Macro Econ: Chapter 6

18) Income Mexican citizens earn in the U.S. counts in A) U.S. GNP. B) Mexican GNP. C) Mexican GDP. D) both U.S. and Mexican GDP.

B) Mexican GNP.

37) What should be subtracted from GDP to calculate national income? A) depreciation B) indirect taxes C) personal income taxes. D) net factor payments to the rest of the world

A) depreciation

33) Exports equal A) imports - net exports. B) net exports + imports. C) net exports - imports. D) imports + (exports + imports).

B) net exports + imports.

23) If net investment is zero, then A) gross investment is greater than depreciation. B) gross investment is less than depreciation. C) gross investment equals depreciation. D) depreciation is zero.

C) gross investment equals depreciation.

5) If nominal GDP rises, then so must real GDP.

FALSE

5) New houses count as consumer durables.

FALSE

6) Dairy Queen opens a branch in Estonia. The sales of the restaurant enter the U.S. GDP and the Estonian GNP.

FALSE

6) If real GDP rises, then so must nominal GDP.

FALSE

7) Consumers can spend their entire personal income.

FALSE

8) The difference between GNP and GDP is depreciation.

FALSE

3) A weakness in the concept of GDP is that it ignores income distribution.

TRUE

3) If the GDP deflator next year is less than the GDP deflator this year, then the price level has fallen.

TRUE

4) Final sales plus changes in inventories equals GDP.

TRUE

4) GDP measured in base year prices is real GDP.

TRUE

4) Production in the illegal or underground economy is not reflected in GDP.

TRUE

5) Fixed weight indexes can not account for new goods.

TRUE

9) Disposable personal income is personal income minus personal taxes.

TRUE

4) Gross national income is A) GNP converted into dollars using an average exchange rate over several years adjusted for rates of inflation. B) GDP converted into dollars using an average exchange rate over several years adjusted for rates of inflation. C) GNP measured using an incomes approach. D) GNP divided by population.

A) GNP converted into dollars using an average exchange rate over several years adjusted for rates of inflation.

1) The total market value of all final goods and services produced within a given period by factors of production located within a country is A) gross domestic product. B) gross national product. C) net national product. D) net national income.

A) gross domestic product.

27) Net investment is A) gross investment minus depreciation. B) gross investment plus depreciation. C) depreciation minus gross investment. D) GNP minus final sales.

A) gross investment minus depreciation.

16) If the GDP deflator is greater than 100, then A) nominal GDP is greater than real GDP. B) nominal GDP is lower than real GDP. C) nominal GDP equals real GDP. D) prices decreased by more than half between the current and the base years.

A) nominal GDP is greater than real GDP.

14) A farmer buys a new tractor from John Deere to use on her cotton farm. This tractor is included in GDP as A) part of gross private domestic investment. B) a durable consumption good. C) a service. D) a nondurable consumption good.

A) part of gross private domestic investment.

28) Depreciation is A) the decrease in the overall price level. B) the additional capital stock in a year. C) the amount of used up machinery in a year. D) the amount of decline in business inventories.

C) the amount of used up machinery in a year.

8) Which of the following would be counted in 2003's GDP? A) the value of a loan you take in 2003 B) the value of a TV that was produced in 2002 but not sold until 2003 C) the bonus check a stockbroker gets from his/her company in 2003 D) the value of a bond sold by the federal government

C) the bonus check a stockbroker gets from his/her company in 2003

1) All economic activities in the economy are included in the GDP.

FALSE

1) GDP measures the total income of everyone and the total spending by everyone in the economy.

FALSE

1) Transfer payments are subtracted from national income to get to personal income.

FALSE

2) A GDP deflator is real GDP divided by nominal GDP times 100.

FALSE

2) If investment is larger than depreciation, the capital stock decreases.

FALSE

2) The costs of pollution are subtracted from the value of final sales before calculating GDP.

FALSE

2) Total income in the economy can sometimes be greater than total spending.

FALSE

3) The income of U.S. citizens working abroad counts in U.S. GDP.

FALSE

4) Stock market transactions are part of GNP.

FALSE

25) The total value of all capital goods newly produced in a given period is A) the change in business inventories. B) depreciation. C) net investment. D) gross investment.

D) gross investment.

15) The change in business inventories is measured as A) final sales minus GDP. B) final sales plus GDP. C) GDP minus final sales. D) the ratio of final sales to GDP.

C) GDP minus final sales.

