can of bug spray C. the honey produced and sold by a beekeeper D. All of the above are included in GDP.

D. All of the above are included in GDP.

Which of the following is included in the investment component of GDP? A. spending to build new houses B. spending to build new factories C. spending on business equipment such as welding equipment D. All of the above are included in the investment component of GDP.

D. All of the above are included in the investment component of GDP.

Which of the following is not an example of a durable good? A. a furnace. B. an automobile. C. a refrigerator. D. a business suit

D. a business suit

GDP includes the value of all A. final goods and services produced within a country using primarily a survey of consumers to measure the value of goods and services. B. goods and services produced within a country using primarily a survey of consumers to measure the value of goods and services. C. goods and services produced within a country using primarily market prices to measure the value of goods and services. D. final goods and services produced within a country using primarily market prices to measure the value of goods and services.

D. final goods and services produced within a country using primarily market prices to measure the value of goods and services.

The value of the housing services provided by the economy's owner-occupied houses is: A. included in GDP, and the actual mortgage payments made on the houses are used to estimate the value of these rental services. B. excluded from GDP since these services are not sold in any market. C. excluded from GDP since the value of these housing services cannot be estimated with any degree of precision. D. included in GDP, and the estimated rental values of the houses are used to place a value on these housing services

D. included in GDP, and the estimated rental values of the houses are used to place a value on these housing services.

If an economy's GDP rises, then it must be the case that the economy's A. income rises and expenditure falls. B. income rises and saving falls. C. income and saving both rise. D. income and expenditure both rise.

D. income and expenditure both rise.

Total income from the domestic production of final goods and services equals A. only household and business expenditures for these goods. B. only household expenditures for these goods. C. only household and government expenditures for these goods. D. the expenditures for these goods whoever buys them.

D. the expenditures for these goods whoever buys them.

Jane quits her job as a public school teacher and takes a job as a waitress where she is paid "under the table". Her employer does not record or report her salary to the government.

Decrease GDP

Rajiv stops taking his car to his mechanic and starts fixing his car himself

Decrease GDP

Which of the following is the way that Net National Product is calculated?

Depreciation losses are subtracted from the total income of a nation's citizens.

The portion of personal income that can be used for consumption or saving

Disposable Income

What category of GDP does this fall under?: US consumer pays $20,000 for 2016 car

Does not count, not new product

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States?

1. Leisure 2. Bads 3. The import and sale of illegal drugs from South America

Suppose Yvette earns $725 per week working as a programmer for PC Pros. She uses $10 to have breakfast at Dinah's Diner. Dinah's Diner pays Sean $450 per week to work as a short-order cook. Sean uses $375 to purchase software from PC Pros. Choose: Market for Factors of Production or Market for Goods and Services. 1. Yvette spends $10 to have breakfast. 2. Yvette earns $725 per week working for PC Pros. 3. Sean earns $450 per week working for Dinah's Diner.

1. Market for Factors of Goods and Services 2. Market for Factors of Production 3. Market for Factors of Production

GDP is higher this year than it was last year. This could be because

1. The price level is higher this year than last year 2. Both the price level and the Real GDP are higher this year than last year

Bertha uses all of the following resources to prepare delicious breakfast meals at her café. Which of them is an example of technological knowledge?`

Efficient commercial foodservice equipment that allows an increased number of servings per hour. -Still, technological knowledge refers to society's understanding about how the world works. Thus technology makes commercial foodservice more efficient and allows to increase productivity. Human capital, however, refers to the resources expended transmitting this understanding to the labor force. Bertha uses the commercial foodservice technology to prepare her unique recipes, which are her human capital.

Included or Excluded: An accountant starts a client's 2015 tax return on April 14, 2016, finishing it just before midnight on April 15, 2016.

Excluded

Included or Excluded: Athleticus, a U.S. shoe company, produces a pair of sneakers at a plant in Vietnam on March 27, 2015. Athleticus imports the pair of sneakers into the United States on May 18, 2015.

Excluded

Included or Excluded: Treetopplers, a U.S. lumber company, produces wood at a plant in Oregon on September 25, 2015. It sells the wood to Buildit and Partners, a developer, for use in the production of a new house that will be built in the United States in 2015. (Note: Focus exclusively on whether production of the wood increases GDP directly, and ignore the effect of production of the new house on GDP.)

Excluded

Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2014. Scenario Athleticus, a U.S. shoe company, produces a pair of sneakers at a plant in Vietnam on March 14, 2014. Athleticus imports the pair of sneakers into the United States on May 17, 2014. Rotato, a U.S. tire company, produces a set of tires at a plant in Michigan on September 25, 2014. It sells the set of tires to Speedmaster for use in the production of a two-door coupe that will be made in the United States in 2014. (Note: Focus exclusively on whether production of the set of tires increases GDP directly, and ignore the effect of production of the two-door coupe on GDP.) You chop down a cherry tree on your property in California and make a dining room table in 2014. A similar table sells for $800 in a local furniture store. Sofaland, a Swedish furniture company, produces a table at a plant in Virginia on December 1, 2014. It sells the table to a college student on December 20. Awake Cafe, a U.S. coffee company, produces a latte at its location in Minneapolis on January 8, 2014. It sells the latte to a customer immediately.

Excluded Excluded Excluded Included Included

Roadway Motors, a U.S. automobile company, produces a convertible at a plant in Germany on March 4, 2015. Roadway Motors imports the convertible into the United States on May 12, 2015.

Excluded from GDP calculation

Rotato, a U.S. tire company, produces a set of tires at a plant in Michigan on September 23, 2015. It sells the set of tires to Speedmaster for use in the production of a two-door coupe that will be made in the United States in 2015.

Excluded from GDP calculation

The Jones family buys an antique silver platter at an auction in upstate New York on March 4, 2015.

Excluded from GDP calculation

A rise in Real GDP beyond the initial peak

Expansion

For an economy as a whole, income must equal...

Expenditure

Rajiv paints a landscape and sells it to an art collector in Japan.

Export

What category of GDP does this fall under?: Chinese consumer pays $20,000 for 2017 US car

Export

Darnell and Eleanor Cohen live in Swarthmore, PA. Eleanor's father, Jacques, lives in Sweden. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Eleanor's father in Sweden orders a bottle of Vermont maple syrup from the producer's website

Exports

Lorenzo and Neha Strong live in Swarthmore, PA. Their son, Sam, is an artist living in New York City. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Sam paints a landscape and sells it to an art collector in Japan

Exports

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Sam's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing faculty in China

Exports

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): Becky's father in Sweden orders a bottle of Vermont maple syrup from the producer's website.

Exports

Net exports equal A. exports plus imports which equals Y - C - I - G. B. exports minus imports which equals Y - C - I - G. C. exports minus imports which equals C + I + G -Y. D. exports plus imports which equals C + I + G -Y.

Exports minus imports which equals Y- C - I - G

A country with a higher level of real GDP per person necessarily has a higher standard of living than a country with a lower level of real GDP per person. True False

False

An increase in total spending from one year to the next means that an economy's production of goods and services has risen. True False

False

If real GDP rises and the GDP deflator falls, then it must be that nominal GDP rose.

False

If real GDP rises and the GDP deflator falls, then it must be that nominal GDP rose. True False

False

If the GDP deflator in 2015 was 210 and the GDP deflator in 2014 was 200, then the inflation rate in 2015 was 10%. True False

False

In the circular-flow diagram households receive income only from wages. True False

False

The best single measure of a country's economic well-being is its nominal GDP per person. True False

False

True and False: A U.S. consumer buys toys made in China. The value of the toys is included only in the consumption component of GDP.

False

True or False: An increase in total spending from one year to the next means that an economy's production of goods and services has risen.

False

True or false: A country with a higher level of real GDP per person necessarily has a higher standard of living than a country with a lower level of real GDP per person.

False

True or false: In the circular-flow diagram households receive income only from wages.

False

True or false: inflation can only be measured by the consumer price index and not by the GDP deflator

False

The United Kingdom is an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States.

False -has fallen -In 1870, it was the richest country in the world

In 1870, the United States was the richest country in the world.

False 1870, the United Kingdom was the richest country in the world

According to 2012 data for U.S. teenagers (ages 16-19) ______ had the highest unemployment rate and _______ had the lowest unemployment rate.

For teenagers black males had the highest unemployment rate and white females had the lowest unemployment rate.

Which of the following is true about the General Agreement on Tariffs and Trade (GATT)

GATT was initiated in response to high tariffs imposed during the Great Depression of the 1930s.

Expenditure Approach Equation

GDP = C + I + G + (Ex - Im)

If an economy's income falls, then it must be the case that the economy's

GDP and expenditures both fell

if an economys income falls, then it must be the case that the economy's A. GDP fell and is saving rose. B. GDP fell and expenditures rose C. GDP and expenditures both fell D. GDP and savings both fell

GDP and expenditures both fell

If an economy's income falls, then it must be the case that the economy's

GDP and expenditures both fell.

Which of the following statements about GDP is correct?

GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.

Which of the following statements about GDP is correct? A. The sum of wages, rents, and profits is less than a nation's income. B. Money continuously flows from households to firms and then back to households, but GDP does not measure this flow of money. C. GDP is generally not regarded as a measure of a society's economic wellbeing. D. GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.

GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economys output of goods and services

If a country suffers from inflation, changes in ____ will reflect changes in the price level in addition to any changes in output, and so will overstate economic growth. _____ is adjusted for price level changes, and so ____ this problem.

GDP; Real GDP; avoids

U.S. GDP and U.S. GNP are related as follows. A. GDP = GNP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad. B. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad. C. GDP = GNP + Value of exported goods - Value of imported goods. D. GNP = GDP + Value of exported goods - Value of imported goods.

GDP= GNP - Income earned by foreigners in the U.S + income earned by U.S citizens abroad

U.S. GDP and U.S. GNP are related as follows.

GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

The residents of Ecuador earn $700 million of income from abroad. Residents of other countries earn $200 million in Ecuador. The earnings of Ecuadorian residents abroad are accounted for in Ecuador's

GNP which is larger than its GDP

the resident of Ecuador earn $700 million of income from abroad. residents of other countries earn $200 million in Ecuador. the earnings of ecuadorian residents abroad are accounted for in ecuadors A. GNP which is larger than its GDP. B. GDP which is larger than its GNP. C. GDP which is smaller than its GNP. D. GNP which is smaller than its GDP.

GNP which is larger than its GDP

The residents of Ecuador earn $700 million of income from abroad. Residents of other countries earn $200 million in Ecuador. The earnings of Ecuadorian residents abroad are accounted for in Ecuador's

GNP which is larger than its GDP.

When box office receipts are corrected for inflation, the most popular movie of all time is

Gone With the Wind.

Suppose Megan earns $650 per week working as a doctor for the Medical Clinic. She uses $10 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Larry $375 per week to wash cars. Larry uses $350 to purchase medical services from the Medical Clinic. Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services. Event: Market for Factors of Production OR Market for Goods and Services Megan spends $10 to get her car washed. Larry spends $350 to purchase medical services from the Medical Clinic. Larry earns $375 per week working for Spotless Car Wash.

Goods and services Goods and services Factors of Production

Darnell and Eleanor Cohen live in Swarthmore, PA. Eleanor's father, Jacques, lives in Sweden. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. The state of Pennsylvania repaves highway PA 320, which goes through the center of Swarthmore

Government Purchase

Lorenzo and Neha Strong live in Swarthmore, PA. Their son, Sam, is an artist living in New York City. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Lorenzo and Neha's house

Government Purchases

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. The town of Swarthmore puts on a fireworks display for the Fourth of July

Government Purchases

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): The state of Pennsylvania repaves highway PA 320, which goes through the center of Swarthmore

Government Purchases

The town of Swarthmore puts on a fireworks display for the Fourth of July.

Government purchase

What is GDP?

