Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Nominal GDP is GDP in a given year
A) valued in the prices of that year.
C) adjusted for inflation.

B) valued in the prices of the base year.

D) adjusted for anticipated inflation.

2) The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that
A) total spending in 2010 was around $14.6 trillion.
B) total income in 2010 was around $14.6 trillion.
C) the value of output in 2010 was around $14.6 trillion.
D) all of the above are true.

1)

2)

Table 8-8

Year
2005
2011

Guns
Produced
80
90

Price of Guns
$5
6

Butter
Produced
40
60

Price of Butter
$4
10

Consider the following data for Tyrovia, a country that produces only two products: guns and butter.

3) Refer to Table 8-8. Nominal GDP for Tyrovia in 2011 equals

A) $1,140.
B) $880.
C) $690.

D) $560.

3)

4) The output of Mexican citizens who work in Texas would be included in the
A) gross national product of Mexico.
B) gross national product of the United States.
C) gross domestic product of Mexico.
D) net national product of the United States.

4)

5) Disposable personal income equals personal income

A) plus government transfer payments.
B) minus personal tax payments plus government transfer payments.
C) minus government transfer payments plus personal tax payments.
D) minus personal tax payments.

5)

6) In 2010, which component of GDP had a negative value?

A) government spending
B) net exports
C) consumption
D) investment

6)

7) In the United States since the mid-1980s, consumption as a percentage of GDP has
A) dropped by more than half.
B) remained the same.
C) increased.
D) slowly decreased.

7)

8) In May 2009, Ford Motor Company's sales were down 20 percent from a year earlier. These events
were caused by
A) an economic recession.
B) a reduction in advertising.
C) declining quality of service.
D) an economic expansion.

8)

9) National income equals gross national product minus

A) inventories.
B) changes in inventories.
C) imports.
D) depreciation.

9)

10) Which of the following is not directly counted in GDP?

A) consumer goods
B) government purchases
C) investment expenditures
D) intermediate goods

10)

11) Which of the following statements about the underground economy is true?
A) Income that is earned but not reported as income for tax purposes is included in the
calculation of GDP.
B) Excluding underground economy production from measured GDP causes errors in GDP
growth estimates in the long run.
C) Most transactions that occur in the underground economy are included in the calculation of
GDP.
D) The underground economy in developing countries amounts to less than 10% of measured
GDP.

11)

12) A country in which a significant fraction of domestic production takes place in foreign-owned
factories and facilities is most likely a country where
A) GDP is equal to GNP.
B) GDP is much larger than GNP.
C) GDP is not comparable to GDP.
D) GNP is much larger than GDP.

12)

13) Which of the following could cause nominal GDP to decrease, but real GDP to increase?
A) The price level rises and the quantity of final goods and services produced falls.
B) The price level rises and the quantity of final goods and services produced rises.
C) The price level falls and the quantity of final goods and services produced rises.
D) The price level falls and the quantity of final goods and services produced falls.

13)

14) Gross domestic product understates the total production of final goods and services because of the
omission of
A) inflation.
B) the underground economy.
C) intermediate goods.
D) exports.

14)

15) If real GDP in 2011 (using 2002 prices) is lower than nominal GDP of 2010, then
A) prices in 2011 are lower than prices in 2010.
B) nominal GDP in 2011 equals nominal GDP in 2010.
C) real GDP in 2011 is larger than real GDP in 2010.
D) prices in 2011 are higher than prices in 2010.

15)

16) Depreciation is
A) the value of the decrease in business inventory stocks.
B) the value of worn-out equipment, machinery, and buildings.
C) the value of the addition to the capital stock.
D) the decline in the value of the stock market, net of dividends.

16)

17) Investment, as defined by economists, would include the purchase of a

A) government bond.
B) computer by an accounting firm.
C) corporate bond.
D) share of stock in ExxonMobil.

17)

18) To calculate GDP by the expenditure method, one must add

A) labor, natural resources, entrepreneurship, and capital.
B) wages, rents, interest, and profits.
C) consumption spending, investment spending, government spending and exports.
D) consumption spending, investment spending, government spending and net exports.