12) Which of the following is included in both the U.S. GDP and GNP? A) The value of all cars produced by Ford in Mexico. B) The value of all cars produced by General Motors in the U.S. C) The value of all cars produced by Toyota in the U.S. D) The value of cars produced by Nissan in Japan and the U.S.

B) The value of all cars produced by General Motors in the U.S.

34) When calculating GDP, exports are ________ and imports are ________. A) added; added B) added; subtracted C) subtracted; added D) subtracted; subtracted

B) added; subtracted

40) Interest paid by households and by the government is A) counted in national income, but not in GDP. B) not counted in GDP because it is not assumed to flow from the production of goods and services. C) not counted in GDP but is counted in GNP because it is paid by U.S. citizens to people living in the United States. D) included in both GDP and GNP because it represents an expenditure by one group and a receipt of income by another group.

B) not counted in GDP because it is not assumed to flow from the production of goods and services.

2) Legalizing all forms of illegal activities would A) reduce measured GDP. B) reduce the size of the underground economy and increase measured GDP. C) reduce both the underground economy and measured GDP. D) increase the size of the underground economy and reduce measured GDP.

B) reduce the size of the underground economy and increase measured GDP.

3) Nominal GDP is gross domestic product measured A) in the prices of a base year. B) in current dollars. C) at a constant output level but at the base-year prices. D) as the difference between the current year's GDP and last year's GDP.

B) in current dollars.

61) Net national product is A) GDP plus depreciation. B) GDP minus depreciation. C) GNP minus depreciation. D) GNP plus depreciation.

C) GNP minus depreciation.

14) The value of what KFC produces in Japan is included in the U.S. ________ and in the Japanese ________. A) GDP; GDP B) GNP; GNP C) GNP; GDP D) GDP; GNP

C) GNP; GDP

38) Proprietors' income is A) the income of unincorporated businesses. B) the income of all businesses C) the income of sole proprietorships. D) the income of partnerships.

A) the income of unincorporated businesses.

7) Which of the following would NOT be counted in 2007's GDP? A) the value of a 2005 boat you purchase from a boat dealer in 2007 B) the 2007 salary of a used motorcycle salesperson C) the commissions earned by a real estate agent in selling condominiums built prior to 2007 D) the value of a refrigerator manufactured in 2007 but not sold in 2007

A) the value of a 2005 boat you purchase from a boat dealer in 2007

35) If the value of net exports is negative, then A) exports exceed imports. B) imports exceed exports. C) exports equal imports. D) imports are zero.

B) imports exceed exports.

1) Nominal GDP measures the value of all goods and services A) in constant dollars. B) in current dollars. C) in fixed dollars. D) without inflation.

B) in current dollars.

36) The largest income component of GDP is A) proprietors' income. B) rental income. C) compensation of employees. D) corporate profit.

C) compensation of employees.

6) Double counting can be avoided by A) including the value of intermediate goods in the current year. B) not counting the value of intermediate goods in GDP. C) including the value of intermediate goods in the GNP but not in the GDP. D) including the value of intermediate goods in the production year but not in the selling year of those goods.

B) not counting the value of intermediate goods in GDP.

62) The total income of households is A) net national product. B) personal income. C) national income. D) production income.

B) personal income.

65) Which of the following is subtracted from national income to get to personal income? A) retained earnings B) personal interest income C) depreciation D) personal Taxes

A) retained earnings

15) Profits earned in the United States by foreign-owned companies are included in A) the U.S. GDP but not GNP. B) neither the U.S. GDP nor GNP. C) the U.S. GNP but not GDP. D) both the U.S. GDP and GNP.

A) the U.S. GDP but not GNP.

3) Per capita gross national income (GNI) decreases when A) GNI and the population increase at the same rate. B) GNI does not change and the population increases. C) GNI and the population decrease at the same rate. D) GNI increases and the population does not change.

B) GNI does not change and the population increases.

2) The single largest expenditure component in GDP is A) government spending. B) investment. C) consumption. D) net exports.

C) consumption.

74) Related to the Economics in Practice on p. 109 [421]: If a Swiss dealer sells a newly produced Swiss watch on eBay to a U.S. customer, the value of the watch is A) counted in U.S. GDP. B) counted in U.S. GDP and Swiss GDP. C) counted in Swiss GDP. D) not counted in either U.S. or Swiss GDP.

C) counted in Swiss GDP.