Gross Domestic Production; National Production

Foreign components of U.S. made goods are accounted for as

Imports

When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the 1. _______ (a. government purchases, b. consumption, c. investment) component of GDP while also 2. _______ (a. decreasing, b. increasing) net exports by the same amount. Therefore, the purchase of wood from Brazil causes 3. ______ (a. an overall decrease, b. no overall change, c. an overall increase) in US GDP.

1. c. investment 2. a. decreasing 3. b. no overall change

The gross domestic product (GDP) of the United States is defined as the 1.________ (a. cost of producing, b. market value of, c. wholesale cost of) all 2.________ (a. final and intermediate goods and services produced, b. final goods and services produced, c. final goods and services consumed) 3._________ (a. within the United States, b. by U.S. Citizens, c. by U.S. owned companies) in a given period of time.

1. market value of 2. final goods and services produced 3. within the United States

Last year, real GDP in an imaginary economy was $125 billion and the population was 5 million. This year, real GDP is $132 billion and the population was 5.2 million. What was the growth rate of real GDP per person during the year?

1.54%

Last year was the base year, this year inflation was 5%. what is this years GDP deflator? A. 105 B. 1.05 C. .95 D. 95

105 (100 5% inflation rate means the deflator rose by 5%)

Last year was the base year, this year inflation was 5%. What is this year's GDP deflator?

105 (In the base year the GDP deflator = 100. 5% inflation means that the deflator rose by 5%.)

Tom lives in an apartment where he pays $8,000 a year in rent. Sarah lives in a house that could be rented for $10,000 a year. How much do these housing services contribute to GDP?

18,000

Tom lives in an apartment where he pays $8,000 a year in rent. Sarah lives in a house that could be rented for $10,000 a year. How much do these housing services contribute to GDP? $10,000 $18,000 $0 $8,000

18,000

Susan sells a house built several years ago. The house sells for $300,000, but $20,000 of this is her real estate agents' commission fee. How much does this transaction add to GDP?

20,000

Susan sells a house built several years ago. The house sells for $300,000, but $20,000 of this is her real estate agents' commission fee. How much does this transaction add to GDP? $0 $280,000 $300,000 $20,000

20,000 (GDP does not include the value of previously produced goods or services. So the value of house is not included in GDP, commission fee is)

If the consumer price index was 100 in 2008, 102 in 2010, 105 in 2012, in 107 in 2014, then the base year must be A. 2008. B. 2010. C. 2012. D. 2014.

2008

Assume 2011 is a base year. in which year was real GDP the lowest? A. 2013 B. 2014 C. 2011 D. 2012

2011

Refer the Table. Assume 2011 is a base year. In which year was real GDP the lowest?

2011

Refer the Table. In which year was nominal GDP the lowest?

2012

in which year was the GDP deflator lowest? A. 2013 B. 2014 C. 2011 D. 2012

2012

Assuming the GDP deflator in 2010 was 96, in which year was inflation highest?

2013

Refer the Table. Assuming the GDP deflator in 2010 was 96, in which year was inflation highest?

2013

Refer the Table. In which year was nominal GDP the highest?

2013

in which year was nominal GDP the highest? 2013 2014 2011 2012

2013

Refer the Table. Assume 2011 is a base year. In which year was real GDP the highest?

2014

4 million

4 million $3 million of beans are consumption and $1 million add to inventory which is part of investment spending. The $2 million of beans is not counted separately as they are intermediate goods.

Over the past 70 years, prices in the U.S. have risen on average about

4 percent per year.

An economy recently had nominal GDP of 5 trillion euro and a GDP deflator of 125. What was real GDP? A. 4 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP. B. 6.25 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP. C. 6.25 trillion euro, but nominal GDP is a better gauge of economic activity than real GDP. D. 4 trillion euro, but nominal GDP is a better gauge of economic activity than real GDP.

4 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP

An economy recently had nominal GDP of 5 trillion euro and a GDP deflator of 125. What was real GDP?

4 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.

Consider the case of Crusoe's economy. Suppose Robinson Crusoe spends two hours to find ten turtle eggs. What is his productivity?

5 turtle eggs per hour. - A correct way to measure productivity is to divide the quantity of output by the number of hours worked: 10 turtle eggs / 2 hours = 5 turtle eggs per hour.

if nominal GDP is $16 trillion and real GDP is $24 trillion, then the GDP deflator is A. 67, and this indicates that the price level has decreased by 33 percent since the base year. B. 150, and this indicates that the price level has increased by 50 percent since the base year. C. 150, and this indicates that the price level has increased by 150 percent since the base year. D. 75, and this indicates that the price level has increased by 75 percent since the base year.

67, and this indicates that the price level has decreased by 33 percent since the base year

If nominal GDP is $16 trillion and real GDP is $24 trillion, then the GDP deflator is

67, and this indicates that the price level has decreased by 33 percent since the base year.

In the economy of Urbania in 2015, consumption was $5000, exports were $700, government purchases were $1000, imports were $400, and investment was $1200. What was Urbania's GDP in 2015? $6,800 $7,500 $7,900 $7,200

7,500 (5,000+1200+1000+700-400)

In the United States in 2009, consumption represented approximately

70 percent of GDP.

in 2015 an economys consumption was $5400, GDP was $9000, government purchases were $1800, exports were $500, and investment was $2000. what were this country imports in 2015? A. 300 B. 700 C. 1200 D. 500

700 (Y=C+I+G+NX) (9,000=5,400 +1,800+2,000+500-700 (imports

Last year real GDP per person in an imaginary economy was $4,500. This year, it is $4,900. What was the rate of economic growth over the year?

8.9% The rate of growth is calculated as 100 * ((GDP per person in the current year - GDP per person last year)/ GDP per person last year) = 100*(($4,900 - $4,500)/ $4,500) = 8.9%.

A farmer produces potatoes, and sells them to a company which uses them all to make potato chips. The potatoes produced by the farmer are called A. intermediate goods. B. final goods. C. transitory goods. D. inventory goods.

During recessions what happens to profits and the unemployment rate? A. the unemployment rate rises and profits fall. B. profits rise and the unemployment rate falls. C. both fall. D. both rise.

GDP: A. excludes most goods and services produced at home and most goods and services produced illegally. B. excludes most goods and services produced at home but includes most goods and services produced illegally. C. includes most goods and services produced at home but excludes most goods and services produced illegally. D. includes most goods and services produced at home and most goods and services produced illegally.

If a U.S. company buys brewing equipment made in Germany by a German firm, the other things the same A. U.S. imports increase and so U.S. net exports decrease. B. U.S. imports increase and so U.S. net exports increase. C. U.S. exports increase and so U.S. net exports decrease. D. U.S. exports increase and so U.S net exports increase.

If an economy's income falls, then it must be the case that the economy's A. GDP and expenditures both fell. B. GDP fell and expenditures rose. C. GDP and saving both fell. D. GDP fell and its saving rose.

If nominal GDP is three times its old value and the GDP deflator is twice its old value, then real GDP A. is 1.5 times its original value. B. is 2.5 times its original value. C. is 5 times its original value. D. is 6 times its original value.

If you buy pizza at your favorite local pizzeria, A. both GDP and consumption spending will be higher. B. GDP will be unchanged, but consumption spending will be higher. C. GDP will be higher, but consumption spending will be unchanged. D. neither GDP nor consumption is changed, because pizza is not a durable good.

In a simple circular-flow diagram, households buy goods and services with the income they get from A. wages, rent, and profits. B. wages and profit. C. wages and rent. D. wages.

John restores cars. He buys a 1964 Mustang, new parts and paint, and spends time restoring it. He then sells the car. Which of the following is included in GDP? A. The value of the new parts and paint, the value of John's time, but not his purchase of the old car. B. The value of the new parts and paint, the value of John's time and his purchase of the old car. C. Only the value of John's time. D. Only the value of the new parts and paint.

Last year Country A had a population of 16 million, nominal GDP of 480,000 million, and a GDP deflator of 120. Country B had a population of 10 million a nominal GDP of 400,000 million and a GDP deflator of 125. Which country is likely to have the higher standard of living? A. Country B because it has the higher level of real GDP per person. B. Country A because it has the higher level of real GDP per person. C. Country B because it has the higher level of nominal GDP per person. D. Country A because it has the higher level of nominal GDP per person.

Real GDP is A. not adjusted for differences in leisure time, nor adjusted for the differences in the quality of the environment B. adjusted for differences in the quality of the environment but not for differences in leisure time C. adjusted for differences in leisure time, but not for differences in the quality of the environment D. adjusted for differences in leisure time and differences in the quality of the environment.

The value of items produced and purchased in the past such as previously occupied housing and used clothing is A. not included in current GDP because GDP only measures the value of final goods and services produced in the current year. B. not included in current GDP because it is difficult to measure such transactions. C. included in current GDP but valued at their original prices. D. included in current GDP because GDP measures the value of all goods and services sold in the current year.

Tom lives in an apartment where he pays $8,000 a year in rent. Sarah lives in a house that could be rented for $10,000 a year. How much do these housing services contribute to GDP? $18,000 $10,000 $8,000 $0

Transfer payments from the government to households are A. not for the current production of goods and services. They are not included in GDP. B. not for the current production of goods and services. They are included in GDP C. for the current production of current goods and services. They are not included in GDP. D. for the current production of goods and services. They are included in GDP.

When an American household purchases a bottle of Italian wine for $100, A. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. B. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100. C. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100. D. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100.

When nominal GDP rises, we can be certain that A. either prices or quantities of goods and services must have risen. B. both prices and quantities of goods and services must have risen. C. quantities of goods and services produced must have risen. D. prices must have risen.

Which of the following is not included in the consumption component of GDP? A. household purchases of newly constructed homes. B. household purchases of food sold in the U.S. but purchased abroad. C. household purchases of medical care. D. household purchases of appliances.

Which of the following items purchased by households are included in investment rather than consumption? A. only the purchases of new houses B. only the purchase of stocks and bonds C. spending on education and the purchases of new housing D. spending on education and the purchases of stocks and bonds

What is a recession?

A nation-wide prolonged period of declining economic activity

Table 23-1 The table below contains data for Chereaux for the year 2015. GDP $200 Income earned by citizens abroad $9 Income foreigners earn here $5 Losses from depreciation $6 Indirect business taxes $10 Statistical discrepancy $0 Retained earnings $8 Corporate income taxes $12 Social insurance contributions $30 Interest paid to households by government $8 Transfer payments to households from government $55 Personal taxes $60 Nontax payments to government $11 Refer to Table 23-1. The market value of all final goods and services produced within Chereaux in 2015 is A. $200. B. $214. C. $230. D. $204.

A. 200 (BECAUSE THE OTHER THINGS AREN'T MENTIONED #trick question)

which arrow includes the hours an accountant worked?

A. L B. M C. B D. C

which of the following correctly identifies the flow of dollars from households to firms

A. M and K B. L and N C. B and A D. C and D

When economists refer to intangible items, they are referring to such things as A. hair styling and dental care, and the value of such items is included in GDP. B. illegal goods, and the value of such items is excluded from GDP. C. hair styling and dental care, and the value of such items is excluded from GDP. D. illegal goods, and the value of such items is included in GDP.

A. hair styling and dental care, and the value of such items is included in GDP.

The residents of Ireland earn $200 million of income from abroad. Residents of other countries earn $300 million in Ireland. Therefore, Ireland's A. net factor payments from abroad are negative, and its GDP is larger than its GNP. B. net factor payments from abroad are positive, and its GDP is larger than its GNP. C. net factor payments from abroad are negative, and its GNP is larger than its GDP. D. net factor payments from abroad are positive, and its GNP is larger than its GDP.

A. net factor payments from abroad are negative, and its GDP is larger than its GNP.

Consumption consists of spending by households on goods and services, with the exception of A. purchases of new houses. B. purchases of intangible services. C. purchases of durable goods. D. spending on education.

