Question 1

Explain why GDP does not include the underground economy.

Accepted Answer

GDP does not include economic activity in the underground economy because activity in the underground economy does not pass through an official market and is, therefore, impossible to value.

Question 2

A country has a 2008 growth rate of 4.2% and a 2007 GDP of $8,222 (in billions). What was the GDP in 2008?

Accepted Answer

A)  $7,876 
B)  $8,355 
C)  $8,567 
D)  $8,635 
A)  $7,876 
B)  $8,355 
C)  $8,567 
D)  $8,635 C

Question 3

If pressed to choose a single indicator of current economic performance, most economists would probably choose nominal GDP growth.

Accepted Answer

A) True 
 B)False  False

Question 4

Akemi, who is a Japanese citizen, works in the United States as a computer programmer. The value of her output is included in:

Accepted Answer

A)  both U.S. and Japan's GDP. 
B)  both U.S. and Japan's GNP. 
C)  U.S. GDP and Japan's GNP. 
D)  U.S. GNP and Japan's GDP. 
A)  both U.S. and Japan's GDP. 
B)  both U.S. and Japan's GNP. 
C)  U.S. GDP and Japan's GNP. 
D)  U.S. GNP and Japan's GDP.

Question 5

Calculate GDP for an economy that has consumer purchases of $6,000, investment purchases of $1,000, government purchases of $2,500, total exports of $1,000, and total imports of $500.

Accepted Answer

GDP = C + I + G + (e

Question 6

In calculating GDP with the national spending approach, the total value of exports is subtracted from the sum of all other spending components.

Accepted Answer

A) True 
 B)False

Question 7

Business cycles are short-term movements in:

Accepted Answer

A)  real GDP around its long-term trend. 
B)  nominal GDP around its long-term trend. 
C)  the unemployment rate above and below zero. 
D)  inflation around its long-term trend. 
A)  real GDP around its long-term trend. 
B)  nominal GDP around its long-term trend. 
C)  the unemployment rate above and below zero. 
D)  inflation around its long-term trend.

Question 8

Programmers produce a large amount of software on an unpaid, open-source basis. As a result:

Accepted Answer

A)  GDP double-counts some software production. 
B)  GDP undercounts some software production. 
C)  no software should be counted in GDP. 
D)  GDP is a good measure of software productivity. 
A)  GDP double-counts some software production. 
B)  GDP undercounts some software production. 
C)  no software should be counted in GDP. 
D)  GDP is a good measure of software productivity.

Question 9

In the national spending approach, government purchases include:

Accepted Answer

A)  spending by the federal government only, including transfer payments. 
B)  spending by the federal government only, not including transfer payments. 
C)  spending by all levels of government, including transfer payments. 
D)  spending by all levels of government, not including transfer payments. 
A)  spending by the federal government only, including transfer payments. 
B)  spending by the federal government only, not including transfer payments. 
C)  spending by all levels of government, including transfer payments. 
D)  spending by all levels of government, not including transfer payments.

Question 10

In the factor income approach, income to owners of capital is called rent.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following would be included in U.S. GNP?

Accepted Answer

A)  The purchase of stocks and bonds by a retiree living in Florida. 
B)  Wages earned by a Canadian teaching at an American university. 
C)  Cars produced in a Honda (a Japanese Company) plant in Marysville, Ohio. 
D)  Cars produced in a Ford plant located in Canada. 
A)  The purchase of stocks and bonds by a retiree living in Florida. 
B)  Wages earned by a Canadian teaching at an American university. 
C)  Cars produced in a Honda (a Japanese Company) plant in Marysville, Ohio. 
D)  Cars produced in a Ford plant located in Canada.

Question 12

Which of the following is the best measure of a country's standard of living?

