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Refer to the above data. If year 2 is chosen as the base year, real GDP for year 1 is: A) $25. B) $100. C) $20. D) $80.

In calculating the GDP national income accountants:

add increases in inventories or subtract decreases in inventories.

PICTURE 11 Refer to the above diagram. Consumption will be equal to income at:

an income of E

In national income accounting, consumption expenditures include purchases of:

automobiles for personal use, but not houses.

Inflation affects:

both the level and the distribution of income.

Recurring upswings and downswings in an economy's real GDP over time are called:

business cycles.

As defined in national income accounting, investment includes

business expenditures on machinery and equipment.

The investment demand curve will shift to the right as the result of:

businesses becoming more optimistic about future business conditions.

Given the annual rate of economic growth, the "rule of 70" allows one to:

calculate the number of years required for real GDP to double.

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:

capital goods and durable consumer goods.

The multiplier is defined as:

change in GDP/initial change in spending.

In an economy experiencing a persistently falling price level:

changes in nominal GDP understate changes in real GDP.

In an economy experiencing persistent deflation:

changes in nominal GDP understate changes in real GDP.

The largest component of national income is:

compensation of employees.

In national income accounting, consumption expenditures include:

consumer durable goods, consumer nondurable goods, and services.

Inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation.

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000. The appropriate price index

increased by $60 billion.

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock:

increased by $65 billion.

The most important determinant of consumer spending is:

level of income

If real GDP rises and the GDP price index has increased:

nominal GDP must have increased.

Demand-pull inflation:

occurs when total spending in the economy is excessive

Buying and selling of goods and services that is concealed form the government to avoid taxes or regulations or because the goods and services are illegal.

Underground Economy

Unemployed workers who are either searching for jobs or waiting to take jobs in the near future are experiencing: A) seasonal unemployment B) frictional unemployment C) structural unemployment D) cyclical unemployment

Unemployed workers whose skills become obsolete due to changes in technology and consumer demand are experiencing: A) seasonal unemployment B) frictional unemployment C) structural unemployment D) cyclical unemployment

Unlike demand-pull inflation, cost-push inflation: A) is self-limiting. B) drives up the price level. C) increases nominal income. D) increases real income.

Value added can be determined by: A) summing the profits of all enterprises in the economy. B) subtracting the purchase of intermediate products from the value of the sales of final products. C) calculating the year-to-year changes in real GDP. D) deflating nominal GDP.

Value added refers to: A) any increase in GDP that has been adjusted for adverse environmental effects. B) the excess of gross investment over net investment. C) the difference between the value of a firm's output and the value of the inputs it has purchased from others. D) the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.

What are the four categories of income?

Wages, interest, rent, and profit.

National income accountants can avoid multiple counting by:

only counting final goods.

Strong property rights are important for modern economic growth because:

people are more likely to invest if they don't fear that others can take their returns on investment without compensation.

Suppose that an economy's labor productivity and total worker-hours each grew by 4 percent between year 1 and year 2. We could conclude that this economy's:

production possibilities curve shifted outward.

In national income accounting, government purchases include:

purchases by Federal, state, and local governments.

The growth of GDP may understate changes in the economy's economic well-being over time if the:

quality of products and services improves.

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equal

r will fall as more investment is undertaken

Suppose that an economy's labor productivity fell by 3 percent and its total worker-hours remained constant between year 1 and year 2. We could conclude that this economy's:

real GDP declined.

If nominal GDP rises:

real GDP may either rise or fall.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:

rise by about 15 percent.

The percentage of U.S. adults with a high school education or above has:

risen from 41 percent in 1960 to 87 percent in 2009.

Okun's law:

shows the relationship between the unemployment rate and the size of the negative GDP gap.

(Last Word) Declines in stock prices measured by the Dow Jones average:

sometimes precede recessions; sometimes do not

(Consider This) Capital is a:

stock,where as gross investment and depreciation are flows.

Suppose that inventories were $80 billion in 2003 and $70 billion in 2004. In 2004, accountants would

subtract $10 billion from other elements of investments in calculating total investment

The natural rate of unemployment is:

that rate of unemployment occurring when the economy is at its potential output.

If depreciation exceeds gross investment:

the economy's stock of capital is shrinking.

Which of the following will not tend to shift the consumption schedule upward?

the expectation of a future decline in the consumer price index

If business taxes are reduced and the real interest rate increases:

the level of investment spending might either increase or decrease.

National income measures:

the market value or cost of the resources used in the production of the national output.

"Too much money chasing too few goods" best describes: A) the GDP gap. B) demand-pull inflation. C) the inflation premium. D) cost-push inflation

GDP can be calculated by summing: A) consumption, investment, government purchases, exports, and imports. B) investment, government purchases, consumption, and net exports. C) consumption, investment, wages, and rents. D) consumption, investment, government purchases, and imports

Real GDP refers to:

GDP data that have been adjusted for changes in the price level.

A measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100.

GDP deflator

How is the GDP deflator calculated?

GDP deflator = (Nominal GDP/Real GDP) x 100

In determining real GDP economists adjust the nominal GDP by using the:

GDP price index.

True or False: For every year, nominal GDP is always greater than real GDP.

False; this is true only for years where prices are greater than base year prices

Indicate whether the following is a final good, an intermediate good, or neither: A new home purchase by a family.

Final good

Indicate whether the following is a final good, an intermediate good, or neither: A new pick-up truck purchase by a consumer.

Final good

Which of the following are usually intermediate goods and which are usually final goods? Running shoes

Final good

Which of the following are usually intermediate goods and which are usually final goods? Sunscreen lotion

Final good

Which of the following are usually intermediate goods and which are usually final goods? Textbooks

Final good

Answer the question on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. PICTURE 9 Refer to the above data. The marginal propensity to consume in economy (1) is:

.8.

business cycles.

1 Recurring upswings and downswings in an economy's real GDP over time are called: recessions. business cycles. output yo-yos. total product oscillations.

Shortcomings in GDP as a Measure of Total Production:

1. Household Production -- Household production refers to goods and services people produce for themselves. 2. The Underground Economy -- Buying and selling of goods and services that is concealed form the government to avoid taxes or regulations or because the goods and services are illegal.

Shortcomings of GDP as a Measure of Well-Being:

1. The value of leisure is NOT included in GDP. 2. GDP is not adjusted for pollution or other negative effects of production. 3. GDP is not adjusted for changes in crime and other social problems. 4. GDP measures the size of the pie but not how the pie is divided up

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent.

The multiplier can be calculated as:

1/(1-MPC)

The multiplier is:

1/MPS.

cyclical unemployment is about 2 percent

10 Answer the below question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Unemployed: 7 Total Population: 145 Employed: 95 Discouraged workers: 3 If the natural rate of unemployment in Scoob is 5 percent, then: structural unemployment is about 3 percent. frictional unemployment is about 2 percent. cyclical unemployment is about 2 percent. hidden unemployment is about 5 percent.

the purchase of a new house

101 Which of the following do national income accountants consider to be investment? the purchase of an automobile for private, non-business use the purchase of a new house the purchase of corporate bonds the purchase of gold coins

190

102 Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories fell by $10 billion. GDP in year 2 is: $180 billion. $190 billion. $200 billion. $210 billion.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. PICTURE 8 Refer to the above information. The labor force in Scoob is:

102 million

government consumption goods and public capital goods

103 Government purchases include government spending on: government consumption goods and public capital goods. government consumption goods only. public capital goods only. government consumption goods, public capital goods, and transfer payments.

excluded when calculating GDP because they do not reflect current production.

104 Transfer payments are: excluded when calculating GDP because they only reflect inflation. excluded when calculating GDP because they do not reflect current production. included when calculating GDP because they are a category of investment spending. included when calculating GDP because they increase the spending of recipients.

subtracted from exports when calculating GDP because imports do not constitute production in the United States.

105 The value of U.S. imports is: added to exports when calculating GDP because imports reflect spending by Americans. subtracted from exports when calculating GDP because imports do not constitute spending by Americans. subtracted from exports when calculating GDP because imports do not constitute production in the United States. added when calculating GDP because imports do not constitute production in the United States.

$116

108

$392

109

Which of the following are usually intermediate goods and which are usually final goods? Watches

Final good

A good or service purchased by a final user.

Final good or service

Final goods and services refer to: A) goods and services that are unsold and therefore added to inventories. B) goods and services whose value has been adjusted for changes in the price level. C) goods and services purchased by ultimate users, rather than for resale or further processing. D) the excess of U.S. exports over U.S. imports.

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of: A) Taylor's rule. B) Okun's law. C) Say's law. D) the Coase theorem

If net foreign factor income earned in the U.S. is zero, the sum of national income, indirect business taxes, and the consumption of fixed capital equals:

GDP

When measuring GDP for a particular year, economists exclude the value of used furniture bought and sold because it was counted in ____ in some previous year.

GDP

GDP Deflator =

GDP Deflator = (Nominal GDP/Real GDP) x 100

Why is GDP an imperfect measurement of total production in the economy?

GDP does not include household production or production from the underground economy.

GDP excludes: A) the market value of unpaid work in the home. B) the production of services. C) the production of nondurable goods. D) positive changes in inventories.

Suppose the total market value of all final goods and services produced in a particular country in 2004 is $500 billion and the total market value of final goods and services sold is $450 billion. We can conclude that:

GDP in 2004 is $500 billion.

GDP in 2010 is $500 billion.

Given the annual rate of economic growth, the "rule of 70" allows one to: A) determine the accompanying rate of inflation. B) calculate the size of the GDP gap. C) calculate the number of years required for real GDP to double. D) determine the growth rate of per capita GDP.

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "The state of Missouri builds a new highway to help improve access to the Ford Escape plant."

Government Expenditure

Spending by federal, state, and local governments on goods and services.

Government purchases

The market value of all final goods and services produced in a country during a period of time, typically one year.

Gross Domestic Product (GDP)

is the value of final goods and services produced by residents of the United States, even if the production takes place outside the United States.

Gross National Product (GNP)

Gross investment refers to: A) private investment minus public investment. B) net investment plus replacement investment. C) net investment after it has been "inflated" for changes in the price level. D) net investment plus net exports.

Which of the following statements is true? ____ ____ ____ investment less depreciation is net private domestic investment.

Gross private domestic

True or False: The value of GDP is reduced to reflect the impact of pollution generated by production.

False; GDP does not subtract "bads" generated by production

True or False: The purchase of 100 shares of Apple computer stock is an example of investment spending.

False; this is a financial transaction, not investment.

If the Consumer Price index rises from 300 to 333 in a particular year, the rate of inflation in that year is: A) 11 percent. B) 33 percent. C) 91 percent. D) 10 percent.

If the economy adds to its inventory of goods during some year: A) gross investment will exceed net investment by the amount of the inventory increase. B) this amount should be ignored in calculating that year's GDP. C) this amount should be subtracted in calculating that year's GDP. D) this amount should be included in calculating that year's GDP.

conclude that its average annual rate of growth is about 4 percent.

If the economy's real GDP doubles in 18 years, we can: not say anything about the average annual rate of growth. conclude that its average annual rate of growth is about 5.5 percent. conclude that its average annual rate of growth is about 2 percent. conclude that its average annual rate of growth is about 4 percent.

If the economy's real GDP doubles in 18 years, we can: A) not say anything about the average annual rate of growth. B) conclude that its average annual rate of growth is about 5.5 percent. C) conclude that its average annual rate of growth is about 2 percent. D) conclude that its average annual rate of growth is about 4 percent.

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: A) frictional unemployment rate is 5 percent. B) cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C) cyclical unemployment rate is 4 percent. D) natural rate of unemployment will eventually increase.

National income accountants compare the market value of the total outputs in various years rather than actual physical volumes of production because it is ____ to add oranges and computers.

Impossible

In 1933 net private domestic investment was a minus $6.0 billion. This means that: A) gross private domestic investment exceeded depreciation by $6.0 billion. B) the economy was expanding in that year. C) the production of 1933's GDP used up more capital goods than were produced in that year. D) the economy produced no capital goods at all in 1933.

disposable income

In a typical year, which of the following measures of aggregate output and income is likely to be the smallest? gross domestic product national income disposable income personal income

In an economy experiencing a declining production capacity: A) the nation's stock of capital goods is expanding. B) net exports are necessarily zero. C) depreciation exceeds gross investment. D) NDP exceeds GDP.

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

Macroeconomics

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Microeconomics

Which of the following items will be included in official U.S. GDP statistics? ____ spent to clean up a local toxic waste site in Ohio Robert paying Ted for a haircut in Chicago ____ generated by legal medical marijuana sales in California

Money Revenue

Refer to the above data. If year 2 is chosen as the base year, the price index for year one is: A) 80. B) 100. C) 120. D) 20.