A. purchases of new houses.

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. The value produced when you wash your own car at home The quality of goods available to consumers Expenditures on federal highways The costs of overfishing and other overly intensive uses of resources

All besides expenditures on federal Highways are included

At any given time, the voting members of the Federal Open Market Committee include

All of the above are correct.

Why does GDP omit the sale of used goods, financial transactions, and government transfer payments?

All of these transactions transfer existing resources from one individual to another

A U.S. company produces bicycle helmets some of which go into inventory, and are not sold during the current period. The helmets that go into inventory are A. included in current period GDP as consumption. B. included in current period GDP as inventory investment. C. counted as intermediate goods and so are included in current period GDP. D. counted as intermediate goods and so are not included in current period GDP.

A manufacturer produces 500,000 MP3 players in the first quarter of the year. It sells 400,000 of them and adds 100,000 of them to inventory. All the players added to inventory are purchased by consumers in the second quarter. How are the 100,000 that go into inventory counted in GDP? A. The MP3 players will be counted as a change in inventory in the first quarter, and when sold in the second quarter will raise GDP by the value of the MP3 players. B. The MP3 players will be counted as a change in inventory in the first quarter, and so will be included in first quarter GDP as part of investment. C. Since the MP3 players were purchased by consumers in the second quarter, they will be counted as an increase in second- quarter GDP. D. Since the MP3 players eventually will be bought by consumers, they will be included as consumption in the first quarter.

An American company operates a coffeehouse in Lisbon, Portugal. Which of the following statements is accurate? A. The value of the goods and services produced by the coffeehouse is included in U.S. GDP, but not in Portuguese GDP. B. The value of the goods and services produced by the coffeehouse is included in Portuguese GDP, but not in U.S. GDP. C. The value added by American workers and equipment in Portugal is included in U.S. GDP and the value added by Portuguese workers and equipment is included in Portuguese GDP. D. The value of the goods and services produced by the coffeehouse is included in both Portuguese GDP and U.S. GDP.

Countries with higher levels of real GDP per person tend to have A. lower rates of infant mortality and less access to safe drinking water. B. lower rates of infant mortality and more access to safe drinking water. C. higher rates of infant mortality and less access safe drinking water. D. higher rates of infant mortality and more access to safe drinking water.

EZ Rental Car buys cars from a Japanese owned car manufacturer who produces the cars in the U.S. Which of the following is correct? A. U.S. investment increases, but GDP increases by a smaller amount. B. U.S. investment and GDP increase by the same amount. C. U.S. investment increases, but U.S. GDP does not. D. There is no effect on U.S. investment, or U.S. GDP.

GDP equals: A. the market value of all final goods and services produced by domestic residents minus profits made by domestic firms. B. the market value of all final goods and services produced within a country in a given period of time. C. the quantities of all final goods and services produced by domestic residents. D. the wages paid to all domestic residents, less taxes.

GDP is defined as the: A. value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. B. value of all final goods and services produced by domestic residents of a country in a given period of time. C. value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. D. value of all goods and services produced by domestic residents of a country in a given period of time.

If a U.S. company buys a computer server made in China by a Chinese firm, and the Chinese firm uses the payment to buy stocks issued by a U.S. company then other things the same A. U.S. exports decrease, U.S. imports are unchanged. B. U.S. imports increase but U.S. exports are unchanged. C. U.S. exports increase, but U.S. imports are unchanged. D. U.S. exports and U.S imports increase.

John plows snow from driveways. He spends $2 on gas and charges $25 each time he plows. What's the total contribution to GDP each time John plows a driveway? A. $27 B. $25 C. $23 D. $2

Last year Country A had a population of 5 million, nominal GDP of 750,000 million, and a GDP deflator of 150. Country B had a population of 8 million, nominal GDP of 960,000 million and a GDP deflator of 160. Which country is likely to have the higher standard of living? A. Country B because it has the higher level of real GDP per person. B. Country A because it has the higher level of real GDP per person. C. Country B because it has the higher level of nominal GDP per person. D. Country A because it has the higher level of nominal GDP per person.

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that A. GDP is not a useful measure of society's welfare. B. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare. C. GDP is still the best measure of society's welfare because these other values cannot actually be measured. D. GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government.

Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors' inventory. The transactions just described contribute how much to U.S. GDP for 2010? A. $17 million B. $30 million C. $26 million D. $21 million

Real GDP is computed using A. base-year prices and base-year quantities. B. base-year prices and current quantities. C. current prices and base-year quantities. D. current prices and current quantities.

Sally drives an automobile she purchased several years ago. This year she bought gasoline and some parts and spent five hours making repairs. Which of the following is included in this year's GDP? A. the amount she paid to buy gasoline, new parts, and the value of her time making repairs. B. the amount she paid to buy gasoline and new parts, but not the value of her time. C. only the amount she paid to buy new parts. D. only the amount she paid to buy gasoline.

Suppose a country has government purchases of $3,000, taxes of $2,000, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $4,000. GDP equals $16,000. $15,800. $17,000. $17,550.

Suppose an economy produces only eggs and ham. In 2015, 100 dozen eggs are sold at $4.50 per dozen and 50 pounds of ham sold at $3 per pound. In 2014, the base year, eggs sold at $3 per dozen and ham sold at $4 per pound. For 2015 A. nominal GDP is $600, real GDP is $500, and the GDP deflator is 83.3 B. nominal GDP is $600, real GDP is $500, and the GDP deflator is 120 C. nominal GDP is $500, real GDP is $600, and the GDP deflator is 83.3 D. nominal GDP is $500, real GDP is $600, and the GDP deflator is 120

The GDP deflator equals A. nominal GDP divided by the inflation rate multiplied by 100. B. nominal GDP divided by real GDP multiplied by 100. C. real GDP divided by the inflation rate multiplied by 100. D. real GDP divided by nominal GDP multiplied by 100.

Tom an American resident crosses the border to work in Canada. Mike a Canadian resident crosses the border to work in the U.S. Whose production is included in U.S, GDP? A. Neither Tom's nor Mike's. B. Mike's but not Tom's. C. Tom's but not Mike's. D. Both Tom's and Mike's.

Which of the following components of GDP include your tuition payments? A. Investment B. Consumption of services C. Consumption of nondurable goods D. Consumption of durable goods

Which of the following correctly lists what is included in the consumption component of GDP? A. household purchases of nondurable goods and durable goods other than residential construction but not household purchases of services B. household purchases of services, nondurable goods, and durable goods other than residential construction C. household purchases of services, nondurable goods, and all durable goods D. household purchases of services and household purchases of nondurable goods but not any household purchases of durable goods

Which of the following is a correct statement? A. How equally income is distributed is accounted for when computing real GDP per person. B. The value of leisure time is excluded in the calculation of GDP per person. C. Rich and poor countries often have very similar standards of living. D. International data provides strong evidence that a nation's real GDP per person is not associated with other measures of the quality of life.

Which of the following is the way that Net National Product is calculated? A. Depreciation losses are added to the total income of a nation's citizens. B. Depreciation losses are subtracted from the total income of a nation's citizens. C. Saving is added to the total income of a nation's citizens. D. Saving is subtracted from the total income of a nation's citizens.

Which of the following items is included in U.S. GDP? A. the difference in the price of the sale of an existing home and its original purchase price B. goods produced by foreign citizens working in the United States C. known illegal activities D. None of the above is included in U.S. GDP.

which arrow includes payment made by a consumer for a new automobile? A. B B. C C. M D. L

B (payments made by households for goods and services)

flow of dollars from households to firms A. B and A B. M and K C. L and N D. C and D

B and A a represent the flow of funds to households through the market for goods and services

Table 23-6 The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2013 . Prices and Quantities Year Price of Waffles Quantity of Waffles Price of Pancakes Quantity of Pancakes 2010 $2.00 80 $1.00 100 2011 $2.00 100 $2.00 120 2012 $2.00 120 $3.00 150 2013 $4.00 150 $3.00 200 Refer to Table 23-6. In 2010, this country's nominal GDP was A. $620. B. $260. C. $440. D. $760.

B. $260.

One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2.00. Taking these four transactions into account, what is the effect on GDP? A. GDP increases by $3.00. B. GDP increases by $5.00. C. GDP increases by $6.00. D. GDP increases by $7.00. Hide Feedback

B. GDP increases by $5.00.

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard. Regarding these two practices, which of the following statements is correct? A. Only Joe's grocery store purchases are included in GDP. B. Only Joe's and Jim's grocery store purchases are included in GDP. C. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value. D. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value, if Jim provides this information

B. Only Joe's and Jim's grocery store purchases are included in GDP.

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has A. not caused any change in measured GDP. B. caused measured GDP to rise. C. probably changed measured GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted. D. caused measured GDP to fall.

B. caused measured GDP to rise.

14. Chapter mank07t, Section .165, Problem 026 Figure 23-1. Refer to Figure 23-1. Which of the following pairs correctly identify W and Y? A. markets for factors of production and markets for goods and services B. firms and households C. expenditures and income D. consumption and investment

B. firms and households

Suppose an economy produces only cranberries and maple syrup. In 2010, 50 units of cranberries are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit. In 2009, the base year, the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit. For 2010, A. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 90. B. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90. C. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 111.1. D. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 111.1.

B. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90.

Included or Excluded: Tasty's, a U.S. fast-food company, produces a hamburger at one of its many St. Louis locations on January 14, 2015. It sells the hamburger to a customer that same day.

Included

Included or Exculded: Chocolate Express, a Swiss chocolate company, produces a chocolate bar at a plant in Illinois on December 9, 2015. An elementary school student buys the chocolate bar on December 24.

Included

Fastlane, a Japanese automobile company, produces a sedan at a plant in Indiana on December 5, 2015. A family buys the sedan on December 30.

Included in GDP calculation

Tasty's, a U.S. fast-food company, produces a hamburger at one of its many St. Louis locations on January 18, 2015. It sells the hamburger to a customer that same day.

Included in GDP calculation

Juan, a Mexican citizen, works only in the United States. The value of the output he produces is A. included in both U.S. GDP and U.S. GNP. B. included in U.S. GNP, but it is not included in U.S. GDP. C. not included in either U.S. GNP or U.S. GDP. D. included in U.S. GDP, but it is not included in U.S. GNP.

Included in U.S GDP, but it is not included in U.S GNP

GDP

Includes the value of government services but not the value of services provided by major household appliances purchased in a previous period.

Recreational drugs are legalized and the sale of such drugs is now tracked and recorded by the government

Increase GDP

You hire a gardener to mow your lawn instead of mowing it yourself

Increase GDP

Bertha uses all of the following resources to prepare delicious breakfast meals at her café. Which of them is an example of human capital?

Bertha's unique recipes.

Blake is not looking for work because there have been many job cuts where he lives, and he doesn't think it is likely that he will find work. Sierra hasn't looked for work for six weeks, but she would like a job, and she has looked for work in the past. Who does the Bureau of Labor Statistics count as marginally attached workers?

Blake and Sierra Marginally attached workers are workers who are not currently working nor looking for work but have looked for work sometime in the recent past.

Suppose you make two purchases for yourself. Which of them is included in GDP?

Both a new textbook and a haircut.

The ______ is responsible for calculating and reporting the CPI.

Bureau of Labor Statistics

Recurrent swings (up and down) in Real GDP

Business Cycle

A U.S. firm produced cash registers in the first quarter of 2015 and added them to its inventory. In the second quarter of 2015 the firm sold the cash registers to a U.S. grocery store chain. In which quarter(s) does (do) these transactions raise investment? A. neither the first nor the second B. the second but not the first C. the first but not the second D. the first and the second

A macroeconomist is interested in A. explaining price changes in a particular market. B. explaining how changes in sellers' behavior affect prices of a particular good. C. explaining why the unemployment rate is higher. D. All of the above are correct.