72) Saving rates tend to ________ during boom times and ________ during recession periods. A) rise; rise B) rise; fall C) fall; rise D) fall; fall

C) fall; rise

41) What type of tax affects the amount of money you pay for a product? A) direct tax B) income tax C) indirect tax D) all of the above

C) indirect tax

66) Personal income A) is always less than national income. B) is always greater than national income. C) may be greater than or less than national income. D) will always equal national income.

C) may be greater than or less than national income.

5) If real GDP in 2007 using 2006 prices is lower than nominal GDP of 2007, then A) prices in 2007 are lower than prices in 2006. B) nominal GDP in 2007 equals nominal GDP in 2006. C) prices in 2007 are higher than prices in 2006. D) real GDP in 2007 is larger than real GDP in 2006.

C) prices in 2007 are higher than prices in 2006.

14) The GDP deflator is the A) difference between real GDP and nominal GDP multiplied by 100. B) difference between nominal GDP and real GDP multiplied by 100. C) ratio of nominal GDP to real GDP multiplied by 100. D) ratio of real GDP to nominal GDP multiplied by 100.

C) ratio of nominal GDP to real GDP multiplied by 100.

2) Gross domestic product measured in terms of the prices of a fixed, or base, year is A) current GDP. B) base GDP. C) real GDP. D) nominal GDP.

C) real GDP.

42) Depreciation is A) subtracted from national income to get GDP. B) added to national income to get GDP. C) subtracted from GNP to get NNP. D) added to GNP to get NNP.

C) subtracted from GNP to get NNP.

63) Personal income is national income minus A) depreciation. B) net factor income to the rest of the world. C) the amount of national income not going to households. D) imports.

C) the amount of national income not going to households.

19) In 2007, GDP was exactly equal to final sales. This implies that A) there was accumulation of inventories that year. B) there was a decline in inventories that year. C) there was no change in inventories that year. D) GDP did not grow that year compared to the year before.

C) there was no change in inventories that year.

47) If receipts of factor income from the rest of the world exceed payments of factor income to the rest of the world, then A) GDP is greater than GNP. B) GDP equals GNP. C) GNP equals NNP. D) GNP is greater than GDP.

D) GNP is greater than GDP.

2) Gross domestic product measures A) the total spending of everyone in the economy. B) the value of all output in the economy. C) the total income of everyone in the economy. D) all of the above

D) all of the above

1) If in the same period output doubles and the price level remains the same, nominal GDP doubles.

TRUE

5) Value added is the difference between the value of good as they leave a stage of production and cost of the goods as they entered that stage of production.

TRUE

7) If real GDP increased during a year, then output must have increased.

TRUE

76) Related to the Economics in Practice on p. 113 [425]: ________ is responsible for producing and maintaining the National Income and Product Accounts (NIPAs). A) The Department of the Treasury B) The Federal Reserve Bank C) Congress D) The Department of Commerce

D) The Department of Commerce

3) Which of the following is an example of a final good or service? A) wheat a bakery purchases to make bread B) coffee beans Starbucks purchases to make coffee C) lumber purchased by a construction company to used in building houses D) a computer purchased by Federal Express to track shipments

D) a computer purchased by Federal Express to track shipments

3) Depreciation is included in GDP, but excluded from NNP.

TRUE

26) The change in capital stock in a period is equal to A) the ratio of the amount of the capital at the beginning of the period to the amount of depreciation. B) the amount of the capital stock at the beginning of the period plus gross investment minus depreciation. C) the amount of the capital at the beginning of the period plus gross investment. D) the amount of the capital at the beginning of the period minus net investment.

B) the amount of the capital stock at the beginning of the period plus gross investment minus depreciation.

9) Which of the following is NOT included in 2008's GDP? A) the value of a motorcycle produced in the United States and exported to Japan B) the profit earned in 2008 from selling a stock that you purchased in 2005 C) the value of a motor that is used in the production of a lawn mower D) the commission earned by a headhunter when she locates a job for a client

B) the profit earned in 2008 from selling a stock that you purchased in 2005

17) The GDP includes A) the value of all intermediate goods and services. B) the value of all final goods and services. C) the value of both intermediate and final goods and services. D) the value of all transactions.

B) the value of all final goods and services.

13) Which of the following is NOT counted in the GNP of the United States? A) The wage of a U.S. citizen who works in a foreign country for a foreign firm. B) The interest earned by a U.S. bank on loans to a business firm located in Brazil. C) The profit earned by a restaurant located in the United States but owned by a Mexican company. D) The value of services that are produced by state and local governments in the United States.