18)

19) The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact of the
decline in working hours
A) decreases U.S. GDP and increases the well-being of a typical working person in the U.S.
B) increases U.S. GDP and decreases the well-being of a typical working person in the U.S.
C) decreases U.S. GDP and decreases the well-being of a typical working person in the U.S.
D) increases U.S. GDP and increases the well-being of a typical working person in the U.S.

19)

20) Which of the following is not an example of a transfer payment?

A) unemployment insurance payments
B) social security payments to disabled persons
C) social security payments to retirees
D) health insurance payments to an army private

20)

21) If the quantity of goods and services produced in the economy decreases,
A) it may be possible for nominal GDP to increase.
B) nominal GDP would certainly increase.
C) it may be possible for real GDP to increase.
D) real GDP would certainly increase.

21)

22) If an American firm opens a production facility in India, the total value of the production will be
included in the
A) gross domestic product of India.
B) national income of the United States.
C) gross domestic product of the United States.
D) national income of India.

22)

23) The purchase by a foreign government of an airplane produced in the United States is included in
U.S.
A) net exports.
B) investment expenditures.
C) government purchases.
D) consumption expenditures.

23)

24) Which of the following would be directly counted in GDP in 2012?

A) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new
country-style home
B) kitchen cabinets purchased from Home Depot in 2012 to be installed in a house built in 1997
C) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house
built in 1950
D) none of the above

24)

25) The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the
Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude
A) it is not possible to make a good comparison of the economic well being of a typical
individual in the 2 countries without additional information.
B) a typical person in Vietnam is 10 times as well off as the typical person in the Philippines.
C) a typical person in Vietnam is more than 10 times as well off as the typical person in the
Philippines.
D) a typical person in Vietnam is less than 10 times as well off as the typical person in the
Philippines.

25)

26) The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the
cost of goods and services is
A) 105% higher in year 2 than in year 1.
B) 5% higher in year 1 than in year 2.
C) 105% higher in year 1 than in year 2.
D) 5% higher in year 2 than in year 1.

26)

27) If GDP calculations included measurements of pollution and environmental damage, GDP values
would most likely be
A) unchanged from their values without these measurements.
B) greater than their values without these measurements.
C) less than their values without these measurements.
D) meaningless, since GDP values without these measurements would no longer be of value.

27)

28) During a business cycle expansion, total production ________ and total employment ________.
A) increases; decreases
B) decreases; decreases
C) increases; increases
D) decreases; increases

28)

29) Recent estimates put the size of the underground economy in the United States at ________ of
measured GDP.
A) 2 percent
B) 8 percent
C) 13 percent
D) over 50 percent

29)

Scenario 8-1
CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate
goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe
to a consumer for $1,200.
30) Refer to Scenario 8-1. The value of each canoe in gross domestic product equals
A) $1,200.
B) $800.
C) $500.
D) $400.

30)

31) Real GDP is GDP in a given year

A) valued in the prices of the base year.
C) adjusted only for unanticipated inflation.

31)

B) valued in the prices of that year.

D) adjusted only for anticipated inflation.

32) Which of the following statements is true?

A) GDP accounting rules do not adjust for production that pollutes the economy.
B) GDP growth distributes income equally to people in the economy.
C) A decrease in the crime rate increases GDP as people will spend more on security.
D) Household production is counted in GDP as it amounts to real production.

32)

Table 8-3
Consumption expenditures
Investment expenditures
Government purchases
Exports
Imports
Wages

$800
200
300
100
200
800

33) Refer to Table 8-3. Consider the data above (in billions of dollars) for an economy: Gross domestic
product (in billions of dollars) for this economy equals
A) $2,200.
B) $1,600.
C) $1,400.
D) $1,200.

33)

34) In the first half of 2011, automobile sales in the United States were lower than they were in the first
half of 2010. The decrease in auto sales impacts GDP because new automobiles are counted as
________ when purchased by households and ________ when purchased by businesses.
A) consumption; investment
B) investment; consumption
C) durable goods; nondurable goods
D) nondurable goods; durable goods

34)

35) Increases in real GDP would overstate the increase in the well-being of a country over time if, over
that time period, the
A) crime rate decreased.
B) amount of pollution decreased.
C) price level increased.
D) average hours worked per week increased.

35)

36) Which of the following headlines would be more closely related to what macroeconomists study
than what microeconomists study?
A) Real GDP grows by 2.3% in the second quarter.
B) The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years.
C) Airlines raise ticket prices in response to rising fuel costs.
D) Avocado prices rise due to a late frost in California.