Country A has a higher real GDP than Country B. Which of the following could make country B's standard of living higher than Country A's? A. Country B has a larger population but a difference in the GDP deflator does not matter. B. Country B has a larger population and a smaller GDP deflator. C. Country B has a smaller population but a difference in the GDP deflator does not matter. D. Country B has a smaller population and a smaller GDP deflator.

Country A has real GDP of $10,000,000 and a population of 200. Country B has real GDP of $20,000,000 and a population of 500. A. Average income per person is higher in Country B than country A. This doesn't necessarily mean that people in Country B are better off than people in Country A. B. Average income per person is higher in Country B than country A, so people in country B must be better off than people in Country A. C. Average income per person is higher in Country A than country B. This doesn't necessarily mean that the average person in country A is better off than the average person in Country B. D. Average income per person is higher in Country A than country B, so people in country A must be better off than people in Country B.

If the amount U.S. citizens earn abroad is larger than the amount foreign citizens working in the U.S. earn, then A. U.S. net factor payments from abroad are negative, and GNP is larger than GDP. B. U.S. net factor payments from abroad are negative, and GDP is larger than GNP. C. U.S. net factor payments from abroad are positive, and GNP is larger than GDP. D. U.S. net factor payments from abroad are positive, and GDP is larger than GNP.

If total spending rises from one year to the next, then which of the following could not be true? A. the economy is producing a larger output of goods and services, and goods and services are selling at higher prices. B. the economy is producing a larger output of goods and services, and goods and services are selling at lower prices. C. the economy is producing a smaller output of goods and services, and goods and services are selling at lower prices. D. the economy is producing a smaller output of goods and services, and goods and services are selling at higher prices.

In computing GDP, market prices are used to value final goods and services because A. market prices reflect the quantity sold. B. market prices do not change much over time, so it is easy to make comparisons between years. C. market prices reflect the values of goods and services. D. None of the above is correct; market prices are not used in computing GDP.

In the simple circular-flow model A. households save some of their income but the government does not buy goods or services. B. households save some of their income and the government buys goods and services. C. households spend all of their income but the government does not buy goods or services. D. households spend all of their income and the government buys goods and services.

Juan, a Mexican citizen, works only in the United States. The value of the output he produces is not included in either U.S. GNP or U.S. GDP. included in U.S. GNP, but it is A. not included in U.S. GDP. B. included in U.S. GDP, but it C. is not included in U.S. GNP. D. included in both U.S. GDP and U.S. GNP.

McDermott's builds a new restaurant and David purchases stock sold by McDermott's. A. the value of the new restaurant and the value of the new stock are excluded from GDP. B. the value of the new stock is included in GDP, but the value of the new restaurant is excluded from GDP. C. the value of the new restaurant is included in GDP, but the value of the new stock is excluded from GDP. D. the value of the new restaurant and the value of the new stock are included in GDP.

Of the following which is the best single measure of a country's economic well-being? A. investment per business firm. B. government expenditures per person. C. real GDP per person. D. nominal GDP per person.

Real GDP will decrease A. when prices decrease or output decreases. B. only when production of goods and services and prices decrease. C. only when production of goods and services decreases. D. only when prices decrease.

Shelly buys a new car for $10,000 and spends $200 on a used sofa. The end result of these two transactions is A. U.S. consumption purchases increase by $10,200 and U.S. GDP increases by $10,200. B. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,200. C. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,000. D. U.S. consumption purchases increase by $0 and U.S. GDP increases by $10,000.

Sheri, a U.S. citizen, does some consulting work in Germany. The value she adds to production in Germany is included A. in neither German GDP nor U.S. GDP. B. in U.S. GDP, but is not included in German GDP. C. in German GDP, but is not included in U.S. GDP. D. in both German GDP and U.S. GDP.

Suppose that because of changing preferences and social attitudes about leisure that people in some country chose to work fewer hours per week and the number of people employed falls. A. The change in real GDP definitely increases because it is not adjusted for the average hours worked per week. B. Real GDP would definitely increase because GDP is adjusted for the average hours worked per week. C. Real GDP would definitely decrease because it does not adjust for hours worked. D. Real GDP would definitely decrease, despite the fact that GDP is adjusted for hours worked.

Susan sells a house built several years ago. The house sells for $300,000, but $20,000 of this is her real estate agents' commission fee. How much does this transaction add to GDP? A. $300,000 B. $280,000 C. $20,000 D. $0

The value of a carwash A. is included in GDP whether it is sold in the market or the car owner washes her own car. B. is included in GDP only if a car owner washes her own car. C. is included in GDP only if it is sold in the market. D. is not included in GDP.

Which of the following statements about GDP is correct? A. GDP is generally not regarded as a measure of a society's economic wellbeing. B. Money continuously flows from households to firms and then back to households, but GDP does not measure this flow of money. C. GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services. D. The sum of wages, rents, and profits is less than a nation's income.

Rajiv and Simone Redondo live in Swarthmore, PA. Their son, Yakov, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Transaction Simone gets a new refrigerator made in the United States. The state of Pennsylvania repaves highway PA 320, which goes through the center of Swarthmore. Yakov buys a new set of tools to use in his plumbing business. Rajiv's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing facility in China. Rajiv buys a bottle of Italian wine.

C G C,I X C,M

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion? A. GDP necessarily decreases. B. GDP is unaffected because neither the rent nor the estimate of the value owner-occupied housing services is included in GDP. C. GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services. D. GDP necessarily increases.

C. GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services.

Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The end result of these two transactions is A. U.S. consumption purchases increase by $10,200 and U.S. GDP increases by $10,200. B. U.S. consumption purchases increase by $200 and U.S. GDP increases by $10,000. C. U.S. consumption purchases increase by $200 and U.S. GDP increases by $200. D. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,200.

C. U.S. consumption purchases increase by $200 and U.S. GDP increases by $200.

If foreign citizens earn less income in the U.S. than U.S. citizens earn in foreign countries, A. U.S. net factor payments from abroad are negative, and its GDP is larger than its GNP. B. U.S. net factor payments from abroad are positive, and its GDP is larger than its GNP. C. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP. D. U.S. net factor payments from abroad are negative, and its GNP is larger than its GDP.

C. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP.

In a simple circular-flow diagram, total income and total expenditure are A. equal only when the government purchases no goods or services. B. never equal because total income always exceeds total expenditure. C. always equal because every transaction has a buyer and a seller. D. seldom equal because of the ongoing changes in an economy's unemployment rate.

C. always equal because every transaction has a buyer and a seller.

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily, A. values of goods and services based on surveys of consumers. B. quantities purchased by a typical urban household. C. market prices. D. profits from producing goods and services.

C. market prices.

In a simple circular-flow diagram, firms A. purchase the output produced by households. B. receive income by selling resources to households. C. purchase resources from households. D. All of the above are correct.

C. purchase resources from households.

The ____ is the most commonly reported measure of inflation by the media A. GDP deflator B. CPI C. Down Jones Industrial Average D. unemployment rate

CPI

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 2% from 2013 to 2014?

CPI in 2013 = 110; CPI in 2014 = 112.2

The best measure for changes in the price level of a consumer basket of goods and services over time is the

CPI since it measures changes in the prices of a basket of goods and services consumed by a typical consumer over time

Inflation Rate Equation

CPI this year - CPI last year / CPI last year x 100

Which of the following is measured by the growth rate of real GDP per person?

Changes in the level of well-being in a country.

Consumption

Maria gets a haircut.

Consumption

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Teresa gets a new video camera made in the United States

Consumption

What category of GDP does this fall under?: US consumer pays $20,000 for 2017 US car

Consumption

What category of GDP does this fall under?: US firm pays $20,000 for US car

Consumption

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): Becky gets a new video camera made in the United States

Consumption

Consumption Imports

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Teresa buys a new BMW, which was assembled in Germany

Consumption Imports

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): Alex buys a bottle of Italian wine?

Consumption and Imports

What category of GDP does this fall under?: US firm pays $20,000 for 2017 Japanese car

Consumption and Imports; does not affect GDP as they cancel out

Which of the following components of GDP include your tuition payments?

Consumption of services

Kevin buys a sweater made in Guatemala.

Consumption, import

The decline in Real GDP that occurs after the economy has peaked

Contraction

Last year Country A had a population of 5 million, nominal GDP of 750,000 million, and a GDP deflator of 150. Country B had a population of 8 million, nominal GDP of 960,000 million and a GDP deflator of 160. Which country is likely to have the higher standard of living? A. Country A because it has the higher level of nominal GDP per person. B. Country A because it has the higher level of real GDP per person. C. Country B because it has the higher level of real GDP per person. D. Country B because it has the higher level of nominal GDP per person.

Country A because it has the higher level of real GDP per person

Country A because it has the higher level of real GDP per person.

other things the same, which of the following likely has the highest standard of living? A. Country C B. Country D C. Country A D. Country B

Country B

Country B because it has the higher level of real GDP per person.

Country A has a higher real GDP than Country B. Which of the following could make country B's standard of living higher than Country A's?

Country B has a smaller population but a difference in the GDP deflator does not matter.

Country A has a higher real GDP than Country B. Country B has a larger underground economy.

Country B's standard of living could be higher if it had a smaller population than Country A and if underground economic activity was added to GDP.

Country A has a higher real GDP than Country B. Country B has a larger underground economy. A. Country B's standard of living could be higher if it had a smaller population than Country A and if underground economic activity was added to GDP. B. Country B's standard of living could be higher if it had a larger population than Country A and if underground economic activity was added to GDP. C. Country B's standard of living could be higher if it had a larger population than Country A. Underground economic activity is already included in GDP. D. Country B's standard of living could be higher if it had a smaller population than Country A. Underground economic activity is already included in GDP.

Country B's standard of living could be higher if it had a smaller population that Country A and if underground economic activity was added to GDP

The Bureau of Labor Statistics produces data on unemployment and other aspects of the labor market from a regular survey of households, called the

Current Population Survey.

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP A. increases by $40. B. increases by $280. C. increases by $1500. D. increases by $220.

A U.S. company purchases new cement mixers that were made in the U.S. This purchase by itself makes A. a positive contribution to investment, but it does not affect GDP. B. a positive contribution to GDP, but it does not affect investment or consumption. C. a positive contribution both to consumption and to GDP. D. a positive contribution both to investment and to GDP.

A U.S. grocery chain purchases cans of sardines from a cannery in Morocco and sells them to U.S. consumers. In which of the following is this transaction included? A. neither U.S. consumption nor U.S. imports B. U.S. imports but not U.S. consumption C. U.S. consumption but not U.S. imports D. both U.S. consumption and U.S. imports

A U.S. hospital provides surgical services and a U.S. pharmacy sells prescription drugs. A. both the surgical services and the prescription drugs are excluded from GDP. B. only the prescription drugs are included in GDP. C. only the surgical services are included in GDP. D. both the surgical services and prescription drugs are included in GDP.

An economy recently had nominal GDP of 5 trillion euro and a GDP deflator of 125. What was real GDP? A. 6.25 trillion euro, but nominal GDP is a better gauge of economic activity than real GDP. B. 6.25 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP. C. 4 trillion euro, but nominal GDP is a better gauge of economic activity than real GDP. D. 4 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.

GDP does not reflect A. the value of goods and services produced at home. B. the quality of the environment. C. the value of leisure. D. All of the above are correct.

GDP is equal to A. Y. B. the market value of all final goods and services produced within a country in a given period of time. C. C + I + G + NX. D. All of the above are correct.

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP makes use of A. statistical estimates of the value of goods and services to consumers. B. prices based on the assumption that producers make no profits. C. the maximum amount consumers would be willing to pay. D. market prices.

Consumption

Spending by households on goods and services, with the exception of purchases of new housing.

Investment

Spending on capital equipment, inventories, and structures, including household purchases of new housing.

Net Exports

Spending on domesticallu produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports).

Government Purchases

Spending on goods and services by local, state, and federal governments.

GDP is the market value of all final goods and services produced within a country in a given period of time. T/F?

