Deck 2: Measuring Economic Performance

Question 1

The capital account includes as a credit

A) a domestic government bond purchased by a foreigner.
B) the value of any good or service purchased from a foreigner.
C) the total of all investment earnings accruing from U.S. holdings abroad.
D) official transfers of reserves between central banks.
E) none of the above.

Answer 1

a domestic government bond purchased by a foreigner.

Question 2

The gross domestic product of an economy is

A) the total value of the spending on final goods and services produced domestically by households, businesses, government, and foreigners.
B) the total value of production across all sectors of the economy.
C) the total wage and profit income earned by the different groups of people that produce output within the economy.
D) all of the above.
E) none of the above.

Answer 2

all of the above.

Question 3

Which of the following is not a flow measure?

A) Consumption
B) Gross investment
C) Net investment
D) Exports
E) None of the above

Answer 3

None of the above

Question 4

Which of the following does not account for some of the differences between national income and gross domestic product?

A) Foreign-earned income by U.S. residents
B) Income taxes
C) U.S.-earned income by foreign residents
D) Depreciation
E) Business transfers and subsidies

Question 5

The equivalence of measuring GDP by spending, production, and income is guaranteed by

A) mathematical proof based on the character of a capitalist society.
B) mathematical identity based on accounting procedures.
C) deductive reasoning but only under the conditions of some fairly severe restrictive assumptions.
D) the accurate computation of the present value of current investment.
E) none of the above.

Question 6

Starting with national income, which of the following procedures is included in the process that produces a value for disposable personal income?

A) subtracting excise and sales taxes
B) subtracting nonbusiness interest
C) subtracting transfer payments from government
D) subtracting income taxes
E) adding contributions for social insurance that will eventually be repaid

Question 7

Labor's share of GDP in the United States in 2001 was

A) approximately three-quarters, but that was unusually low.
B) approximately three-quarters, and that was fairly typical.
C) approximately 60 percent, but that was unusually low.
D) approximately 60 percent, but that was unusually high.
E) only about 40 percent, and that is evidence of capitalist exploitation of labor.

Question 8

In the United States, consumption expenditure, as a fraction of GDP, usually runs about

A) 50 percent.
B) 55 percent.
C) 66 percent.
D) 70 percent.
E) 75 percent.

Question 9

Which of the following is not included in the computation of the consumption component of gross domestic product?

A) Durable goods like cars and stereos
B) Household spending
C) Nondurable goods like milk and gasoline
D) Services like medical care and education
E) none of the above; all are included in the computation of consumption

Question 10

Inventories are included in the computation of gross domestic product as part of

A) nonresidential fixed investment.
B) residential fixed investment.
C) depreciation allowances.
D) the total capital stock.
E) none of the above.

Question 11

Which of the following is not added to consumption to compute gross domestic product?

A) Fixed investment
B) Inventory investment
C) Government purchases
D) Total exports
E) Total imports

Question 12

When private and government saving in an economy exceed investment, then the government must

A) print money.
B) accumulate financial assets through lending.
C) accumulate financial assets through borrowing.
D) lower taxes.
E) none of the above.

Question 13

A current account deficit

A) is never possible because the balance of payments must always balance.
B) can seldom be larger than 50 percent of a capital account surplus.
C) can help finance a government deficit indefinitely.
D) can help finance a government deficit if foreign lenders accumulate government bonds.
E) does not include investment earnings that are part of the capital account.

Question 14

Ranked in their relative importance in the consumption component of GDP in the United States, one finds

A) durables, nondurables, and services.
B) services, durables, and nondurables.
C) nondurables, services, and durables.
D) nondurables, durables, and services.
E) services, nondurables, and durables.

Question 15

Final sales in the United States in 2002

A) exceeded GDP because fixed investment was negative.
B) fell short of GDP because depreciation was so high.
C) fell short of GDP because fixed investment was large.
D) fell short of GDP because inventories increased over the course of the year.
E) exceeded GDP because inventory investment was negative.

Question 16

Government saving is

A) the negative of the government deficit.
B) always equal to private investment.
C) the reciprocal of foreign saving.
D) the difference between tax revenue generated by the federal income tax and government spending.
E) the difference between GDP and the sum of consumption and inventory investment.