36)

37) If prices in the economy rise, then

A) the purchasing power of a dollar stays constant.
B) the purchasing power of a dollar declines.
C) the purchasing power of a dollar cannot be determined.
D) the purchasing power of a dollar rises.

37)

Table 8-10

Year
2009
2011

Oranges
Produced
1,800
2,000

Price of
Oranges
$0.90
1.00

Shirts
Produced
110
110

Price of Shirts
$30.00
35.00

Consider the data shown above for Vicuna, a country that produces only two products: oranges and shirts.

38) Refer to Table 8-10. Real GDP for Vicuna for 2009 using 2011 as the base year equals
A) $4,620.
B) $5,100.
C) $5,650.
D) $5,850.

38)

39) The GDP deflator is a measure of the

A) total production of the economy adjusted for inflation.
B) total production of the economy unadjusted for inflation.
C) average level of prices of intermediate goods and services in the economy.
D) average level of prices of final goods and services in the economy.

39)

40) National income equals gross domestic product

A) plus sales taxes.
C) plus government transfer payments.

40)

B) minus the consumption of fixed capital.

D) minus government transfer payments.

41) Macroeconomics, as opposed to microeconomics, includes the study of what determines the
A) wages paid to employees by Dell.
B) price charged for laptop computers by Dell.
C) average price levels of goods and services in the economy.
D) quantity of Dell employees.

41)

42) Suppose, in 2012, you purchased a house built in 2003. Which of the following would be included
in the gross domestic product for 2012?
A) the value of the services of the real estate agent
B) the value of the house in 2012
C) the value of the house in 2012 minus depreciation
D) the value of the house in 2003

42)

43) In the circular flow model, the value of total income for an economy ________ the value of total
production.
A) equals
B) is greater than
C) may be greater than or less than
D) is less than

43)

44) The GDP deflator is the

A) ratio of nominal GDP to real GDP multiplied by 100.
B) ratio of real GDP to nominal GDP multiplied by 100.
C) difference between nominal GDP and real GDP multiplied by 100.
D) difference between real GDP and nominal GDP multiplied by 100.

44)

45) Which of the following is not true about the composition of GDP in 2010?
A) Imports are greater than exports.
B) The majority of consumer spending is on durable goods.
C) Purchases made by state and local governments are greater than purchases made by the
federal government.
D) Business fixed investment is the largest component of investment.

45)

46) The purchase of a new house is included in

A) consumption expenditures.
C) net exports.

46)

B) investment expenditures.
D) government purchases.

Table 8-2
Product
Shoes
DVDs
Tomatoes
Ketchup

Quantity
40
100
2,000
300

Price
$60.00
18.00
1.00
4.00

47) Refer to Table 8-2. Suppose that a simple economy produces only four goods and services: shoes,
DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup
and the other half of the tomatoes are purchased by households. Using the information in the
above table, nominal GDP for this simple economy equals
A) $7,400.
B) $6,400.
C) $5,800.
D) 2,440 units.

47)

Table 8-12
Year
2009
2010
2011

Nominal GDP
$13,399
14,078
14,441

Real GDP
$12,976
13,254
13,312

48) Refer to Table 8-12. Consider the following data on nominal GDP and real GDP (values are in
billions of dollars): The GDP deflator for 2010 equals
A) 94.1.
B) 105.1.
C) 106.2.
D) 108.5.

48)

49) The size of the underground economy would tend to increase if the government of a country
A) legalized prostitution.
B) decreased government regulations on businesses.
C) increased income tax rates.
D) legalized marijuana.

49)

50) Which of the following is not a durable good?

A) clothing
B) furniture

50)

C) automobile

51) If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is
A) 12.5.
B) 80.
C) 125.
52) Which of the following goods is directly counted in GDP?
A) the lettuce that Subway purchases for its sandwiches
B) the plastic bags that Subway purchases to wrap its sandwiches
C) a 12-inch Subway sandwich purchased by a student
D) the bread that Subway purchases for its sandwiches

D) refrigerator

D) 800.

51)

52)

Answer Key
Testname: CHAPTER 8 REVIEW
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A
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Answer Key
Testname: CHAPTER 8 REVIEW
51) C
52) C