Macro Ch 8 Self-Test

T F. NNP is GNP plus the amount of depreciation in that time period.

F

If the GDP deflator has a value of 105.0, then a. the inflation rate is 1.05%. b. the inflation rate is 0.05%. c. the inflation rate is 5%. d. prices have risen 5% since the base year.

d. prices have risen 5% since the base year.

T F. GDP measures the value of final goods and services in an economy or the value of the income earned in producing those goods and services in that economy, for a specific time period.

T

T F. GNP is the value of final goods and services produced by labor and capital supplied by U.S. residents, even if the production occurs outside the United States.

T

In the equation that sums up the information on the components of GDP, Y = C + I + G + NX, which component has the largest dollar value? a. C b. I c. G d. NX

a. C

In calculating GDP, which levels of government spending are included in government purchases? a. spending by the federal government only b. spending by federal, state, and local governments c. spending by the federal government and some state governments, but not local governments d. spending by governments only as they relate to national security, social welfare, and other national programs

b. spending by federal, state, and local governments

Growth in the economy is almost always measured as a. growth in nominal GDP. b. growth in real GDP. c. growth in net national product. d. the growth of personal disposable income.

b. growth in real GDP.

Fill in the blank. The flow of funds from ___________ into the financial system makes it possible for government and firms to borrow. a. government and firms b. households c. investment banks d. exports

b. households

In many developing countries, the informal sector is ________ because taxes are ________ and government regulations are ___________. a. large; low; minimal b. large; high; extensive c. small; low; minimal d. small; low; extensive

b. large; high; extensive

Over time, prices may change relative to each other. To allow for this, the Bureau of Economic Analysis calculates a. nominal GDP using chain weights. b. real GDP and the price deflator using chain weights. c. real GDP and nominal GDP using only base-year prices. d. real GDP using the prices in the current year.

b. real GDP and the price deflator using chain weights.

Complete the following sentence: Total income in the economy equals the sum of wages, interest, _________ and ________. a. dividends; transfer payments b. rent; profit c. taxes; transfer payments d. disposable income; net exports

b. rent; profit

The total income actually received by a country's residents is a. larger than the value of GDP. b. smaller than the value of GDP. c. exactly equal to the value of GDP. d. smaller or larger than the value of GDP depending on the year.

b. smaller than the value of GDP.

Real GDP is a. the value of goods and services evaluated at current year prices. b. the value of goods and services evaluated at base year prices. c. equal to the value of nominal GDP in every year except for the base year. d. a measure of output that was replaced by nominal GDP some time ago.

b. the value of goods and services evaluated at base year prices.

If Americans still worked 60 hour weeks, as they did in 1890, a. both GDP and the well-being of the typical person would be much higher than they are. b. both GDP and the well-being of the typical person would be lower than they are. c. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher. d. GDP would be lower than it is, but the well-being of the typical person would be higher.

c. GDP would be much higher than it is, but the well-being of the typical person would not

Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics? a. medical care b. education c. a haircut d. a new house

d. a new house

Which of the following is counted in the gross private domestic investment category used by the Bureau of Economic Analysis when measuring GDP? a. business fixed investment b. residential investment c. changes in business inventories d. all of the above

d. all of the above

If we add up the value of every final good and service produced in the economy, we must get a total that is exactly equal to the value of a. investment. b. net national product. c. disposable personal income. d. all of the income in the economy.

d. all of the income in the economy.

Which of the following do we subtract from GNP to obtain NNP? a. the production of fixed capital b. consumption c. investment d. depreciation

d. depreciation

Which of the following are not part of "final goods," as used in the definition of GDP? a. consumption goods b. investment goods c. exports d. intermediate goods

d. intermediate goods

When accounting for exports and imports in GDP, which of the following is correct? a. Exports are added to the other categories of expenditures. b. Imports are added to the other categories of expenditures. c. Both exports and imports are added to the other categories of expenditures. d. Both exports and imports are subtracted from the other categories of expenditures.

a. Exports are added to the other categories of expenditures.

Which is the largest component of GDP? a. consumption b. investment c. government purchases d. exports

a. consumption

Which of the following would be considered a factor of production? a. capital b. natural resources c. entrepreneurship d. all of the above

d. all of the above

T F. Consumption spending is divided into two parts, durable goods and non-durable goods.