Question 17

Which of the following phrases accurately defines depreciation in any one year?

A) Capital stock at the end of the year minus capital stock at the beginning of the year
B) Capital stock at the beginning of the year minus gross investment for the year
C) Gross investment minus net investment
D) Capital stock at the beginning of the year minus capital stock at the end of the year plus gross investment
E) None of the above

Question 18

The gross domestic product of the United States in 2001 was

A) $9,921.7 billion.
B) $10,266.5 billion.
C) $10,445.6 billion.
D) $9,846.8 billion.
E) more than $11 trillion.

Question 19

Which of the following rules does not help economists avoid double counting in their computation of gross domestic product?

A) Include only goods and services produced in the time period under study.
B) Do not include intermediate goods in the computation of total production.
C) Attribute to each industry only the difference between the value of its product and the value of its inputs.
D) Exclude the value of any good or service exported to another country from which we purchase goods and services.
E) Do not include transfer payments in the computation of total income.

Question 20

The value of final sales tends to be less volatile than GDP because

A) it excludes residential investment.
B) it excludes inventory investment.
C) it excludes nonresidential investment.
D) it includes allowances for credit purchases of large consumer durables.
E) all of the above.

Question 21

When real GDP growth exceeds nominal GDP growth,

A) inflation is increasing.
B) inflation is decreasing.
C) unemployment is decreasing.
D) the price level is decreasing.
E) none of the above.

Question 22

Which of the following would not be included as part of investment?

A) A new house just constructed for a family moving from their old house down the street and around the corner
B) A quantity of money used to purchase some IBM stock from a broker in anticipation that IBM will expand its capacity for producing personal computers
C) The purchase by United Technologies Corporation of a set of IBM computers for its executives
D) The construction of a new plant by IBM in Kingston, New York
E) None of the above

Question 23

The sector with the largest real value added in the United States in the late 1990s was

A) government.
B) manufacturing.
C) services.
D) wholesale and retail trade.
E) finance, insurance, and real estate.

Question 24

When economists speak of investment, they are speaking of

A) the part of GDP used by households for current use.
B) the part of GDP, past and present, that has been set aside to add to productive capacity.
C) the part of GDP captured in the computation of the dollar value of goods but not services.
D) the part of GDP that the government devotes to the construction of roads, airports, and the like.
E) the part of current GDP used by business to add to productive capacity and by households to add to their stock of new houses.

Question 25

In equilibrium, where Y = GDP, C = consumption, G = government spending, E = exports, and M = imports, Y - C - G - E - M) must equal

A) private saving.
B) public saving.
C) the sum of private and public saving.
D) the sum of private and foreign saving.
E) the sum of public, private, and foreign saving.

Question 26

In an economy where GDP equals 100, consumption equals 67, investment equals 14, and government purchases equal 21,

A) exports must exceed imports by 2.
B) taxes must exceed government purchases by 2.
C) imports must exceed exports by 2.
D) net exports must equal 2.
E) none of the above.

Question 27

If nominal GDP rose in one year from $2,000 billion to $2,400 billion at the same time that a price index rose from 200 to 220, then real GDP would

A) have risen by approximately 20 percent.
B) have fallen by approximately 10 percent.
C) have risen by approximately 10 percent.
D) have fallen by approximately 20 percent.
E) not be determinable from the information provided.

Question 28

The main reason government outlays exceed government purchases is

A) federal income taxes.
B) federal budget deficits.
C) transfer payments.
D) defense spending.
E) all of the above.

Question 29

Let imports exceed exports by $100 billion. Compared with a situation of balanced trade at the same level of GDP, domestic income is

A) lower than it would have been otherwise by the full $100 billion.
B) higher than it would have been otherwise by the full $100 billion.
C) lower than it would have been otherwise by an amount reflecting debt service on the foreign borrowing required to finance the $100 billion trade deficit.
D) higher than it would have been otherwise by an amount reflecting the interest earnings accruing to domestic importers in exchange for opening new markets.
E) the same as it would have been otherwise.

