ECN 211: Chapter 10

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times

f 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. 15 b. 60 c. 5 d. 30

a. 15

The following table contains information about an economy that produces only pens and books. The base year is 2017. Use this information to answer question What is the approximate percentage increase in prices from 2018 to 2019? a. 22 percent b. 16 percent c. 38 percent d. 13 percent e. 0 percent

a. 22 percent

The following table contains information about an economy that produces only pens and books. The base year is 2017. Use this information to answer question What is the value of the GDP deflator in 2018? a. 138 b. 100 c. 116 d. 119 e. 113

e. 113

consumption

spending by households on goods and services, with the exception of purchases of new housing

investment

spending on business capital, residential capital, and inventories

net exports

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

Real GDP is measured in ______ prices while nominal GDP is measured in ______ prices. a. base year; current year b. current year; base year c. foreign; domestic d. intermediate; final e. domestic; foreign

a. base year; current year

Gross domestic product is the sum of the market value of the a. final goods and services. b. inferior goods and services. c. normal goods and services. d. manufactured goods. e. intermediate goods.

a. final goods and services.

gross domestic product

the market value of all final goods and services produced within a country in a given period of time

real GDP

the production of goods and services valued at constant prices

nominal GDP

the production of goods and services valued at current prices

The following table contains information about an economy that produces only pens and books. The base year is 2017. Use this information to answer question What is the value of real GDP for 2018? a. $800 b. $1,060 c. $1,200 d. $1,460 e. none of the above

b. $1,060

The following table contains information about an economy that produces only pens and books. The base year is 2017. Use this information to answer question What is the percentage increase in real GDP from 2018 to 2019? a. 7 percent b. 27 percent c. 0 percent d. 32 percent e. 22 percent

c. 0 percent

The following table contains information about an economy that produces only pens and books. The base year is 2017. Use this information to answer question What is the percentage increase in prices from 2017 to 2018? a. 38 percent b. 22 percent c. 13 percent d. 16 percent e. 0 percent

c. 13 percent

government purchases

spending on goods and services by local, state, and federal governments

If a cobbler buys leather for $100 and thread for $50 and uses them to produce and sell $500 worth of shoes to consumers, the contribution to GDP is a. $100. b. $600. c. $50. d. $500. e. $650.

d. $500.

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. $60 b. $100 c. $40 d. $80

d. $80

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. 80 percent. b. 70 percent. c. 50 percent. d. 20 percent

d. 20 percent

How is your purchase of a $40,000 BMW automobile that was produced entirely in Germany recorded in the U.S. GDP accounts? a. Net exports increase by $40,000. b. Investment increases by $40,000 and net exports increase by $40,000. c. Net exports decrease by $40,000. d. Consumption increases by $40,000 and net exports decrease by $40,000. e. There is no impact because this transaction does not involve domestic production.

d. Consumption increases by $40,000 and net exports decrease by $40,000.

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 is unchanged, while nominal GDP falls by 5 percent. c. Real GDP is unchanged, while nominal GDP rises by 5 percent. d. Real GDP rises by 5 percent, while nominal GDP is unchanged.

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

Which of the following would be excluded from 2019 GDP? The sale of a. a 2019 Honda made in Tennessee. b. a haircut. c. a realtor's services. d. a home built in 2018 and first sold in 2019. e. All of the above should be counted in 2019 GDP.

d. a home built in 2018 and first sold in 2019.

GDP would include which of the following? a. housework b. intermediate sales c. the value of taking a day off from work d. consulting services e. illegal drug sales

d. consulting services

The value of plant and equipment worn out in the process of manufacturing goods and services is measured by a. intermediate production. b. consumption. c. Net national product. d. depreciation. e. investment.

d. depreciation.

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

d. ignores the environmental degradation from economic activity.

If nominal GDP in 2019 exceeds nominal GDP in 2018, then the production of output must have a. risen or fallen because there is not enough information to determine what happened to real output. b. fallen. c. stayed the same. d. risen.

a. risen or fallen because there is not enough information to determine what happened to real output.

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

a. total income and total spending.

An example of a transfer payment is a. unemployment benefits. b. profit. c. wages. d. rent. e. government purchases.

a. unemployment benefits.

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

b. $40.

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

b. consumption

If your grandparents buy a new retirement home, this transaction would affect a. consumption. b. investment. c. government purchases. d. net exports. e. none of the above.

b. investment.

fter 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.

b. only in Japan's GDP.

U.S. gross domestic product (in contrast to gross national product) measures the production and income of a. Americans and their factories no matter where they are located in the world. b. people and factories located within the borders of the United States. c. the domestic service sector only. d. the domestic manufacturing sector only. e. none of the above

b. people and factories located within the borders of the United States.

The following table contains information about an economy that produces only pens and books. The base year is 2017. Use this information to answer question What is the value of nominal GDP for 2018? a. $800 b. $1,060 c. $1,200 d. $1,460 e. none of the above

c. $1,200

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

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

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

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

Gross domestic product can be measured as the sum of a. final goods and services, intermediate goods, transfer payments, and rent. b. consumption, transfer payments, wages, and profits. c. consumption, investment, government purchases, and net exports. d. net national product, gross national product, and disposable personal income. e. investment, wages, profits, and intermediate production.

c. consumption, investment, government purchases, and net exports.

U.S. GDP would exclude which of the following? a. lawyer services purchased by a home buyer b. a new bridge purchased by the state of Texas c. cotton purchased by Lee Jeans d. the purchase of a new Mazda produced in Illinois e. lawn care services purchased by a homeowner

c. cotton purchased by Lee Jeans

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

c. falls because his market income decreases.

If U.S. GDP exceeds U.S. GNP, then a. Americans are producing more in foreign countries than foreigners are producing in the United States. b. intermediate production exceeds final production. c. foreigners are producing more in the United States than Americans are producing in foreign countries. d. real GDP exceeds nominal GDP. e. real GNP exceeds nominal GNP.

c. foreigners are producing more in the United States than Americans are producing in foreign countries.