Refer to the above data. If year 2 is chosen for the base year, in year 3 nominal GDP and real GDP, respectively, are: A) $180 and $30 B) $30 and $5 C) $180 and $120 D) $120 and $100

Refer to the above data. NDP is: A) $370. B) $402. C) $392. D) $467.

Refer to the above data. NI is: A) $364. B) $372. C) $447. D) $362.

Refer to the above data. Net domestic product is: A) $520. B) $580. C) $623. D) $573.

Refer to the above data. Nominal GDP in year 3 is: A) $100. B) $450. C) $225. D) $150.

Refer to the above data. Nominal GDP in year 4 is: A) $320. B) $450. C) $225. D) $800.

Refer to the above data. PI is: A) $294. B) $346. C) $408. D) $437.

Refer to the above data. Personal income is: A) $184. B) $221. C) $149. D) $208.

Refer to the above data. Real GDP in year 3 is: A) $100. B) $450. C) $225. D) $150.

Refer to the above data. Real GDP in year 4 is: A) $320. B) $450. C) $200. D) $800.

Refer to the above data. The gross domestic product is: A) $326. B) $282. C) $307. D) $300.

Refer to the above data. The national income is: A) $223. B) $249. C) $208. D) $346.

Refer to the above data. The national income is: A) $561. B) $573. C) $580. D) $530.

Refer to the above data. The net domestic product is: A) $233. B) $255. C) $230. D) $348.

Refer to the above data. The nominal GDP for year 3 is: A) 125 percent higher than the nominal GDP for year 1. B) 50 percent higher than the nominal GDP for year 1. C) $120. D) $30.

Santa only working during the winter is an example of: A) seasonal unemployment B) frictional unemployment C) structural unemployment D) cyclical unemployment

The phase of the business cycle in which real GDP declines is called:

a recession.

GDP includes only __________ production.

current (GDP includes only production that takes place during the indicated time period.)

Real GDP measures:

current output at base year prices.

Answer the question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. PICTURE 7 Refer to the above information. If the natural rate of unemployment in Scoob is 5 percent, then:

cyclical unemployment is about 2 percent.

The type of unemployment associated with recessions is called:

cyclical unemployment.

In a typical year which of the following measures of aggregate output and income is likely to be the smallest?

disposable income

In a typical year, which of the following measures of aggregate output and income is likely to be the smallest?

disposable income

The amount of after-tax income received by households is measured by:

disposable income.

Real GDP per capita is found by:

dividing real GDP by population.

When an economy's production capacity is expanding:

domestic investment exceeds depreciation.

Personal income is most likely to exceed national income:

during a period of recession or depression.

Indicate whether the following is a final good, an intermediate good, or neither: One share of Google stock.

neither

The smallest component of aggregate spending in the United States is:

net exports

If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that:

net investment is negative.

Gross investment refers to:

net investment plus replacement investment.

By summing the dollar value of all market transactions in the economy we would:

obtain a sum substantially larger than the GDP

Proponents of economic growth say that pollution

occurs, not because of growth, but because common resources are treated as free goods.

The ZZZ Corporation issued $25 million in new common stock in 2004. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment:

of $18 million has occurred.

Empirical studies suggest that:

technological advances account for about 40 percent of U.S. productivity growth.

Nominal GDP is adjusted for price changes through the use of:

the GDP price index.

If intermediate goods and services were included in GDP:

the GDP would be overstated.

The Industrial Revolution and modern economic growth resulted in:

the average human lifespan more than doubling.

During a severe recession, we would expect output to fall the most in:

the construction industry.

Value added refers to:

the difference between the value of a firm's output and the value of the inputs it has purchased from others.

Components of GDP:

1. Consumption 2. Investment 3. Government purchases 4. Net exports

False

228 T/F: Strong property rights inhibit economic growth by strictly regulating economic behavior.

Demand-pull inflation

65 Which of the following would most likely occur during the expansionary phase of the business cycle? Demand-pull inflation Cost-push inflation Structural inflation Frictional inflation

real income approximates percentage change in nominal income minus percentage change in price level.

66 Which of the following formulas is correct? Percentage change in: price level approximates percentage change in real income minus percentage change in nominal income. real income approximates percentage change in nominal income minus percentage change in price level. nominal income approximates percentage change in price level minus percentage change in real income. real income approximates percentage change in price level minus percentage change in nominal income.

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

7 %

A price index is: a) a comparison of the current price of a market basket to a fixed point of reference. b) a comparison of real GDP in one period relative to another. c) the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period. d) a ratio of real GDP to nominal GDP.

Answer the question on the basis of the following data. All figures are in billions of dollars. Gross Investment 18 National Income 100 Net Exports 2 Personal income 85 Personal Consumption Expenditures 70 Saving 5 Government Purchases 20 Net Domestic Product 105 Statistical Discrepancy 0 Refer to the above data. Consumption of fixed capital is: a) $5. b) $10. c) $20. d) $30.

Answer the question on the basis of the following data. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 300 Consumption of Fixed Capital 15 Gross Investment 80 Rents 10 Interests 20 Exports 30 Imports 50 Corporate Profits 25 Taxes on Production and Imports 5 Net Foreign Factor Income 0 Statistical Discrepancy 0 Refer to the above data. Gross domestic product is: a) $395. b) $380. c) $375. d) $360.

Answer the question on the basis of the following data. All figures are in billions of dollars: Government Purchases 15 Consumption 90 Gross Investment 20 Consumption of Fixed Capital 5 Exports 8 Imports 12 Refer to the above data. NDP is: a) $116. b) $121. c) $125. d) $150.

Answer the question on the basis of the following national income data. All figures are in billions of dollars. Personal Taxes 23 Net Private Domestic Investment 33 Net Exports 6 National Income 278 US Exports 20 Gross Private Domestic Investment 56 Disposable Income 220 Taxes on Production and Imports 32 Undistributed Corporate Profits 15 Proprietor's Income 45 Net Foreign Factors Income 0 Statistical Discrepancy 0 Refer to the above data. Consumption of fixed capital (private sector) is: a) $23. b) $14. c) $32. d) $26.

Answer the question on the basis of the following national income data. All figures are in billions of dollars. Personal Taxes 23 Net Private Domestic Investment 33 Net Exports 6 National Income 278 US Exports 20 Gross Private Domestic Investment 56 Disposable Income 220 Taxes on Production and Imports 32 Undistributed Corporate Profits 15 Proprietor's Income 45 Net Foreign Factors Income 0 Statistical Discrepancy 0 Refer to the above data. Personal consumption expenditures: a) cannot be calculated. b) are $231. c) are $225. d) are $205.

Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700. Donita sells the dresses for $1200 to kids attending the prom. The total contribution to GDP of this series of transactions is: a) $1200 b) $500 c) $2300 d) $1100

Assume an economy that is producing only one product. Output and price data for a three-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 20 4 2 25 4 3 30 6 Refer to the above data. The nominal GDP for year 3 is: a) 125 percent higher than the nominal GDP for year 1. b) 50 percent higher than the nominal GDP for year 1. c) $120. d) $30.

Assume that in 2002 the nominal GDP was $350 billion and in 2003 it was $375 billion. On the basis of this information we: a) cannot make a meaningful comparison of the economy's performance in 2002 relative to 2003. b) can conclude that the economy was achieving real economic growth. c) can conclude that real GDP was higher in 2002 than in 2003. d) can conclude that real GDP was lower in 2002 than in 2003.

If there are no statistical discrepancies, NDP is: a) NI minus net foreign factor income. b) NI plus corporate income taxes. c) GDP deflated for increases in the price level. d) GDP minus taxes on production and imports.

National income accountants define investment to include: a) any increase in business inventories. b) the addition of cash to a savings account. c) the purchase of common or preferred stock. d) the purchase of any durable good, for example, an automobile or a refrigerator.

Net exports are negative when: a) a nation's imports exceed its exports. b) the economy's stock of capital goods is declining. c) depreciation exceeds domestic investment. d) a nation's exports exceed its imports.

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000. The appropriate price index (1985 = 100) was 120 in 1990 and 125 in 2000. Between 1990 and 2000 real GDP: a) increased by $60 billion. b) decreased by $32 billion. c) increased by $100 billion. d) increased by $117 billion.

Suppose that inventories were $40 billion in 2007 and $50 billion in 2008. In 2008, accountants would: a) add $10 billion to other elements of investment in calculating total investment. b) subtract $10 billion from other elements of investments in calculating total investment. c) add $45 billion (= $90/2) to other elements of investment in calculating total investment. d) subtract $45 billion (= $90/2) from other elements of investment in calculating total investment.

Which of the following is a final good or service? a) a haircut purchased by a father for his 12 year-old son b) fertilizer purchased by a farm supplier c) diesel fuel bought for a delivery truck d) Chevrolet windows purchased by a General Motors assembly plant

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

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.

Disposable personal income is: A. Personal income minus personal taxes. B. National income minus depreciation. C. National income minus personal taxes. D. Personal income minus indirect business taxes.

A. Personal income minus personal taxes.

Which is the largest component of GDP? A. consumption B. investment C. government purchases D. exports

A. consumption

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.

The Personal Income (PI) of the United States is equal to: A. the value of the total income received by all households int he United States. B. the market value of all final goods and services produced within the United States in a given period of time. C. the value of the total income received by all households in the United States, after personal taxes are paid. D. the market value of all final goods and services produced by U.S. factors of production in a given period of time.

A. the value of the total income received by all households int he United States.

An economy is enlarging its stock of capital goods: A) when net investment exceeds gross investment. B) when gross investment exceeds replacement investment. C) whenever gross investment is positive. D) when replacement investment exceeds gross investment.

As defined in national income accounting, investment includes: A) business expenditures on machinery and equipment. B) all consumption. C) imports, but not exports. D) all non food items.

Assume a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is: A) $110. B) $30. C) $40. D) $70.

At an annual growth rate of 4 percent, real GDP will double in about: A) 17.5 years. B) 20 years. C) 13.5 years. D) 15 years.

Answer the question on the basis of the following data. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 300 Consumption of Fixed Capital 15 Gross Investment 80 Rents 10 Interests 20 Exports 30 Imports 50 Corporate Profits 25 Taxes on Production and Imports 5 Net Foreign Factor Income 0 Statistical Discrepancy 0 Refer to the above data. National income is: a) $395. b) $380. c) $375. d) $360.

In the second quarter (3-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. We can conclude that: a) nominal income declined by more than personal income. b) the price level rose by more than nominal GDP. c) real wages declined by more than real GDP. d) the price level fell by more than real GDP.

National income accountants can avoid multiple counting by: a) including transfer payments in their calculations. b) only counting final goods. c) counting both intermediate and final goods. d) only counting intermediate goods.

The growth of GDP may understate changes in the economy's economic well-being over time if the: a) distribution of income becomes increasingly unequal. b) quality of products and services improves. c) environment deteriorates because of pollution. d) amount of leisure decreases.

The total amount of income earned by U.S. resource suppliers in a year, plus taxes on production and imports, is measured by: a) gross domestic product. b) national income. c) personal income. d) disposable income.

Transfer payments are: a) excluded when calculating GDP because they only reflect inflation. b) excluded when calculating GDP because they do not reflect current production. c) included when calculating GDP because they are a category of investment spending. d) included when calculating GDP because they increase the spending of recipients.

Use the following table for a hypothetical single-product economy. year units of output price per unit price index (1=100) 1 10 10 100 2 12 20 200 3 15 30 300 4 20 40 400 Refer to the above data. Nominal GDP in year 3 is: a) $100. b) $450. c) $225. d) $150.

Which of the following do national income accountants consider to be investment? a) the purchase of an automobile for private, non-business use b) the purchase of a new house c) the purchase of corporate bonds d) the purchase of gold coins

In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income? A. Taxes on the production of goods and services are determined according to individual income. B. Every penny spent on a good or service must end up as someone's income. C. People tend to spend all of their income on goods and services. D. Domestic expenditures on imports generally equal foreign expenditures on U.S. exports.

B. Every penny spent on a good or service must end up as someone's income.

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.

National income is: A. GNP plus depreciation. B. GDP minus depreciation. C. GDP minus sales taxes. D. NNP minus income taxes.

B. GDP minus depreciation.

If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)? A. Equal: Measured GDP is calculated by adding the values of every good and service sold during the year. B. Larger: The value of all goods and services sold would include intermediate goods. C. Larger: Measured GDP includes quantities of goods and services, not the values of goods and services. D. Smaller: Measured GDP includes the values of every good and service sold AND the market value of all final goods.

B. Larger: The value of all goods and services sold would include intermediate goods.

Answer the question on the basis of the following data. All figures are in billions of dollars. Personal Taxes 40 Social Security Contributions 15 Taxes on Production and Imports 20 Corporate Income Taxes 40 Transfer Payments 22 US Exports 24 Undistributed Corporate Profits 35 Government Purchases 90 Gross Private Domestic Investment 75 US Imports 22 Personal Consumption Expenditures 250 Consumption of Fixed Capital 25 Net Foreign Factors Income 10 Statistical Discrepancy 0 Refer to the above data. DI is: a) $284. b) $329. c) $274. d) $402.

