Intro To Macro Exam 1

Net Investment Equation

GDP - consumption - government purchases - exports + imports - depreciation or GDP-Depreciation

Gross Private Domestic Investment

Total investment in capital-that is, the purchase of new housing, plants, equipment, and inventory by the private (or nongovernment) sector

Fixed weight approach

a procedure that uses weights from a given base year

During 2006 a leading auto manufacturer produced $20 million worth of mini vans. However, due to soaring gas prices, the sale of mini-vans became sluggish and by the end of 2006 only $15 million worth of mini vans were sold. As for the contribution of the mini vans to GDP, A. $15 million are added to 2006's GDP, all as private investment B. $20 million are added to 2006's GDP with $15 million as consumption and $5 million as private investment C. $20 million are added to 2006's GDP, all as consumption D. $15 million are added to 2006's GDP, all as consumption

B. $20 million are added to 2006's GDP with $15 million as consumption and $5 million as private investment

GDP calculated by the expenditure approach will be equal to GDP calculated by the income approach, because A. of net business transfer payments, indirect taxes minus subsidies and surplus of government enterprises B. the dollar value of the expenditure on new goods and services in a year is always less than the dollar value of the income generated in that year, since imports are subtracted from the expenditure value C. the dollar value of the expenditure on new goods and services in a year must be equal to the dollar value of the income generated in that year D. the national income and the gross domestic product are two different measurements

C. the dollar value of the expenditure on new goods and services in a year must be equal to the dollar value of the income generated in that year

GDP calculations do not directly include the economic costs of environmental damage-for example, global warming and acid rain. Which of the following is a reason why these are not included in GDP? A. There is no accurate measurement to account for the costs of environmental damage B. GDP is a measure of how much output the economy is producing. Global warming is not output and should not be included in GDP C. There is no consensus that the costs should be included in the GDP and there is no consensus on the measurement of environmental damage D. All of the above

D. All of the above

During 2002, real GDP in Japan rose about 1.3 percent, but during the same time period, retail sales fell 1.8 percent in real terms A. because only inventories increased B. because of inflation, which lowered consumption and retail sales, but increased the value of GDP C. due to statistical error. Retail sales and GDP always move in the same direction D. because the sum total of real investment, government purchases, and net exports grew while consumption, which is measured by retail sales, fell in real terms

D. because the sum total of real investment, government purchases, and net exports grew while consumption, which is measured by retail sales, fell in real terms

One disadvantage of using the fixed weight approach to calculate real GDP is that, it A. allows for price to vary but not quantities B. includes only consumer prices C. does not include prices of imports D. cannot capture the changes in relative prices and quantities of different goods produced in the economy

D. cannot capture the changes in relative prices and quantities of different goods produced in the economy

Imports are subtracted in the expenditure approach to calculating GDP, because A. consumption, investment, and government spending are understated as these include expenditures on both domestic and foreign goods B. the US economy is not open to foreign trade C. US has a negative balance of trade D. consumption, investment, and government spending are overstated as these include expenditures on both domestic and foreign goods

D. consumption, investment, and government spending are overstated as these include expenditures o both domestic and foreign goods

Your college bookstore receives a shipment of new economics texts for $60,000. This transaction is A. included in GDP under investment since the bookstore earns a profit by selling these books to students B. not included in GDP since books are exempt from GDP calculation C. included in GDP calculation under consumption D. not included in GDP calculation, since books brought by the bookstore are intermediate goods

D. not included in GDP calculation, since books brought by the bookstore are intermediate goods

GDP is different from final sales since A. final sales measures only domestic sales, but GDP considers exports as well B. final sales ignores changes in inventory, which are included in GDP calculation C. final sales measures only what the consumers buy, but GDP is the sum of total consumption, investment, government purchases, and net exports D. measurements of GDP and final sales are subject to statistical errors

b. final sales ignores changes in inventory, which are included in GDP calculation

The US Bureau of Economic Analysis (BEA) has recently adopted a new approach to calculate real GDP and real GDP growth to correct the problems of the fixed weights approach. One of the features of the new approach is that, now BEA uses A. the arithmetic average of fixed weights indexes, allowing prices to vary but not quantities B. a simple average method instead of the weighted average method C. the geometric average of fixed weights indexes and uses two base years to calculate the growth rate of real GDP between two consecutive years D. only the prices of consumer goods

c. the geometric average of fixed weights indexes and uses two base years to calculate the growth rate of real GDP between two consecutive years