Question 1

Which of the following would not be included in GDP as government purchases?

Accepted Answer

A)  The local township repairs the roads. 
B)  The state government funds a state university. 
C)  The federal government sends out Social Security checks. 
D)  The federal government pays a lawyer as a public defender. 
E)  The state government buys computer time. 
A)  The local township repairs the roads. 
B)  The state government funds a state university. 
C)  The federal government sends out Social Security checks. 
D)  The federal government pays a lawyer as a public defender. 
E)  The state government buys computer time.

Question 2

The CPI __________ inflation because it includes an item in the market basket only after the product becomes __________.

Accepted Answer

A)  overstates,unpopular 
B)  overstates,obsolete 
C)  overstates,widely used 
D)  understates,widely used 
E)  understates,obsolete 
A)  overstates,unpopular 
B)  overstates,obsolete 
C)  overstates,widely used 
D)  understates,widely used 
E)  understates,obsolete

Question 3

Transfer payments are an injection into the circular flow.

Accepted Answer

A) True 
 B)False

Question 4

If a firm hires labor for $20,000,pays rent of $12,000,buys raw materials for $6,000,earns profits of $3,000,and sells its output for $41,000,the firm's value added is

Accepted Answer

A)  $0 
B)  $15,000 
C)  $35,000 
D)  $38,000 
E)  $41,000 
A)  $0 
B)  $15,000 
C)  $35,000 
D)  $38,000 
E)  $41,000

Question 5

A farmer grows wheat and sells it to a bakery for $5.The bakery bakes the wheat into bread,which it sells to a distributor for $20.The distributor sells the bread to a supermarket for $30,which sells the bread to customers for $50.Which of the following is true?

Accepted Answer

A)  The value added by the distributor is $30. 
B)  The supermarket contributed more,in value added,than the bakery. 
C)  As a result of this activity,GDP rises by $50 minus the value added at each stage of production. 
D)  Counting the value added at each stage instead of the final selling price creates a serious problem of double counting. 
E)  The value added by the farmer is $20 because the wheat,which is worth $5,is necessary for each of the three remaining stages of production. 
A)  The value added by the distributor is $30. 
B)  The supermarket contributed more,in value added,than the bakery. 
C)  As a result of this activity,GDP rises by $50 minus the value added at each stage of production. 
D)  Counting the value added at each stage instead of the final selling price creates a serious problem of double counting. 
E)  The value added by the farmer is $20 because the wheat,which is worth $5,is necessary for each of the three remaining stages of production.

Question 6

Other things equal,increased imports decrease GDP.

Accepted Answer

A) True 
 B)False

Question 7

Real GDP is the same thing as

Accepted Answer

A)  total spending on all goods and services 
B)  constant-dollar GDP 
C)  net domestic product 
D)  nominal GDP adjusted for taxes 
E)  domestic income 
A)  total spending on all goods and services 
B)  constant-dollar GDP 
C)  net domestic product 
D)  nominal GDP adjusted for taxes 
E)  domestic income

Question 8

The consumer price index measures changes in

Accepted Answer

A)  the prices of all goods and services 
B)  the prices of goods that are sold 
C)  the total cost of a specific market basket of consumer goods and services 
D)  the total costs of all goods and services 
E)  the total costs of goods and services purchased by firms 
A)  the prices of all goods and services 
B)  the prices of goods that are sold 
C)  the total cost of a specific market basket of consumer goods and services 
D)  the total costs of all goods and services 
E)  the total costs of goods and services purchased by firms

Question 9

Depreciation is subtracted from GDP to get NDP.Depreciation

Accepted Answer

A)  represents the value of leisure goods 
B)  measures changes in exchange rates 
C)  represents income that we earn but do not receive 
D)  represents investment undertaken merely to replace worn-out capital 
E)  measures the effects of government subsidy programs 
A)  represents the value of leisure goods 
B)  measures changes in exchange rates 
C)  represents income that we earn but do not receive 
D)  represents investment undertaken merely to replace worn-out capital 
E)  measures the effects of government subsidy programs

Question 10

In GDP measurement,Investment spending includes

Accepted Answer

A)  spending by individual households on automobiles and durable goods 
B)  spending by businesses on labor resources 
C)  changes in business inventories 
D)  spending by government on salaries 
E)  spending by households on stocks and bonds 
A)  spending by individual households on automobiles and durable goods 
B)  spending by businesses on labor resources 
C)  changes in business inventories 
D)  spending by government on salaries 
E)  spending by households on stocks and bonds

Question 11

Which of the following would not increase U.S.GDP?

Accepted Answer

A)  increased demand in Costa Rica for California-made personal computers 
B)  increased demand in Alabama for California-made personal computers 
C)  increased production of computers in California,but no increase in the number sold 
D)  increased shipments of computers from the U.S.to Canada 
E)  increased shipments of Ghanian cocoa to the United States on Greek vessels 
A)  increased demand in Costa Rica for California-made personal computers 
B)  increased demand in Alabama for California-made personal computers 
C)  increased production of computers in California,but no increase in the number sold 
D)  increased shipments of computers from the U.S.to Canada 
E)  increased shipments of Ghanian cocoa to the United States on Greek vessels

Question 12

Which of the following is not included in GDP?

Accepted Answer

A)  the value of the restoration of an old painting 
B)  interest payments on the national debt 
C)  the cost of a new vending machine 
D)  government expenditure on a new bridge 
E)  a purchase of legal services by a household 
A)  the value of the restoration of an old painting 
B)  interest payments on the national debt 
C)  the cost of a new vending machine 
D)  government expenditure on a new bridge 
E)  a purchase of legal services by a household

Question 13

A fixed-weight price index recognizes the fact that the composition of output changes over time.