C is growing more rapidly than economy B.

Indicate whether you agree or disagree with the following statement: "If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline." A. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices fall. B. Agree. If prices fall, real GDP and nominal GDP will both fall if output increases. C. Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall. D. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.

C. Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall.

Indicate whether you agree or disagree with the following statement: "Whenever real GDP declines, nominal GDP must also decline." A. Agree. Both real GDP and nominal GDP decline if output falls and prices remain constant. B. Agree. Both real GDP and nominal GDP decline if price falls and output remains constant. C. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise. D. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices fall.

C. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.

Indicate whether you agree or disagree with the following statement: "In years when people buy few shares of stock, investment will be low and, therefore, so will gross domestic product (GDP)." A. Agree: GDP = C + I + G + NX. Therefore, as "I" (investment) decreases, GDP decreases. B. Agree: When investment is low, people must have less money to spend. Therefore, GDP decreases. C. Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases. D. While GDP will be low in this cause, it is the result of a decrease in consumer expenditure on stocks, not investment spending.

C. Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.

If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast? A. Gross national product B. Net national product C. Disposable personal income D. Personal income

C. Disposable personal income

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 necessarily be higher.

Which of the following is not a shortcomings 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.

Which equation represents the relationship between GDP and the four major expenditures components? A. Y = (C+I) - (G+NX) B. Y = [(C+I)/(G+NX)] C. Y = C + I + G + NX D. Y = C(I + G + NX)

C. Y = C + I + G + NX

Answer the question on the basis of the following data. All figures are in billions of dollars. Gross Private Domestic Investment 46 Exports of the US 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factors Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the US 12 Taxes on Production and Imports 22 Personal Taxes 38 Social Security Contributions 23 Statistical Discrepancy 0 Refer to the above data. Personal income is: a) $184. b) $221. c) $149. d) $228.

Answer the question on the basis of the following information: year nominal GDP price index 1 550 140 2 560 135 3 576 125 4 586 117 5 604 108 The economy above has experienced a: a) declining nominal GDP. b) rising price level. c) declining real GDP. d) rising real GDP.

Assume an economy that is producing only one product. Output and price data for a three-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 20 4 2 25 4 3 30 6 Refer to the above data. If year 2 is chosen as the base year, in years 1 and 3 the price index values, respectively, are: a) 4 and 6. b) 6 and 4. c) 120 and 100. d) 100 and 150.

Assume an economy that is producing only one product. Output and price data for a three-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 20 4 2 25 4 3 30 6 Refer to the above data. If year 2 is chosen as the base year, in years 1 and 3 the price index values, respectively, are: a) 4 and 6. b)6 and 4. c)120 and 100. d) 100 and 150.

Assume an economy that is producing only one product. Output and price data for a three-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 20 4 2 25 4 3 30 6 Refer to the above data. If year 2 is chosen as the base year, real GDP for year 1 is: a) $25. b) $100. c) $20. d) $80.

Environmental pollution is accounted for in: a) GDP. b) PI. c) DI. d) none of these.

True or False: GDP is the value of all goods and services produced in a country during a time period.

False; GDP measures ONLY final goods and services, in an economy, over a well-defined period

If personal income exceeds national income in a particular year, we can conclude that: a) transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and taxes on production and imports. b) the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits exceeded transfer payments. c) consumption of fixed capital and taxes on production and imports exceeded personal taxes. d) transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits.

If real disposable income fell during a particular year, we can conclude that: a) personal taxes increased. b) inflation occurred. c) transfer payments declined. d) none of these necessarily occurred.

Real GDP refers to: a) the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. b) GDP data that embody changes in the price level, but not changes in physical output. c) GDP data that reflect changes in both physical output and the price level. d) GDP data that have been adjusted for changes in the price level.

Suppose Smith pays $100 to Jones. a) We can say with certainty that the GDP has increased by $100. b) We can say with certainty that the GDP has increased, but we cannot determine the amount. c) We can say with certainty that the nominal GDP has increased, but we can't say whether real GDP has increased or decreased. d) We need more information to determine whether GDP has changed.

True or False: In the United States, household production and the underground economy is about 50 percent of GDP.

False; about 10%

Which of the following transactions would be included in GDP? a) Mary buys a used book for $5 at a garage sale. b) Nick buys $5000 worth of stock in Microsoft. c) Olivia receives a tax refund of $500. d) Peter buys a newly constructed house.

True or False: Personal income is the best measure of the income households have available for spending.

False; disposable personal income is better because it subtracts taxes.

How does real GDP deal with the problem inflation causes with nominal GDP? A. Real GDP uses the prices of goods and services int he base year to calculate the value of goods in all other years. B. By keeping prices constant,w e know that changes in real GDP represent changes in the quantity of output produced. C. Real GDP separates price changes from quantity changes. D. All of the above. E. A and C only

D. All of the above.

Which of the following is true about the consumption component of U.S. GDP in 2008? A. Consumer spending on durable and nondurable goods was greater than consumption of 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.

How does the size of a country's GDP affect the quality of life of the country's people? A. There is an inverse relationship between GDP and quality of life. B. Generally, the more goods and services people have, the worse off they are. C. When GDP is high, production from the underground economy, and therefore the crime rate is high. D. Generally, the more goods and services people have, the better off they are.

D. Generally, the more goods and services people have, the better off they are.

True or False: Consumption spending is divided into two parts, durable goods and non-durable goods.

False; durables, non-durables and services

True or False: Net exports (NX) are defined as imports minus exports.

False; exports minut imports

In the economy above, real GDP for year 3 is: A) $512. B) $428. C) $480. D) $691.

GDP is measured using ____________, not __________.

Market values, NOT quantities

Which of the following constitute the unemployment occurring at the natural rate of unemployment? A) frictional and cyclical unemployment B) structural and frictional unemployment C) cyclical and structural unemployment D) frictional, structural, and cyclical unemployment.

Which of the following is a final good or service? A) diesel fuel bought for a delivery truck B) fertilizer purchased by a farm supplier C) a haircut D) Chevrolet windows purchased by a General Motors assembly plant

Which of the following is an intermediate good? A) the purchase of gasoline for a ski trip to Colorado B) the purchase of a pizza by a college student. C) the purchase of baseball uniforms by a professional baseball team. D) the purchase of jogging shoes by a professor

Which of the following is counted in GDP? A) Secondhand sales B) Final goods C) Transfer payments D) Stock market transactions

Which of the following is not a private transfer payment? A) Buying stock B) Allowances C) Cash gifts D) Christmas presents

Which of the following is not a public transfer payment? A) Social Security payments B) Welfare payments C) Cash gifts D) Veterans' payments

Indicate whether the following is likely to increase or decrease the measured level of GDP. "If higher tax rates cause more people to hide the income they earn, the measure GDP __________."

decreases

Indicate whether the following is likely to increase or decrease the measured level of GDP. "When the number of people working outside the home decreases, the measured level of GDP __________."

decreases

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

deflation of 3.33 percent.

The phrase "too much money chasing too few goods" best describes:

demand-pull inflation.

A nation's stock of capital goods will decline when:

depreciation exceeds gross investment.

In an economy experiencing a declining production capacity:

depreciation exceeds gross investment.

Which of the following is the smallest dollar amount in the United States?

disposable income

Nominal GDP was $130 and $150 in years 1 and 2 respectively. Real GDP was $100 and $110 in years 1 and 2 respectively. On the basis of this information we can conclude that:

the price level increased between years 1 and 2.

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because:

the price level may change over time.

In the second quarter (3-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. We can conclude that:

the price level rose by more than nominal GDP

In 1933 net private domestic investment was a minus $6.0 billion. This means that:

the production of 1933's GDP used up more capital goods than were produced in that year.

Which of the following is not economic investment?

the purchase of 100 shares of AT&T by a retired business executive

Which of the following is an intermediate good?

the purchase of baseball uniforms by a professional baseball team.

The market value a firm adds to a product

value added

Suppose GDP is $15 trillion, with $8 trillion coming from consumption, $2.5 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $1 trillion coming from net exports. Also suppose that across the whole economy, personal income is $12 trillion. If the government collects $1.5 trillion in personal taxes, then disposable income will be:

$10.5 trillion

$30

94 Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is: $110. $30. $40. $70.

net investment is negative.

97 If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that: nominal GDP is rising but real GDP is declining. net investment is negative. the economy is importing more than it exports. the economy's production capacity is expanding.

automobiles for personal use, but not houses

99 In national income accounting, consumption expenditures include purchases of: both new and used consumer goods. automobiles for personal use, but not houses. consumer durable and nondurable goods, but not services. consumer nondurable goods and services, but not consumer durable goods.

A nation's gross domestic product (GDP): A) can be found by summing wages, rent, interest, profits, and statistical adjustments B) is the dollar value of the total output produced by its citizens, regardless of where they are living. C) can be found by summing C+S+G+Xn. D) is always some amount less than its NDP.

The largest component of national income is: a) compensation of employees. b) rents. c) interest. d) corporate profits.

The system that measures the economy's overall performance is formally known as: a) National income accounting b) Business cycle measurement c) GDP assessment d) Final output and income statistics

A college graduate using the summer following graduation to search for a job would best be classified as: A) not officially a member of the labor force. B) a part of structural unemployment. C) a part of cyclical unemployment. D) a part of frictional unemployment.

GDP is a measurement of the market value of final goods and services produced in an economy in one year. What is the difference between a final good and an intermediate good? Why do we only count final goods in GDP and not intermediate goods?

A final good is one that is sold to the ultimate user of the product. It is not being purchased with the plan to transform the good and resell it. The alternative to a final good, and intermediate good, is purchased with the intent of using that good as a components in another good or service that is sold. Intermediate goods are inputs in a production process. Intermediate goods are excluded because the value of the final goods includes the value of the intermediate goods which are a component of the final good.

A large negative GDP gap implies: A) an excess of imports over exports. B) a low rate of unemployment. C) a high rate of unemployment. D) a sharply rising price level.

A nation's gross domestic product (GDP): A) can be found by summing C+Ig +G+Xn. B) is the dollar value of the total output produced by its citizens, regardless of where they are living. C) can be found by summing C+S+G+Xn. D) is always some amount less than its NDP.

A nation's gross domestic product (GDP): A) is the dollar value of the total output produced within the borders of the nation. B) is the dollar value of the total output produced by its citizens, regardless of where they are living. C) can be found by summing C+In +S+Xn. D) is always some amount less than its C+Ig +G+Xn.

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 i 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 year before the base year.

A. nominal GDP i larger than real GDP in years after the base year.

True or False: Macroeconomics is the study of the economy as a whole.

True

Assume that Hernandez is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Hernandez will be considered as: A) cyclically unemployed. B) frictionally unemployed. C) secularly unemployed. D) employed.

Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is: A) 4 percent. B) 8 percent. C) 10 percent. D) 2 percent.

At an annual growth rate of 7 percent, real GDP will double in about: A) 11.5 years. B) 10 years. C) 13.5 years. D) 9 years.

Alejandro Scoobertini owns a store specializing in soccer jerseys. In 2008, he purchased $150,000 worth of jerseys from manufacturers, employed one worker for $40,000, purchased $20,000 worth of supplies from an office supply store, and sold jerseys for $280,000. Based on this information, what was the value added at Alejandro's store in 2008? a) $70,000 b) $110,000 c) $280,000 d) $490,000

Answer the question on the basis of the following data. All figures are in billions of dollars. Proprietor's Income 20 Compensation of Employees 300 Consumption of Fixed Capital 15 Gross Investment 80 Rents 10 Interests 20 Exports 30 Imports 50 Corporate Profits 25 Taxes on Production and Imports 5 Net Foreign Factor Income 0 Statistical Discrepancy 0 Refer to the above data. Net domestic product is: a) $395. b) $380. c) $375. d) $360.

Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 3 3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above data. In determining real GDP, the nominal GDP for: a) each year must be multiplied by the relevant price index. b) years 1 and 2 must be inflated. c) years 4 and 5 must be inflated. d) years 1 and 2 must be deflated.

Nominal GDP is: a) the sum of all monetary transactions that occur in the economy in a year. b) the sum of all monetary transactions involving final goods and services that occur in the economy in a year. c) the amount of production that occurs when the economy is operating at full employment. d) money GDP adjusted for inflation.

Personal Taxes 23 Net Private Domestic Investment 33 Net Exports 6 National Income 278 US Exports 20 Gross Private Domestic Investment 56 Disposable Income 220 Taxes on Production and Imports 32 Undistributed Corporate Profits 15 Proprietor's Income 45 Net Foreign Factors Income 0 Statistical Discrepancy 0 Refer to the above data. The gross domestic product is: a) $328. b) $301. c) $382. d) $333.

