Chapter 2 Multiple Choice
19. All of the following transactions that took place in 2009 would be included in GDP for 2009 except the purchase of a: a. book printed in 2009, entitled The Year 3000. b. 2001 Jeep Cherokee. c. year 2010 calendar printed in 2009. d. ticket to see the movie 2001.
b
20. Since GDP includes only the additions to income, not transfers of assets, ______ are not included in the computation of GDP. a. final goods b. used goods c. consumption goods d. goods produced for inventory
b
32. An example of an imputed value in the GDP is the: a. value-added of meals cooked at home. b. housing services enjoyed by homeowners. c. services of automobiles to their owners. d. value of illegal drugs sold.
b
33. In principle, the GDP accounts should—but do not—have an imputation for: a. housing services enjoyed by homeowners. b. rental services of automobiles driven by owners. c. meals cooked in restaurants. d. housing services enjoyed by renters.
b
36. Nominal GDP is measured in _____ dollars _____ time. a. current; at a point in b. current; per unit of c. constant; at a point in d. constant; per unit of
b
39. Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 4 in 2009, then real GDP (in 2002 prices) in 2009 was: a. $5. b. $6.50. c. $9.50. d. $11.
b
40. The best measure of the economic satisfaction of the members of a society is: a. nominal GDP. b. real GDP. c. the rate of inflation .d. the value of corporate profits.
b
51. The national income accounts identity, for an open economy, is: a. Y = C + I + G - NX. b. Y = C + I + G + NX. c. Y = C + I + G. d. Y = C + I - G.
b
58. In the national income accounts, goods bought for future use are classified as which type of expenditure?a. services b. investment c. government purchases d. net exports
b
69. In 2010 in the United States, total government purchases per person (in current dollars) amounted to approximately: a. $1,900. b. $9,700. c. $13,500. d. $25,600.
b
75. The largest component of national income is: a. corporate profits. b. compensation of employees. c. proprietors' income. d. net interest.
b
82. Measuring the rate of inflation using a market basket that excludes food and energy prices is preferred by some analysts because this measure, called core inflation, a. provides a real, rather than a nominal, rate of inflation. b. gives a better measure of ongoing, sustained price changes. c. is more consistent with measures of inflation used in other countries .d. fluctuates more than measures of inflation that include food and energy prices.
b
83. An increase in the price of goods bought by firms and the government will show up in: a. the CPI but not in the GDP deflator. b. the GDP deflator but not in the CPI. c. both the CPI and the GDP deflator. d. neither the CPI nor the GDP deflator.
b
25. Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, the value included in GDP should be: a. $0.50. b. $1. c. $2. d. $3.
c
34. The underground economy: a. is included in the latest GDP accounts .b. includes only illegal activities. c. includes domestic workers for whom Social Security tax is not collected. d. excludes the illegal drug trade.
c
38. Real GDP means the value of goods and services is measured in ______ prices. a. current b. actual c. constant d. average
c
54. If real GDP grew by 6 percent and population grew by 2 percent, then real GDP per person grew by approximately ______ percent. a. 2 b. 3 c. 4 d. 8
c
7. It is a national income accounting rule that all expenditure on purchases of products is necessarily equal to: a. profits of firms. b. wages of employees. c. income of the producers of the products. d. income of employees.
c
70. In 2010, American net borrowings from abroad, per person, in current dollars, amounted to approximately: a. $100. b. $220. c. $1,675. d. $10,000.
c
71. GNP equals GDP ______ income earned domestically by foreigners ______ income that nationals earn abroad. a. plus; plus b. minus; minus c. minus; plus d. plus; minus
c
79. Prices of items included in the CPI are: a. averaged with the price of every item weighted equally. b. weighted according to amount of the item produced in GDP. c. weighted according to quantity of the item purchased by the typical household. d. chained to the base year by the year-to-year growth rate of the item.
c
81. The core inflation rate: a. measures the change in producer prices. b. is measured using a Paasche index. c. excludes food and energy prices. d. includes the price of exports and includes the price of imports.
c
18. Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: a. 10 pieces of fruit. b. $7. c. $8. d. $10.
b
22. When a firm sells a product out of inventory, investment expenditures ______ and consumption expenditures ______. a. increase; decrease b. decrease; increase c. decrease; remain unchanged d. remain unchanged; increase
b
28. Assume that a firm buys all the parts that it puts into an automobile for $10,000, pays its workers $10,000 to fabricate the automobile, and sells the automobile for $22,000. In this case, the value added by the automobile company is: a. $10,000. b. $12,000. c. $20,000. d. $22,000.
b
31. Imputed values included in GDP are the: a. market prices of goods and services. b. estimated value of goods and services that are not sold in the marketplace .c. price of goods and services measured in constant prices. d. price of goods and services measured in current prices.
b
44. Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges were produced in 2002 and 5 in 2009, then the GDP deflator in 2009, using a base year of 2002, was approximately: a. 1.5. b. 1.7. c. 1.9. d. 2.0.
b
21. When a firm sells a product out of inventory, GDP: a. increases. b. decreases. c. is not changed. d. increases or decreases, depending on the year the product was produced.
