Econ 102 Exam 2 Ch 4
15) A loaf of bread purchased by one of your instructors would be best described as A) a final good. B) a used good. C) a financial asset. D) an intermediate good.
A
21) When calculating the compensation of employees part of GDP A) Social Security contributions must be included. B) the value of vacation time must be included. C) fringe benefits are not included. D) taxes withheld on earnings are not included.
A
24) If imports are $100 million less than exports, government expenditures are $500 million, consumer expenditures are $1 billion, and gross investment spending is $500 million, then GDP is A) $2.1 billion. B) $1 billion. C) $1.9 billion. D) $2 billion.
A
25) Last year in the country of Nerf imports equaled exports. Nerf's GDP was $500 million, its consumer expenditure was $380 million, and its investment was $20 million. Nerf's government expenditure on goods and services were ________. A) $100 million B) $500 million C) zero D) $900 million
A
29) In the equation, GDP = C + I + G + X - M, G refers to A) local, state, and federal government expenditure on goods and services, but does not include transfer payments. B) federal government expenditures plus all transfer payments. C) local, state, and federal government spending for all purposes. D) the taxes and expenditures of all government units.
A
3) ________ is gross investment minus ________. A) Net investment; depreciation C) The capital stock; depreciation B) The capital stock; net investment D) Depreciation; replacement investment
A
31) The four categories of expenditure used by the expenditure approach method to calculate GDP are A) consumption expenditure, investment, government expenditure and net exports. B) saving, taxes, government expenditure and investment. C) consumption expenditure, taxes, saving and investment. D) consumption expenditure, investment, net imports and saving.
A
32) The sum of compensation to employees, rental income, corporate profits, net interest, and proprietors' income is A) net domestic income at factor cost. B) gross domestic product. C) net domestic product. D) gross domestic income.
A
34) Gross Domestic Product is equal to the sum of consumption expenditure, investment, net exports, and ________. A) government expenditures on goods and services B) saving C) net taxes D) profits
A
44) The term "business cycle" most closely refers to the A) alternating periods of expansions and recessions. B) accounting period used by firms. C) fluctuating profits of firms. D) fiscal year.
A
45) In the post-World War II period, considerable growth in total production took place in the United States. But at the same time, businesses were dumping their waste into the Great Lakes with minimal cost to themselves, significantly polluting the bodies of water as a result. This occurrence is an example where A) real GDP gives an overly positive view of economic welfare. B) the pollution counts as a final good. C) real GDP gives an overly negative view of economic welfare. D) investment would have been a better measure of total production.
A
46) Real GDP is not a perfect indicator of economic welfare because ________. A) economic welfare depends on many factors not measured or not measured accurately by real GDP B) it includes the underground economy C) it includes a direct measure of health and life expectancy D) it underestimates inflation
A
7) Gross domestic product (GDP) is the ________ in a given time period. A) market value of final goods and services produced by the economy B) sum of wage and salary compensation of employees and corporate profits C) value of all final and intermediate goods and services produced by the economy excluding those goods exported to foreign nations D) value of personal consumption expenditures, gross private domestic investment, and federal government expenditures
A
10) Gross domestic product is the total ________ produced within a country in a given time period. A) market value of all goods and services B) market value of all final goods and services C) market value of all final and intermediate goods and services D) amount of final and intermediate goods and services
B
13) Which of the following expenditures associated with the production of a new high-performance SUV will be directly included in GDP? A) the sale of bonds to finance the construction of the assembly plant B) the purchase of new machine tools to manufacture the engines C) the purchase of new tires to be installed on the new vehicles D) the purchase of used welding robots to assemble to vehicles
B
17) In the circular flow model of an economy, households A) pay firms for the use of their factors. B) receive income from producers for the use of factors in the factor markets. C) receive income from the sale of factors in the goods markets. D) receive income from buyers of goods and services.
B
2) If Nike, an American corporation, produces sneakers in Thailand this would A) count as part of U.S. GDP since it is a U.S. corporation. B) add to Thailand's GDP but not to U.S. GDP. C) count for both Thailand's GDP and U.S. GDP. D) add to neither U.S. GDP nor Thailand's GDP.
B
22) Net exports is negative if A) the tariff payments are included in the value of imported and exported items. B) the value of imports exceeds the value of exports. C) the value of exports exceeds the value of imports. D) too much production occurs in the exporting country during the year.
B
23) Real GDP is A) an increase in the average level of prices. B) the value of total production of all the nation's farms, factories, shops and offices measured in the prices of a single year. C) the value of total production when the unemployment rate is 6 percent. D) the value of total production of all the nation's farms, factories, shops and offices measured at the prices of the year it was produced.
B
30) In the national income accounts, the purchase of a new house counts as A) an addition to inventory. B) investment. C) consumption expenditure. D) a transfer.
B
35) Which of the following would lead GDP to overstate economic welfare? A) a self-employed CPA who takes a longer than normal vacation B) electric utilities that switch to burning coal because of higher natural gas prices and thereby create more acid rain pollution C) restaurant workers that under-report tip income D) the existence of home-cooked meals
B
41) Suppose the country of Dingo experienced an economic trough in January 2011. We can conclude that A) Dingo did not experience a recession in 2010. B) an expansion occurred after January 2011. C) Dingo's potential GDP fell in 2011. D) real GDP in Dingo was increasing in January 2011.