Real GDP is: a) the nominal value of all goods and services produced in the economy. b) the nominal value of all goods and services produced in the domestic economy corrected for inflation or deflation. c) that aggregate output that is produced when the economy is operating at full employment. d) always greater than nominal GDP.

Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009 and 2010 the real GDP rose by approximately: a) 160 percent. b) 44 percent. c) 37 percent. d) 80 percent.

True or False: Real GDP provides a more meaningful measure of output than nominal GDP.

True

Assume an economy that is producing only one product. Output and price data for a three-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 20 4 2 25 4 3 30 6 Refer to the above data. If year 2 is chosen for the base year, in year 3 nominal GDP and real GDP, respectively, are: a) $180 and $30. b) $30 and $5. c) $180 and $120. d) $120 and $100.

Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the question on the basis of these data. year units of output price per unit 1 3 3 2 4 4 3 6 5 4 7 7 5 8 8 Refer to the above data. For the years shown, the growth of: a) real GDP has exceeded the growth of nominal GDP. b) nominal GDP accurately reflects changes in real output. c) nominal GDP overstates increases in real output. d) nominal GDP understates increases in real output.

Which of the following best defines national income? a) income received by households less personal taxes b) the before-tax income received by households c) incomes earned by U.S. resource suppliers plus taxes on production and imports d) the market value of the annual output net of consumption of fixed capital

Which of the following statements is most accurate about the prospects for poorer ("follower") countries catching up with richer ("leader") countries?

Catching up is possible as "follower countries" tend to grow faster than "leader countries."

Spending by households on goods and services, not including spending on new houses.

Consumption

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Other things equal, the above information suggests that the production capacity in economy: a) B is growing more rapidly than either A or C. b) A is growing more rapidly than either B or C. c) A is growing less rapidly than economy B. d) C is growing more rapidly than economy B.

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production? a) the services of health care workers b) the services of military personnel c) the construction of new buildings d) goods and services produced in the underground economy

Which of the following is true about the government purchases component of U.S. GDP in 2008? 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 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

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

tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs.

Economic growth rates in follower countries: tend to be lower than in leader countries because labor forces in follower countries are too small. tend to exceed those in leader countries because followers can cheaply adopt the new technologies that leaders developed at relatively high costs. will never bring real GDP per capita up to the same levels as in leader countries, even if follower growth rates are greater than those in leader countries. typically average about 2 percent per year.

innovations in computers and communications, together with global capitalism, are greatly boosting U.S. productivity and the economy's potential economic growth rate.

Economists who believe that the recent rise in the average rate of productivity growth will be long lasting say that: the United States is entering an era of high structural unemployment due to rapid technological change. technological advance creates its own supply, which in turn creates its own demand. innovations in computers and communications, together with global capitalism, are greatly boosting U.S. productivity and the economy's potential economic growth rate. technological change will require more central planning and government regulation.

GDP is: A) the monetary value of all goods and services (final, intermediate, and non-market) produced in a given year. B) total resource income less taxes, saving, and spending on exports. C) the economic value of all economic resources used in the production of a year's output. D) the market value of all final goods and services produced within a nation in a specific year.

In determining real GDP, economists adjust the nominal GDP by using the:

GDP price index.

Assume that the size of the underground economy increases both absolutely and relatively over time. As a result:

GDP will tend to increasingly understate the level of output through time.

The percentage increase in the price level from one year to the next.

Inflation Rate

Inflation initiated by increases in wages or other resource prices is labeled: A) demand-pull inflation. B) demand-push inflation. C) cost-push inflation. D) cost-pull inflation.

PART 1: GDP is an imperfect measure of economic well-being because it fails to measure what types of production? PART 2: Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being? A. The value of leisure if not included in GDP. B. GDP is not adjusted for pollution and it does not account for unequal income distribution. C. GDP is nto adjusted for crime or other social problems. D. All of the above. E. A and C only.

PART 1: Household production and the underground economy. PART 2: D. All of the above.

Transfer payments are included in:

is income received by households.

Personal Income

Real GDP refers to: A) the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. B) GDP data that embody changes in the price level, but not changes in physical output. C) GDP data that reflect changes in both physical output and the price level. D) GDP data that have been adjusted for changes in the price level.

The period of a business cycle during which total production and total employment are decreasing.

Recession

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories fell by $10 billion. GDP in year 2 is: A) $180 billion. B) $190 billion. C) $200 billion. D) $210 billion.

that rate of unemployment occurring when the economy is at its potential output.

The natural rate of unemployment is: higher than the full-employment rate of unemployment. lower than the full-employment rate of unemployment. that rate of unemployment occurring when the economy is at its potential output. found by dividing total unemployment by the size of the labor force.

The number of years required for real GDP to double can be found by: A) dividing the annual growth rate by .07. B) multiplying the annual growth rate by 70. C) dividing 70 by the annual growth rate. D) adding 14 to annual growth rate.

The total amount of income earned by U.S. resource suppliers in a year is measured by: A) gross domestic product. B) national income. C) personal income. D) disposable income.

If personal income exceeds national income in a particular year, we can conclude that:

transferpaymentsexceededthesumofSocialSecuritycontributions,corporateincometaxes,and undistributed corporate profits.

The annual growth of U.S. labor productivity:

was greater between 1995 and 2009 than between 1973 and 1995.

An economy is enlarging its stock of capital goods:

when gross investment exceeds replacement investment.

Suppose that a simple economy produces only the following four goods and services: textbooks, hamburgers, shirts, and cotton. Further, assume that ALL of the cotton is used in the production of shirts. Use the information in the following table to calculate Nominal Gross Domestic Product (Nominal GDP) for 2011. PRODUCTION AND PRICE STATISTICS FOR 2011: (Product) (Quantity) (Price) (Textbooks) (125) ($65.00) (Hamburgers) (110) (3.00) (Shirts) (60) (30.00) (Cotton) (7,000) (0.75) The Nominal GDP for the year 2011 is $__________.

$ 10,255.00 Step 1: Multiply the quantity and price of each product. Step 2: Figure out which products are final goods and which are intermediate goods. Step 3: Sum the total market value for all final goods in this simple economy to get the nominal GDP for 2011.

A small economy starts the year with $1 million in capital. During the course of the year, gross investment is $150,000 and depreciation is $50,000. How big is the economy's stock of capital at the end of the year?

$1,100,000

Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but that there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be:

$10

Use the following table for a hypothetical single-product economy. PICTURE 5 Refer to the above data. Real GDP in year 3 is:

$150

Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = - $10 billion. How big is G?

$20 billion

Suppose that California imposes a sales tax of 10 percent on all goods and services. A Californian named Ralph then goes into a home improvement store in the state capital of Sacramento and buys a leaf blower that is priced at $200. With the 10 percent sales tax, his total comes to $220. How much of the $220 paid by Ralph will be counted in the national income and product accounts as private income (employee compensation, rents, interest, proprietors' income, and corporate profits)?

$200

Answer the question on the basis of the following data. All figures are in billions of dollars. Gross Private Domestic Investment- 46 Exports of the US- 9 Disposable Income- 190 Personal Saving- 10 Government purchases- 84 Net foreign factor income- 10 consumption of fixed capital- 52 dividends- 13 imports of the us- 12 taxes on production/imports- 22 personal taxes- 38 SS contributions- 23 statistics discrepancy- 0 Refer to the above data. The gross domestic product is:

$255

$307

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is:

$320 billion

If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, real GDP is:

$385 billion.

Answer the question on the basis of the following national income data for the economy. All figures are in billions of dollars. PICTURE 4 Refer to the above data. Net domestic product is:

$580

Answer the question on the basis of the following national income data for the economy. All figures are in billions of dollars. PICTURE 3 The gross domestic product for the above economy is:

$623

Use the following table for a hypothetical single-product economy. PICTURE 1 Refer to the above data. Nominal GDP in year 4 is:

$800

about 4-5 percent of the labor force is unemployed.

11 The United States' economy is considered to be at full employment when: about 4-5 percent of the total population is unemployed. 90 percent of the labor force is employed. about 4-5 percent of the labor force is unemployed. 100 percent of the labor force is employed.

$314

111

$274

112

$580

117

$14

121

national

125 The total amount of income earned by U.S. resource suppliers in a year, plus taxes on production and imports, is measured by: gross domestic product. national income. personal income. disposable income.

the total of all sources of private income plus government revenue from taxes on production and imports.

127 National income measures: nominal GDP after it has been inflated or deflated for changes in the value of the dollar. the after-tax income of resource suppliers. the total of all sources of private income plus government revenue from taxes on production and imports. the amount of wage, rent, interest, and profits income actually received by households.

nominal GDP overstates increases in real output

138 For the years shown, the growth of: real GDP has exceeded the growth of nominal GDP. nominal GDP accurately reflects changes in real output. nominal GDP overstates increases in real output. nominal GDP understates increases in real output.

real GDP may either rise or fall.

139 If nominal GDP rises: real GDP may either rise or fall. we can be certain that the price level has risen. real GDP must fall. real GDP must also rise.

be in the labor force

14 According to the Bureau of Labor Statistics, to be officially unemployed a person must: be in the labor force. be 21 years of age or older. have lost a job. be waiting to be called back from a layoff.

price level may change over time

141 In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because: of changes in trade deficits and surpluses. the length of the workweek has declined historically. the price level may change over time. depreciation may be greater or smaller than gross investment.

Africa

176 Which of the following economic regions has experienced the least growth in real GDP per capita since 1820? Africa Asia excluding Japan Latin America Western Europe

$115.

142 Answer the below question on the basis of the following information: Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per unit prices of these three goods are A = $2, B = $3, and C = $1. Nominal GDP in the current year is: $110. $115. $45. $90.

Rising Real GDP

145

Assume a machine which has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is:

15 %

the child-care services provided by stay-at-home parents

153 Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being? the services of used-car dealers the child-care services provided by stay-at-home parents the construction of new houses government expenditures on military equipment

inflow from the river is gross investment.

158 When making a capital stock and reservoir analogy, the: outflow below the dam is the stock of capital. inflow from the river is gross investment. level of water in the reservoir is depreciation. level of water in the reservoir is net investment.

stock, whereas gross investment and depreciation are flows.

159 Capital is a: flow, whereas gross investment and depreciation are stocks. flow, as are gross investment and depreciation. stock, as are gross investment and depreciation. stock, whereas gross investment and depreciation are flows.

employed workers and persons who are officially unemployed.

16 The labor force includes: employed workers and persons who are officially unemployed. employed workers, but excludes persons who are officially unemployed. full-time workers, but excludes part-time workers. permanent employees, but excludes temporary employees.

303 in year 3 in Zorn

166

calculate the number of years required for real GDP to double

167 Given the annual rate of economic growth, the "rule of 70" allows one to: determine the accompanying rate of inflation. calculate the size of the GDP gap. calculate the number of years required for real GDP to double. determine the growth rate of per capita GDP.

dividing 70 by the annual growth rate

168 The number of years required for real GDP to double can be found by: dividing the annual growth rate by .07. multiplying the annual growth rate by 70. dividing 70 by the annual growth rate. adding 14 to annual growth rate.

teenagers is much higher than that of adults

17 The unemployment rate of: women greatly exceeds that of men. whites is roughly equal to that of African-Americans. managerial and professional workers exceeds that of construction and extraction workers. teenagers is much higher than that of adults.

$42,300

173 Real Per Capita GDP in the United States in 2009 was approximately: $12,900 $39,800 $42,300 $13 trillion

If nominal GDP in some year is $280 and real GDP is $160. The GDP price index for that year is:

175

Unrestricted trade between nations

181 Which of the following institutional arrangements is most likely to promote growth? Patents and copyrights that expire quickly and are loosely enforced. Strong government control over resource allocation decisions. Unrestricted trade between nations. All of these.

total output/worker-hours

189 Labor productivity is defined as: total output/worker-hours. nominal GDP minus real GDP. the ratio of real capital to worker-hours. the annual increase in nominal GDP per worker.

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories fell by $10 billion. GDP in year 2 is:

190 billion

the long-term expansion or contraction of business activity that occurs over 50 or 100 years.

2 As it relates to economic growth, the term long-run trend refers to: the long-run increase in the relative importance of durable goods in the U.S. economy. incorrect→ the long-term expansion or contraction of business activity that occurs over 50 or 100 years. fluctuations in business activity that average 40 months in duration. fluctuations in business activity that occur around Christmas, Easter, and other major holidays.

Between 1950 and 2009, U.S. real GDP per capita grew at an average annual rate of about:

2.0 %

As of 1998, living standards in the United States were nearly ______ times higher than those in Africa.

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:

20 %

20 percent.

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is:

200

increased the average productivity of labor.