Accepted Answer

A) True 
 B)False

Question 14

Double counting in the value added approach to GDP statistics is avoided by

Accepted Answer

A)  correct accounting of the values of exports and imports 
B)  choosing only one method to calculate GDP--either the income or the expenditures method 
C)  counting only the value added at each stage of a good's production process 
D)  counting the value of final and intermediate goods and services 
E)  subtracting the total value of intermediate goods and services from the total value of final goods and services 
A)  correct accounting of the values of exports and imports 
B)  choosing only one method to calculate GDP--either the income or the expenditures method 
C)  counting only the value added at each stage of a good's production process 
D)  counting the value of final and intermediate goods and services 
E)  subtracting the total value of intermediate goods and services from the total value of final goods and services

Question 15

If the CPI overstated inflation by 1 percent per year,then the average real wage,instead of dropping by 2 percent in the last two decades,actually increased by about

Accepted Answer

A)  1 percent 
B)  2 percent 
C)  10 percent 
D)  20 percent 
E)  3 percent 
A)  1 percent 
B)  2 percent 
C)  10 percent 
D)  20 percent 
E)  3 percent

Question 16

Nominal GDP is a better measure of the growth in production than real GDP is.

Accepted Answer

A) True 
 B)False

Question 17

In double-entry GDP accounting,

Accepted Answer

A)  the value of output produced must equal the value of resource payments generated in producing that output 
B)  government is not counted because most of government spending is for transfer payments 
C)  payments to resources must equal the value of goods sold to households 
D)  inventories are counted twice,once as investment and once as output 
E)  intermediate goods are counted twice,once as a type of output themselves and once as part of final output 
A)  the value of output produced must equal the value of resource payments generated in producing that output 
B)  government is not counted because most of government spending is for transfer payments 
C)  payments to resources must equal the value of goods sold to households 
D)  inventories are counted twice,once as investment and once as output 
E)  intermediate goods are counted twice,once as a type of output themselves and once as part of final output

Question 18

If we knew that nominal GDP was currently $5.4 trillion,and that GDP in dollars of 1997 purchasing power was $3.6 trillion,what would we know about the GDP price index?

Accepted Answer

A)  It would be 0.667. 
B)  It would be 150. 
C)  We would know nothing until we had current information on the price level. 
D)  We would know only that a dollar buys more currently than it bought in 1997. 
E)  It indicates that substantial deflation has occurred since 1997. 
A)  It would be 0.667. 
B)  It would be 150. 
C)  We would know nothing until we had current information on the price level. 
D)  We would know only that a dollar buys more currently than it bought in 1997. 
E)  It indicates that substantial deflation has occurred since 1997.

Question 19

Suppose that the economy is in equilibrium with a trade deficit and that saving is greater than investment.According to the circular flow model,the government's budget

Accepted Answer

A)  must be in deficit 
B)  must be in surplus 
C)  must be balanced 
D)  could be in a surplus or a deficit 
E)  could be in balance or a deficit 
A)  must be in deficit 
B)  must be in surplus 
C)  must be balanced 
D)  could be in a surplus or a deficit 
E)  could be in balance or a deficit

Question 20

Disposable income equals personal income minus indirect business taxes.

Accepted Answer

A) True 
 B)False

Exam 7: Tracking the US Economy

Which of the following would not be included in GDP as government purchases?

The CPI __________ inflation because it includes an item in the market basket only after the product becomes __________.

Transfer payments are an injection into the circular flow.

If a firm hires labor for $20,000,pays rent of $12,000,buys raw materials for $6,000,earns profits of $3,000,and sells its output for $41,000,the firm's value added is

A farmer grows wheat and sells it to a bakery for $5.The bakery bakes the wheat into bread,which it sells to a distributor for $20.The distributor sells the bread to a supermarket for $30,which sells the bread to customers for $50.Which of the following is true?

Other things equal,increased imports decrease GDP.

Real GDP is the same thing as

The consumer price index measures changes in

Depreciation is subtracted from GDP to get NDP.Depreciation

In GDP measurement,Investment spending includes

Which of the following would not increase U.S.GDP?

Which of the following is not included in GDP?

A fixed-weight price index recognizes the fact that the composition of output changes over time.

Double counting in the value added approach to GDP statistics is avoided by

If the CPI overstated inflation by 1 percent per year,then the average real wage,instead of dropping by 2 percent in the last two decades,actually increased by about

Nominal GDP is a better measure of the growth in production than real GDP is.

In double-entry GDP accounting,

If we knew that nominal GDP was currently $5.4 trillion,and that GDP in dollars of 1997 purchasing power was $3.6 trillion,what would we know about the GDP price index?

Suppose that the economy is in equilibrium with a trade deficit and that saving is greater than investment.According to the circular flow model,the government's budget

Disposable income equals personal income minus indirect business taxes.

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Productivity and Growth

Unemployment and Inflation

Aggregate Expenditure

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Banking and the Money Supply

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

International Finance

Developing and Transitional Economies

Understanding Graphs

National Income Accounts

Variable Net Exports

Variable Net Exports Revisited

The Algebra of Income and Expenditure

The Algebra of Demand-Side Equilibrium

Filters

The CPI inflation because it includes an item in the market basket only after the product becomes .