B
50) Which of the following are parts of the business cycles? A) real GDP and potential GDP B) recession and expansion C) peak and potential GDP D) inflation and recession
B
9) In the circular flow diagram, aggregate expenditure includes A) consumption expenditure, saving, government expenditure and net exports. B) consumption expenditure, investment, government expenditure and net exports. C) consumption expenditure, saving, investment and government expenditure. D) consumption expenditure, saving, investment and net exports.
B
16) If Frito Lay, an American snack company, opens a new manufacturing facility in Mexico and produces snacks which are distributed in South America, then Mexico's GDP ________ and U.S. GDP ________. A) increases; increases B) does not change; increases C) increases; does not change D) increases; decreases
C
27) Which of the following is NOT included in the income approach to measuring GDP? A) compensation of employees B) net interest C) net exports D) corporate profits
C
36) A trough is the A) upper turning point of a business cycle when an expansion begins. B) upper turning point of a business cycle when a recession begins. C) lower turning point of a business cycle when an expansion begins. D) lower turning point of a business cycle when a recession begins.
C
39) Potential GDP is A) the level of GDP achieved during periods when 100 percent of the labor force is employed. B) a goal that can never be achieved by the economy. C) the maximum amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation. D) the maximum GDP that an economy actually achieves throughout its entire history.
C
43) Business cycles A) are all identical in duration over the last century. B) are unpredictable due to political upheavals and global markets. C) follow a pattern of trough, expansion, peak and recession. D) are more volatile during a Republican administration.
C
47) The business cycle is the A) regular growth rate of the real GDP. B) regular fluctuations of real GDP below potential GDP. C) irregular fluctuations of real GDP around potential GDP. D) irregular fluctuations of prices around real GDP.
C
5) Gross investment equals A) depreciation + change in inventories. B) net investment - depreciation + change in inventories. C) net investment + depreciation. D) net investment + change in inventories.
C
1) Suppose Mail Boxes Etc. buys a new copier for its store for $1000. A year later, when the firm wants to upgrade to a new copier, it finds that the old copier is only worth $750. Over the year the copier was used, ________ has occurred. A) net investment B) gross investment C) replacement investment D) depreciation
D
12) GDP equals A) the value of the aggregate production in a country during a given time period. B) aggregate expenditure. C) aggregate income. D) all of the above.
D
18) According to the BEA, in the second quarter of 2012 purchases of new residential structures rose by 8.9 percent. Using the expenditure approach, this change increases A) government expenditure on goods and services. B) personal consumption expenditures. C) net exports of goods and services. D) gross private domestic investment.
D
28) According to the BEA, in the second quarter of 2012 federal government spending on goods and services changed by -0.1 percent. This decrease could have been caused by a decrease in spending on A) interest payments on the national debt. B) Social Security. C) unemployment benefits. D) national defense.
D
33) The income approach to measuring GDP A) sums all incomes earned in the United States and makes no other adjustments because other adjustments are not necessary. B) measures the cost of producing GDP rather than the market value. C) sums the value at each stage of production plus the value of depreciation. D) determines the cost of production, then adjusts it to equal the market value of production.
D
37) A recession is commonly defined as occurring when A) real GDP decreases for a period of 12 or more months. B) the unemployment rate rises above 7.5 percent for 6 or more months. C) the unemployment rate rises above 5.0 percent for 12 or more months. D) real GDP decreases for a period of 6 or more months.
D
38) Real GDP can be criticized as a measure of economic welfare because it A) does not take account of the degradation of environmental quality. B) does not include leisure time available to a society. C) does not include the value of products produced in the household. D) All of the above answers are correct.
D
4) Gross domestic product (GDP) is A) the sum of compensation of employees, proprietors' income, net interest, rental income, corporate profits, depreciation, and indirect business taxes minus subsidies. B) the value of all final goods and services produced in a country during a year. C) the sum of consumption expenditure, investment, government expenditure on goods and services, and net exports. D) all of the above.
D
40) An expansion occurs when the level of real GDP is A) decreasing. B) at a cyclical peak. C) at a cyclical trough. D) increasing.
D
42) The relationship between real GDP and potential GDP is that A) real GDP always equals potential GDP. B) real GDP fluctuates about potential GDP. C) real GDP is always below potential GDP. D) real GDP never equals potential GDP.
D
49) Which of the following is NOT included in real GDP? A) production of services, such as the services of hair dressers B) production of goods that last more than a year, such as a pair of roller blades C) production of goods that last less than a year, such as production of hot dogs D) production that takes place in the underground economy
D
8) Which of the following is TRUE regarding the circular flow diagram? I. "Aggregate income" is the flow of income earned by firms. II. Retained earnings are considered income earned by firms rather than part of households' income. III. The government, households, and firms all have transactions in the goods market. A) I only B) I and II C) I and III D) III only
D