201 The historical reallocation of labor from agriculture to manufacturing in the United States has: been inflationary. had no effect on the average productivity of labor. increased the average productivity of labor. reduced the average productivity of labor.

23 years

208 If the growth trend of labor productivity is 3 percent per year, the number of years that it will take for the standard of living to double will be about: 15 years. 17 years. 20 years. 23 years.

fully employed and therefore the official unemployment rate may understate the level of unemployment.

21 Part-time workers are counted as: unemployed and therefore the official unemployment rate may overstate the level of unemployment. unemployed and therefore the official unemployment rate may understate the level of unemployment. fully employed and therefore the official unemployment rate may overstate the level of unemployment. fully employed and therefore the official unemployment rate may understate the level of unemployment.

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is:

210 billion

multiplier effect

211 All of the following are sources of increasing returns and economies of scale except: network effects. the multiplier effect. learning-by-doing. simultaneous consumption.

microchip.

212 The fundamental invention underpinning the recent rise in the average rate of productivity growth is the: microchip. fuel cell. Internet. personal computer.

Economists who support economic growth say that it is the most practical route to the higher standards of living that the vast majority of people desire.

216 Which of the following is a true statement? Economists who support economic growth say that it is the most practical route to the higher standards of living that the vast majority of people desire. Most economists believe that the recent rise in the average rate of productivity growth implies an end to the business cycle. Most economists believe that increases in real GDP actually produce decreases in overall economic well-being because of spillover costs. Mainstream economists disagree as to whether the rate of productivity growth was higher between 1995 and 2009 or between 1973 and 1995.

direct relationship between

217 Proponents of economic growth make all of the following arguments except: Growth is the basic means of improving living standards. It is easier to reduce poverty when the economy is growing than when it is not. There is a direct relationship between a growing real GDP and rising pollution. Growth provides an economic environment favorable to education and self-fulfillment.

$1 billion

219 According to the Consider This box on patents and innovation, the cost for U.S. and European drug companies to research, patent, and safety-test a new drug is about: $100 million. $750 million. $1 billion. $10 billion.

6 percent

22 Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is: 3 percent. 6 percent. 7 percent. 53 percent.

percentage of married women in the workforce

222 Rising wages for women in the United States have increased: the proportion of women working part time compared to working full time. labor costs and thus shifted the nation's production possibilities curve inward. average family size in the United States. the percentage of married women in the workforce.

True

226 T/F: Modern economic growth since the 1820s has widened wealth and income disparities between richer and poorer nations.

True

230 T/F: A competitive market system promotes growth by providing producers with market signals on which to base investment and production decisions.

True

233 T/F: Economic growth can be shown as a movement from a point on one production possibility curve to a point on a curve located farther from the origin.

False

237 T/F: Because of the recent rise in the average rate of productivity growth, the business cycle is dead.

frictionally

24 Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as: cyclically unemployed. frictionally unemployed. structurally unemployed. employed.

False

240 T/F: Proponents of economic growth claim that growth leads to greater equality of income in an economy.

Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

242 Which of the following best explains why prices tend to be inflexible even when demand changes? Government regulations limit the number of times a firm can change prices in a year. In most industries the profit-maximizing price does not change even when demand changes. Production costs do not tend to change when a firm varies its level of output. Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

short-run fluctuations in output and employment.

243 The business cycle depicts: fluctuations in the general price level. the phases a business goes through from when it first opens to when it finally closes. the evolution of technology over time. short-run fluctuations in output and employment.

when there are widespread macroeconomic and monetary disturbances in the economy.

245 Prices are particularly sticky: when there are widespread macroeconomic and monetary disturbances in the economy. in the long run. when markets are highly competitive. when the economy is at full employment and positive demand shocks are occurring.

decline

26 Suppose there are 5 million unemployed workers seeking jobs. After a period of time, 1 million of them become discouraged over their job prospects and cease to look for work. As a result of this, all else equal, the official unemployment rate would: decline. increase. increase in the short run but eventually decline. be unchanged.

The unemployment rates of men and women workers are roughly the same.

28 Which of the following is correct? The unemployment rates of men and women workers are roughly the same. Unemployment rates for African-American and white workers are approximately the same. Teenagers experience approximately the same unemployment rates as do adults. Laborers are less vulnerable to unemployment than are professional workers.

What percentage of the U.S. adult population has a college or post-college education (as of 2009)?

29 %

Suppose the nominal annual interest rate on a two year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is:

3 %

capital

3 In which of the following industries or sectors of the economy will business cycle fluctuations likely have the greatest effect on output? military goods capital goods textile products agricultural commodities

Use the list below to answer the following questions: 1. Improvements in technology 2. Increases in the supply (stock) of capital goods 3. Purchases of expanding output 4. Obtaining the optimal combination of goods, each at least-cost production 5. Increases in the quantity and quality of natural resources 6. Increases in the quantity and quality of human resources Refer to the above list. As distinct from the supply factors and efficiency factor of economic growth, the demand factor(s) of economic growth is (are):

3 only.

Between 1950 and 2009, U.S. real GDP grew at an average annual rate of about:

3.2 percent.

may involve a locational mismatch between unemployed workers and job openings.

30 Structural unemployment: is also known as frictional unemployment. is the main component of cyclical unemployment. is said to occur when people are waiting to be called back to previous jobs. may involve a locational mismatch between unemployed workers and job openings.

employed

31 Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as: structurally unemployed. frictionally unemployed. not in the labor force. employed.

Bureau of Labor Statistics

34 The government agency responsible for collecting and reporting unemployment data is the: Bureau of Labor Statistics. Bureau of Unemployment. Bureau of Economic Analysis. Bureau of Economic Research.

the economy achieves its potential output.

35 At the economy's natural rate of unemployment: the economy achieves its potential output. there is only a relatively small amount of cyclical unemployment. only frictional unemployment exists. only structural unemployment exists.

If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is:

360 billion

capital goods and durable consumer goods

4 The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are: military goods and capital goods. services and nondurable consumer goods. clothing and education. capital goods and durable consumer goods.

Use the list below to answer the following questions: 1. Improvements in technology 2. Increases in the supply (stock) of capital goods 3. Purchases of expanding output 4. Obtaining the optimal combination of goods, each at least-cost production 5. Increases in the quantity and quality of natural resources 6. Increases in the quantity and quality of human resources Refer to the above list. As distinct from the supply factors and demand factor of economic growth, the efficiency factor(s) of economic growth is (are):

4 only

actual and potential

40 The GDP gap measures the difference between: NDP and GDP. NI and PI. actual GDP and potential GDP. nominal GDP and real GDP.

Suppose nominal GDP in 2002 was $100 billion and in 2003 it was $260 billion. The general price index in 2002 was 100 and in 2003 it was 180. Between 2002 and 2003 the real GDP rose by:

44 %

$320 billion.

44 If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is: $360 billion. $660 billion. $320 billion. $20 billion.

47 Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is: 4 percent. 8 percent. 10 percent. 2 percent.

PICTURE 6 Refer to the above table. Between years 1 and 2, real GDP grew by __________ percent in Alta.

construction

5 During a severe recession, we would expect output to fall the most in: the healthcare industry. the clothing industry. agriculture. the construction industry.

50 The amount of output being forgone by the above economy is: $12 billion. $15 billion. $18 billion. $24 billion.

the economy had moved from a point inside its production possibilities curve to a point on or near the curve.

51 If the unemployment rate in the above economy fell to 6 percent, we could conclude that: only structural unemployment remained. the economy's production possibilities curve shifted outward. the economy had moved from a point inside its production possibilities curve to a point on or near the curve. nominal GDP would rise but real GDP would fall.

1.6

54 The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about: 2.8 percent. 3.4 percent. 1.6 percent. 4.1 percent.

last year's price index from this year's price index and dividing the difference by last year's price index.

55 The annual rate of inflation can be found by subtracting: the real income from the nominal income. last year's price index from this year's price index. this year's price index from last year's price index and dividing the difference by this year's price index. last year's price index from this year's price index and dividing the difference by last year's price index.

dividing the annual rate of inflation into "70."

56 As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by: dividing "70" into the annual rate of inflation. dividing the annual rate of inflation into "70." subtracting the annual change in nominal incomes from "70." multiplying the annual rate of inflation by "70."

8-9 years

58 If Fred's annual real income rises by 8 percent each year, his annual real income will double in about: 8-9 years. 10-11 years. 5-6 years. 19-20 years.

6 years

59 If the rate of inflation is 12 percent per year, the price level will double in about: 4 years. 6 years. 10 years. 12 years.

neither significantly higher nor significantly lower.

60 Compared to other industrial nations, inflation rates in the United States are: significantly higher. significantly lower. significantly higher than those in Europe, and significantly lower than those in Japan. neither significantly higher nor significantly lower.

60.

is self limiting

62 Unlike demand-pull inflation, cost-push inflation: is self-limiting. drives up the price level. increases nominal income. increases real income.

moves the economy inward from its production possibilities curve.

63 Cost-push inflation: is caused by excessive total spending. shifts the nation's production possibilities curve leftward. moves the economy inward from its production possibilities curve. is a mixed blessing because it has positive effects on real output and employment.

neg supply shock

64 Cost-push inflation may be caused by: a decline in per unit production costs. a decrease in wage rates. a negative supply shock. an increase in resource availability.

an unexpected change in the level of total spending.

7 Most economists agree that the immediate cause of most business cycle variation is: an unexpected change in the productivity of workers. an unexpected change in the level of total spending. the invention of new products. the growth and subsequent bursting of financial bubbles.

Nominal income rises by 2 percent, and the price level remains unchanged.

70 in which of the following cases would real income rise? Nominal income rises by 8 percent, and the price level rises by 10 percent. Nominal income rises by 2 percent, and the price level remains unchanged. Nominal income falls by 4 percent, and the price level falls by 2 percent. Real income will rise in all of these cases.

Nominal income falls by 2 percent, and the price level falls by 10 percent.

71 Under which of the following circumstances would we observe the greatest increase in real income? Nominal income falls by 2 percent, and the price level falls by 10 percent. Nominal income rises by 8 percent, and the price level rises by 4 percent. Nominal income rises by 12 percent, and the price level rises by 15 percent. Nominal income falls by 4 percent, and the price level rises by 6 percent.

taxation through inflation

80 The feudal practice of clipping coins illustrates the idea of: taxation through inflation. good money driving out bad money. the derived demand for resources. cost-push inflation.

follow the long-run course of the economy to determine whether it has grown or stagnated.

81 The National Income and Product Accounts (NIPA) help economists and policymakers to: determine which firms are likely to succeed or fail. follow the long-run course of the economy to determine whether it has grown or stagnated. measure what is occurring in each specific labor market. accomplish all of these.

monetary value of all final goods and services produced within the borders of a nation in a particular year.

83 GDP is the: national income minus all non-income charges against output. monetary value of all final goods and services produced within the borders of a nation in a particular year. monetary value of all economic resources used in producing a year's output. monetary value of all goods and services, final and intermediate, produced in a specific year.

a firm's output less the value of the inputs bought from others

90 The value added of a firm is the market value of: a firm's output plus the value of the inputs bought from others. a firm's output less the value of the inputs bought from others. the firm's output. the firm's inputs bought from others.

the difference between the value of a firm's output and the value of the inputs it has purchased from others.

93 Value added refers to: any increase in GDP that has been adjusted for adverse environmental effects. the excess of gross investment over net investment. the difference between the value of a firm's output and the value of the inputs it has purchased from others. the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.

A nation's stock of capital goods will decline when: A) gross investment exceeds net investment. B) net investment is positive, but less than gross investment. C) depreciation exceeds gross investment. D) gross investment exceeds depreciation.

A price index is: A) a comparison of the price of a market basket from a fixed point of reference. B) a comparison of real GDP in one period relative to another. C) the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period. D) a ratio of real GDP to nominal GDP.

Which of the following would be included in the gross national product (GNP) of the United States? A. Production from a U.S. firm that operates in Mexico. B. Production from an Hungarian citizen who works in Denver, CO. C. Production from a Canadian firm that operates in Montana. D. All of the above are included in the GNP of the U.S.

A. Production from a U.S. firm that operates in Mexico.

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 gods 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 gods and services produced domestically.

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next? A. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities. B. Nominal GDP separates increases in GDP as a result fo price changes from increases in GDP as a result of quantity changes. C. GDP is a measure of production in quantity terms. D. All of the above E. A and B only

A. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.

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

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 Untied 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.

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 int he 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.

Answer the question on the basis of the following data. All figures are in billions of dollars. Picture Gross Private Domestic Investment 46 Exports of the US 9 Disposable Income 190 Personal Saving 10 Government Purchases 84 Net Foreign Factors Income 10 Consumption of Fixed Capital 52 Dividends 13 Imports of the US 12 Taxes on Production and Imports 22 Personal Taxes 38 Social Security Contributions 23 Statistical Discrepancy 0 The economy characterized by the above data is: a) experiencing inflation because disposable income exceeds personal income. b) experiencing declining production capacity because net investment is negative. c) in a depression because personal income exceeds disposable income. d) experiencing expanding production capacity because net private domestic investment is positive.

