Econ Chapter 5

GDP deflator

nom GDP/real GDP x 100

Intermediate good

Good used in the production of a final good

Factor (input) markets

Households supply labor to firms. Households own firms and capitals

Product (output) markets

Firms sell goods and services to consumers

1. Which of the following would not be considered a macroeconomic question? a. Why do some economies grow faster than do others? b. What are the factors that determine unemployment? c. What factors determine the price of computers? d. How does the exchange rate affect international trade? e. What are the effects of inflation on the economy?

C Determining the price in an individual market is one of the focuses of Microeconomics.

Which of the following is an example of a consumption expenditure? a. construction of a computer chip factory b. admission to an amusement park c. purchase of a commercial airplane d. wages paid to members of Congress e. building a new expressway

C Otherwise the used goods would be double counted. Once when they were ¯rst bought and again when they were resold.

GDP equation

Y = C + I + G + NX C - Consumption I - Investment G - Gov Purchases NX - Net Exports

Suppose that a factory produces $5,000 of output and causes $3,000 worth of pollution as a result of production. The factory's official contribution to GDP would be ______ and its overall contribution to society would be _______. a. $5,000, $2,000 b. $5,000, $3,000 c. $5,000, $5,000 d. $2,000, $2,000 e. $2,000, $5,000

a. $5,000, $2,000

If real GDP were 200 in year 1 and 220 in year 2, the growth rate of real GDP between these years would be a. 10 percent. b. 20 percent. c. 200 percent. d. 210 percent. e. 220 percent.

a. 10 percent.

Refrigerators are examples of: a. durable goods. b. services. c. non-durable goods. d. transfer products. e. None of the above.

a. durable goods.

GDP understates the value of output produced by an economy because it: a. excludes transactions that do not take place in organized markets, such as home-cooked meals. b. includes value added from the underground economy, such as tips taken "under the table". c. excludes environmental degradation caused by increased output production. d. All of the above are correct. e. None of the above are correct.

a. excludes transactions that do not take place in organized markets, such as home-cooked meals.

We measure gross domestic product by multiplying the quantities of goods by their prices because it allows us to: a. express the values of products in a common unit of measurement. b. correct for inflation. c. directly compare the output of one economy to that of another. d. calculate the total number of units of goods produced in an economy. e. All of the above.

a. express the values of products in a common unit of measurement.

Suppose that in 1995 a country produced 20 computers at a price of $2,000 each and 4 cars at a price of $5,000 each. In 1996 a country produced 15 computers at a price of $3,000 each and 5 cars at a price of $6,000 each. What do we know has happened? a. Nominal GDP has increased, and real GDP has increased. b. Nominal GDP has increased, and real GDP has decreased. c. Nominal GDP has decreased, and real GDP has increased. d. Nominal GDP has decreased, and real GDP has decreased. e. We only know that nominal GDP has increased.

b. Nominal GDP has increased, and real GDP has decreased.

How does real gross domestic product (GDP) differ from nominal GDP? a. Nominal GDP controls for price changes, while real GDP does not. b. Real GDP controls for price changes, while nominal GDP does not. c. Nominal GDP can be used to directly compare the amount of output produced from year to year, while real GDP cannot be used for such comparison. d. There is no difference between nominal GDP and real GDP. e. None of the above is correct.

b. Real GDP controls for price changes, while nominal GDP does not.

An intermediate good is: a. a good directly consumed by individuals. b. a good used only in the production of other products. c. counted as part of GDP. d. Both A and C are correct. e. Both B and C are correct.

b. a good used only in the production of other products.

In factor markets: a. households demand resources which firms supply. b. households supply inputs which firms demand. c. households supply goods and services which businesses demand. d. firms supply products which households demand. e. households demand inputs which firms supply.

b. households supply inputs which firms demand.

If an economy produced 10 bushels of corn at $20 each and 20 jars of peanut butter at $3 each in 1995, real gross domestic product (GDP) would be: a. $2,600. b. $200. c. $260. d. $60. e. Cannot be determined from the information provided.

c. $260.

Which of the following should be included in U.S. GDP? a. A car manufactured in Japan and sold in the United States. b. A car manufactured in Japan by a U.S. firm and sold in the United States. c. A car manufactured in the United States and sold in Japan. d. A used car manufactured in the United States and sold in Japan. e. Both B and C are correct.

c. A car manufactured in the United States and sold in Japan. Not A or B because the car was not produced in the U.S.. Compare this with GNP.