TRUE

If consumption is $4000, exports are $300, government purchases are $1000, imports are $400, and investment is $800, then GDP is $5700. T/F?

TRUE

The 2014 sale affected neither 2014 GDP nor 2011 GDP.

George lives in a home that was newly constructed in 2011 for which he paid $200,000.In 2014 he sold the house by himself for $250,000. Which of the following statements is correct regarding the sale of the house? A. The 2014 sale increased 2014 GDP by $250,000; furthermore, the 2014 sale caused 2011 GDP to be revised upward by $50,000. B. The 2014 sale affected neither 2014 GDP nor 2011 GDP. C. The 2014 sale increased 2014 GDP by $200,000 and had no effect on 2011 GDP. D. The 2014 sale increased 2014 GDP by $250,000 and had no effect on 2011 GDP.

The 2014 sale increased 2014 GDP by 250,000; furthermore, the 2014 sale caused 2011 GDP to be revised upward by $50,000

Which of the following statements is correct regarding the CPI and the GDP deflator?

The CPI is better than the GDP deflator at reflecting the prices of goods and services bought by consumers.

The GDP deflator is the most commonly reported indicator for inflation because: A. The GDP deflator is easier to measure than other indicators of inflation like the CPI. B. The GDP deflator is calculated more often than other measures of inflation like the CPI. C. The GDP deflator better reflects the prices of goods and services bought by consumers than other measures like the CPI. D. The GDP deflator is not more commonly reported than the CPI.

The GDP deflator is not more commonly reported than the CPI

A manufacturer produces 500,000 MP3 players in the first quarter of the year. It sells 400,000 of them and adds 100,000 of them to inventory. All the players added to inventory are purchased by consumers in the second quarter. How are the 100,000 that go into inventory counted in GDP? A. Since the MP3 players eventually will be bought by consumers, they will be included as consumption in the first quarter. B. The MP3 players will be counted as a change in inventory in the first quarter, and so will be included in first quarter GDP as part of investment. C. The MP3 players will be counted as a change in inventory in the first quarter, and when sold in the second quarter will raise GDP by the value of the MP3 players. D. Since the MP3 players were purchased by consumers in the second quarter, they will be counted as an increase in second- quarter GDP.

The MP3 players will be counted as a change in inventory in first quarter, and so will be included in first quarter GDP as part of investment.

The MP3 players will be counted as a change in inventory in the first quarter, and so will be included in first quarter GDP as part of investment.

which arrow includes wages paid by firms? A. B B. L C. C D. D

LOL

When economists refer to intangible items, they are referring to such things as

Legal and medical services, and the value of such items is included in GDP.

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP primarily makes use of

Market Prices

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP primarily makes use of A. market prices. B. market prices minus the costs of production. C. an estimate of the costs of production. D. quantities produced.

Market prices

The gross domestic product (GDP) of the United States is defined as the _______ all ___________ ___________ in a given period of time.

Market value of, Final goods and services produced, within the united states

Which of the following countries is a middle-income country, which over the past century had a higher rate of economic growth than the United States?

Mexico

Tom an American resident crosses the border to work in Canada. Mike a Canadian resident crosses the border to work in the U.S. Whose production is included in U.S, GDP?

Mike's but not Tom's.

Tom an American resident crosses the border to work in Canada. Mike a Canadian resident crosses the border to work in the U.S. Whose production is included in U.S, GDP? A. Both Tom's and Mike's. B. Mike's but not Tom's. C. Neither Tom's nor Mike's. D. Tom's but not Mike's.

Mikes but not tom

GDP minus the capital consumption allowance

Net Domestic Product

Is this included in GDP?: Graincorp, a U.S. agricultural company, produces corn syrup at a plant in Iowa on September 19, 2017. It sells the corn syrup to Crunchy's for use in the production of cereal that will be made in the United States in 2017. (Note: Focus exclusively on whether production of the corn syrup increases GDP directly, and ignore the effect of production of the cereal on GDP.)

No; Because Crunchy's uses the corn syrup that Graincorp produces in the production of cereal, the corn syrup is considered an intermediate good, not a final good and, therefore does not directly increase the GDP of the United States. However, the price of the cereal will include the value of the corn syrup. Therefore, the market value of the corn syrup will enter GDP as part of the market value of the final good, the cereal.

Is this included in GDP?: Calculo, a U.S. electronics company, produces a calculator at a plant in Indonesia on March 17, 2017. Calculo imports the calculator into the United States on May 21, 2017.

No; Calculo is a U.S. company, but because it produces the calculator in Indonesia, the output will be part of the GDP of Indonesia, not the GDP of the United States.

Is this included in GDP?: You chop down a cherry tree on your property in California and make a dining room table in 2017. A similar table sells for $800 in a local furniture store.

No; In theory, the market value of the cherry table should be included in GDP, but because estimating the value of do-it-yourself activities is difficult, such items are generally excluded when the Bureau of Economic Analysis calculates the value of U.S. GDP.

GDP Deflator Equation

Nominal GDP/Real GDP x 100

Industrial machinery is an example of

Physical capital

Real GDP Equation

Price of Base Year x Quantity of current year

What is measured by the level of real GDP divided by hours worked over that year?

Productivity for a given year.

Related to GDP, Investment is...

Purchases of goods (such as capital equipment, structures, and inventories).

What is an inventory?

Raw materials not used in the period

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Real GDP is not influenced by price changes, but nominal GDP is

Suppose that productivity grew faster in Country A than in Country B, while the population and total hours worked remained the same in both countries.

Real GDP per person grew faster in Country A than in Country B.

Suppose that because of changing preferences and social attitudes about leisure that people in some country chose to work fewer hours per week and the number of people employed falls. A. Real GDP would definitely decrease, despite the fact that GDP is adjusted for hours worked. B. Real GDP would definitely increase because GDP is adjusted for the average hours worked per week. C. The change in real GDP definitely increases because it is not adjusted for the average hours worked per week. D. Real GDP would definitely decrease because it does not adjust for hours worked.

Real GDP would definitely decrease because it does not adjust for hours worked

Suppose that because of changing preferences and social attitudes about leisure that people in some country chose to work fewer hours per week and the number of people employed falls.

Real GDP would definitely decrease because it does not adjust for hours worked.

A rise in Real GDP from the trough (of the business cycle) to the initial peak

Recovery

Darnell and Eleanor Cohen live in Swarthmore, PA. Eleanor's father, Jacques, lives in Sweden. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Darnell's employer grades all of its computer systems using U.S.-made parts

Investment

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Andrew buys a new set of tools to use in his plumbing business.

Investment

The Singhs build an addition on their house.

Investment

What category of GDP does the creation of housing fall under?

Investment

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): Alex's employer upgrades all of its computer systems using U.S.-made parts.

Investment

When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the ________ component of GDP while also ________ net exports by the same amount. Therefore, the purchase of wood from Brazil causes _______ in U.S. GDP

Investment Decreasing No Overall Change

What is GDP used for?

It is used to look at the total income of the economy to see how it is doing.

Suppose that twenty-five years ago a country had nominal GDP of $2,000,000, a GDP deflator of 100, and a population of 200. Today it has nominal GDP of $3,000,000 a GDP deflator of 200, and population of 150. What happened to the real GDP per person?

It was unchanged.

The U.S. computes that $3 trillion of GDP was produced in the second quarter of 2014. What, if any, adjustments will it make to this number when it reports GDP for the second quarter?

It will adjust for seasonality and multiple by four.

Over the last century, which of the following countries had the highest growth rate of real GDP per person?

Japan

In Canada, real GDP per person was $2,397 in 1870 and $38,370 in 2010. The growth rate was 2.00% per year. Which of the following is true?

The growth rate of 2.00% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over the period.

In Japan, real GDP per person was $1,517 in 1890 and $34,810 in 2010. The growth rate was 2.65% per year. Which of the following is true?

The growth rate of 2.65% per year ignores short-run fluctuations around the long-run trend.

Gross Domestic Product (GDP)

The market value of all final goods and services produced within a country in a given period of time.

Inflation Rate

The percentage change in some measure of the price level from one period to the next.

Real GDP

The production of goods and services valued at constant prices.

Nomial GDP

The production of goods and services valued at current prices.

In the first quarter of the year, Real GDP was $400 billion; in the second quarter it was $398 billion; in the third quarter it was $399 billion; and in the fourth quarter it was $395 billion. Has a recession occurred? Why or why not?

The standard definition of a recession is that it occurs when Real GDP declines for two consecutive quarters. In this case, a recession has not taken place.

Given that two countries have the same GDP, which of the following is true?

The two countries may have different per capita GDP

Which of the following is a correct statement?

The value of leisure time is excluded in the calculation of GDP per person.

An American company operates a coffeehouse in Lisbon, Portugal. Which of the following statements is accurate?

The value of the goods and services produced by the coffeehouse is included in Portuguese GDP, but not in U.S. GDP.

John restores cars. He buys a 1964 Mustang, new parts and paint, and spends time restoring it. He then sells the car. Which of the following is included in GDP?

The value of the new parts and paint, the value of John's time, but not his purchase of the old car.

John restores cars. He buys a 1964 Mustang, new parts and paint, and spends time restoring it. He then sells the car. Which of the following is included in GDP? A. Only the value of the new parts and paint. B. The value of the new parts and paint, the value of John's time and his purchase of the old car. C. The value of the new parts and paint, the value of John's time, but not his purchase of the old car. D. Only the value of John's time.

The value of the new parts and paint, the value of johns time, but not his purchase of the old car

A business firm produces a good this year that doesn't sell. As a result, the good is added to the firm's inventory. How does this inventory good find its way into GDP?

Through unplanned inventory investment

shelly buys a new car for $10,000 and spends $200 on a used sofa. The end result of these two transactions is A. U.S. consumption purchases increase by $0 and U.S. GDP increases by $10,000. B. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,200. C. U.S. consumption purchases increase by $10,200 and U.S. GDP increases by $10,200. D. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,000.

U.S consumption purchases increase by $10,000 and U.S GDP increases by $10,000

Sally buys used textbooks for $600 and new textbooks for $800 that are made in the U.S. As a result A. U.S. consumption purchases increase by $800 and U.S. GDP increases by $800. B. U.S. consumption purchases increase by $1,400 and U.S. GDP increases by $800. C. U.S. consumption purchases increase by $1,400 and U.S. GDP increases by $1,400. D. U.S. consumption purchases increase by $800 and U.S. GDP increases by $1,400.

U.S consumption purchases increase by $800 and U.S GDP increases by $800

If a U.S. company buys brewing equipment made in Germany by a German firm, the other things the same A. U.S. imports increase and so U.S. net exports increase. B. U.S. imports increase and so U.S. net exports decrease. C. U.S. exports increase and so U.S net exports increase. D. U.S. exports increase and so U.S. net exports decrease.

U.S imports increase and so U.S net exports decrease

If a U.S. company buys a computer server made in China by a Chinese firm, and the Chinese firm uses the payment to buy stocks issued by a U.S. company then other things the same A. U.S. exports and U.S imports increase. B. U.S. imports increase but U.S. exports are unchanged. C. U.S. exports decrease, U.S. imports are unchanged. D. U.S. exports increase, but U.S. imports are unchanged.

U.S imports increase but U.S exports are unchanged

EZ Rental Car buys cars from a Japanese owned car manufacturer who produces the cars in the U.S. Which of the following is correct? A. There is no effect on U.S. investment, or U.S. GDP. B. U.S. investment and GDP increase by the same amount. C. U.S. investment increases, but GDP increases by a smaller amount. D. U.S. investment increases, but U.S. GDP does not.

U.S investment and GDP increase by the same amount.

The expenditure approach to computing GDP includes

U.S. and foreign spending on U.S. goods

Shelly buys a new car for $10,000 and spends $200 on a used sofa. The end result of these two transactions is

U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,000.

Sally buys used textbooks for $600 and new textbooks for $800 that are made in the U.S. As a result

U.S. consumption purchases increase by $800 and U.S. GDP increases by $800.