Answer the question on the basis of the following information: Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per unit prices of these three goods are A = $2, B = $3, and C = $1. Refer to the above information. If the per unit prices of the three goods each were $1 in a base year used to construct a GDP price index, then the GDP price index in the current year is: a) 205.5. b) 255.5. c) 39.3. d) 100.

Answer the question on the basis of the following national income data for the economy. All figures are in billions of dollars. Personal Consumption Expenditures 400 Government Purchases 128 Gross Private Domestic Investment 88 Net Exports 7 Net Foreign Factor Income 0 Consumption of Fixed Capital 43 Taxes on Production and Imports 50 Compensation of Employees 369 Rents 12 Interests 15 Proprietor's Income 52 Corporate Income Taxes 36 Dividends 24 Undistributed Corporate Profits 22 Statistical Discrepancy 0 Refer to the above data. Net domestic product is: a) $520. b) $580. c) $623. d) $573.

Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is: a) $110. b) $30. c) $40. d) $70.

Assume that the size of the underground economy increases both absolutely and relatively over time. As a result: a) real GDP will rise more rapidly than nominal GDP. b) GDP will tend to increasingly understate the level of output through time. c) GDP will tend to increasingly overstate the level of output through time. d) the accuracy of GDP will be unaffected through time.

By summing the dollar value of all market transactions in the economy we would: a) determine the market value of all resources used in the production process. b) obtain a sum substantially larger than the GDP. c) determine value added for the economy. d) measure GDP.

Consumption of fixed capital (depreciation) can be determined by: a) adding taxes on production and imports to NDP. b) subtracting NDP from GDP. c) subtracting net investment from GDP. d) adding net investment to gross investment.

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock: a) may have either increased or decreased. b) increased by $65 billion. c) increased by $55 billion. d) decreased by $55 billion.

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

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.

Which measure of GDP represents changes int he 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

What is the difference between the value of a firm's final product and the value added by the firm to the final product? A. The value of a firm's final product is the difference between the sale price and the price of intermediate goods; value added is the sale price. B. The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods. C. There is no difference between the value of a firm's final product and the value added by the firm to the final product. D. The value of a firm's final product is profit; the value added is the total cost of production.

B. The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.

The flow of funds from _______________ into the financial system makes it possible for government and firms to borrow. A. governments 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

Personal income is: A. national income minus income taxes B. national income minus retained corporate earnings plus government transfer payments and interest on government bonds. C. national income plus government transfer payments. D. equal to the value of all final goods and services produced within a country's borders during one year.

B. national income minus retained corporate earnings plus government transfer payments and interest on government bonds.

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. rela 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 national 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.

In calculating GDP, which levels of government spending are included in government purchases? A. spending by the federal government only. B. spending by the 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 the federal, state, and local governments.

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.

promote economic growth by helping to direct household saving to businesses that want to invest.

Banks and other financial institutions: are the primary investors in equipment, factories, and other capital goods. lack relevance in the modern economy because they focus primarily on financial assets and generally do not engage in real investment activity. promote economic growth by helping to direct household saving to businesses that want to invest. often hinder economic activity by creating barriers between household savers and firms wanting to invest in capital goods.

Between 1980 and 2000 the price level approximately doubled. The average annual rate of inflation over this 20-year period was about: A) 5.5 percent. B) 4.7 percent. C) 3.5 percent. D) 2.8 percent.

Alternating periods of economic expansion and economic recession.

Business Cycle

By summing the values added at each stage in the production of some good we obtain: A) the price of that good. B) the total income generated by that good's production. C) the total cost (including profits) of that product. D) all of the above.

Answer the question on the basis of the following information: year nominal GDP price index 1 550 140 2 560 135 3 576 125 4 586 117 5 604 108 In the economy above, real GDP for year 3 is: a) $512. b) $428. c) $480. d) $691.

Answer the question on the basis of the following information: year nominal GDP price index 1 550 140 2 560 135 3 576 125 4 586 117 5 604 108 In the economy above: a) the price level is rising faster than nominal GDP. b) nominal and real GDP are growing at the same rate. c) the growth of nominal GDP understates the growth of real GDP. d) the growth of nominal GDP overstates the growth of real GDP.

Answer the question on the basis of the following information: Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per unit prices of these three goods are A = $2, B = $3, and C = $1. Refer to the above information. If the per unit prices of the three goods each were $1 in a base year used to construct a GDP price index, then real GDP in the current year is: a) $110. b) $115. c) $45. d) $160.

Answer the question on the basis of the following national income data for the economy. All figures are in billions of dollars. Personal Consumption Expenditures 400 Government Purchases 128 Gross Private Domestic Investment 88 Net Exports 7 Net Foreign Factor Income 0 Consumption of Fixed Capital 43 Taxes on Production and Imports 50 Compensation of Employees 369 Rents 12 Interests 15 Proprietor's Income 52 Corporate Income Taxes 36 Dividends 24 Undistributed Corporate Profits 22 Statistical Discrepancy 0 Refer to the above data. The national income is: a) $561. b) $573. c) $580. d) $530.

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Refer to the above information. Positive net investment is occurring in: a) economy A only. b) economy B only. c) economy C only. d) economies A and B only.

Final goods and services refer to: a) goods and services that are unsold and therefore added to inventories. b) goods and services whose value has been adjusted for changes in the price level. c) goods and services purchased by ultimate users, rather than for resale or further processing. d) the excess of U.S. exports over U.S. imports.

Gross Investment 18 National Income 100 Net Exports 2 Personal income 85 Personal Consumption Expenditures 70 Saving 5 Government Purchases 20 Net Domestic Product 105 Statistical Discrepancy 0 Refer to the above data. Disposable income is: a) $83. b) $73. c) $75. d) $77.

If real GDP rises and the GDP price index has increased: a) the percentage increase in nominal GDP must have been less than the percentage increase in the price level. b) nominal GDP may have either increased or decreased. c) nominal GDP must have increased. d) nominal GDP must have fallen.

In 1933, net private domestic investment was a minus $6.0 billion. This means that: a) gross private domestic investment exceeded depreciation by $6.0 billion. b) the economy was expanding in that year. c) the production of 1933's GDP used up more capital goods than were produced in that year. d) the economy produced no capital goods at all in 1933.

In an economy experiencing a persistently falling price level: a) potential GDP will necessarily exceed actual GDP. b) changes in nominal GDP may either overstate or understate changes in real GDP. c) changes in nominal GDP understate changes in real GDP. d) changes in nominal GDP overstate changes in real GDP.

In an economy experiencing a persistently falling price level: a)potential GDP will necessarily exceed actual GDP. b) changes in nominal GDP may either overstate or understate changes in real GDP. c) changes in nominal GDP understate changes in real GDP. d)changes in nominal GDP overstate changes in real GDP.

Suppose a nation's 2010 nominal GDP was $972 billion and the general price index was 90. To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be: a) deflated to $678 billion. b) deflated to $896 billion. c) inflated to $1080 billion. d) deflated to $1080 billion.

Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that: a) GDP in 2010 is $450 billion. b) NDP in 2010 is $450 billion. c) GDP in 2010 is $500 billion. d) inventories in 2010 fell by $50 billion.

The GDP tends to: a) overstate economic welfare because it does not include certain nonmarket activities such as the productive work of housewives. b) understate economic welfare because it includes expenditures undertaken to offset or correct pollution. c) understate economic welfare because it does not take into account increases in leisure. d) overstate economic welfare because it does not reflect improvements in product quality.

The amount of after-tax income received by households is measured by: a) discretionary income. b) national income. c) disposable income. d) personal income.

Tom Atoe grows fruits and vegetables for home consumption. This activity is: a) excluded from GDP in order to avoid double counting. B) excluded from GDP because an intermediate good is involved. c) productive but is excluded from GDP because no market transaction occurs. d) included in GDP because it reflects production.

Cyclical unemployment in the United States is essentially the consequence of: A) procyclical fiscal policies. B) a deficient level of aggregate expenditures. C) rapid technological progress. D) the geographic immobility of the labor force.

Cyclical unemployment is also called: A) wait unemployment. B) search unemployment. C) seasonal unemployment. D) deficient-demand unemployment.

Suppose that the base year is 200 and we want to calculate the real GDP for 2009. Which procedure would you use? A. Multiply the quantities in 2000 by the prices in 2009, and add up the results. B. Multiply the quantities in 2009 by the prices in 2009, and add up the results. C. Multiply the quantities in 2009 by the prices in 2000, and add up the results. D. Multiply the quantities in 2009 by the prices in 2009. and subtract them from nominal GDP in 2000.

C. Multiply the quantities in 2009 by the prices in 2000, and add up the results.

If the base year is 2001, what is generally true of the relationship between nominal GDP and real GDP? A. RGDP = NGDP because prices are stable. B. RGDP > NGDP because prices are falling. C. RGDP < NGDP because prices are rising. D. The relationship is uncertain without more information on prices.

C. RGDP < NGDP because prices are rising.

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 int he 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 int he 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.

Gross domestic product is best defined as: A. the total quantity of goods and services produced in a country during a period of time. B. the total value of all goods that can be found in a country. C. the market value of all final goods and services produced in a country during a period of time. D. the amount of all incomes earned by all citizens of a country, including those living overseas.

C. the market value of all final goods and services produced in a country during a period of time.

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.

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "You purchase a new for Escape Hybrid from a Ford dealer.

Consumption Expenditure

Consumption of fixed capital (depreciation) can be determined by: A) adding indirect business taxes to NDP. B) subtracting NDP from GDP. C) subtracting net investment from GDP. D) adding net investment to gross investment.

What are the four major components of expenditures in GDP?

Consumption, Investment, Government Purchases, and Net Exports

Corn farmers only growing corn in certain seasons is an example of: A) seasonal unemployment B) frictional unemployment C) structural unemployment D) cyclical unemployment

summing corporate income taxes, dividends, and undistributed corporate profits.

Corporate profits are found by: summing corporate income taxes, dividends, and undistributed corporate profits. adding corporate income taxes and dividends, and subtracting undistributed corporate profits. subtracting corporate income taxes from the sum of dividends and undistributed corporate profits. summing dividends, undistributed corporate profits, and proprietors' income.

Cost-push inflation may be caused by: A) a decline in per unit production costs. B) a decrease in wage rates. C) a negative supply shock. D) an increase in resource availability.

Cost-push inflation: A) is caused by excessive total spending. B) shifts the nation's production possibilities curve leftward. C) moves the economy inward from its production possibilities curve. D) is a mixed blessing because it has positive effects on real output and employment.

Economists include only final goods in measuring GDP for a particular year because if intermediate goods were ____, then multiple counting would occur.

Counted

Cyclical unemployment results from: A) a deficiency of aggregate spending. B) the decreasing relative importance of goods and the increasing relative importance of services in the U.S. economy. C) the everyday dynamics of a free labor market. D) technological change.

11. If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is: a) 100. b) 200. c) 240. d) 300.

If the economy adds to its inventory of goods during some year: a) gross investment will exceed net investment by the amount of the inventory increase. b) this amount should be ignored in calculating that year's GDP. c) this amount should be subtracted in calculating that year's GDP. d) this amount should be included in calculating that year's GDP.

In 2007, Trailblazer Bicycle Company produced a mountain bike that was delivered to a retail outlet in November of 2007. The bicycle was sold to E.Z. Ryder in March of 2008. This bicycle is counted as: a) consumption in 2007 and as negative investment in 2008. b) negative investment in 2007 and as consumption in 2008. c) negative investment in 2007 and as investment in 2008. d) investment in 2007 and as negative investment in 2008.

In calculating the GDP national income accountants: a) treat inventory changes as an adjustment to personal consumption expenditures. b) ignore inventories because they do not represent final goods. c) subtract increases in inventories or add decreases in inventories. d) add increases in inventories or subtract decreases in inventories.

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 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

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

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.

The largest component of gross domestic income is: A. rent B. profits C. interest D. wages

D. wages

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.

Demand-pull inflation results from _____ and cost-push inflation results from _____. A) decreases in demand; decreases in supply B) decreases in demand; increases in supply C) increases in demand; increases in supply D) increases in demand; decreases in supply

Demand-pull inflation: A) occurs when prices of resources rise, pushing up costs and the price level. B) occurs when total spending exceeds the economy's ability to provide output at the existing price level. C) occurs only when the economy has reached its absolute production capacity. D) is also called cost-push inflation.

Demand-pull inflation: A) occurs when total spending in the economy is excessive. B) is measured differently than cost-push inflation. C) can be present even during an economic depression. D) is also called "hyperinflation."