Which of the following is not a component of gross domestic product? a. Net exports b. Government purchases c. Purchases by consumers of used goods d. Purchases by consumers of finished goods e. All of the above are part of GDP.

c. Purchases by consumers of used goods

When there are sustained increases in real GDP over time, we say that the economy is undergoing: a. economic stagnation. b. a recession. c. economic growth. d. massive changes in productive capacity. e. None of the above.

c. economic growth. REAL GDP not nominal

Which of the following is not a component of private investment, for purposes of GDP accounting? a. newly produced housing b. additions to firms' stock of inventories c. purchases by firms of used machinery d. newly built factories e. All of the above are examples of private investment.

c. purchases by firms of used machinery

A nation's gross domestic product: a. is always smaller than the gross national product. b. is always larger than the net domestic product. c. reflects the total market value of all final goods and services produced within an economy in a given year. d. reflects the total market value of all goods and services produced within an economy in a given year. e. reflects the total market value of goods and services purchased within an economy in a given year.

c. reflects the total market value of all final goods and services produced within an economy in a given year.

Government transfer payments include all of the following except: a. direct payments on interest on the government debt. b. Social Security payments to the elderly. c. wage payments to police officers. d. direct "welfare" payments to low-income households. e. All of the above are transfer payments.

c. wage payments to police officers.

If a music company purchases 50 cents worth of materials and pays $5.00 per CD to workers to produce an $18.00 CD, that firm's value added per CD is: a. 50 cents. b. $4.50. c. $5.50. d. $17.50 e. $18.00.

d. $17.50 By de¯nition value added is sales minus all goods and services used in production that were bought from other ¯rms. So in this case 18.00 - 0.50 =17.50.

Suppose that a hardware store had $1000 of paintbrushes on its shelves at the beginning of the year and $1500 at year-end. The inventory amount included in GDP would be: a. $1000. b. $1500. c. $1250. d. $500. e. None of the above.

d. $500.

For the purposes of GDP accounting, government purchases include: a. the purchases of new buildings, such as airports and schools. b. the wages spent on government workers. c. direct transfer payments by the government to other individuals. d. Both A and B. e. All of the above.

d. Both A and B. Not C or E since the money is not purchasing anything. The government isn't buying a good or service it is simply taking money from one group of people and giving it to another. Hence the name 'transfer payment'.

Suppose that in 1995 a country produced 30 computers at a price of $2,000 each and 10 cars at a price of $5,000 each. In 1996 a country produced 30 computers at a price of $1,000 each and 8 cars at a price of $5,000 each. What do we know has happened? a. Nominal GDP has increased, and real GDP has increased. b. Nominal GDP has increased, and real GDP has decreased. c. Nominal GDP has decreased, and real GDP has increased. d. Nominal GDP has decreased, and real GDP has decreased. e. We only know that nominal GDP has increased.

d. Nominal GDP has decreased, and real GDP has decreased.

The difference between U.S. GDP and U.S. GNP is that GDP includes _____________ and excludes ________________: a. income of domestic firms producing in the U.S.; income of U.S. firms producing in foreign countries b. income of domestic firms producing in the U.S.; income of foreign firms producing in foreign countries c. income of U.S. firms producing in foreign countries; income of foreign firms producing in the U.S. d. income of foreign firms producing in the U.S.; income of U.S. firms producing in foreign countries e. None of the above.

d. income of foreign firms producing in the U.S.; income of U.S. firms producing in foreign countries

When a country runs a trade deficit it must: a. purchase more foreign products. b. sell more products to foreign countries. c. purchase assets from individuals or governments in foreign countries. d. must sell assets to individuals or governments in foreign countries. e. None of the above.

d. must sell assets to individuals or governments in foreign countries. Since more U.S. dollars have gone to the foreign country than foreign currency entered the U.S..

Depreciation is: a. what is left over from total new private investment after use for a year. b. the total amount of private investment purchases, whether new or previously-existing. c. the total amount of new private investment purchases. d. the wear and tear on private investment. e. investment in surgical products, and similar items.

d. the wear and tear on private investment.

For the purpose of GDP accounting, consumption expenditures include: a. only non-durable goods. b. only durable goods. c. both non-durable goods and services. d. both non-durable and durable goods. e. durable goods, non-durable goods, and services.

e. durable goods, non-durable goods, and services.

Macroeconomics involves the study of economics from the standpoint of: a. individual consumers. b. individual firms. c. specific markets. d. the government. e. the aggregate economy.

e. the aggregate economy.