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| Chapter 23: Measuring a Nation’s Income |
1. In the circular
flow model, the source of the factors of production used to create goods and
services is
a. the product market.
b. the resource market.
c. firms.
d. households.
2. In the circular
flow model, firms use the money they earn from selling their goods and services
to pay for the
a. goods and services they buy on the product market.
b. resources they buy on the product market.
c. goods and services they buy from government.
d. resources they buy in the factor market.
3. In the circular
flow model, for every flow of goods, services, and resources there is a
counter-flow of
a. more goods, services, and resources.
b. people from firms to households.
c. people from households to firms.
d. money.
4. In producing a
sweater, a man who shears sheep pays a farmer $4 for a sheep. The shearing shop
sells the wool to a knitting mill for $7. The knitting mill buys he wool and
makes it into a fine fabric and sells it to a sweater-making firm for $13. The
sweater-making firm sells the sweater to a clothing store for $20, and the
clothing store sells the sweater, gift wrapped, for $50. What is the
contribution to GDP of the previous sales transactions?
a. $4.
b. $44.
c. $50.
d. $94.
5. Susie grows corn
in her backyard garden to feed her family. The corn she grows is not counted in
GDP because
a. it was not produced for the marketplace.
b. it is an intermediate good which Susie will process
further.
c. the corn has no value.
d. it reduces the amount of corn she will buy at the store.
6. Which of the
following would be counted in U.S. GDP?
a. the purchase of an historical house
b. the purchase of a haircut
c. the purchase of a $1000 government savings bond
d. the value generated when you wash your car in your
driveway
7. Personal
consumption spending now comprises approximately what fraction of GDP?
a. one-third
b. one-sixth
c. three-quarters
d. one half
8. If private
investment increased by $50 billion while GDP remained the same, which of the
following could have occurred, all else being the same?
a. Consumption spending decreased by $50 billion.
b. Exports increased by $50 billion.
c. Imports decreased by $50 billion.
d. Net exports increased by $50 billion.
9. Assume net exports
are –$220, consumption is $5,000, tax revenues are $1,000, government purchases
are $1,500, and 1997 GDP, calculated by the expenditures approach, is $8,000.
We can conclude that
a. private investment was $1,940.
b. public investment was $310.
c. private investment was $320.
d. private investment was $1,720.
10. The four
categories of expenditures that make up GDP are consumption, investment,
a. exports, and government purchases.
b. imports, and government purchases.
c. net exports, and government [query: purchases].
d. net exports, and government transfer payments.
11. Which of the
following would be counted as an investment expenditure in the national income
accounts?
a. The Navy builds a new battleship.
b. Microsoft expands plant capacity to produce new software.
c. A public high school builds a new football stadium.
d. All of the above would be counted as an investment
expenditure.
12. Real GDP is
nominal GDP
a. plus depreciation.
b. adjusted for changes in the price level.
c. minus depreciation.
d. minus taxes.
An economy produces only two goods, oranges and VCRs. The
quantities and prices for the years 1998 and 1999 are shown in the table. The
base year is 1998.
13. Nominal GDP in
1998 is
a. $402.
b. $12,000.
c. $200,200
d. $410,000
14. Nominal GDP in
1999 is
a. $18,000.
b. $180,000.
c. $612,000.
d. $1,250,000.
15. Real GDP in 1998
is
a. $6,000.
b. $240,000.
c. $410,000.
d. $612,000.
16. Real GDP in 1999
is
a. $6,000.
b. $410,000.
c. $612,000.
d. $808,000.
17. The GDP deflator
in 1999 is about
a. .76.
b. .67.
c. .51.
d. 1.32.
18. The growth rate
of nominal GDP in 1999 was about
a. 10 percent.
b. 49 percent.
c. 78 percent.
d. 100 percent.
19. The growth rate
of real GDP in 1999 was about
a. 24 percent.
b. 50 percent.
c. 97 percent.
d. 125 percent.
20. The rate of
inflation in 1999 was about
a. –48 percent.
b. –24 percent.
c. 33 percent.
d. 67 percent.
21. Suppose a person
marries his or her gardener and therefore no longer pays him or her for
gardening services. GDP
a. stays the same as long as the services are still
provided.
b. increases since the services are now provided for free.
c. decreases since there is no longer a market exchange.
d. stays the same, since services are not included in GDP.
22. Which of the
following would most likely cause GDP to overstate the actual output produced
in a year?
a. increased production in the underground economy
b. a decline in the quality of goods and services produced
c. increased production for home use (non-market production)
d. a decline in population
23. Suppose that
population grows by 2 percent. For the standard of living to rise, which of the
following must occur?
a. Nominal GDP must grow by more than 2 percent.
b. Real GDP must grow by more than 2 percent.
c. Real GDP per capita must grow by more than 2 percent.
d. consumption spending must grow by more than 2 percent.
24. During
recessions, GDP falls and unemployment increases. Why might the actual output
produced not fall as much as officially measured GDP during a recession?
a. There is an increase in involuntary part-time employment,
the output from which is not accounted for in GDP.
b. Workers who became unemployed during the recession may
produce goods in the underground economy.
c. Unemployment benefits to laid-off workers will allow them
to purchase nearly as much output as before.
d. Laid off workers may start their own businesses, but
profit income from self-employment is not accounted for in GDP.
25. Which of the
following is a problem with the measurement of GDP?
a. Transfer payments are not included.
b. Production in the underground economy is not counted.
c. Non-market production is not counted.
d. Both b and c are correct.
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