If you were to determine net domestic product (NDP) through the expenditures approach, the correct measure of investment spending to use is net private domestic investment because it excludes ____.

Depreciation

Comparing market values over time has the ____ that prices change over time.

Disadvantage

is equal to personal income minus personal tax payments.

Disposable Personal Income

Dr. Homer Simpson, an economics professor, decided to take a year off from teaching to run a commercial fishing boat in Alaska. That year, Professor Simpson would be officially counted as: A) structurally unemployed. B) frictionally unemployed. C) not in the labor force. D) employed.

Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value? A. If, in macroeconomics, we measured production using quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by Apple, to gallons of milk, and so on. B. When we measure total production, we can't just add together the quantities of every good and service because the result would be meaningless. C. Measuring production using market value in dollar terms allows us to add together many different goods and services. D. Both A and C. E. All of the above

E. All of the above.

Eckstein has lost her job in a Massachusetts textile plant because of import competition. She intends to take a short course in electronics and move to California where she anticipates that a new job will be available. We can say that Eckstein is faced with: A) secular unemployment. B) cyclical unemployment. C) structural unemployment. D) frictional unemployment.

The ability of an economy to product increasing quantities of goods and services

Economic growth

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Refer to the above information. Positive net investment is occurring in: A) economy A only. B) economy B only. C) economy C only. D) economies A and B only.

The period of a business cycle during which total production and total employment are increasing.

Expansion

Tina walks into Ted's sporting goods store and buys a punching bag for $100. That $100 payment counts as ____ for Tina and ____ for Ted.

Expenditure Income

GDP includes only the market value of __________.

FINAL GOODS

Suppose that this year's nominal GDP is $16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level five years ago. Using that index, we find that this year's real GDP is $15 trillion. Given those numbers, we can conclude that the current value of the index is:

Higher than 100

Refers to goods and services people produce for themselves.

Household production

If a nation's real GDP is growing by 5 percent per year, its real GDP will double in approximately: A) 22 years. B) 20 years. C) 14 years. D) 8 years.

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is: A) $360 billion. B) $660 billion. C) $320 billion. D) $20 billion.

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is: A) $510 billion. B) $490 billion. C) $10 billion. D) $990 billion.

inflation premium is zero

If both the real interest rate and the nominal interest rate are 3 percent, then the: inflation premium is zero. real GDP must exceed the nominal GDP. nominal GDP must exceed real GDP. inflation premium also is 3 percent.

If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that: A) nominal GDP is rising but real GDP is declining. B) net investment is negative. C) the economy is importing more than it exports. D) the economy's production capacity is expanding.

If domestic investment exceeds depreciation (consumption of fixed capital), we can conclude that: A) nominal GDP is rising but real GDP is declining. B) net investment is negative. C) the economy is importing more than it exports. D) net investment is positive

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock: A) may have either increased or decreased. B) increased by $65 billion. C) increased by $55 billion. D) decreased by $55 billion.

If intermediate goods and services were included in GDP: A) the GDP would then have to be deflated for changes in the price level. B) nominal GDP would exceed real GDP. C) the GDP would be overstated. D) the GDP would be understated.

If net foreign factor income earned in the U.S. is zero, the sum of national income, indirect business taxes, and the consumption of fixed capital equals: A) disposable income. B) personal income. C) net domestic product. D) gross domestic product.

If nominal GDP in some year is $280 and real GDP is $160. The GDP price index for that year is: A) 175. B) 57. C) 160. D) 280.

transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits

If personal income exceeds national income in a particular year, we can conclude that: transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and taxes on production and imports. the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits exceeded transfer payments. consumption of fixed capital and taxes on production and imports exceeded personal taxes. transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits.

If potential GDP is $330 billion and there is a positive GDP gap of $30 billion, real GDP is: A) $300 billion. B) $30 billion. C) $360 billion. D) $630 billion.

If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, real GDP is: A) $415 billion. B) $385 billion. C) $15 billion. D) $785 billion.

nominal GDP must have increased.

If real GDP rises and the GDP price index has increased: the percentage increase in nominal GDP must have been less than the percentage increase in the price level. nominal GDP may have either increased or decreased. nominal GDP must have increased. nominal GDP must have fallen.

changes in nominal GDP understate changes in real GDP.

In an economy experiencing a persistently falling price level: potential GDP will necessarily exceed actual GDP. changes in nominal GDP may either overstate or understate changes in real GDP. changes in nominal GDP understate changes in real GDP. changes in nominal GDP overstate changes in real GDP.

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because: A) of changes in trade deficits and surpluses. B) the length of the workweek has declined historically. C) the price level may change over time. D) depreciation may be greater or smaller than gross investment.

the price level may change over time

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because: of changes in trade deficits and surpluses. the length of the workweek has declined historically. the price level may change over time. depreciation may be greater or smaller than gross investment.

Use the concepts of gross investment and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. "In 1933 net private domestic investment was minus $6 billion. This means that in that particular year the economy produced no capital goods at all." This statement is ____.

Incorrect because negative net investment does not mean the economy produced no new capital goods in that year

both the level and distribution of income

Inflation affects: both the level and the distribution of income. neither the level nor the distribution of income. the distribution, but not the level, of income. the level, but not the distribution, of income.

Indicate whether the following is a final good, an intermediate good, or neither: Coffee beans purchased by a coffee shop.

Intermediate good

Which of the following are usually intermediate goods and which are usually final goods? Coal

Intermediate good

Which of the following are usually intermediate goods and which are usually final goods? Cotton fibers

Intermediate good

Which of the following are usually intermediate goods and which are usually final goods? Lumber

Intermediate good

A good or service that is an input into another good or service, such as a tire on a truck.

Intermediate good or service

Intermediate goods refer to: A) goods and services that are unsold and therefore added to inventories. B) goods and services whose value has been adjusted for changes in the price level. C) goods and services purchased by ultimate users, rather than for resale or further processing. D) goods and services that are purchased for resale or for further processing and manufacturing

Changes in ____ are included as part of investment spending because anything produced by a business that has not been sold during the accounting period is something in which the business has invested.

Inventories

Gross domestic product does not include the value of stocks and bonds sold because these sales and purchases are not economic ____ and should not be counted as production of final goods and services.

Investment

Spending by firms on new factories, office buildings, machinery, and additions to inventories, and spending by households and firms on new houses.

Investment

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "Ford purchases new machine tools to use in its Missouri Escape factory."

Investment Expenditure

Indicate whether the following transaction represents the purchase of a final good. "The purchase of tires from Bridgestone tire company by an automobile manufacturer. "

Is not the purchase of a final good.

Indicate whether the following transaction represents the purchase of a final good. "The purchase of a new machine tool by the Ford Motor Company."

Is the purchase of a final good.

Indicate whether the following transaction represents the purchase of a final good. "The purchase of an aircraft carrier by the federal government."

Is the purchase of a final good.

Indicate whether the following transaction represents the purchase of a final good. "The purchase of domestic wine by a French consumer."

Is the purchase of a final good.

Kimberly voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kimberly presently is: A) cyclically unemployed. B) structurally unemployed. C) frictionally unemployed. D) not a member of the labor force.

NDP is: A) NI plus net foreign factor income earned in the U.S. plus indirect business taxes. B) NI plus corporate income taxes. C) GDP deflated for increases in the price level. D) GDP minus indirect business taxes.

NDP is:

NI plus net foreign factor income earned in the U.S. plus indirect business taxes.

is calculated as GDP minus the consumption of fixed capital, or depreciation.

National Income

Statistics derived from ____ ____ ____ are useful to assess the health of an economy and formulate policies to maintain and improve that health.

National Income Accouting

National income accountants can avoid multiple counting by: A) including transfers in their calculations. B) counting both intermediate and final goods. C) only counting final goods. D) only counting intermediate goods.

National income accountants define investment to include: A) any increase in business inventories. B) the addition of cash to a savings account. C) the purchase of common or preferred stock. D) the purchase of any durable good, for example, an automobile or a refrigerator.

What is the difference between national income and personal income?

National income represents income earned by American-owned resources, while personal income measures received income, whether earned or unearned.

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China."

Net Export Expenditure

Exports minus imports

Net exports

Net exports are negative when: A) a nation's imports exceed its exports. B) the economy's stock of capital goods is declining. C) depreciation exceeds domestic investment. D) a nation's exports exceed its imports.

Net exports are positive when: A) imports are greater than exports B) exports are less than imports C) exports equal imports D) exports are greater than imports

Net exports are: A) that portion of consumption and investment goods sent to other countries. B) exports plus imports. C) exports less imports. D) imports less exports.

Net investment equals: A) consumption expenditures by households + investment expenditures by businesses + government purchases of goods and services + expenditures by foreigners B) exports - imports C) gross investment - depreciation D) GDP - consumption of fixed capital

The value of final goods and services evaluated at current-year prices.

Nominal GDP

If real GDP rises and the GDP price index has increased:

Nominal GDP has increased

Nominal GDP is adjusted for price changes through the use of: A) the Consumer Price Index (CPI). B) the Producer Price Index (PPI). C) the GDP price index. D) exchange rates.

Nominal GDP is: A) the sum of all monetary transactions that occur in the economy in a year. B) the sum of all monetary transactions involving final goods and services that occur in the economy in a year. C) the amount of production that occurs when the economy is operating at full employment. D) money GDP adjusted for inflation.

Suppose GDP is $16 trillion, with $10 trillion coming from consumption, $2 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $500 billion coming from net exports. Also suppose that across the whole economy, depreciation (consumption of fixed capital) totals $1 trillion. From these figures, we see that net domestic product equals:

None of the above

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana."

Not included in GDP calculation

Indicate which component of GDO will be affect by each of the following transactions involving the Ford Motor Company. "You purchase a 2008 (preowned) Ford Escape Hybrid from a friend."

Not included in GDP calculation

Okun's law: A) measures the tradeoff between the rate of inflation and the rate of unemployment. B) indicates the number of years it will take for a constant rate of inflation to double the price level. C) quantifies the relationship between nominal and real incomes. D) shows the relationship between the unemployment rate and the size of the negative GDP gap.

Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per unit prices of these three goods are A = $2, B = $3, and C = $1. Nominal GDP in the current year is: A) $110. B) $115. C) $45. D) $90

PART 1: Review the following events: 1. A farmer sells $300 worth of wheat to an agricultural products distributor. 2. The distributor trims, packages, and sells the wheat to a state-owned baker for $350. 3. The state-owned bakery uses all of the wheat to make bread and then sells it for $325. A. If for simplicity, we ignore the value of inputs used to grow the wheat-such as seeds, labor, and fertilizer, then the farmer's value added is $_____. B. The value added for the distributor is $_____. C. The value added for the state-owned bakery is $_____. PART 2: Would a state-owned firm that adds a negative value added to its products operate differently than a free market firm that adds negative value added to its products? A. Yes. Under the circumstances, the private, free-market firm would quickly shut down, while the state-owned firm could continue operating, ceteris paribus. B. No. Both the sate-owned firm and the private, free-market firm would continue to operate that same regardless of negative value added. C. Yes. Under the circumstances, the state-owned firm would quickly shut down, while the private, free-market firm could continue operating, ceteris paribus. D. No. Both the state-owned and the private, free-market firm would be forced to shut down immediately.

PART 1: A. $300 B. $50 C. $-25 PART 2: A. Yes. Under the circumstances, the private, free-market firm would quickly shut down, while the state-owned firm could continue operating, ceteris paribus.

A report of the World Bank, an international organization devoted to increasing economic growth in developing countries, includes the following statements: "Informal economic activities pose a particular measurement problem [in calculating GDP], especially in developing countries, where much economic activity may go unrecorded." PART 1: What does the World Bank mean by "informal economic activities"? A. Informal economic activities refer to leisure activities. B. In many developing countries, informal economic activities refer to activities in the underground economy. C. Informal economic activities adjust GDP for pollution or other negative effects of production. D. In many developing countries, informal economic activities refer to the sector in which output of goods and services is measured. PART 2: Why do these activities make it harder to measure GDP and, as a result, the standard of living? A. Informal economic activities refer to leisure activities which are not included in measured GDP and will therefore underestimate economic well-being. B. If a large portion of an economy's production is done in the underground economy, measured GDP will overestimate production and economic well-being. C. If a large portion of an economy's production is done in the underground economy, measured GDP will underestimate production and economic well-being. D. When production from the underground economy is high, government spending is generally low.

PART 1: B. In many developing countries, informal economic activities refer to activities in the underground economy. PART 2: C. If a large portion of an economy's production is done in the underground economy, measured GDP will underestimate production and economic well-being.

Potential Real GDP = $200 billion Natural rate of unemployment = 6 percent Actual rate of unemployment = 12 percent The amount of output being forgone by the above economy is: A) $12 billion. B) $15 billion. C) $18 billion. D) $24 billion.