If a U.S. company buys brewing equipment made in Germany by a German firm, the other things the same

U.S. imports increase and so U.S. net exports decrease.

If a U.S. company buys a computer server made in China by a Chinese firm, and the Chinese firm uses the payment to buy stocks issued by a U.S. company then other things the same

U.S. imports increase but U.S. exports are unchanged.

If the amount U.S. citizens earn abroad is larger than the amount foreign citizens working in the U.S. earn, then

U.S. net factor payments from abroad are positive, and GNP is larger than GDP.

Inflation

Used to describe a situation in which the economy's overall price level is rising.

How do we measure a nation's income?

Using the circular-flow diagram and using an income slice by measuring wages

A U.S. company purchases new cement mixers that were made in the U.S. This purchase by itself makes A. a positive contribution both to investment and to GDP. B. a positive contribution to GDP, but it does not affect investment or consumption. C. a positive contribution to investment, but it does not affect GDP. D. a positive contribution both to consumption and to GDP.

a postive contribution both to investment and to GDP

Which of the following is an example of a durable good?

a television

Which of the following is an example of a durable good? A. a pair of socks B. an ice cream cone C. a television D. gasoline

a television

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. a. The costs of overfishing and other overly intensive uses of resources b. Expenditures on federal highways c. The variety of goods available to consumers d. The value produced by doing your own laundry

a, c, d.

If nominal GDP is $10,000 and real GDP is $8,000, then the GDP deflator is 125. a. TRUE b. FALSE

a. TRUE

Which of the following describes natural resources?

Wind energy.

GDP Formula

Y = C + I + G + (X - M) C = consumption I = Investment G = Govt purchases X = Exports M = Imports

Refer to the Figure. Which of the following pairs correctly identify households and firms respectively?

Y and W

Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that apply. The $350 Larry spends to purchase medical services from the Medical Clinic The $375 per week Larry earns working for Spotless Car Wash The car wash Megan receives

Yes No No

Is this included in GDP?: Chocolate Express, a Swiss chocolate company, produces a chocolate bar at a plant in Illinois on December 12, 2017. An elementary school student buys the chocolate bar on December 24.

Yes; Although Chocolate Express is a Swiss company, the chocolate bar is produced within the United States and should be included in the GDP of the United States.

Is this included in GDP?: Awake Cafe, a U.S. coffee company, produces a latte at its location in Minneapolis on January 9, 2017. It sells the latte to a customer immediately.

Yes; The Awake Cafe example is straightforward and should clearly count as something produced in the United States in 2017.

which of the following is included in the government purchases component of GDP? A. the federal government buys fighter jets, a state government repairs highways, a local government pays its police B. the federal government buys fighter jets, a local government pays its police, but not a state government repairs highways. C. a state government repairs highways, a local government pays its police, but not the federal government buys fighter jets. D. the federal government buys fighter jets, a state government repairs highways, but not a local government pays its police.

the federal government buys fighter jets, a state government repairs local highways, a local government pays its police

the first but not the second

A U.S. firm produced cash registers in the first quarter of 2015 and added them to its inventory. In the second quarter of 2015 the firm sold the cash registers to a U.S. grocery store chain. In which quarter(s) does (do) these transactions raise investment? A. the second but not the first B. neither the first nor the second C. the first and the second D. the first but not the second

the first but not the second

GDP equals: A. the wages paid to all domestic residents, less taxes. B. the market value of all final goods and services produced within a country in a given period of time. C. the market value of all final goods and services produced by domestic residents minus profits made by domestic firms. D. the quantities of all final goods and services produced by domestic residents.

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

GDP equals:

the market value of all final goods and services produced within a country in a given period of time.

in a simple circular-flow diagram A. money flows from households to firms in the factor markets. B. profits remain at firms and are not paid out to households. C. the money that flows from households to firms equals expenditure. D. money flows from firms to households in the markets for goods and services.

the money that flows from households to firms equals expenditure

In a simple circular-flow diagram,

the money that flows from households to firms equals expenditure.

Collective bargaining refers to

the process by which unions and firms agree on the terms of employment.

Gross domestic production is equal to

the total income of everyone in the economy, and the total expenditure on the economy's output of goods and services.

Gross domestic production is equal to A. the total income of everyone in the economy, and the total expenditure on the economy's output of goods and services. B. the total expenditure on the economy's output of goods and services, but not the total income of everyone in the economy. C. neither the total income of everyone in the economy, nor the total expenditure on the economy's output of goods and services. D. the total income of everyone in the economy, but not the total expenditure on the economy's output of goods and services.

the total income of everyone in the economy, and the total expenditure on the economys output of goods and services

during recessions what happens to profits and the unemployment rate? A. both rise. B. profits rise and the unemployment rate falls. C. the unemployment rate rises and profits fall. D. both fall.

the unemployment rate rises and profits fall

During recessions what happens to profits and the unemployment rate?

the unemployment rate rises and profits fall.

Which of the following is a correct statement? A. International data provides strong evidence that a nation's real GDP per person is not associated with other measures of the quality of life. B. The value of leisure time is excluded in the calculation of GDP per person. C. How equally income is distributed is accounted for when computing real GDP per person. D. Rich and poor countries often have very similar standards of living.

the value of leisure time is excluded in the calculation of GDP per person

An American company operates a coffeehouse in Lisbon, Portugal. Which of the following statements is accurate? A. The value of the goods and services produced by the coffeehouse is included in both B. Portuguese GDP and U.S. GDP. B. The value of the goods and services produced by the coffeehouse is included in Portuguese GDP, but not in U.S. GDP. C. The value of the goods and services produced by the coffeehouse is included in U.S. GDP, but not in Portuguese GDP. D. The value added by American workers and equipment in Portugal is included in U.S. GDP and the value added by Portuguese workers and equipment is included in Portuguese GDP.

the value of the goods and services produced by the coffeehouse is included in portuguese GDP, but not in U.S GDP

McDermott's builds a new restaurant and David purchases stock sold by McDermott's. A. the value of the new stock is included in GDP, but the value of the new restaurant is excluded from GDP. B. the value of the new restaurant and the value of the new stock are excluded from GDP. C. the value of the new restaurant and the value of the new stock are included in GDP. D. the value of the new restaurant is included in GDP, but the value of the new stock is excluded from GDP.

the value of the new restaurant is included in GDP, but the value of the new stock is excluded from GDP

McDermott's builds a new restaurant and David purchases stock sold by McDermott's.

the value of the new restaurant is included in GDP, but the value of the new stock is excluded from GDP.

Because every transaction has a buyer and a seller the expenditure on an economy's goods and services is equal to its income.

true

GDP excludes most underground economic activity. The amount of underground economic activity tends to be larger relative to real GDP in countries that are less developed than in countries that are developed.

true

GDP is not adjusted to account for differences in the quality of the environment such as air quality and access to safe water.

true

GDP measures both an economy's production and its expenditures.

true

In the circular-flow diagram households receive income from wages, rents, and profits

true

In the circular-flow diagram households receive income from wages, rents, and profits.

true

In the circular-flow diagram there are two markets one for goods and one for factors of production.

true

Real GDP uses constant base year prices to place a value on the economy's production of goods and services, while nominal GDP uses current prices to place a value on the economy's production of goods and services.

true

The government purchases component of GDP includes salaries paid to soldiers but not Social Security benefits paid to the elderly.

true

The investment component of GDP includes changes in inventories.

true

True or False: In the circular-flow diagram households receive income from wages, rents, and profits.

true

True or false: Jenny earned a salary of $55,000 in 2010 and a salary of $60,000 in 2014. The consumer price index in 2010 was 220.5. The consumer price index was 236.2 in 2014. Jenny's 2010 salary in 2014 dollars is $58,916.

true

Suppose the fictional country of Meria removes trade restrictions on its own. Meria has decided to use what type of approach to free trade?

unilateral approach.

GDP is defined as the: A. value of all goods and services produced by domestic residents of a country in a given period of time. B. value of all final goods and services produced by domestic residents of a country in a given period of time. C. value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. D. value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

value of all final goods and services produced by domestic residents of a country in a given period of time

GDP is defined as the:

value of all final goods and services produced by domestic residents of a country in a given period of time.

In a simple circular-flow diagram, households buy goods and services with the income they get from

wages, rent, and profits

In a simple circular-flow diagram, households buy goods and services with the income they get from A. wages B. wages and profits C. wages, rent and profits D. wages and rent

wages, rent, and profits

In a simple circular-flow diagram, households buy goods and services with the income they get from

wages, rent, and profits.

Which is the largest component of GDP? a. consumption b. investment c. govt purchases d. net exports

a. consumption

With the value of money on the vertical axis, the money supply curve is

a. vertical because we assume the central bank controls the money supply.

When deciding how much to save, people care most about

after-tax real interest rates.

Country A has real GDP of $10,000,000 and a population of 200. Country B has real GDP of $20,000,000 and a population of 500. A. Average income per person is higher in Country A than country B, so people in country A must be better off than people in Country B. B. Average income per person is higher in Country B than country A, so people in country B must be better off than people in Country A. C. Average income per person is higher in Country B than country A. This doesn't necessarily mean that people in Country B are better off than people in Country A. D. Average income per person is higher in Country A than country B. This doesn't necessarily mean that the average person in country A is better off than the average person in Country B.

average income per person is higher in country A than country B. this doesn't necessarily mean that the average person in country A is better off than the average person in country B

If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as _____________ hamburgers. a. 5 b. 15 c. 30 d. 60

b. 15 (2x30 = 60/4 = 15)

If Brazil buys $100 million of tractors from the U.S., then U.S. net exports will decrease. a. TRUE b. FALSE

b. FALSE

Nominal GDP uses constant base-year prices to place a value on the economy's production of goods and services, while real GDP uses current prices to place a value on the economy's production of goods and services. a. TRUE b. FALSE

b. FALSE

If all quantities produced rise by 10 percent and all prices fall by 10 percent, which of the following occurs? a. Real GDP rises by 10 percent, while nominal GDP falls by 10 percent. b. Real GDP rises by 10 percent, while nominal GDP is unchanged. c. Real GDP is unchanged, while nominal GDP rises by 10 percent. d. Real GDP is unchanged, while nominal GDP falls by 10 percent.

b. Real GDP rises by 10 percent, while nominal GDP is unchanged.

Nominal GDP measures

b. the dollar value of the economy's output of final goods and services.

Real GDP is computed using A. base-year prices and current quantities. B. base-year prices and base-year quantities. C. current prices and current quantities. D. current prices and base-year quantities.

base-year prices and current quantities

Real GDP is computed using

base-year prices and current quantities.

Derrick worked part time for his mother's business without pay. Tyler was absent from work because he had the flu. The Bureau of Labor Statistics counts

both . People who work part time for a family business and people temporarily absent from work due to weather, illness, or vacation are both counted as employed.

If you buy pizza at your favorite local pizzeria,

both GDP and consumption spending will be higher.

A U.S. grocery chain purchases cans of sardines from a cannery in Morocco and sells them to U.S. consumers. In which of the following is this transaction included? A. both U.S. consumption and U.S. imports B. U.S. imports but not U.S. consumption C. neither U.S. consumption nor U.S. imports D. U.S. consumption but not U.S. imports

both U.S consumption and U.S imports

A U.S. grocery chain purchases cans of sardines from a cannery in Morocco and sells them to U.S. consumers. In which of the following is this transaction included?

both U.S. consumption and U.S. imports

Suppose you make two purchases for yourself. Which of them is included in GDP? A. A haircut, but not a new textbook. B. Neither a haircut nor a new textbook. C. Both a new textbook and a haircut. D. A new textbook, but not a haircut.

both a new textbook, but not a haircut

if you buy pizza at your favorite pizzeria, A. neither GDP nor consumption is changed, because pizza is not a durable good. B. GDP will be unchanged, but consumption spending will be higher. C. both GDP and consumption spending will be higher. D. GDP will be higher, but consumption spending will be unchanged.

both gdp and consumption spending will be higher

A U.S. hospital provides surgical services and a U.S. pharmacy sells prescription drugs. A. both the surgical services and prescription drugs are included in GDP. B. only the prescription drugs are included in GDP. C. both the surgical services and the prescription drugs are excluded from GDP. D. only the surgical services are included in GDP.

both the surgical services and prescription drugs are included in GDP

A U.S. hospital provides surgical services and a U.S. pharmacy sells prescription drugs.

both the surgical services and prescription drugs are included in GDP.

