Midterm Test (Chapter 5)

A farmer sells $25,000 worth of apples to individuals who take them home to eat, $50,000 worth of apples to a company that uses them all to produce cider, and $75,000 worth of apples to a grocery store that will sell them to households. How much of the farmer's sales will be included as apples in GDP? a. $25,000 b. $150,000 c. $100,000 d. $125,000

a. $25,000

In the economy of Talikastan in 2015, consumption was $1000, GDP was $1950, government purchases were $500, and investment was $700. What were Talikastan's net exports in 2015? a. -$250 b. $250 c. $2200 d. Net exports cannot be calculated from the information given.

a. -$250

Which of the following is an example of a durable good? a. a hair dryer. b. a suit. c. a pair of shoes. d. All of the above are correct.

a. a hair dryer.

Gross domestic product measures a. income and expenditures. b. income but not expenditures. c. expenditures but not income. d. neither income nor expenditures.

a. income and expenditures.

In a simple circular-flow diagram, firms a. purchase resources from households. b. purchase the output produced by households. c. receive income by selling resources to households. d. All of the above are correct.

a. purchase resources from households.

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move a. raises GDP. b. decreases GDP. c. doesn't change GDP because gambling is never included in GDP. d. doesn't change GDP because in either case his income is included.

a. raises GDP.

A stove is produced by a firm in 2014, added to the firm's inventory in 2014, and sold to a household in 2015. It follows that a. the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP. b. the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and not included in the investment category of 2015 GDP. c. the value of the good is added to the investment category of 2014 GDP, subtracted from the consumption category of 2015 GDP, and not included in the investment category of 2015 GDP. d. the value of the good is added to the investment category of 2014 GDP, subtracted from the consumption category of 2015 GDP, and added to the investment category of 2015 GDP.

a. the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP.

The government of a country, which has adopted American GDP accounting conventions, reported that seasonally adjusted GDP in quarter 3 was $48 billion at an annual rate. This means that the seasonally-adjusted market value of all final goods and services produced within this country in quarter 3 was a. $4 billion. b. $12 billion. c. $16 billion. d. $48 billion.

b. $12 billion.

If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real GDP? a. $6.7 billion. b. $15 billion. c. $21.6 billion. d. $38 billion.

b. $15 billion.

Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for $17,000. By how much did these transactions contribute to U.S. GDP for the year? a. $18,000 b. $22,000 c. $39,000 d. $57,000

b. $22,000

The information for 2008 in millions in the table below was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of real GDP per person from highest to lowest? a. Japan, Germany, United States b. Japan, United States, Germany c. Germany, United States, Japan d. United States, Japan, Germany

b. Japan, United States, Germany

Tom is an organic gardener. For several years, he produced only for his own consumption. Last year, he sold his vegetables at a farmer's market. This year, he sold all of his vegetables to a company producing organic vegetable soup. When is the value of Tom's vegetables included in GDP? a. None of his production is included in GDP, since it is considered home production. b. Only when he sells his vegetable at the farmer's market. c. Only when he sells his vegetables to the organic soup company. d. When he sells his vegetables at the farmer's market and when he sells the vegetables to the organic soup company.

b. Only when he sells his vegetable at the farmer's market.

Which of the following is not a question that macroeconomists address? a. Why is average income high in some countries while it is low in others? b. Why does the price of oil rise when war erupts in the Middle East? c. Why do production and employment expand in some years and contract in others? d. Why do prices rise rapidly in some periods of time while they are more stable in other periods?

b. Why does the price of oil rise when war erupts in the Middle East?

In the actual economy, households a. spend all of their income. b. divide their income among spending, taxes, and saving. c. buy all goods and services produced in the economy. d. Both (a) and (c) are correct.

b. divide their income among spending, taxes, and saving.

If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP a. decreases. b. increases. c. doesn't change because both legal and illegal production are included in GDP. d. doesn't change because these activities are never included in GDP.

b. increases.

Tom and Lilly rented a house for $12,000 last year. At the start of the year they bought the house they had been renting directly from the owner for $250,000. They believe they could rent it for $12,000 this year, but stay in the house. How much does Tom and Lilly's decision to buy the house change GDP? a. it reduces GDP by $12,000 b. it does not change GDP c. it raises GDP by $238,000 d. it raises GDP by $250,000

b. it does not change GDP

An American retailer purchased 500 pairs of shoes from a company in Thailand in the second quarter of 2016 but does not sell them to a consumer until the third quarter of 2016. Which of the following components of U.S. GDP is affected by this transaction in the third quarter of 2016? a. consumption, investment and imports b. only consumption and investment c. only consumption and imports d. only investment and imports

b. only consumption and investment

Which of the following is included in the investment component of GDP? a. spending on new business equipment such as power tools and spending on stocks and bonds b. spending on new business equipment such as power tools but not spending on stocks and bonds c. spending on stocks and bonds but not spending on new business equipment such as power tools d. neither spending on new business equipment such as power tools nor spending on stocks and bonds

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

Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $3,000. GDP equals a. $24,450. b. $11,550. c. $15,300. d. $20,700.

c. $15,300.

In the economy of Talikastan in 2015, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $1800, and imports were $1200. What was Talikastan's investment in 2015? a. $0 b. $1200 c. $2400 d. $5600

c. $2400

Refer to Table 23-4. What was the growth rate of real GDP for 1931? a. -6.93%. Real GDP is a better gauge of economic well-being than nominal GDP. b. -6.93%. Nominal GDP is a better gauge of economic well-being than real GDP. c. -6.49%. Real GDP is a better gauge of economic well-being than nominal GDP. d. -6.49%. Nominal GDP is a better gauge of economic well-being than real GDP.

c. -6.49%. Real GDP is a better gauge of economic well-being than nominal GDP.

