Economics Review Chapter 11

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute a. $250 to GDP. b. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle. c. $400 to GDP. d. $150 to GDP.

a. $250 to GDP.

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his backyard. Regarding these two practices, which of the following statements is correct? a. Only Joe's and Jim's grocery store purchases are included in GDP. b. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value. c. Only Joe's grocery store purchases are included in GDP. d. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value, if Jim provides this information.

a. Only Joe's and Jim's grocery store purchases are included in GDP.

Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption? a. The purchase of a new house b. The purchase of stocks and bonds c. The purchase of durable goods such as stoves and washing machines d. Spending on education

a. The purchase of a new house

Most goods and services produced at home a. and most goods and services produced illegally are excluded from GDP. b. are excluded from GDP while most goods and services produced illegally are included in GDP. c. and most goods and services produced illegally are included in GDP. d. are included in GDP while most goods and services produced illegally are excluded from GDP.

a. and most goods and services produced illegally are excluded from GDP.

The largest component in the basket of goods and services used to compute the CPI is a. housing. b. medical care. c. food and beverages. d. apparel.

a. housing.

Disposable personal income is a. the income that households and businesses have remaining after satisfying their obligations to the government. b. the income that households and non-corporate businesses receive. c. the total income earned by a nation's permanent residents. d. the total income earned by a nation's residents in the production of goods and services.

a. the income that households and businesses have remaining after satisfying their obligations to the government.

If the CPI is 200 for the year 1980 and 300 today, then $600 in 1980 has the same purchasing power as ________ has today. a. $400 b. $900 c. $500 d. $700

b. $900

You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the CPI rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent. a. 3, 5 b. 5, 3 c. 1, 5 d. 5, 1

b. 5, 3

The main reason the cost of living varies across regions of the country is differences in the price of a. medical care. b. housing. c. clothing. d. food.

b. housing.

Gross domestic product measures a. expenditures but not income. b. income and expenditures. c. neither income nor expenditures. d. income but not expenditures.

b. income and expenditures.

The CPI measures approximately the same economic phenomenon as a. real GDP. b. the GDP deflator. c. nominal GDP. d. the unemployment rate.

b. the GDP deflator.

GDP is defined as the a. value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. b. value of all final goods and services produced within a country in a given period of time. c. value of all goods and services produced within a country in a given period of time. d. value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

b. value of all final goods and services produced within a country in a given period of time.

Because consumers can sometimes substitute cheaper goods for those that have risen in price, a. the GDP deflator overstates inflation. b. the GDP deflator understates inflation. c. the CPI overstates inflation. d. the CPI understates inflation.

c. the CPI overstates inflation.

Which of the following is included in the calculation of GDP? a. The purchase of a used textbook from a friend who took the same class last year. b. The purchase of a new edition of a foreign textbook that was produced in a different nation. c. The purchase of ink and paper supplies by a textbook company for the production of new textbooks. d. The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.

d. The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.

A transfer payment is a payment made by a. firms, but not in exchange for capital equipment. b. foreigners, but not in exchange for a domestically produced good or service. c. consumers, but not in exchange for a tangible product. d. government, but not in exchange for a currently produced good or service.

d. government, but not in exchange for a currently produced good or service.

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily, a. profits from producing goods and services. b. quantities purchased by a typical urban household. c. values of goods and services based on surveys of consumers. d. market prices.

d. market prices.

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase a. both the CPI and the GDP deflator. b. neither the CPI nor the GDP deflator. c. the CPI but not the GDP deflator. d. the GDP deflator but not the CPI.

d. the GDP deflator but not the CPI.