Basic Economy

24. In comparing the magnitudes of the components of GDP according to the expenditure approach, we see that in the United States A) government expenditure on goods and services is the largest category. B) investment is the largest category. C) investment is much larger than government expenditure on goods and services. D) investment is less than government expenditure on goods and services. E) investment, government expenditure on goods and services, and consumption expenditure are all about the same size.

D) investment is less than government expenditure on goods and services.

Which of the following is NOT directly included in U.S. GDP? A) sales to tourists of beach umbrellas in Hilton Head, South Carolina B) sales of sandwiches at a Subway store in Bangor, Maine C) ticket sales to Ripley's Aquarium in Gatlinburg, Tennessee D) popcorn purchased by a movie theater chain in Georgia E) movie tickets purchased by consumers in Georgia

D) popcorn purchased by a movie theater chain in Georgia

. Which of the following would be included in Germany's GNP? A) the production of BMWs (made by a German-based company) in South Carolina B) the production of Michelin tires made in Germany by a French company and then sold directly to French consumers C) the production of BMWs in Germany D) the production of Michelin tires made in France by a French company and then sold to BMW in Germany for use in BMW cars E) Answers A and C are correct.

E) Answers A and C are correct.

Gross Domestic Product is the market value of all ________ produced within a country in a given period of time. A) final goods B) intermediate goods C) final services D) intermediate services E) final goods and services

E) final goods and services

. The category of "rent" in the income approach to GDP A) includes the money paid to rent apartments only. B) includes the money paid to rent machinery only. C) includes the money paid to use land and other rented inputs. D) does not have any connection to owner-occupied housing. E) includes only the imputed rent for owner-occupied housing.

) includes the money paid to use land and other rented inputs.

35. During last year, a country produced 20,000 pizzas and 10,000 hamburgers and nothing else. The pizzas sold for $10.00 each and the hamburgers for $3.00 each. Nominal GDP was A) $230,000. B) $70,000. C) $460,000. D) $390,000. E) $360,000.

A) $230,000.

23. Which of the following is directly included in the U.S. GDP for 2013? i. a 2013 Cadillac Escalade produced and sold as a new car in the United States in 2013 ii. tires produced in the United States, purchased by General Motors, and installed on a new Cadillac Escalade sold in 2013 iii. General Motors cars produced in Canada because General Motors is an American corporation A) i only B) ii only C) i and iii D) ii and iii E) i, ii, and iii

A) i only

22. In a circular flow diagram, i. the value of production = income. ii. the value of production = expenditure. iii. expenditure = income. A) i, ii and iii are true statements. B) Only iii is a true statement. C) i and ii are true statements. D) i and iii are true statements. E) Only i is a true statement.

A) i, ii and iii are true statements.

. Which of the following is classified as an intermediate good? i. the purchase of a Big Mac by a college student ii. McDonald's purchase of pickles iii. a McDonald's restaurant owner's interest payment for the loan on her building A) ii only B) ii and iii C) i only D) i and iii E) i, ii and iii

A) ii only

45. In 1961, real GDP totaled $575 billion and in 2011 it totaled $1,255 billion. Between 1961 and 2011, the population increased from 50 million to 100 million. Between 1961 and 2011, the standard of living based on real GDP per person A) increased from $11,500 to $12,550. B) increased by over 300 percent. C) increased by about 118 percent. D) decreased from $125,500 to $28,750. E) decreased by 9 percent.

A) increased from $11,500 to $12,550.

Although imperfect, which of the following is used as a measure of the standard of living? A) real GDP ÷ population B) real GDP × population C) nominal GDP × population D) nominal GNP ÷ population E) nominal GNP × population

A) real GDP ÷ population

12. Consumption goods and services include A) washing machines and tickets to football games. B) new homes and existing homes (as long as improvements have been made to the existing home). C) tickets to concerts and medical care provided to veterans by the government. D) new and used textbooks as long as they are sold via stores or online. E) vacation time accumulated by workers.

A) washing machines and tickets to football games.

The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2009. What is nominal GDP in 2009? A) $410 B) $450 C) $900 D) $550 E) $460

B) $450

26. The table gives data for a nation. What is the amount of the country's GDP? A) $6,000 billion B) $6,200 billion C) $6,600 billion D) $6,900 billion E) $5,800 billion

B) $6,200 billion

The base year is 2011. A country only produces Blu-ray players. The price of a Blu-ray player in 2011 was $100. The price of a Blu-ray player was $90 in 2012. The quantity of Blu-ray players produced in 2011 was 10,000 units and in 2012 was 10,500 units. Nominal GDP in 2012 equals A) $900,000. B) $945,000. C) $1,000,000. D) $1,050,000. E) an amount that cannot be determined without information about nominal GDP in 2008.

B) $945,000.