c
23. Assume that a bakery hires more workers and pays them wages and that the workers produce more bread. GDP increases in all of the following cases except when the bread: a. is sold to households. b. is stored away for later sale. c. grows stale and is thrown away. d. is sold to other firms.
c
41. If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator? a. 0.79 b. 1.03 c. 1.27 d. 1.30
c
47. Nominal GDP measures the value of goods and services in ______ prices, while real GDP measures the value of goods and services in ______ prices. a. foreign; domestic b. domestic; foreign c. current; constant d. constant; current
c
48. Real GDP is a better measure of economic well-being than nominal GDP, because real GDP: a. excludes the value of goods and services exported aboard. b. includes the value of government transfer payments. c. measures changes in the quantity of goods and services produced by holding prices constant. d. adjusts the value of goods and services produced for changes in the foreign exchange rate.
c
55. In the national income accounts, consumption expenditures include all of the following except household purchases of: a. durable goods. b. nondurable goods. c. new residential housing. d. services.
c
63. If GDP (measured in billions of current dollars) is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are: a. $673. b. -$673. c. $704. d. -$704.
c
66. In 2010, the GDP of the United States totaled about: a. $14.5 billion. b. $145 billion. c. $14.5 trillion. d. $145 trillion.
c
67. In 2010, GDP per person in the United States was approximately: a. $7,000. b. $27,000. c. $47,000. d. $74,000.
c
10. Which of the following is a flow variable? a. wealth b. the number unemployed c. government debt d. income
d
13. All of the following are a flow except: a. the number of new automobile purchases. b. the number of people losing their jobs. c. business expenditures on plant and equipment. d. the government debt.
d
16. GDP is the market value of all ______ goods and services produced within an economy in a given period of time. a. used b. intermediate c. consumer d. final
d
24. When bread is baked but put away for later sale, this is called :a. waste. b. saving. c. fixed investment. d. investment in inventory.
d
85. Unlike the GDP deflator, the CPI includes the prices of: a. goods purchased by firms. b. goods purchased by governments. c. exported goods. d. imported goods.
d
84. An increase in the price of imported goods will show up in: a. the CPI but not in the GDP deflator. b. the GDP deflator but not in the CPI. c. both the CPI and the GDP deflator. d. neither the CPI nor the GDP deflator.
a
74. National income differs from net national product by an amount called: a. depreciation. b. indirect business taxes .c. a statistical discrepancy. d. net foreign factor income payments.
c
11. Which of the following is a stock variable? a. wealth b. consumption c. investment d. income
a
17. To compute the value of GDP: a. goods and services are valued at market prices. b. the sale of used goods is included. c. production for inventory is not included. d. goods and services are valued by weight.
a
9. In the circular flow model, the flow of dollars from firms to households is paid _____ and the flow of dollars from households to firms is paid _____. a. as wages and profits; for goods and services b. for value added; as imputed values c. in current dollars; in constant dollars d. as interest and dividends; for depreciation and taxes
a
1. The economic statistic used to measure the level of prices is: a. GDP. b. CPI. c. GNP. d. real GDP.
b
12. All of the following are a stock except: a. a consumer's wealth. b. the government budget deficit. c. the number of unemployed people. d. the amount of capital in the economy.
b
14. The amount of capital in an economy is a ______ and the amount of investment is a ______. a. flow; stock b. stock; flow c. final good; intermediate good d. intermediate good; final good
b
15. The market value of all final goods and services produced within an economy in a given period of time is called: a. industrial production. b. gross domestic product. c. the GDP deflator. d. general durable purchases.
b
49. Chain-weighted measures of real GDP make use of prices from: a. an unchanging base year. b. a continuously changing base year. c. a base year that is changed approximately every 5 years. d. a base year that is changed approximately every 10 years.
b
78. The CPI is determined by computing: a. an average of prices of all goods and services. b. the price of a basket of goods and services that changes every year, relative to the same basket in a base year. c. the price of a fixed basket of goods and services, relative to the price of the same basket in a base year. d. nominal GDP relative to real GDP.
c
2. The statistic used by economists to measure the value of economic output is: a. the CPI. b. GDP. c. the GDP deflator. d. the unemployment rate.
b
59. If total investment (measured in billions of current dollars) equals $741, business fixed investment is $524, and residential fixed investment is $222, then inventory investment is: a. $5. b. -$5. c. $15. d. -$15.
b
62. In the national income accounts, net exports equal: a. exported goods minus imported goods. b. exported goods and services minus imported goods and services. c. exported goods minus imported services .d. exported goods and services plus imported goods and services.
b
26. Assume that a tire company sells 4 tires to an automobile company for $400, another company sells a compact disc player for $500, and the automobile company puts all of these items in or on a car that it sells for $20,000. In this case, the amount from these transactions that should be counted in GDP is: a. $20,000. b. $20,000 less the automobile company's profit on the car. c. $20,900. d. $20,900 less the profits of all three companies on the items that they sold.
a
3. GDP is all of the following except the total: a. expenditure of everyone in the economy. b. income of everyone in the economy. c. expenditure on the economy's output of goods and services. d. output of the economy.
