Chapter 10 Quick Quiz

An economy produces 10 cookies in year 1 at a price of $2 per cookie and 12 cookies in year 2 at a price of $3 per cookie. From year 1 to year 2, real GDP increases by a. 20 percent. b. 50 percent. c. 70 percent. d. 80 percent.

a. 20 percent.

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

a. consumption

An economy's gross domestic product is a. The excess of spending over income. b. The excess of income over spending. c. Total income and total spending. d. Total income times total spending.

c. Total income and total spending.

Sam bakes a cake and sells it to Carla for $10. Woody pays Diane $30 to tutor him. In this economy, GDP is a. $10. b. $20. c. $30. d. $40.

d. $40.

Which of the following does NOT add to U.S. GDP? a. Boeing manufactures and sells a plane to Air France. b. General Motors builds a new auto factory in North Carolina. c. The city of New York pays a salary to a policeman. d. The federal government sends a Social Security check to your grandmother.

d. The federal government sends a Social Security check to your grandmother.

If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as _____ hamburgers. a. 5 b. 15 c. 30 d. 60

b. 15

If all quantities produced rise by 5 percent and all prices fall by 5 percent, which of the following best describes what occurs? a. Real GDP rises by 5 percent, while nominal GDP falls by 5 percent. b. Real GDP rises by 5 percent, while nominal GDP is unchanged. c. Real GDP is unchanged, while nominal GDP rises by 5 percent. d. Real GDP is unchanged, while nominal GDP falls by 5 percent.

b. Real GDP rises by 5 percent, while nominal GDP is unchanged.

Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is GDP here? a. $40 b. $60 c. $80 d. $100

c. $80

An American buys a pair of shoes made in Italy. How do the U.S. national income accounts treat the transaction? a. Net exports and GDP both rise. b. Net exports and GDP both fall. c. Net exports fall, while GDP does not change. d. Net exports do not change, while GDP rises.

c. Net exports fall, while GDP does not change.

If Mr. Keating quits his job as a teacher to home school his own children, GDP a. stays the same because he is engaged in the same activity. b. rises because he now pays lower income taxes. c. falls because his market income decreases. d. could rise or fall, depending on the value of home schooling.

c. falls because his market income decreases.

GDP is an imperfect measure of well-being because it a. includes physical goods produced but not intangible services. b. excludes goods and services provided by the government. c. ignores the environmental degradation from economic activity. d. is not correlated with other measures of the quality of life.

c. ignores the environmental degradation from economic activity.

After graduation, an American college student moves to Japan to teach English. Her salary is included a. only in U.S. GDP. b. only in Japan's GDP. c. in both U.S. GDP and Japan's GDP. d. in neither U.S. GDP nor Japan's GDP.

c. in both U.S. GDP and Japan's GDP.