21. Because of the circular flows of expenditure and income in the economy, total ________ equals total ________ equals total ________. A) expenditure; investment; income B) expenditure; income; value of production C) consumption; expenditure; value of production D) investment; income; consumption E) consumption; investment; expenditure

B) expenditure; income; value of production

. The expenditure approach values ________ and the income approach values ________. A) goods and services at market prices; services at factor prices B) goods and services at market prices; goods and services at factor prices C) only goods at market prices; only services at factor prices D) services only at factor prices; goods only at market prices E) goods and services at factor prices; goods and services at market prices

B) goods and services at market prices; goods and services at factor prices

Even though it is not a perfect measure, economists can use real GDP to i. compare how the value of the goods and services produced in China have changed over the past 10 years. ii. look at the length of recessions and expansions in the United States. iii. compare the standard of living in China versus the standard of living in Vietnam. A) ii only B) i, ii and iii C) i and iii D) i and ii E) ii and iii

B) i, ii and iii

Which adjustment(s) must be made to convert net domestic product to GDP? i. add indirect taxes ii. subtract subsidies iii. add depreciation A) i and iii B) i, ii and iii C) ii only D) iii only E) i and ii

B) i, ii and iii

. Which of the following are included in interest income? i. payments made for the use of land ii. income paid to households for loans they make iii. payments made by households for their borrowing A) i, ii and iii 28. Which of the following are included in interest income? i. payments made for the use of land ii. income paid to households for loans they make iii. payments made by households for their borrowing A) i, ii and iii B) ii and iii only C) i and ii only D) ii only E) iii only

B) ii and iii only

6. When an American college student in Davis, California spends $200 on a pair of Louis Vuitton jeans (a famous French brand), U.S. consumption ________, U.S. net exports ________, and U.S. GDP ________. A) does not change; increases by $200; increases by $200 B) increases by $200; decreases by $200; does not change C) increases by $200; does not change; increases by $200 D) does not change; does not change; does not change E) does not change; decreases by $200; decreases by $200 Answer: B

B) increases by $200; decreases by $200; does not change

10. Which of the following would NOT be directly included in the U.S. GDP in 2010? A) the market value of restaurant meals sold in 2010 B) the market value of the jet fuel bought by Delta to use for its flights in 2010 C) the value of the automobiles produced in 2010 at the Toyota plant located in Georgetown, Kentucky D) legal services provided to first time home buyers during 2010 E) the purchase of a new home in Atlanta, Georgia in 2010 Answer: B

B) the market value of the jet fuel bought by Delta to use for its flights in 2010

3. To calculate GDP it is necessary to A) add the total amounts of all the goods produced. B) use the market price to place a dollar value on each good produced. C) use production cost to place a dollar value on all goods produced. D) use the average market price over the last five years to place a dollar value on all goods produced. E) average the cost of producing a good with the price of the good to place a dollar value on all goods produced

B) use the market price to place a dollar value on each good produced.

The base year is 2012. A country only produces Blu-ray players. The price of a Blu-ray player in 2012 was $100. The price of a Blu-ray player was $90 in 2013. The quantity of Blu-ray players produced in 2012 was 10,000 units and in 2013 was 10,500 units. Real GDP in 2012 equals A) $900,000. B) $945,000. C) $1,000,000. D) $1,050,000. E) an amount that cannot be determined without information about real GDP in 2007.

C) $1,000,000.

25. The following table reports transactions that occurred in Whoville. Item Price per Unit Quantity Bottles of French Wine $20 10 Boxes of Cereal $4 20 Used Tires $15 5 Shares of Twitter Stock $10 15 Hours of Swimming Lessons $5 8 Nominal GDP in Whoville is A) $320. B) $545. C) $120. D) $395. E) $195.

C) $120.

. Last year in a nation to the south, net domestic product at factor cost equaled $3,300 billion. Indirect taxes minus subsidies equaled $200 billion, depreciation equaled $800 billion, the statistical discrepancy equaled zero, and net operating surplus equaled $150 billion. The country's GDP was A) $2,300 billion. B) $3,500 billion. C) $4,300 billion. D) $4,450 billion. E) $4,150 billion.

C) $4,300 billion.

Assume that a small country produces only green peppers and red peppers. Last year, it produced 100 green peppers and 50 red peppers and sold them at prices of $2 per green pepper and $3 per red pepper. This year, it produced 150 green peppers and 60 red peppers and sold them at prices of $2 per green pepper and $4 per red pepper. What is real GDP this year if the base year is last year? A) $540 B) $400 C) $480 D) $350 E) $890 Answer: C Data for 2009 Data for 2010

C) $480

17. Gross Domestic Product equals A) Y = C + I - G + NX. B) Y = C - I + G + NX. C) Y = C + I + G + NX. D) Y = C - I - G - NX. E) Y = C + I + G - NX

C) Y = C + I + G + NX.