a
30. To avoid double counting in the computation of GDP, only the value of ______ goods are included. a. final b. used c. intermediate d. investment
a
37. Nominal GDP means the value of goods and services is measured in ______ prices. a. current b. real c. constant d. average
a
4. The total income of everyone in the economy is exactly equal to the total: a. expenditure on the economy's output of goods and services. b. consumption expenditures of everyone in the economy. c. expenditures of all businesses in the economy. d. government expenditures.
a
45. If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent. a. 2 b. 3 c. 5 d. 8
a
42. If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009? a. $12 trillion b. $12.5 trillion c. $15 trillion d. $18.75 trillion
a
43. The GDP deflator is equal to: a. the ratio of nominal GDP to real GDP. b. the ratio of real GDP to nominal GDP. c. real GDP minus national GDP. d. nominal GDP minus real GDP.
a
46. If nominal GDP increased by 5 percent and the GDP deflator increased by 3 percent, then real GDP ______ by ______ percent. a. increased; 2 b. decreased; 2 c. increased; 8 d. decreased; 8
a
50. The new chain-weighted measures of real GDP are an improvement over traditional measures because the prices used to compute real GDP are: a. never far out of date. b. always from the same base year. c. imputed. d. chained to the CPI.
a
53. If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and net exports are -$1,910, then government purchases are: a. $2,977. b. $1,910. c. -$843. d. $1,067.
a
56. In the national income accounts, the purchase of durables, nondurables, and services by households are classified as: a. consumption. b. investment. c. government purchases. d. net exports.
a
6. All of the following are measures of GDP except the total: a. expenditures of all businesses in the economy .b. income from all production in the economy. c. expenditures on all final goods and services produced. d. value of all final production.
a
60. In the national income accounts, all of the following are classified as government purchases except: a. payments made to Social Security recipients. b. services provided by police officers. c. purchases of military hardware. d. services provided by U.S. senators.
a
65. The investment component of GDP includes all of the following except: a. purchases of corporate stock. b. spending on new plants and equipment. c. purchases of new housing by households. d. changes in business inventories.
a
68. In 2010 in the United States, the approximate percentage of GDP that was spent on consumption was: a. 67 percent. b. 50 percent. c. 31 percent. d. 16 percent.
a
73. As a percentage of GNP, depreciation (also called the consumption of fixed capital) amounts to approximately: a. 10 percent. b. 25 percent. c. 50 percent. d. 0 percent.
a
76. Disposable personal income: a. is computed by subtracting personal tax and nontax payments from personal income. b. is generally greater than personal income. c. includes corporate profits but not dividends. d. does not include government transfers to individuals.
a
27. The value added of an item produced refers to: a. a firm's profits on the item sold. b. the value of the labor inputs in the production of an item. c. the value of a firm's output less the value of its costs. d. the value of a firm's output less the value of the intermediate goods that the firm purchases.
d
29. In computing GDP, a. expenditures on used goods are included. b. production added to inventories is excluded. c. the amount of production in the underground economy is imputed. d. the value of intermediate goods is included in the market price of the final goods.
d
35. Real GDP is measured in _____ dollars ____ time. a. current; at a point in b. current; per unit of c. constant; at a point in d. constant; per unit of
d
5. An economy's ______ equals its ______. a. consumption; income b. consumption; expenditure on goods and services c. expenditure on goods; expenditures on services d. income; expenditure on goods and services
d
52. If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and government purchases are $1,098, then net exports are: a. $131. b. -$131. c. $31. d. -$31.
d
57. If total consumption (measured in billions of current dollars) equals $3,657, consumption of durable goods is $480, and consumption of nondurable goods is $1,194, then consumption of services is: a. $1,674. b. $2,463. c. $2,083. d. $1,983.
d
61. In the national income accounts, government purchases are goods and services purchased by: a. the federal government. b. the federal and state governments. c. state and local governments. d. federal, state, and local governments.
d
64. All of the following actions are investments in the sense of the term used by macroeconomists except: a. IBM's building a new factory. b. corner candy store's buying a new computer. c. John Smith's buying a newly constructed home. d. Sandra Santiago's buying 100 shares of IBM stock.
d
72. Net national product equals GDP: a. plus net investment. b. minus net investment. c. plus depreciation. d. minus depreciation.
d
77. According to the usual seasonal pattern of the U.S. economy, GDP is highest in the quarter of the year that includes: a. January, February, and March. b. April, May, and June. c. July, August, and September. d. October, November, and December.
d
8. Two equivalent ways to view GDP are as the: a. total payments made to all workers in the economy or the total profits of all firms and businesses in the economy. b. total expenditures on all goods produced in the economy or the total income earned from producing all services in the economy. c. total profits of all firms and businesses in the economy or the total consumption of goods and services by all households in the economy. d. total income of everyone in the economy or the total expenditure on the economy's output of goods and services.
d
80. Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002 and $0.50 in 2009. If 10 apples and 5 oranges were purchased in 2002, and 5 apples and 10 oranges were purchased in 2009, the CPI for 2009, using 2002 as the base year, is: a. 0.75. b. 0.80. c. 1. d. 1.25.
d
