Chapter 10

c

A country reported nominal GDP of $100 billion in 2010 and $75 billion in 2009. It also reported a GDP deflator of 125 in 2010 and 120 in 2009. Between 2009 and 2010, a. real output rose and the price level fell. b. real output and the price level both fell. c. real output and the price level both rose. d. real output fell and the price level rose.

c

A farmer sells five pounds of pecans to a Smith's Fresh Pecans for $10. Smith's Fresh Pecans resells three pounds for $4.50 per pound. The remaining pecans are shelled and canned and sold for a total of $8.00 Taking these transactions into account, how much is added to GDP? a. $31.50 b. $29.50 c. $21.50 d. $22.50

b

Changes in real GDP reflect a. neither changes in prices nor changes in the amounts being produced. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. only changes in prices.

d

Consider the following three items of spending by the government: (i) the federal government pays a $500 unemployment benefit to an unemployed person; (ii) the federal government makes a $2,000 salary payment to a Navy lieutenant; (iii) the city of Bozeman, Montana makes a $10,000 payment to ABC Lighting Company for street lights in Bozeman. Which of these payments contributes directly to government purchases in the national income accounts? a. only item (ii) b. only items (i) and (ii) c. only item (i) d. only items (ii) and (iii)

b

Consider two items that might be included in GDP: (1) the estimated rental value of owner-occupied housing and (2) purchases of newly-constructed homes. How are these two items accounted for when GDP is calculated? a. Both item (1) and item (2) are included in the consumption component of GDP. b. Item (1) is included in the consumption component of GDP, while item (2) is included in the investment component of GDP. c. Item (1) is included in the investment component of GDP, while item (2) is included in the consumption component of GDP. d. Only item (2) is included in GDP, and it is included in the investment component.

c

GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because a. these items are not reported on income tax forms. b. the quality of these items is not high enough to contribute value to GDP. c. measuring them is so difficult. d. the government wants to discourage the production and consumption of these items.

c

If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP deflator? a. 25. b. 40. c. 250. d. 400.

d

In the economy of Talikastan in 2015, consumption was $3000, exports were $400, GDP was $5000, imports were $500, and investment was $1400. What were Talikastan's government purchases in 2015? a. $1500 b. $60 c. $500 d. $700

b

Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in a. both Mexican GDP and U.S. GDP. b. Mexican GDP, but it is not included in U.S. GDP. c. U.S. GDP, but it is not included in Mexican GDP. d. neither Mexican GDP nor U.S. GDP.

b

National income is defined as a. the total income of a nation's permanent residents minus losses from depreciation. b. the total income earned by a nation's permanent residents in the production of goods and services. c. the income that households and noncorporate businesses have left after satisfying all their obligations to the government. d. the income that households and noncorporate businesses receive.

c

Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010, a. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 130.16. b. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 130.16. c. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83. d. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 76.83.

d

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $1 worth of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $2.50. Neither firm had any inventory at the beginning of 2014. During that year, Rolling Rawhide produced enough rawhide for 2000 dog chews. Chewy Chomp, Inc. bought 90% of that rawhide for $1800 and promised to buy the remaining 10% for $200 in 2015. Chewy Chomp, Inc. produced 1800 dog chews during 2014 and sold each one during that year for $2.50. What was the economy's GDP for 2014? a. $3,800 b. $4,500 c. $5,000 d. $4,700

d

Table 23-8 A country produces only meat and potatoes in the quantities and prices listed below. Use 2011 as the base year. In 2012, nominal GDP is a. $191.50, and real GDP is $157. b. $170, and real GDP is $227.50. c. $157, and real GDP is $170. d. $191.50, and real GDP is $170.

c

The Carters' oldest son attends Big State University. He and his parents pay all his fees and tuition. These payments count in GDP as a. investment. b. government spending. c. consumption of services. d. consumption of durable goods.

c

The percentage change in the price level from one period to another is called a. the GDP deflator. b. the growth rate. c. the inflation rate. d. the unemployment rate.

d

The statistical discrepancy that regularly arises in national income accounting refers to the slight difference between a. the quarterly and annual approaches to the calculation of GDP. b. estimates of GDP and actual GDP. c. personal income and personal disposable income. d. the income and expenditure approaches to the calculation of GDP.

c

When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle, a. U.S. consumption falls by $500, U.S. net exports decline by $500, and U.S. GDP declines by $1000. b. U.S. consumption increases by $500, U.S. net exports remain the same, and U.S. GDP increases by $500. c. U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same. d. U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP declines by $500.

a

Which of the following is included in GDP? a. medical marijuana purchased from a government-run pharmacy by a glaucoma patient b. recreational marijuana purchased from a drug dealer by a college student c. recreational marijuana produced and consumed by a man in his attic d. All of the above are included in GDP.

b

Which of the following is included in the consumption component of U.S. GDP? a. purchases of staplers, paper clips, and pens by U.S. business firms b. purchases of natural gas by U.S. households c. purchases of newly constructed homes by U.S. households d. All of the above are correct.

a

Which of the following represents a transfer payment? a. The government sends your grandfather his Social Security check. b. You make a payment to get legal documents showing you purchased a previously owned home. c. Your employer automatically transfers $100 each month from your wages to a non-taxable medical spending account. d. You transfer $1,000 from your bank account to a mutual fund.