CH 8 IN MACRO QUESTIONS

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. Domestic expenditures on imports generally equal foreign expenditure on U.S. exports d. People tend to spend all of their income on goods and services

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

When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows: a. GNP will be almost identical to GDP b. GDP will be much larger than GNP c. GNP will be a more accurate measure of the level of production within the country's borders d. GNP will be much larger than GDP

b. GDP will be much larger than GNP

Which of the following is true about the consumption of U.S. GDP in 2014? a. Consumer spending on services was greater than the sum of spending on durable and nondurable goods b. Consumer spending on nondurable goods was greater than the sum of spending on durable goods and on services c. Consumer spending on durable and nondurable goods was greater than consumption of services d. Consumer spending on durable goods was greater than the sum of spending on nondurable goods and on services

a. Consumer spending on services was greater than the sum of spending on durable and nondurable goods

The underground economy is the... a. buying and selling of goods and services that is concealed from the government b. sum product from "sin industries," including tobacco, alcohol, and exotic dancers c. sum product of activities that take place underground, such as coal mining and oil drilling d. use of internet transactions that are not subject to state sales taxes

a. buying and selling of goods and services that is concealed from the government

In an economy with rising prices, compared to the base year, ... a. nominal GDP is 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 years before the base year

a. nominal GDP is larger than real GDP in years after the base year

Real GDP is... a. the value of goods and services evaluated at base year prices b. a measure of output that was replaced by nominal GDP some time ago c. the value of goods and services evaluated at current year prices d. equal to the value of nominal GDP in every year except for the base year

a. the value of goods and services evaluated at base year prices

Which of the following is NOT a shortcoming of GDP as a measure of well-being? a. GDP only counts for final goods and services and not intermediate goods b. GDP is not adjusted for crime and other social problems c. GDP does not include the value of leisure d. GDP is not adjusted for the effects of pollution caused by the production of goods and services

a. GDP only counts for final goods and services and not intermediate goods

If Americans still worked 60-hour weeks, as they did in 1890, ... a. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher b. both GDP and the well-being of the typical person would be lower than they are c. both GDP and the well-being of the typical person would be much higher than they are d. GDP would be lower than it is, but the well-being of the typical person would be higher

a. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher

According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy? a. Most economies would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time b. Most economists would answer "yes" because these types of production are likely to change 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 a large percentage of measured GDP), especially in countries like the U.S.

a. Most economies would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time

According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine." Which of the following statements is correct? a. Song development time produces songs, similar to investment in a factory produces physical goods b. Working on a record album in a recording studio results in more investment in compact disk factories c. Song development time is investment because it involves the use of equipment and therefore is an investment d. Working on a record album in a recording studio is a marginal investment that cannot really be measured

a. Song development time produces songs, similar to investment in a factory produces physical goods

Household production and the underground economy... a. are not accounted for in the Bureau of Economic Analysis' estimates of GDP b. are an increasingly large fraction of economic activity in the U.S. c. are not considered important and, therefore, are not included when calculating GDP d. are fully accounted for in the Bureau of Economic Analysis' estimates of GDP

a. are not accounted for in the Bureau of Economic Analysis' estimates of GDP

While GDP is the most important measure of total production and total income, other measures of total production and total income are contained in the National Income and Product Accounts, each of which can be more useful than GDP for some purposes Which of the following is a correct definition of one of these other measures? a. Personal disposable income is personal income plus transfer payments from government net of personal tax payments b. National income equals GDP minus depreciation c. Gross national product is the value of final goods and services produced within a country by both residents and foreigners d. Personal income is national income minus earnings that corporations retain

b. National income equals GDP minus depreciation

To calculate personal income from national income, which of the following must the BEA do? a. add corporate retained earnings b. add government transfer payments c. add profits d. All of the above

b. add government transfer payments

Buyers and sellers in the underground economy prefer to use cash because... a. it is easier to keep track of b. cash leaves little in the way of evidence or a paper trail c. the buyers in these markets are not credit worthy d. the sellers in these markets cannot afford to process credit transactions

b. cash leaves little in the way of evidence or a paper trail

In the circular-flow diagram, who supplies factors of production in exchange for income? a. firms b. households c. the government d. all of the above