C) The profit earned by a restaurant located in the United States but owned by a Mexican company.

4) Which of the following is a good or service counted in GDP? A) tires Ford buys to put on a car B) a used tire you buy for your personal car C) a new tire you buy for your personal car D) used tires bought by a used car dealer to put on a car on his lot

C) a new tire you buy for your personal car

6) Fixed weight indexes A) account for responses to supply shifts. B) account for response to demand shifts. C) generally become less accurate the farther in time they are from the base year. D) generally become less accurate the closer in time they are to the base year.

C) generally become less accurate the farther in time they are from the base year.

22) Net investment equals A) GDP minus final sales. B) gross investment minus final sales. C) gross investment minus depreciation. D) depreciation plus GDP.

C) gross investment minus depreciation.

10) Gross national product is the total market value of A) all final and intermediate goods and service produced by resources owned by a country in a given year. B) all final and intermediate goods and services produced in a country, regardless of who owns the resources. C) all final goods and services produced in a country in a given year, regardless of who owns the resources. D) all final goods and services produced by resources owned by a country, regardless of where production takes place.

D) all final goods and services produced by resources owned by a country, regardless of where production takes place.

1) GDP is not a perfect measure of social welfare and the society's economic well-being because A) it does not say anything about the distribution of income. B) GDP accounting rules do not adjust for production that causes negative externalities. C) it does not include all economic activities in the economy. D) all of the above

D) all of the above

75) Related to the Economics in Practice on p. 113 [425]: The National Income and Product Accounts (NIPAs) allow policymakers and economists to analyze the impact of A) spending and tax plans. B) price shocks. C) monetary policy. D) all of the above

D) all of the above

39) Net interest is the interest on loans paid by A) businesses, households, and the government. B) businesses and households. C) businesses and the government. D) businesses.

D) businesses.

20) If the change in business inventories is zero, then final sales are A) zero. B) less than GDP. C) greater than GDP. D) equal to GDP.

D) equal to GDP.

73) Related to the Economics in Practice on p. 109 [421]: The value of the used goods sold on eBay from a U.S. seller to a U.S. buyer is A) counted in U.S. GDP but not GNP. B) counted in U.S. GNP but not GDP. C) counted in both U.S. GDP and GNP. D) not counted in either U.S. GDP or GNP.

D) not counted in either U.S. GDP or GNP.

69) The personal saving rate is A) the difference between total personal spending and personal saving. B) the difference between personal income and disposable personal income. C) the ratio of personal income to personal saving. D) the percentage of disposable personal income that is saved.

D) the percentage of disposable personal income that is saved.

4) Real GDP is gross domestic product measured A) at a constant output level but at current prices. B) in current dollars. C) in the prices of a base year. D) as the difference between the current year's GDP and last year's GDP.

C) in the prices of a base year.

1) The equation for GDP using the expenditure approach is A) GDP = C + I + G + EX - IM. B) GDP = C + I + G + (IM - EX). C) GDP = C + I + G + EX + IM. D) GDP = C + I + G - EX - IM.

A) GDP = C + I + G + EX - IM.

6) If real GDP in 2008 using 2007 prices is higher than nominal GDP of 2008, then A) prices in 2008 are lower than prices in the base year. B) nominal GDP in 2008 equals nominal GDP in 2007. C) prices in 2008 are higher than prices in the base year. D) real GDP in 2008 is larger than real GDP in 2007.

A) prices in 2008 are lower than prices in the base year.

11) If no foreign companies produce in a country, but many of the country's companies produce abroad, then A) the country's GNP will tend to exceed its GDP. B) the country's GDP will tend to exceed its GNP. C) the country's GNP and GDP will tend to be equal. D) the country's GDP will tend to be equal to its domestic income.

A) the country's GNP will tend to exceed its GDP.

5) The base year of an index is A) the year chosen for the weights in a fixed weight procedure. B) the year currently being calculated. C) the last year of the index. D) the first year of the index.

A) the year chosen for the weights in a fixed weight procedure.

5) Which of the following is an example of an intermediate good? A) the dough you buy to fix yourself a pizza for dinner B) the chocolate you buy to make yourself some cookies C) the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to D) lumber you buy to build a house for your dog

C) the pizza sauce you purchase to make pizzas to sell for a fund-raiser for an organization you belong to

21) If in a year there is a positive inventory investment, then final sales A) exceed GDP. B) are less than GDP. C) equal GDP. D) are zero.

B) are less than GDP.