Which of the following are examples of transfer payments?

both unemployment benefits and social security payments

The inflation rate is calculated

by determining the percentage change in the price index from the preceding period.

Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What's GDP here? a. $40 b. $60 c. $80 d. $100

c. $80 (2x$40)

An American buys a pair of shoes manufactured in Italy. How do the U.S. national income accounts treat the transaction. a. Net exports and GDP both rise. b. Net exports and GDP both fall. c. Net exports fall, while GDP is unchanged. d. Net exports are unchanged, while GDP rises.

c. Net exports fall, while GDP is unchanged.

When a country takes a multilateral approach to free trade, it

c. reduces its trade restrictions while other countries do the same.

Coffee is weighted more than tea in the calculation of the CPI if

consumers buy more coffee than tea. Weights in the CPI are determined by the importance of the good to the consumer.

Which of the following components of GDP include your tuition payments? A. Consumption of durable goods B. Consumption of services C. Investment D. Consumption of nondurable goods

consumption of services

Last year Country A had a population of 16 million, nominal GDP of 480,000 million, and a GDP deflator of 120. Country B had a population of 10 million a nominal GDP of 400,000 million and a GDP deflator of 125. Which country is likely to have the higher standard of living? A. Country A because it has the higher level of nominal GDP per person. B. Country A because it has the higher level of real GDP per person. C. Country B because it has the higher level of real GDP per person. D. Country B because it has the higher level of nominal GDP per person.

country B because it has the higher level of real GDP per person

Country A has a higher real GDP than Country B. Which of the following could make country B's standard of living higher than Country A's? A. Country B has a smaller population and a smaller GDP deflator. B. Country B has a larger population and a smaller GDP deflator. C. Country B has a larger population but a difference in the GDP deflator does not matter. D. Country B has a smaller population but a difference in the GDP deflator does not matter.

country B has a smaller population but a difference in the GDP deflator does not matter

Which of the following does NOT add to U.S. GDP? a. Air France buys a pla e from Boeing, the U.S. aircraft manufacturer. b. General Motors builds a new auto factory in North Carolina c. The city of New York pays a salary to a policeman d. The federal government sends a Social Security check to your grandmother.

d. The federal government sends a Social Security check to your grandmother.

The federal funds rate is the interest rate

d. banks charge each other for short-term loans of reserves.

which of the following is the way that Net national product is calculated? A. Saving is subtracted from the total income of a nation's citizens. B. Depreciation losses are subtracted from the total income of a nation's citizens. C. Depreciation losses are added to the total income of a nation's citizens. D. Saving is added to the total income of a nation's citizens

depreciation losses are subtracted from the total income of a nations citizens

The official government unemployment rate (U-3) fails to fully capture labor utilization because it does not capture

discouraged workers. The official unemployment rate does not count discouraged workers as being in the labor force. Since these workers are able to work, they should be considered in labor utilization.

When nominal GDP rises, we can be certain that A. prices must have risen. B. both prices and quantities of goods and services must have risen. C. either prices or quantities of goods and services must have risen. D. quantities of goods and services produced must have risen.

either prices or quantities of goods and services must have risen

The gross domestic production of a country

equals the income of its residents

the gross domestic production of a country A. is greater than the income of its residents. B. is less than the income of its residents. C. could be less than, equal to, or greater than the income of its residents. D. equals the income of its residents.

equals the income of its residents

The gross domestic production of a country

equals the income of its residents.

Unemployment benefits are

excluded from GDP because they do not reflect the economy's current production.

Unemployment benefits are A. included in GDP because they represent current income. B. excluded from GDP because they do not reflect the economy's current production. C. excluded from GDP because taxes are raised to finance them. D. included in GDP because they represent potential consumption.

excluded from GDP because they do not reflect the economys current production

GDP: A. includes most goods and services produced at home and most goods and services produced illegally. B. excludes most goods and services produced at home but includes most goods and services produced illegally. C. excludes most goods and services produced at home and most goods and services produced illegally. D. includes most goods and services produced at home but excludes most goods and services produced illegally.

excludes most goods and services produced at home and most goods and services produced illegally

GDP:

excludes most goods and services produced at home and most goods and services produced illegally.

Net Exports Equation

exports - imports

A U.S. consumer buys toys made in China. The value of the toys is included only in the consumption component of GDP.

false

A country with a higher level of real GDP per person necessarily has a higher standard of living than a country with a lower level of real GDP per person.

false

An increase in total spending from one year to the next means that an economy's production of goods and services has risen.

false

Both education expenditures and new home construction are included in the consumption component of GDP.

false

If real GDP rises and the GDP deflator falls, then it must be that nominal GDP rose.

false

In the circular-flow diagram households receive income only from wages.

false

The consumer price index is the only measure of inflation used in the United Sates.

false

True or False: the real GDP rises and the GDP deflator falls, then it must be that nominal GDP rose

false

True or false: Nominal GDP is a better gauge of economic well-being than real GDP

false

True or false: The best single measure of a country's economic well-being is its nominal GDP per person.

false

True or false: both education expenditures and new home construction are included in the consumption component of a GDP

false

True or false: factors of production include only physical capital such as business structures and business equipment

false

True or false: if the GDP deflator in 2015 was 210 and the GDP deflator in 2014 was 200, then the inflation rate in 2015 was 10%.

false

From 1890 to 2010, countries with lower levels of real GDP per person than the United States all had growth rates that are lower than that of the United States.

false In some cases, countries that had lower levels of real GDP per person than the United States had growth rates that were higher than that of the United States. In other cases, countries with lower levels of real GDP per person had lower growth rates than that of the United States.

The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs. Based on this model, households earn income when _______ purchase __________in markets for factors of production.

firms, Labor and capital

Based on this model, households earn income when _______ purchase _________ in markets for factors of production.

firms; labor and capital

If the price of a shirt is five times the price of a pair of socks, then a shirt contributes A. exactly as much as a pair of socks does to GDP. B. more than five times the price of a pair of socks if shirt-makers make greater profits than sock-makers. C. less than five times the price of a pair of socks if shirt-makers make greater profits than sock-makers. D. five times the price of a pair of socks does to GDP.

five times the price of a pair of socks does to GDP

If the price of a shirt is five times the price of a pair of socks, then a shirt contributes

five times the price of a pair of socks does to GDP.

Which of the following is not a common argument in favor of restricting trade?

free trade increases total surplus in the domestic market for the traded good.

Rudy has graduated from college and is devoting his time to searching for a job. He has seen plenty of openings but has not yet been offered one that best suits his tastes and skills. Rudy is

frictionally unemployed. Frictional unemployment exists even in the long run. Frictional unemployment is created by the time it takes for job seekers and employers to find a good match. Structural unemployment is created by above equilibrium wages. Both types of unemployment exist even in the long run, they are not created by the business cycle.

international data on GDP and socioeconomic variables indicates that in countries with low levels of real GDP per person, socioeconomic variables indicating a better quality of life are A. generally significantly lower than in countries with higher levels of real GDP per person. B. mostly similar to those in countries with higher levels of real GDP per person. C. significantly higher about as often as they are significantly lower for those countries with higher levels of real GDP person. D. generally significantly higher than in countries with higher levels of real GDP per person.

generally significantly lower than in countries with higher levels of real GDP per person

International data on GDP and socioeconomic variables indicate that in countries with low levels of real GDP per person, socioeconomic variables indicating a better quality of life are

generally significantly lower than in countries with higher levels of real GDP per person.

Which of the following items is included in U.S. GDP?

goods produced by Mexican citizens working in the United States

Which of the following items is included in U.S. GDP? A. all known illegal activities B. Both intermediate and final goods C. goods produced by Mexican citizens working in the United States D. the difference in the price of the sale of an existing home and its original purchase price

goods produced by mexican citizens working in the United States

What are intermediate goods?

goods used in the production of other goods (ex. eggs sold to consumer and put into a cake sold at a bakery)

Given that it takes only 35 years for an initial value to double if there is a 2 percent growth rate, we can conclude that ___

growth rates are compounding. If growth rates were not compounding and we were only applying the percentage change to the initial value each time, it would take 50 years to double. Real GDP per person changes over time, and countries with lower initial values can overtake countries with higher initial values by achieving higher growth rates over time.

The labor-force participation rate tells us the fraction of the population that

has chosen to participate in the labor market.

which of the following is not included in the consumption component of GDP? A. household purchases of appliances. B. household purchases of food sold in the U.S. but purchased abroad. C. household purchases of newly constructed homes. D. household purchases of medical care.

household purchases of newly constructed homes

Which of the following is not included in the consumption component of GDP?

household purchases of newly constructed homes.

In the simple circular- flow model A. households spend all of their income and the government buys goods and services. B, households save some of their income and the government buys goods and services. C. households save some of their income but the government does not buy goods or services. D. households spend all of their income but the government does not buy goods or services.

households spend all of their income but the government does not buy goods or services

In the simple circular-flow model

households spend all of their income but the government does not buy goods or services

In the simple circular-flow model

households spend all of their income but the government does not buy goods or services.

If workers increase the amount of training that they obtain, they are increasing their _

human capital.

The CPI is able to measure changes in the quality of goods over time

imprecisely because it is relatively complicated to measure quality changes.

Sheri, a U.S. citizen, does some consulting work in Germany. The value she adds to production in Germany is included

in German GDP, but is not included in U.S. GDP.

Sheri, a U.S. citizen, does some consulting work in Germany. The value she adds to production in Germany is included A. in both German GDP and U.S. GDP. B. in U.S. GDP, but is not included in German GDP. C. in neither German GDP nor U.S. GDP. D. in German GDP, but is not included in U.S. GDP.

in german GDP, but is not included in U.S GDP

Juan, a Mexican citizen, works only in the United States. The value of the output he produces is

included in U.S. GDP, but it is not included in U.S. GNP.

A U.S. company produces bicycle helmets some of which go into inventory, and are not sold during the current period. The helmets that go into inventory are A. counted as intermediate goods and so are not included in current period GDP. B. included in current period GDP as inventory investment. C. included in current period GDP as consumption. D. counted as intermediate goods and so are included in current period GDP.

included in current period GDP as inventory investment

A U.S. company produces bicycle helmets some of which go into inventory, and are not sold during the current period. The helmets that go into inventory are

included in current period GDP as inventory investment.

The underground economy A. is mostly accounted for in GDP. B. includes otherwise legal transactions that go unreported or unrecorded. C. in the United States is insignificant in size when compared to the official measure of GDP. D. is larger relative to GDP for developed countries than for developing countries.

includes otherwise legal transactions that go unreported or unrecorded

The underground economy

includes otherwise legal transactions that go unreported or unrecorded.

Goods and services are represented by

inside arrows

a farmer produces potatoes, and sells them to a company which uses them all to make potato chips. The potatoes produced by the farmer are called A. inventory goods B. final goods C. intermediate goods D. transitory goods

intermediate goods

A farmer produces potatoes, and sells them to a company which uses them all to make potato chips. The potatoes produced by the farmer are called

intermediate goods.

if nominal GDP is three times its old value and the GDP deflator is twice its old value, then real GDP A. is 6 times its original value. B. is 2.5 times its original value. C. is 1.5 times its original value. D. is 5 times its original value.

is 1.5 times its original value

If nominal GDP is three times its old value and the GDP deflator is twice its old value, then real GDP

is 1.5 times its original value.