b. households

If prices rise over time, then real GDP will be... a. larger than nominal GDP in years after the base year b. larger than nominal GDP in years before the base year c. smaller than nominal GDP in the base year d. smaller than nominal GDP in years before the base year

b. larger than nominal GDP in years before the base year

Disposable personal income is equal to... a. the income households have to consume, save, and pay taxes b. personal income minus personal tax payments c. personal income minus government transfer payments plus personal tax payments d. personal income minus Social Security payments

b. personal income minus personal tax payments

Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates... a. real GDP and nominal GDP using only base-year prices b. real GDP using chain weights c. real GDP using the prices in the current year d. nominal GDP using chain weights

b. real GDP using chain weights

In calculating GDP, which levels of government spending are included in government purchases? a. spending by the federal government only b. spending by federal, state, and local governments c. spending by governments only on national security, social welfare, and other national programs d. spending by the federal government and some state governments, but not local governments

b. spending by federal, state, and local government

Which of the following is included in the economist's definition of investment? a. the purchase of a share of stock b. the purchase of new machines, factories, or houses c. the purchase of a rare coin or a deposit in a savings account d. All of the above

b. the purchase of new machines, factories, or houses

An important conclusion to draw from the circular-flow diagram is that... a. personal consumption expenditures are equal to the value of GDP b. 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 c. the total value of expenditures equals the value of GDP, but does not equal the value of income d. the value of total income equals the value of GDP, but does not equal the value of expenditures

b. 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

A breakdown of the four components of GDP shows that... a. purchases made by the federal government far exceed purchases by state and local governments b. residential investment on new houses far exceeds spending by firms on new factories, office buildings, and machinery c. consumption is by far the largest expenditure category, and that consumer spending on services far exceeds consumer spending on goods d. the value of goods and services produced domestically and sold abroad typically far exceeds the value of goods and services produced abroad and sold domestically

c. consumption is by far the largest expenditure category, and that consumer spending on services far exceeds consumer spending on goods

An article in the "Economist" on the revisions to Nigeria's GDP commented, "The GDP revision is not mere trickery. It provides a true picture of Nigeria's size by giving due weight to the bits of the economy, such as telecoms, banking and the Nollywood film industry, that have been growing fast in recent years." The phrase "giving due weight" to the sectors of the economy that have been growing quickly means that analysts... a. used historical weights to estimate the importance of these sectors b. conducted a survey of consumers to see where they spent their money c. developed better measures of those sectors of the economy, which then allowed for better GDP estimates d. used weights that represented sector averages for all African countries

c. developed better measures of those sectors of the economy, which then allowed for better GDP estimates

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 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, typically one year d. 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, typically one year

Which component of gross domestic income is the largest? a. interest b. profits c. wages d. rent

c. wages

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: When investment is low, people must have less money to spend. Therefore, GDP decreases b. Agree: GDP = C + I + G + NX. Therefore, as "I" (Investment) decreases, GDP decreases c. Disagree: While GDP will be low in this case, it is the result of a decrease in consumer expenditure on stocks, not investment spending d. Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases

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

All of the following are correct except... a. Gross domestic income is GDP calculated as the sum of income payments to households b. Gross domestic income includes sales tax, depreciation and other items c. Gross domestic income= Wages + Interest + Profits + Rent d. Gross domestic income does not include health insurance benefits received by the employees

d. Gross domestic income does not include health insurance benefits received by the employees

Which of the following is true about the government purchases component of U.S. GDP in 2014? a. Purchases by the federal government was greater than purchases by state and local governments b. The entire amount was composed of federal government purchases because state and local governments were not included c. Most of the spending on education and law enforcement occurred at the federal level d. Purchases by state and local governments was greater than purchases by the federal government

d. Purchases by state and local governments was greater than purchases by the federal government

Which of the following do we subtract from GDP to obtain national income? a. the production of fixed capital b. investment c. consumption d. depreciation

d. depreciation

If the GDP deflator in 2012 has a value of 98.0, then... a. the inflation rate in 2012 is -2 percent b. the inflation rate in 2012 is 2 percent c. prices have increased 9.8 percent between the base year and 2012 d. prices have decreased 2 percent between the base year and 2012

d. prices have decreased 2 percent between the base year and 2012