Potential Real GDP = $200 billion Natural rate of unemployment = 6 percent Actual rate of unemployment = 12 percent The size of the negative GDP gap as a percent of potential GDP for the above economy is: A) 9 percent. B) 12 percent. C) 15 percent. D) 18 percent.

A measure of the average prices of goods and services in the economy.

Price level

Economic output is equal to economic income because the value of everything that is ____ is also the value of everything ____.

Produced Sold

The value of final goods and services evaluated at base-year prices.

Real GDP

Real GDP is: A) the nominal value of all goods and services produced in the economy. B) the nominal value of all goods and services produced in the domestic economy corrected for inflation or deflation. C) that aggregate output that is produced when the economy is operating at full employment. D) always greater than nominal GDP.

Real GDP measures: A) current output at current prices. B) current output at base year prices. C) base year output at current prices. D) base year output at current exchange rates.

Refer to the above data. DI is: A) $284. B) $329. C) $254. D) $402.

Refer to the above data. Disposable income: A) cannot be determined from the data given. B) is $484. C) is $416. D) is $502.

Refer to the above data. GDP is: A) $390. B) $417. C) $422. D) $492. E) $512.

Refer to the above data. If year 2 is chosen as the base year, in years 1 and 3 the price index values, respectively, are: A) 4 and 6. B) 6 and 4. C) 120 and 100. D) 100 and 150.

Search unemployment and wait unemployment are types of: A) frictional unemployment. B) structural unemployment. C) deficient-demand unemployment. D) cyclical unemployment.

Setup Corporation buys $100,000 of sand, rock, and cement to produce redi-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is: A) $300,000. B) $100,000. C) $200,000. D) zero dollars.

Structural unemployment: A) is also known as frictional unemployment. B) is the main component of cyclical unemployment. C) is said to occur when people are waiting to be called back to previous jobs. D) may involve a locational mismatch between unemployed workers and job openings.

If inventories declined by $1 billion during 2010, then $1 billion would be ____ from both gross private domestic investment and gross domestic product.

Subtracted

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is: A) $180 billion. B) $190 billion. C) $200 billion. D) $210 billion.

rise by about 1 percent

Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will: fall by about 1 percent. remain constant. rise by about 4 percent. rise by about 1 percent.

Suppose that inventories were $40 billion in 2003 and $50 billion in 2004. In 2004, accountants would: A) add $10 billion to other elements of investment in calculating total investment. B) subtract $10 billion from other elements of investments in calculating total investment. C) add $45 billion (= $90/2) to other elements of investment in calculating total investment. D) subtract $45billion (=$90/2) from other elements of investment in calculating total investment.

Suppose that inventories were $80 billion in 2003 and $70 billion in 2004. In 2004, accountants would: A) add $10 billion to other elements of investment in calculating total investment. B) subtract $10 billion from other elements of investments in calculating total investment. C) add $45 billion (= $90/2) to other elements of investment in calculating total investment. D) subtract $45 billion(=$90/2) from other elements of investment in calculating total investment.

labor productivity must be $0.5

Suppose total output (real GDP) is $10,000 and worker-hours are 20,000. We can conclude that: real GDP per capita must be $200,000. the price-level index must be less than 100. labor productivity must be $0.5. nominal GDP must be between $10,000 and $20,000.

True

T/F: Economic growth can be shown as a movement from a point on one production possibility curve to a point on a curve located farther from the origin.

False

T/F: The rule of 70 is used to find how long it will take an economy to grow by 70 percent.

Which of the following are services? Your completed ____ Repairs to your truck

Taxes

The GDP gap measures the difference between: A) NDP and GDP. B) NI and PI. C) actual GDP and potential GDP. D) nominal GDP and real GDP.

The GDP is the: A) monetary value of all final goods and services produced within a nation in a particular year. B) national income minus all nonincome charges against output. C) monetary value of all economic resources used in producing a year's output. D) monetary value of all goods and services, final and intermediate, produced in a specific year.

understate economic welfare because it does not take into account increases in leisure.

The GDP tends to: overstate economic welfare because it does not include certain nonmarket activities such as the productive work of housewives. understate economic welfare because it includes expenditures undertaken to offset or correct pollution. understate economic welfare because it does not take into account increases in leisure. overstate economic welfare because it does not reflect improvements in product quality.

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about: A) 6.7 percent. B) 3.4 percent. C) 1.6 percent. D) 4.1 percent.

The economy characterized by the above data is: A) experiencing inflation because disposable income exceeds personal income. B) experiencing declining production capacity because net investment is negative. C) in a depression because personal income exceeds disposable income. D) experiencing expanding production capacity because net private domestic investment is positive.

The gross domestic product for the above economy is: A) $584. B) $592. C) $609. D) $623.

The rate of inflation can be found by subtracting: A) the real income from the nominal income. B) last year's price index from this year's price index. C) this year's price index from last year's price index and dividing the difference by this year's price index. D) last year's price index from this year's price index and dividing the difference by last year's price index.

national income

The total amount of income earned by U.S. resource suppliers in a year, plus taxes on production and imports, is measured by: gross domestic product. national income. personal income. disposable income.

The type of unemployment associated with recessions is called: A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment.

The type of unemployment caused by a decline in total spending is: A) seasonal unemployment B) frictional unemployment C) structural unemployment D) cyclical unemployment

Proponents of economic growth make all of the following arguments except:

There is a direct relationship between a growing real GDP and rising pollution.

productive but is excluded from GDP because no market transaction occurs.

Tom Atoe grows fruits and vegetables for home consumption. This activity is: excluded from GDP in order to avoid double counting. excluded from GDP because an intermediate good is involved. productive but is excluded from GDP because no market transaction occurs. included in GDP because it reflects production.

Payments by the government to individuals for which the government does not receive a new good or service in return

Transfer payments

Transfer payments are included in: A) NI. B) PI. C) GDP. D) NDP.

True or False: 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.

True

True or False: Over a given time period, the sum of the value added by all firms is equal to a country's GDP.

True

True or False: Value added is the price at which a firm sells its output minus the outlay paid to obtain the inputs to produce its output.

True

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called: A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) compositional unemployment.

income received by households less personal taxes

Which of the following best defines disposable income? income received by households less personal taxes the before-tax income received by households all income earned by resource suppliers for their current contributions to production the market value of the annual output net of consumption of fixed capital

Which of the following best defines national income? A) income received by households less personal taxes B) the before-tax income received by households C) all incomes earned by U.S. resource suppliers for their current contributions to production D) the market value of the annual output net of consumption of fixed capital

While these systems are credited with reducing business cycle severity prior to the recession of 2007-2009, some economists believe that they contributed to the suddenness and severity of the 2007-2009 recession

Which of the following statements is true about computerized inventory tracking systems and the severity of recessions? While these systems are credited with reducing business cycle severity prior to the recession of 2007-2009, some economists believe that they contributed to the suddenness and severity of the 2007-2009 recession. These systems are credited with reducing business cycle severity prior to the recession of 2007-2009, and for greatly reducing the severity of the 2007-2009 recession. These systems are generally held responsible for magnifying recessions over the past 25 years by rapidly signaling to firms the need to cut production. These systems are generally thought to change the timing of recessions, but not to affect the overall severity of declines in output and employment.

Workers unemployed due to low demand in certain fields during certain seasons is: A) seasonal unemployment B) frictional unemployment C) structural unemployment D) cyclical unemployment

An Equation for GDP and Some Actual Values

Y = C + I + G + NX

A price index is:

a comparison of the price of a market basket from a fixed point of reference.

The relationship between consumption and disposable income is such that:

a direct and relatively stable relationship exists between consumption and income.

The consumption schedule shows:

a direct relationship between aggregate consumption and aggregate income.

The period in the U.S. economy from 1995 to 2009 is characterized by:

a higher trend rate of productivity growth.

Net exports are negative when:

a nation's imports exceed its exports.

The United States' economy is considered to be at full employment when:

about 4-5 percent of the labor force is unemployed.

In the treatment of U.S. exports and imports, national income accountants:

add exports, but subtract imports,in calculating GDP.

Suppose that inventories were $40 billion in 2003 and $50 billion in 2004. In 2004, accountants would:

add$10 billion to other elements of investment in calculating total investment.

Which of the following best defines national income?

all incomes earned by U.S. resource suppliers for their current contributions to production

The investment demand curve will shift to the left as a result of:

an increase in the excess production capacity available in industry.

Most economists agree that the immediate cause of most business cycle variation is:

an unexpected change in the level of total spending.

National income accountants define investment to include:

any increase in business inventories.

Inflation is undesirable because it:

arbitrarily redistributes real income and wealth.

economy C only.

Transfer payments are:

excluded when calculating GDP because they do not reflect current production.

Net exports are:

exports less imports.

(Consider This) Gross investment is a:

flow, as in depreciation

The natural rate of unemployment is the:

full-employment unemployment rate.

Historically, real GDP has increased less rapidly than nominal GDP because:

general price level has increased

Final goods and services refer to:

goods and services purchased by ultimate users, rather than for resale or further processing.

Government purchases include government spending on:

government consumption goods and public capital goods

Government purchases include government spending on:

government consumption goods and public capital goods.

When an economy's production capacity is expanding:

gross domestic investment exceeds depreciation.

Which of the following is the largest dollar amount in the United States?

gross domestic product

GDP differs from NDP in that:

gross investment isused in calculating GDP and net investment isused in calculating NDP.

Real GDP and nominal GDP differ because the real GDP:

has been adjusted for changes in the price level.

An unexpected increase in total spending will cause an increase in GDP:

if prices are sticky.

The GDP price index:

includes all goods comprising the nation's domestic output.

Which of the following best defines disposable income?

income received by households less personal taxes

PICTURE 10 Refer to the above graph. A movement from a to b along C1 might be caused by a:

increase in real GDP.

A decline in the real interest rate will:

increase the amount of investment spending.

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock:

increased by $65 billion.

Suppose a nation's 2003 nominal GDP was $972 billion and the general price index was 90. To make the 2003 GDP comparable with the base year GDP, the 2003 GDP must be:

inflated to $1080 billion.

(Consider This) In terms of a reservoir analogy, the:

inflow from the river is gross investment.

In 2003 Trailblazer Bicycle Company produced a mountain bike that was delivered to a retail outlet in November of 2003. The bicycle was sold to E.Z. Ryder in March of 2004. This bicycle is counted as:

investment in 2003 and as disinvestment in 2004.

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equal:

investment will take place until i and r are equal.

Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in the following situation: "In the base year, nominal GDP ____________ real GDP."

is equal to

Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in the following situation: "In years after the base year, nominal GDP __________ real GDP."

is greater than

Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in the following situation: "In years prior to the base year, nominal GDP ___________ real GDP."

is less than

A nation's gross domestic product (GDP):

is the dollar value of all final output produced within the borders of the nation

A nation's gross domestic product (GDP):

is the dollar value of the total output produced within the borders of the nation.

The most important determinant of consumption and saving is the:

level of income

(Consider This) In terms of a reservoir analogy, the:

level of water in the reservoir is the stock of capital.

PICTURE 12 Which of the following would shift the investment demand curve from ID1 to ID3?

lower expected rates of return on investment

Indicate whether the following is likely to increase or decrease the measured level of GDP. "When there is a sharp decrease in the crime rate, the measured level of GDP ________."

may increase or decrease

Structural unemployment:

may involve a locational mismatch between unemployed workers and job openings.

Other things equal, a decrease in the real interest rate will:

move the economy downward along its existing investment demand curve.

Countries that have experienced modern economic growth have also tended to:

move toward more democratic forms of government.

Cost-push inflation:

moves the economy inward from its production possibilities curve.

The total amount of income earned by U.S. resource suppliers in a year is measured by:

national income

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when:

r is greater than i.

In 2005, Tatum's nominal income rose by 4.6 percent and the price level rose by 1.6 percent. We can conclude that Tatum's real income:

rose by approximately 3 percent.

The wealth effect is shown graphically as a:

shift of the consumption schedule.

The value of U.S. imports is:

subtracted from exports when calculating GDP because imports do not constitute production in the United States.

Consumption of fixed capital (depreciation) can be determined by:

subtracting NDP from GDP.

The fact that nominal GDP has risen faster than real GDP:

suggests that the general price level has risen.

real GDP is

the nominal value of all goods and services produced in the domestic economy corrected for inflation or deflation.

The investment demand curve portrays an inverse (negative) relationship between:

the real interest rate and investment.

Nominal GDP is:

the sum of all monetary transactions involving final goods and services that occur in the economy in a year

The investment demand curve suggests:

there is an inverse relationship between the real rate of interest and the level of investment spending.

If the economy adds to its inventory of goods during some year:

this amount should be included in calculating that year's GDP.

The concept of net domestic investment refers to:

total investment less the amount of investment goods used up in producing the year's output.

Labor productivity is defined as:

total output/worker-hours.

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