Accepted Answer

A)  nominal GDP 
B)  real GDP 
C)  nominal GDP per capita 
D)  real GDP per capita 
A)  nominal GDP 
B)  real GDP 
C)  nominal GDP per capita 
D)  real GDP per capita

Question 13

Private spending on tools, plant, and equipment that are used to produce future output is called:

Accepted Answer

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

Question 14

In general, during any given year:

Accepted Answer

A)  GDP in the United States will exceed wealth in the United States. 
B)  wealth in the United States will exceed GDP in the United States. 
C)  U.S. wealth and U.S. GDP will be approximately equal. 
D)  U.S. wealth and U.S. GDP will be unrelated. 
A)  GDP in the United States will exceed wealth in the United States. 
B)  wealth in the United States will exceed GDP in the United States. 
C)  U.S. wealth and U.S. GDP will be approximately equal. 
D)  U.S. wealth and U.S. GDP will be unrelated.

Question 15

Economic growth has been the normal state of affairs throughout most of human history.

Accepted Answer

A) True 
 B)False

Question 16

The value of a country's GDP exceeds that of the country's GNP if the value of the:

Accepted Answer

A)  country's exports exceeds the value of its imports. 
B)  country's imports exceed the value of its exports. 
C)  output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries. 
D)  output produced by the country's permanent residents produced in other countries exceeds the value of output produced by foreign workers in the country. 
A)  country's exports exceeds the value of its imports. 
B)  country's imports exceed the value of its exports. 
C)  output produced by foreign workers in the country exceeds the value of output produced by the country's permanent residents in other countries. 
D)  output produced by the country's permanent residents produced in other countries exceeds the value of output produced by foreign workers in the country.

Question 17

Economists call spending by all levels of government on final goods and services:

Accepted Answer

A)  net exports. 
B)  government purchases. 
C)  investment. 
D)  consumption. 
A)  net exports. 
B)  government purchases. 
C)  investment. 
D)  consumption.

Question 18

Which of the following are underground goods or services that would NOT be counted in GDP?

Accepted Answer

A)  prostitution activities in Atlanta 
B)  legal sales of medical marijuana in California 
C)  strip clubs on Bourbon Street in New Orleans 
D)  massages given in a resort spa 
A)  prostitution activities in Atlanta 
B)  legal sales of medical marijuana in California 
C)  strip clubs on Bourbon Street in New Orleans 
D)  massages given in a resort spa

Question 19

In 2010, real GDP was $13.2 trillion and nominal GDP was $14.6 trillion. What was the GDP deflator for that year?

Accepted Answer

A)  90.4 
B)  110.6 
C)  192.7 
D)  140 
A)  90.4 
B)  110.6 
C)  192.7 
D)  140

Question 20

The value of a car produced by Kia (a South Korean company) in a factory located in Tennessee would be included in U.S. GNP.

Accepted Answer

A) True 
 B)False

Exam 6: GDP and the Measurement of Progress

Explain why GDP does not include the underground economy.

A country has a 2008 growth rate of 4.2% and a 2007 GDP of $8,222 (in billions). What was the GDP in 2008?

If pressed to choose a single indicator of current economic performance, most economists would probably choose nominal GDP growth.

Akemi, who is a Japanese citizen, works in the United States as a computer programmer. The value of her output is included in:

Calculate GDP for an economy that has consumer purchases of $6,000, investment purchases of $1,000, government purchases of $2,500, total exports of $1,000, and total imports of $500.

In calculating GDP with the national spending approach, the total value of exports is subtracted from the sum of all other spending components.

Business cycles are short-term movements in:

Programmers produce a large amount of software on an unpaid, open-source basis. As a result:

In the national spending approach, government purchases include:

In the factor income approach, income to owners of capital is called rent.

Which of the following would be included in U.S. GNP?

Which of the following is the best measure of a country's standard of living?

Private spending on tools, plant, and equipment that are used to produce future output is called:

In general, during any given year:

Economic growth has been the normal state of affairs throughout most of human history.

The value of a country's GDP exceeds that of the country's GNP if the value of the:

Economists call spending by all levels of government on final goods and services:

Which of the following are underground goods or services that would NOT be counted in GDP?

In 2010, real GDP was $13.2 trillion and nominal GDP was $14.6 trillion. What was the GDP deflator for that year?

The value of a car produced by Kia (a South Korean company) in a factory located in Tennessee would be included in U.S. GNP.

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Equilibrium: How Supply and Demand Determine Prices

Price Ceilings and Floors

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

Saving, Investment, and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

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