Econ Ch 8
Which letter best represents the demand for factors of production in this circular flow model?
C
National income is
GDP minus depreciation.
Which of the following is not a shortcoming of GDP as a measure of well-being
GDP only counts final goods and services and not intermediate goods
When a significant fraction of the domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows:
GDP will be much larger than GNP
The table and figure above show GDP measured in terms of the total income received by households. Use the table and figure to help determine which of the following statements about the division of income is false.
Gross domestic income is measured precisely.
In the circular flow model, who supplies factors of production in exchange for income?
Households
Which of the following are not counted as final goods and used in the GDP calculation?
Intermediate goods
Which of these is not a shortcoming of GDP as a measure of welfare?
It only counts final goods and services and not intermediate goods
Which of the following areas of economics studies issues such as whether government intervention is capable of reducing the severity of recessions
Macroeconomics
Which of the following statements about microeconomics and macroeconomics is correct
Macroeconomics is the study of the economy as a whole
The level of total investment by firms in new machinery and equipment helps to determine how rapidly the economy grows. This is a _____ issue. However, to understand how much new machinery and equipment firms decide to purchase, one must analyze the incentives individual firms face, which is a ______ issue
Macroeconomics, Microeconomics
Which of the following areas of economics studies issues such as ways to reduce teenage smoking
Microeconomics
A primary difference between macroeconomics and microeconomics is
Microeconomics examines individual markets while macroeconomics examines the economy as a whole
Which of the following statements about microeconomics and macroeconomics is correct
Microeconomics involves the study of how households and firms make choices
According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy?
Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time.
Dr. Strangelove's theory is that the price of mushrooms is determined by the activity of subatomic particles that exist in another universe parallel to ours. When the subatomic particles are emitted in profusion, the price of mushrooms is high. When subatomic particle emissions are low, the price of mushrooms also is low. Is it possible to test this theory
No
Which of the following would be included in the gross national product (GNP) of the United States
Production from a U.S. firm that operates in Mexico.
Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP?
RGDP < NGDP because prices are rising
Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?
Real GDP
Why is GDP adjusted for prices (inflation)?
So changes in quantity can be measured.
Which of the following is included in the economist's definition of investment?
The purchase of new machines, factories, or houses
Suppose economists develop an economic model and find that "it works great in theory, but it fails in practice." Which of the following should the economists do next
They should revise the model in light of its failure to explain or predict real world events
Is Buffet correct that it is the role of the federal government to make sure people who work will have enough income to live a "decent lifestyle"
This is a normative economic question, so the answer is a matter of the norms or values of the person answering
Click on the graph in the window on the right and select Multiple Time Series to graph nominal GDP and real GDP for the years 1990-2006. For Y axis1 select nominal GDP, and for Y axis2 select real GDP. Roll your cursor over the plotted data to identify each series. For this data, the base year for calculating GDP is 2000. Use the graph to help determine which one of the following statements regarding nominal and real GDP is FALSE
When nominal GDP increases, real GDP falls
Which of the following equations sums up the components of Gross Domestic Product (GDP)
Y = C+I+G+NX
Suppose you were building an economic model forecasting the number of physicians and physicians assistants likely to be needed in 2020. Should your model take into account the growth of the home medical device industry
Yes, because the greater the growth in the use of home medical devices, the less patients will require the services of physicians and physician assistants
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
If Americans still worked sixty hour weeks, as they did in 1890, __________.
the GDP would be much higher than it is but the well-being of the typical person would not necessarily be higher
Macroeconomics is the study of
the economy as a whole, including topics such as inflation, unemployment, and economic growth.
Real GDP is
the value of goods and services evaluated at base year prices
When it comes to assessing how this system affects the financial interests of doctors and the well being of consumers, it may be that the former gain more simply because
there are far fewer of them, hence each stands to gain much from supply restrictions
Economists use models
to answer questions and analyze issues
Economic data is used
to test models
The Making the Connection explains that there are both positive and normative elements to the debate over whether medical schools should charge tuition and whether hospitals should continue to pay residents who pursue primary care but not residents who specialize. Which of the following economic statistics would be the most useful in evaluating the positive elements in this debate? Assuming that these statistics are available or could be gathered, are they likely to resolve the normative issues in this debate?