F

T F. For every year, nominal GDP is always greater than real GDP.

F

T F. GDP is the value of all goods and services produced in a country during a time period.

F

T F. In the United States, household production and the underground economy is about 50 percent of GDP.

F

T F. Net exports (NX) are defined as imports minus exports.

F

T F. Personal income is the best measure of the income households have available for spending.

F

T F. The purchase of 100 shares of Apple computer stock is an example of investment spending.

F

T F. The value of GDP is reduced to reflect the impact of pollution generated by production.

F

T F. Macroeconomics is the study of the economy as a whole.

T

T F. Over a given time period, the sum of the value added by all firms is equal to a country's GDP.

T

T F. Real GDP is a better measure of output than nominal GDP.

T

T F. Value added is the price at which a firm sells its output minus the outlay paid to obtain the inputs to produce its output.

T

According to most economists, is not counting household production or production in the underground economy a serious shortcoming of GDP? a. Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to see how the economy is performing over short periods of time. b. Most economists would answer "yes" because these types of production are likely to grow significantly from one year to the next. c. Most economists would answer "no" because the purpose of measuring GDP is to see how the economy performs over fairly long periods of a decade or more. d. Most economists would answer "yes" because these types of production are likely to be a large component of the economy (or large percentage of measured GDP), especially in countries like the United States.

a. Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to see how the economy is performing over short periods of time.

As the value of a country's GDP increases, the country is likely to a. devote more resources to pollution reduction. b. devote fewer resources to pollution reduction. c. include the value of pollution in calculating GDP. d. exclude the value of pollution in calculating GDP.

a. devote more resources to pollution reduction.

In the circular-flow diagram, who supplies factors of production in exchange for income? a. households b. firms c. the government d. all of the above

a. households

If we add up the value of every good and service produced in the economy, we get a total that is a. larger than GDP. b. smaller than GDP. c. equal to GDP. d. larger or smaller than GDP depending on whether the economy experiences inflation during the year

a. larger than GDP.

In an economy with rising prices, compared to the base year, a. nominal GDP is larger than real GDP in years after the base year. b. nominal GDP is equal to real GDP in years after the base year. c. nominal GDP is larger than real GDP in years before the base year. d. nominal GDP is equal to real GDP in years before the base year.

a. nominal GDP is larger than real GDP in years after the base year.

Using the year 2000 as the base year, and assuming that prices during the 1990s were lower on average than prices in 2000, we can conclude that a. nominal GDP was lower than real GDP in the 1990s. b. nominal GDP was higher than real GDP in the 1990s. c. nominal GDP was equal to real GDP during all these years. d. neither nominal GDP nor real GDP were good measures of GDP.

a. nominal GDP was lower than real GDP in the 1990s.

Which of the following is counted in this year's GDP? a. only this year's production of goods and services b. only goods that are both produced and sold within the United States c. new goods produced and sold this year plus the value of used goods resold this year d. this year's production of goods and services added to the value of GDP last year

a. only this year's production of goods and services

Disposable personal income is equal to a. personal income minus personal tax payments plus government transfer payments. b. personal income minus government transfer payments plus personal tax payments. c. personal income minus Social Security payments. d. the income households have to consume, save, and pay taxes.

a. personal income minus personal tax payments plus government transfer payments.

Which of the following is included in the economist's definition of investment? a. the purchase of new machines, factories, or houses b. the purchase of a share of stock c. the purchase of a rare coin or deposit in a savings account d. all of the above

a. the purchase of new machines, factories, or houses

Which of the following is not true of GDP? a. GDP is measured by adding up the market values of goods produced, not the quantities of goods produced. b. GDP includes both intermediate and final goods. c. GDP includes only current production. d. GDP is calculated by the Bureau of Economic Analysis (BEA).

b. GDP includes both intermediate and final goods.

When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows: a. GNP will be a more accurate measure of the level of production within the country's borders. b. GDP will be much larger than GNP. c. GNP will be almost identical to GDP. d. GNP will be closer to zero.

b. GDP will be much larger than GNP.

Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant? a. Nominal GDP b. Real GDP c. Net national product d. None of the above. All GDP measures represent changes in both prices and quantities.

b. Real GDP

How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP? a. by adding the quantities produced of every good and service in the economy b. by adding the value in dollar terms of all of the final goods and services produced domestically c. by ascribing a historic value to all of the quantities produced in the economy d. in some cases, by adding quantities, and in others by adding the value of goods and services produced

b. by adding the value in dollar terms of all of the final goods and services produced domesticallY

The best measure of the income households actually have available to spend is a. national income. b. disposable personal income. c. net national product. d. gross domestic product.

b. disposable personal income.

Which of the following is not a shortcoming of GDP as a measure of welfare? a. It does not include the value of leisure. b. It is not adjusted for the effects of pollution caused by the production of goods and services. c. It only counts final goods and services and not intermediate goods. d. It is not adjusted for crime and other social problems.

c. It only counts final goods and services and not intermediate goods.

Suppose that the base year is 2000 and we want to calculate real GDP for 2007. Which procedure would you use? a. Multiply the quantities in 2000 by the prices in 2007, and add up the results. b. Multiply the quantities in 2007 by the prices in 2007, and add up the results. c. Multiply the quantities in 2007 by the prices in 2000, and add up the results. d. Multiply the quantities in 2007 by the prices in 2007, and subtract them from nominal GDP in 2000.

c. Multiply the quantities in 2007 by the prices in 2000, and add up the results.

The use of macroeconomic analysis to help the federal government design policies that help the economy run more efficiently is a. an absolute necessity, according to economists. b. a practice suggested by politicians but not by economists. c. a controversial question among economists. d. ideal in theory but nonexistent in practice because our knowledge of the economy as a whole is in fact very limited.

c. a controversial question among economists.

To calculate personal income from national income, which of the following must be done by the BEA? a. add corporate retained earnings b. add profits c. add government transfer payments d. all of the above

c. add government transfer payments

Household production and the underground economy a. are fully accounted for in GDP figures gathered by the Commerce Department. b. are not considered formal production of goods and services and, therefore, are not included when calculating GDP. c. are important but unaccounted for in the Commerce Department's estimate of GDP. d. are irrelevant because they constitute only a very small fraction of GDP for most countries.

c. are important but unaccounted for in the Commerce Department's estimate of GDP.

When a consumer purchases a new computer, how is that purchase counted in GDP? a. by adding the value of the various components of the computer to the final price paid for the computer by the consumer b. by subtracting the value of the components from the price paid by the consumer c. by counting only the value of the computer and ignoring the value of the components d. None of the above. The production and sale of the computer would not be counted in GDP.

c. by counting only the value of the computer and ignoring the value of the components

In the National Income and Product Accounts (NIPA), sales taxes are referred to as a. subsidies. b. excise taxes. c. indirect business taxes. d. government revenue.

c. indirect business taxes.

The difference between the price the firm sells a good for and the price it paid other firms for intermediate goods is called a. producer surplus. b. fixed investment. c. value added. d. profit.

c. value added.

Which of the following is true about the consumption component of U.S. GDP in 2007? a. Consumer spending on durable and nondurable goods was greater than consumption on services. b. Consumer spending on durable goods was greater than the sum of spending on nondurable goods and on services. c. Consumer spending on nondurable goods was greater than the sum of spending on nondurable goods and on services. d. Consumer spending on services was greater than the sum of spending on durable and nondurable goods.

d. Consumer spending on services was greater than the sum of spending on durable and nondurable goods.

Which of the following is true about the government purchases component of U.S. GDP in 2007? a. The entire amount was composed of federal government purchases because state and local governments are not included. b. Most of the spending on education and law enforcement occurs at the federal level. c. Purchases by the federal government are greater than purchases by state and local governments. d. Purchases by state and local governments are greater than purchases by the federal government

d. Purchases by state and local governments are greater than purchases by the federal government

Which of the following is a macroeconomic study? a. the study of how households and businesses make choices b. the study of how households and businesses interact in markets c. the study of how the government attempts to influence the choices of households and businesses d. the study of how fast prices in general are increasing

d. the study of how fast prices in general are increasing

An important conclusion to draw from the circular-flow diagram is that a. personal consumption expenditures are equal to the value of GDP. b. only the value of total income equals the value of GDP, not the value of expenditures. c. only the total value of expenditures equals the value of GDP, not the value of income. d. 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.

d. 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.