The value of a carwash: A. is not included in GDP B. is included in GDP only if a car owner washes her own car C. is included in GDP whether it is sold in the market o the car owner washer her own car D. is included in GDP only if it is sold in the market

is included in GDP only if it is sold in the market

The value of a carwash

is included in GDP only if it is sold in the market.

Gross national product (GNP)

is the total income earned by a nation's permanent residents (called nationals) t differs from GDP in that it includes income that our citizens earn abroad and excludes income that foreigners earn here.

it was unchanged

The U.S. computes that $3 trillion of GDP was produced in the second quarter of 2014. What, if any, adjustments will it make to this number when it reports GDP for the second quarter? A. It will make no adjustments. B. It will only multiple by four. C. It will adjust for seasonality and multiple by four. D. It will only adjust for seasonality.

it will adjust for seasonality and mutilple by four

when economists refer to intangible items, they are referring to such things as A. Public parks and schools, and the value of such items is included in GDP. B. Legal and medical services, and the value of such items is included in GDP. C. Legal and medical services, and the value of such items is excluded from GDP. D. Public parks and schools, and the value of such items is excluded from GDP.

legal and medical services, and the value of such items is included in GDP

International studies of the relationship between real GDP per person rises A. life expectancy and the percentage of the population that it is literate tends to rise B. there is no significant change in life expectancy, but the percentage of the population that is literate tends to rise. C. there is no significant change in either life expectancy or the percentage of the population that is literate. D. life expectancy tends to rise, but there is no significant association with the percentage of the population that is literate.

life expectancy and the percentage of the population that is literate tends to rise

International studies of the relationship between real GDP per person and quality of life measures find that as real GDP per person rises

life expectancy and the percentage of the population that is literate tends to rise.

Countries with higher levels of real GDP per person tend to have

lower rates of infant mortality and more access to safe drinking water.

Countries with higher levels of real GDP per person tend to have A. higher rates of infant mortality and more access to safe drinking water. B. lower rates of infant mortality and more access to safe drinking water. C. lower rates of infant mortality and less access to safe drinking water. D. higher rates of infant mortality and less access safe drinking water.

lower rates of infant mortality and ore access to safe drinking water

When inflation rises, people

make more frequent trips to the bank and firms make more frequent price changes.

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP primarily makes use of

market prices

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP primarily makes use of

market prices.

The gross domestic product (GDP) of the United States is defined as the _____ of all _______ by ______ in a given period of time

market value; final goods and services produced; resources within the U.S.

When the money market is drawn with the value of money on the vertical axis,

money demand slopes downward and money supply is vertical.

The Bureau of Labor Statistics reports the CPI

monthly

The Bureau of Labor Statistics reports the CPI A. daily. B. weekly. C. monthly. D. quarterly.

monthly

If the fictional country of Olar reduces its trade restrictions in conjunction with other countries who also reduce trade restrictions, than Olar has taken what type of approach to free trade?

multilateral approach.

The underground economy

ncludes otherwise legal transactions that go unreported or unrecorded.

The citizens of Denmark earn $300 million of income from abroad whereas citizens of other countries earn $500 million in Denmark. Therefore, Denmark's A. net factor payments from abroad are positive, and its GDP is larger than its GNP. B. net factor payments from abroad are negative, and its GDP is larger than its GNP. C. net factor payments from abroad are negative, and its GNP is larger than its GDP. D. net factor payments from abroad are positive, and its GNP is larger than its GDP.

net factor payments from abroad are negative, and its GDP is larger than its GNP

The citizens of Denmark earn $300 million of income from abroad whereas citizens of other countries earn $500 million in Denmark. Therefore, Denmark's

net factor payments from abroad are negative, and its GDP is larger than its GNP.

The citizens of Denmark earn $300 million of income from abroad whereas citizens of other countries earn $500 million in Denmark. Therefore, Denmark's

net factor payments from abroad are positive, and its GNP is larger than its GDP.Net factor payments from abroad equal income earned by Danish citizens abroad - income earned by foreign citizens in Denmark = -$200 million. GNP = GDP + net factor payments from abroad. So GDP exceeds GNP by $200 million.

The GDP deflator equals A. real GDP divided by nominal GDP multiplied by 100. B. nominal GDP divided by real GDP multiplied by 100. C. nominal GDP divided by the inflation rate multiplied by 100. D. real GDP divided by the inflation rate multiplied by 100.

nominal GDP divided by real GDP multiplied by 100

The GDP deflator equals

nominal GDP divided by real GDP multiplied by 100.

nominal GDP is $600, real GDP is $500, and the GDP deflator is 120

Suppose an economy produces only eggs and ham. In 2015, 100 dozen eggs are sold at $4.50 per dozen and 50 pounds of ham sold at $3 per pound. In 2014, the base year, eggs sold at $3 per dozen and ham sold at $4 per pound. For 2015 A. nominal GDP is $500, real GDP is $600, and the GDP deflator is 120 B. nominal GDP is $600, real GDP is $500, and the GDP deflator is 120 C. nominal GDP is $600, real GDP is $500, and the GDP deflator is 83.3 D. nominal GDP is $500, real GDP is $600, and the GDP deflator is 83.3

nominal GDP is $600, real GDP is $500, and the GDP deflator is 120

Real GDP is

not adjusted for differences in leisure time, nor adjusted for the differences in the quality of the environment

Transfer payments from the government to households are

not for the current production of goods and services. They are not included in GDP.

Transfer payments from the government to households are A. for the current production of goods and services. They are included in GDP. B. not for the current production of goods and services. They are included in GDP C. not for the current production of goods and services. They are not included in GDP. D. for the current production of current goods and services. They are not included in GDP.

not for the current production of goods and services. they are not included in the GDP

the value of items produced and purchased in the past such as previously occupied housing and used clothing is A. included in current GDP because GDP measures the value of all goods and services sold in the current year. B. not included in current GDP because it is difficult to measure such transactions. C. not included in current GDP because GDP only measures the value of final goods and services produced in the current year. D. included in current GDP but valued at their original prices.

not included in current GDP because GDP only measures the value of final goods and services produced in the current year

GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

only the purchases of new houses

Which of the following items purchased by households are included in investment rather than consumption?

only the purchases of new houses

Which of the following items purchased by households are included in investment rather than consumption? A. only the purchase of stocks and bonds B. only the purchases of new houses C. spending on education and the purchases of stocks and bonds D. spending on education and the purchases of new housing

only the purchasing of new houses

Real GDP will decrease; A. only when prices decrease. B. only when production of goods and services and prices decrease. C. when prices decrease or output decreases. D. only when production of goods and services decreases.

only when production of goods and services decreases

The economy's inflation rate is the

percentage change in the price level from the previous period.

Substitution bias is a problem when measuring the consumer price index because

prices of goods and services do not change in the same proportion from year to year.

Which of the following is included in the investment component of GDP? A. purchases of new capital goods, but not purchases of stocks and bonds B. neither purchases of stocks and bonds, nor purchases of new capital goods C. purchases of stocks and bonds, and purchases of new capital goods D. purchases of stocks and bonds, but not purchase of new capital goods

purchases of new capital goods, but not purchases of stock and bonds

Which of the following is included in the investment component of GDP?

purchases of new capital goods, but not purchases of stocks and bonds

Of the following which is the best single measure of a country's economic well-being? A. nominal GDP per person. B. government expenditures per person. C. investment per business firm. D. real GDP per person.

real GDP per person

Of the following which is the best single measure of a country's economic well-being?

real GDP per person.

Market economies rely on which of the following to allocate scarce resources?

relative prices

There is a

short-run tradeoff between inflation and unemployment.

which of the following are examples of transfer payments? A. both unemployment benefits and social security benefits B. social security payments but not unemployment benefits C. neither unemployment benefits nor social security payments D. unemployment benefits but not social security payments

social security payments but not unemployment benefits

Which of the following is included in the investment component of GDP?

spending on new business equipment such as power tools but not spending on stocks and bonds

The most commonly reported measure of inflation by the media is

the CPI

Which of the following statements is correct for explaining why the CPI is commonly used as a measure of inflation? A. the CPI is easier to measure. B. the CPI is calculated more often than other inflation measures like the GDP deflator. C. the CPI better reflects the prices of goods and services bought by consumers. D. the CPI cannot be used to gauge inflation.

the CPI better reflects the prices of goods and services bought by consumers

Which of the following statements is correct for explaining why the CPI is commonly used as a measure of inflation?

the CPI better reflects the prices of goods and services bought by consumers.

The introduction of new goods creates a problem when measuring the CPI because

the CPI is based on a fixed basket of goods and services and does not reflect increased value as a result of a larger variety of goods.

Sally drives an automobile she purchased several years ago. This year she bought gasoline and some parts and spent five hours making repairs. Which of the following is included in this year's GDP? A. only the amount she paid to buy gasoline. B. the amount she paid to buy gasoline and new parts, but not the value of her time. C. the amount she paid to buy gasoline, new parts, and the value of her time making repairs. D. only the amount she paid to buy new parts.

the amount she paid to buy gasoline and new parts, but not the value of her time

Sally drives an automobile she purchased several years ago. This year she bought gasoline and some parts and spent five hours making repairs. Which of the following is included in this year's GDP?

the amount she paid to buy gasoline and new parts, but not the value of her time.

Which of the following is not a commonly-advanced argument for trade restrictions?

the efficiency argument

Which of the following is included in the government purchases component of GDP?

the federal government buys fighter jets, a state government repairs highways, a local government pays its police

What word do economists use to refer to the purchase of goods that will be used in the future to produce more goods and services? A. costs B. investment C. capital D. consumption

B. investment

which of the following correctly identifies the flow of goods and services? A. C, D, M and K B. A, L, N and B C. A, B, C and D D. K, M, L, and N

C, D, M and K

Nominal GDP Equation

Price (year t) x Quantity

Expenditures on a nation's domestic production

Are equal to its domestic product

GDP per person tells us the income and expenditure of the

Average Person in the economy

Country A has real GDP of $10,000,000 and a population of 200. Country B has real GDP of $20,000,000 and a population of 500.

Average income per person is higher in Country A than country B. This doesn't necessarily mean that the average person in country A is better off than the average person in Country B.

Which of the following is an accurate explanation of why the average American today is "richer" than the richest American 100 years ago?

Tremendous technological advances.

The low point in Real GDP, just before it begins to turn up

Trough

True

GDP is not adjusted to account for differences in the quality of the environment such as air quality and access to safe water. True False

True

GDP measures both an economy's production and its expenditures. True False

True

In the circular-flow diagram households receive income from wages, rents, and profits. True False

True

In the circular-flow diagram there are two markets one for goods and one for factors of production. True False

True

Japan is an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States.

True

The government purchases component of GDP includes salaries paid to soldiers but not Social Security benefits paid to the elderly. True False

True

The investment component of GDP includes changes in inventories. True False

True

True or False: Because every transaction has a buyer and a seller the expenditure on an economy's goods and services is equal to its income

True

True or False: For the economy as a whole, expenditures must equal income

True

True or False: The actual economy is more complicated than the one illustrated in the previous circular-flow diagram of a simple economy.

True

True or False: The government purchases component of GDP includes salaries paid to soldiers but not Social Security benefits paid to the elderly.

True

True or False: The investment component of GDP includes changes in inventories.

True

True or false: GDP excludes most underground economic activity. The amount of underground economic activity tends to be larger relative to real GDP in countries that are less developed than in countries that are developed.

True

True or false: GDP is not adjusted to account for differences in the quality of the environment such as air quality and access to safe water.

True

True or false: GDP measures both an economys production and its expenditures

True

True or false: In the circular-flow diagram there are two markets one for goods and one for factors of production.

True

True or false: Real GDP uses constant base year prices to place a value on the economy's production of goods and services, while nominal GDP uses current prices to place a value on the economy's production of goods and services.

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