-Physician incomes by specialty and geographic region. -Age distribution characteristics of the population by geographic region. -Med school tuition rates, applications, and enrollments. -Poverty rates by geographic region -All of the above No, because normative issues involve value judgments that incorporate an individual's full range of experiences, beliefs, and emotions
Which of the following statements about a hypothesis is correct
A hypothesis is a statement that could in principle turn out to be incorrect
Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics?
A new house
Which of the following transactions or activities would not be counted in the U.S. GDP?
Coffee beans bought by a coffee shop
To calculate personal income from national income, which of the following must be done by the BEA?
Add government transfer payments
Which of the following statements about an economic variable is correct
An economic variable is something measurable that can have different values
Why are models based on assumptions
Because models have to be simplified to be useful
How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP?
By adding the value in dollar terms of all the final goods and services produced domestically.
Indicate whether each of the following is a final good, an intermediate good, or neither
Coffee beans purchased by a coffee shop.. intermediate good One share of Google stock.. neither A new pick-up truck purchased by a consumer... final good A new home purchased by a family... final good
The figure above shows the values of the components of GDP for the year 20142014. Based on the data shown, which of the following statements regarding the components of GDP are false
Consumer spending on services is less than the sum of spending on durable and nondurable goods.
Which is the largest component of GDP?
Consumption
What are the four major categories of expenditure
Consumption, investment, government purchases, and net exports
Which of these do we subtract from GDP to obtain national income?
Depreciation
Based on the above table and graph, which of the following statements regarding total production and total income is true
Each measure of production and income gives a different value for total production and income
Why is GDP an imperfect measurement of total production in the economy
GDP does not include household production or production from the underground economy
What happens if we measure GDP by adding up the value of every good and service produced in the economy?
GDP is overestimated because of double counting.
Indicate whether each of the following is primarily a microeconomic issue or a macroeconomic issue. a. The effect of higher cigarette taxes on the quantity of cigarettes sold. This is a _____ issue. b. The effect of higher income taxes on the total amount of consumer spending. This is a _____ issue. c. The reasons for the economies of East Asian countries growing faster than the economies of sub-Saharan African countries. This is a _____ issue. d. The reasons for low rates of profit in the airline industry. This is a _____ issue.
a Microeconomics b Macroeconomics c Macroeconomics d Microeconomics
A higher per capita GDP translates to:
a higher standard of living
Economic growth is important to an economy because it typically translates to:
a higher standard of living for the country's population.
To calculate personal income from national income, which of the following must the BEA do
add government transfer payments
Household production and the underground economy
are not accounted for in the Bureau of Economic Analysis' estimates of GDP.
An alternating period of economic contraction and economic expansion measured over time with real GDP is known as the:
business cycle.
Which of the following is true about the consumption component of U.S. GDP in 2014?
consumer spending on services was greater than the sum of spending on durable and nondurable goods
Any attempt to determine whether or not this is a good system must focus on its
cost and benefits
Which of the following do we subtract from GDP to obtain national income
depreciation
As the value of a country's real GDP increases, the country is likely to
devote more resources to pollution reduction
The best measure of the income households actually have available to spend is:
disposable personal income
A period of real economic growth, where production and employment are both moving higher is known as:
expansion.
The _______ approach is the most widely used method to measure GDP.
expenditure
This system may help protect consumers by ensuring that
future doctors receive high-quality training
In the circular-flow diagram, who supplies factors of production in exchange for income
households
The flow of funds from __________ into the financial system makes it possible for government and firms to borrow.
households
Microeconomics is the study of
how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
Real GDP is the nominal GDP adjusted for:
inflation
Gross domestic product is best defined as the
market value of all final goods and services produced in a country during a period of time
Personal income is
national income minus retained corporate earnings plus government transfer payments and interest on government bonds.
In an economy with rising prices, compared to the base year,
nominal GDP is larger than real GDP in years after the base year
Disposable personal income is equal to personal income minus:
personal tax payments
If the GDP deflator in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012
Which of the following is true about the government purchases component of U.S. GDP in 2014?
purchases by state and local governments was greater than purchases by federal government
Economic growth is measured by the change in
real GDP
The GDP per capita is computed by dividing a country's:
real GDP by its population
Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates
real GDP using chain weights.
The total national income actually received by a country's residents is:
smaller than the value of GDP
The buying and selling of goods and services that is hidden from the government in order to avoid taxes and/or regulation is known as the:
underground economy.
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
value added
In 2014, the largest component of gross domestic income was
wages
The largest component of gross domestic income is
wages
An important conclusion to draw from the circular-flow diagram is that
we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income