How is net national product (NNP) calculated? a. Saving is subtracted from the total income of a nation's citizens. b. Saving is added to the total income of a nation's citizens c. Depreciation losses are subtracted from the total income of a nation's citizens. d. Depreciation losses are added to the total income of a nation's citizens.

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

Which of the following statements about GDP is correct? a. GDP measures two things at once: the total income of everyone in the economy and the unemployment rate of the economy's labor force. b. Money continuously flows from households to government and then back to households, and GDP measures this flow of money. c. GDP is to a nation's economy as household income is to a household. d. All of the above are correct

c. GDP is to a nation's economy as household income is to a household.

All of the following are examples of a nondurable good except a. a pencil. b. one gallon of gasoline. c. a queen-size bed. d. a pair of shoes.

c. a queen-size bed.

Countries with low GDP per person tend to have a. lower rates of child malnutrition. b. fewer infants with low birth weight. c. higher rates of infant mortality. d. more access to safe drinking water.

c. higher rates of infant mortality.

Thomas, a U.S. citizen, works only in Canada. The value of the output he produces is a. included in both U.S. GDP and U.S. GNP. b. included in U.S. GDP, but it is not included in U.S. GNP. c. included in U.S. GNP, but it is not included in U.S. GDP. d. included in neither U.S. GDP nor U.S. GNP.

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

Suppose an economy produces only burgers and bags of fries. In 2010, 4000 burgers are sold at $3 each and 6000 bags of fries are sold at $1.50 each. In 2008, the base year, burgers sold for $2.50 each and bags of fries sold for $2 each. a. nominal GDP is $22,000, real GDP is $21,000, and the GDP deflator is 95.45. b. nominal GDP is $22,000, real GDP is $21,000, and the GDP deflator is 104.77. c. nominal GDP is $21,000, real GDP is $22,000, and the GDP deflator is 95.45. d. nominal GDP is $21,000, real GDP is $22,000, and the GDP deflator is 104.77.

c. nominal GDP is $21,000, real GDP is $22,000, and the GDP deflator is 95.45.

GDP is defined as the a. value of all goods and services produced within a country in a given period of time. b. 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. c. value of all final goods and services produced within a country in a given period of time. d. 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.

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

To encourage formation of small businesses, the government could provide subsidies; these subsidies a. would be included in GDP because they are part of government purchases. b. would be included in GDP because they are part of investment expenditures. c. would not be included in GDP because they are transfer payments. d. would not be included in GDP because the government raises taxes to pay for them.

c. would not be included in GDP because they are transfer payments.

In 2015, GDP per person in the United States was almost a. $38,000. b. $36,000. c. $49,000 d. $56,000

d. $56,000

2015 $4.00 100 $1.50 180 2016 $4.00 120 $2.00 200 2017 $5.00 150 $2.50 200 2018 $6.00 180 $3.50 240 2. Refer to Table 23-5. This country's inflation rate from 2017 to 2018 was a. 20.0%. b. 21.8%. c. 38.9%. d. 28.0%.

d. 28.0%.

If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is a. 104.1 so prices are higher than in the base year. b. 104.1 so prices are lower than in the base year. c. 96.1 so prices are higher than in the base year. d. 96.1 so prices are lower than in the base year.

d. 96.1 so prices are lower than in the base year.

In a simple circular-flow diagram, households buy goods and services with the income they get from a. wages. b. rents. c. profits. d. All of the above are correct

d. All of the above are correct

GDP is not a perfect measure of well-being; for example, a. GDP excludes the value of volunteer work. b. GDP does not address the distribution of income. c. GDP does not address environmental quality. d. All of the above are correct.

d. All of the above are correct.

In a simple circular-flow diagram, a. households spend all of their income. b. all goods and services are bought by households. c. expenditures flow through the markets for goods and services, while income flows through the markets for the factors of production. d. All of the above are correct.

d. All of the above are correct.

Which of the following items is counted as part of government purchases? a. The federal government pays the salary of a Navy officer. b. The state of Nevada pays a private firm to repair a Nevada state highway. c. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city. d. All of the above are correct.

d. All of the above are correct.

Which of the following items is included in U.S. GDP? a. final goods and services that are purchased by the U.S. federal government b. intermediate goods that are produced in the U.S. but that are unsold at the end of the GDP accounting period c. goods and services produced by foreign citizens working in the U.S. d. All of the above are included in U.S. GDP.

d. All of the above are included in U.S. 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.

Jennifer lives in a home that was newly constructed in 2011 for which she paid $240,000. In 2014 she sold the house for $260,000. Which of the following statements is correct regarding the sale of the house? a. The 2014 sale increased 2014 GDP by $260,000 and had no effect on 2011 GDP. b. The 2014 sale increased 2014 GDP by $20,000 and had no effect on 2011 GDP. c. The 2014 sale increased 2014 GDP by $260,000; furthermore, the 2014 sale caused 2011 GDP to be revised upward by $20,000. d. The 2014 sale affected neither 2014 GDP nor 2011 GDP.

d. The 2014 sale affected neither 2014 GDP nor 2011 GDP.

Recessions are not associated with which of the following? a. increased bankruptcies b. falling profits c. falling incomes d. falling unemployment

d. falling unemployment