Chapter 2

Consider the following table: <Missing Table> If 1995 is the base year, what is the GDP deflator for 2000?

1

Which of the following statements describes the difference between real and nominal GDP? A. Real GDP includes only goods; nominal GDP includes goods and services.; B. Real GDP is measured using constant base-year prices; nominal GDP is measured using current prices.; C. Real GDP is equal to nominal GDP less the depreciation of the capital stock.; D. Real GDP is equal to nominal GDP multiplied by the CPI.

B. For a discussion of the differences between real and nominal GDP, see Section 2-1.

Approximately what percentage of national income consists of compensation of employees? A. 10 percent; B. 25 percent; C. 70 percent; D. 95 percent

C. 70 percent

Which of the following events will cause the unemployment rate to increase? an increase in population, with no change in the size of the labor force a proportionally equal increase in the labor force and the number of unemployed workers an increase in the labor force with no change in the number of employed workers an increase in the number of employed workers with no change in the number of unemployed workers

C. an increase in the labor force with no change in the number of employed workers. The unemployment rate is defined as the number of unemployed workers divided by the labor force. If the labor force increases and employment does not change, the unemployment rate will increase. See Section 2-3

Suppose that a Canadian citizen crosses the border each day to work in the United States. Her income from this job would be counted in:

U.S. GNP and Canadian GDP

Gross domestic product (GDP) is: a. a stock b. a flow c. both a stock and a flow d. neither a stock or a flow.

a flow

suppose that a car was produced by not sold in 2011. the car could still be sold in 2012. according to the book, the car would be counted as part of. a. 2011 GDP as investment b. 2012 GDP as consumption c. 2012 GDP as investment d. neither 2011 or 2012 GDP

a. 2011 GDP as investment.

To obtain the net national product (NNP), start with the gross national product (GNP) and subtract: A. depreciation.; B. depreciation and indirect business taxes.; C. depreciation, indirect business taxes, and corporate profits.; D. depreciation, indirect business taxes, corporate profits, and social insurance contributions.

a. depreciation

GDP measures:

a.) expenditure on all final goods and services, b.) total income of everyone in the economy, c.) total value added by all firms in the economy, d.) all of the answers are correct. ANSWER : d)

Suppose that Jones builds a new house, then she sells it to Smith, and then Smith sells it to Williams. The total net investment from these transactions is A. zero.; B. 1 house.; C. 2 houses.; D. 3 houses.

b. 1 house

Suppose that the size of the labor force is 100 million and that the unemployment rate is 5 percent. Which of the following actions would reduce the unemployment rate the most? a. 1 million unemployed people get jobs b. 2 million unemployed people leave the labor force c. 3 million people join the labor force and they all get jobs d. 10 million people join the labor force and half of them get jobs

b. 2 million unemployed people leave the labor force

The size of the underground economy in Nigeria is approximately: a. zero b. 50% of GDP c. 10% of GDP d. 20% of GDP

b. 50 percent of GDP

a circular flow diagram traces the flows of inputs and outputs between a. households and the government. b. households and firms c. households in one country and households in another country d. firms on one country and households in another country.

b. households and firms.

General Motors increases the price of a model car produced exclusively for export to Europe. Which U.S. price index is affected? a. the CPI b. the GDP deflator c. both the CPI and the GDP deflator d. neither the CPI nor the GDP deflator

b. the GDP deflator

Suppose that a farmer grows wheat and sells it to a baker for $1, the baker makes bread and sells it to a store for $2, and the store sells it to the customer for $3. This series of transactions increases GDP by: a. $1 b. $2 c. $3 d. $6

c. $3

Suppose that the typical consumer buys one apple and one orange every month. In the base year 1986, the price for each was $1. In 1996, the price of apples rises to $2, and the price of oranges remains at $1. Assuming that the CPI for 1986 is equal to 1, the CPI for 1996 would be equal to: A. 1/2.; B. 1.; C. 3/2.; D. 2.

c. 3/2

Which of the following is not considered investment? A. A family builds a house in which it plans to live.; B. A car dealer stores some of this year's models for next year.; C. An individual purchases several pieces of antique furniture.; D. A firm buys a computer for word processing.

c. An individual purchases several pieces of antIque furniture.

Which of the following statements about the CPI and the GDP deflator is TRUE? A. The CPI measures the price level; the GDP deflator measures the production of an economy.; B. The CPI refers to a base year; the GDP deflator always refers to the current year.; .c The weights given to prices are not the same.; D. The GDP deflator takes the price of imported goods into account; the CPI does not.

c. The weights given to prices are not the same

If production remains the same and all prices double relative to the base year, then the GDP deflator is: A. and nominal GDP are both constant.; B. is constant and nominal GDP is reduced by half.; C. is constant and nominal GDP doubles.; D. doubles and nominal GDP is constant.

c. is constant and nominal GDP doubles.

Which of the following is not included in GDP? A. the salary paid to a federal judge; B. the value of housing services enjoyed by homeowners; C. the value of automobile services enjoyed by car owners; D. the value added by a shipping company that transports goods from the factory to retail stores

c. the value of automobile services enjoyed by car owners.

All other things equal, if the price of foreign-made cars rises, then the GDP deflator: a. and the CPI will rise by equal amounts b. will rise and the CPI will remain the same. c. Will remain the same and the CPI will rise. d. and the CPI will rise by a different.

c. will remain the same and the CPI will rise

Which of the following is a flow variable? A. the value of the house in which you live; B. the balance in your savings account; C. your monthly consumption of hamburgers; D. the number of hamburgers in your refrigerator at the beginning of the month

c. your monthly consumption of hamburgers

In which case is total expenditure in an economy NOT equal to total income? a. if total saving is larger than total investment b. if net exports are not zero c. if inventory investment is negative d. None of the answers is correct—they are always equal.

d. None of the answers is correct—they are always equal.

Which of the following is NOT a stock variable? a. government debt. b. labor force. c. the amount of money held by the public d. inventory investment.

d. inventory investment

To obtain national income, start with GNP and subtract: a. depreciation. b. depreciation and the statistical discrepancy. depreciation, c. indirect business taxes, and corporate profits. depreciation, d. indirect business taxes, corporate profits, and social insurance contributions.

depreciation and the statistical discrepancy

The consumer price index (CPI):

measures the price of a fixed basket of goods and services relative to the price of that same basket in some base year.

Real GDP equals:

nominal GDP divided by the GDP deflator