19. Undistributed profits ________ counted as part of GDP because ________. A) are not; households are not paid by the firms B) are; they can be used to buy other goods C) are; they are considered income paid to households and loaned back to firms D) are not; they are considered an intermediate good E) are; firms are required to pay corporate income taxes on them

C) are; they are considered income paid to households and loaned back to firms

5. Which of the following is included in Germany's GDP? i. BMWs produced in a German-owned factory in South Carolina ii. the value of the stocks sold on the German stock exchange, the Frankfurt Stock Exchange iii. china produced by the English-owned Wedgewood Company at a factory in Berlin, Germany A) i and iii B) ii only C) iii only D) i and ii E) None of the above answers is correct

C) iii only

8. Which of the following is classified as a final good or service? i. tires bought by GM to put on new Tahoes ii. mustard bought by Subway to put on its sub sandwiches iii. your purchase of online access to the Wall Street Journal A) i and ii B) i, ii and iii C) iii only D) ii and iii E) ii only

C) iii only

Real GDP can increase if the i. quantities of goods and services produced decrease and prices fall by a smaller percentage. ii. quantities of goods and services produced decrease and prices fall by a larger percentage. iii. quantities of goods and services produced decrease and prices do not change. iv. quantities of goods and services produced increase. A) i only B) iii only C) iv only D) i and iii E) i, ii, and iii

C) iv only

Wobet is a small country that produces only steak and potatoes. Steaks have a price of $10 each and potatoes have a price of $1 each. Suppose that Wobet produces 10 steaks and 20 potatoes in 2010. Using ________, Wobet has GDP equal to ________. A) market value; 30 units B) a market basket; 30 units C) market value; $120 D) real value; $120 E) a price index; $120

C) market value; $120

. Which of the following is NOT included in the income approach to calculating GDP? A) interest B) wages C) net exports of goods and services D) profits E) rent

C) net exports of goods and services

11. One bag of coffee beans is sold for $7 to a cafe that uses it to brew coffee which it sells to customers for a total of $15. A second bag of coffee is sold directly to Joan for $7, who uses it to brew coffee for her family every morning. What is the contribution to GDP from the purchases of coffee beans and coffee? A) $7 B) $14 C) $15 D) $22 E) $29

D) $22

Last year in Candamica, consumption expenditure was $20 billion, interest, rent, and profit were $2.5 billion, government expenditure on goods and services was $7 billion, net exports of goods and services was $5 billion, and investment was $2 billion. Hence total expenditure was A) $24.5 billion. B) $34.5 billion. C) $36.5 billion. D) $34 billion. E) undetermined without information about imports.

D) $34 billion.

Using the information in the table above, what does GDP equal? A) $365 billion B) $350 billion C) $650 billion D) $380 billion E) GDP cannot be calculated without information on the amount of investment.

D) $380 billion

. Which of the following statement is correct? A) If nominal GDP increases, then real GDP must increase. B) If nominal GDP decreases, then real GDP must increase. C) If real GDP decreases, then nominal GDP must decrease. D) Nominal and real GDP can change either in the same direction or the opposite direction. E) If nominal GDP does not change, then real GDP cannot change.

D) Nominal and real GDP can change either in the same direction or the opposite direction.

When the value of nominal GDP increases from one year to the next, we know that one or two things must have happened during that time: A) The nation produced fewer goods and services and/or prices fell for goods and services. B) Consumption expenditure increased and/or corporate profits increased. C) Investment increased and/or payments to employees increased. D) The nation produced more goods and services and/or prices rose for goods and services. E) the value of real GDP must have increased and/or the price level must have decreased. Answer: D

D) The nation produced more goods and services and/or prices rose for goods and services.

14. Kelly's Surf Shop orders 5,000 new surf boards at the beginning of the year but only sells 4,500 by the end of the year. How are the 500 unsold surfboards accounted for in Gross Domestic Product? A) They will be included in the nondurable consumption category of GDP. B) They will be included in the residential investment category of GDP. C) They will be included in the government spending category of GDP. D) They will be included in the inventory investment category of GDP. E) They will be included in the durable consumption category of GDP.

D) They will be included in the inventory investment category of GDP

13. Which of the following is included as investment in GDP? i. cars produced during the year but unsold at the end of the year ii. new capital equipment produced and purchased during the year iii. purchases of a company's stocks and bonds A) i only B) ii only C) iii only D) i and ii E) i, ii, and iii

D) i and ii

20. The circular flow shows that GDP measures ________. i. total income. ii. total expenditures. iii. price changes. A) i only B) ii only C) iii only D) i and ii E) i, ii, and iii

D) i and ii

6. Which of the following is included in U.S. GDP? i. the rental value of homes owned by U.S. citizens ii. the production of Suburban SUVs by GM in its plant in Mexico iii. tickets sold by U2 for concerts held in the United States A) ii only B) ii and iii C) i, ii and iii D) i and iii E) i only

D) i and iii

15. Government expenditures on goods and services include i. the New York City Library's purchase of new books. ii. Washington D.C.'s purchase of gas for its city buses. iii. California's payment of wages to prison guards. A) i and ii B) i and iii C) ii and iii D) i, ii and iii E) i only

D) i, ii and iii

44. In the United States, between 1961 and 2011, there has been i. a consistent , non-changing growth rate of potential GDP per person. ii. an increase in the standard of living based on real GDP per person. iii. fluctuations in real GDP per person around potential GDP per person. A) ii only B) i, ii and iii C) i and ii D) ii and iii E) i only

D) ii and iii

Gross Domestic Product measures the

market value of the final goods and services produced in a given year within a country.