Question 30

Which of the following describes events of the early 1980s in the United States?

A) Real GDP fell from 1981 to 1982 but rose again in 1983 and 1984 to exceed the 1981 level.
B) Inventory investment declined in 1982; this caused real GDP to fall more than final sales.
C) Consumption of durables fell sharply in 1982, but services increased at an even faster rate.
D) All types of investment fell sharply in the 1982 recession.
E) All of the statements accurately describe events of the early 1980s.

Question 31

If domestic GDP is to remain constant, any $1 increase in imports must be accompanied by

A) a $1 increase in exports.
B) a $1 increase in government spending.
C) a $1 increase in investment.
D) any of the above.
E) none of the above.

Question 32

If you knew the level of the government budget deficit, the international trade deficit, and the level of domestic investment, what other piece of information would be required for you to be able to compute private saving?

A) The level of private consumption
B) The total amount of taxes paid
C) The level of government spending
D) The level of public investment
E) None of the above, because you would already have enough information

Question 33

To maintain equilibrium, any $1,000 increase in investment could be accompanied by

A) an equal increase in private saving.
B) an equal reduction in public saving.
C) an equal increase in government spending.
D) an equal increase in exports.
E) an equal reduction in imports.

Question 34

The effects of the new chain-weighted GDP figures include all of the following except

A) reduce the growth in total real investment.
B) increase the growth in total real investment.
C) correct the weights assigned to GDP components whose prices have risen.
D) show that the economy grew more during the 1980s than previously thought.
E) show that the economy grew less during the 1990s than previously thought.

Question 35

Real government spending in 2002 amounted to 19.08 percent of real GDP expressed in 2000 dollars. Nominal government spending as a fraction of nominal GDP for 2002 must therefore have been

A) Exactly 19.08 percent.
B) Something less than 19.08 percent.
C) Something greater than 19.08 percent.
D) Not possible to determine from the information provided.
E) None of the above.

Question 36

Suppose contributions for social insurance amounted to almost $306 billion, corporate retained earnings equaled $207 billion, nonbusiness interest swelled to $150 billion, transfer payments reached almost $417 billion, and income taxes raised just over $435 billion. Given this information, which of the following statements is an accurate ranking of national income NI), personal income PI), and disposable personal income DI)?

A) NI > PI > DI.
B) PI > NI > DI.
C) PI > DI > NI
D) NI > DI > PI.
E) Cannot tell from the information provided.

Question 37

Capital inflow from abroad into the United States since the late 1980s

A) covered almost all of the annual deficits of all levels of government.
B) covered almost all of the total accumulated debt of the government and thereby made us a creditor nation once again.
C) diminished as the current account swelled, so that most of the government deficit must be covered by private saving.
D) influenced interest rates in a way that has curbed domestic, private saving.
E) none of the above.

Question 38

Let the current account deficit increase by $200 billion. Which of the following adjustments would maintain a suitable macroeconomic equilibrium?

A) Private saving increasing by $100 billion and the federal deficit increasing by $100 billion
B) Private saving increasing by $100 billion and the federal deficit falling by $100 billion
C) Private saving falling by $100 billion and the federal deficit increasing by $100 billion
D) Private saving falling by $100 billion and the federal deficit falling by $100 billion
E) The federal deficit increasing by $200 billion with no change in private saving

Question 39

The large federal deficits of the 1980s and early 2000s were financed, in large measure, by

A) large increases in private saving.
B) large increases in the trade deficit.
C) large reductions in foreign saving.
D) large increases in investment that spurred growth.
E) large increases in private, domestic consumption financed by credit cards.

Question 40

Suppose a company made $40,000 in toys from $1,000 in steel, $5,000 in energy and other material, and $10,000 in plastic. Let its wage bill be
$10,000, its rent $5,000, and its profit $9,000. Its value added would be

A) zero.
B) $9,000.
C) $14,000.
D) $24,000.
E) $16,000.

Question 41

A ratio of the price of a representative basket of goods and services in some year relative to an arbitrary base year is

A) the rate of unemployment.
B) the rate of inflation.
C) a price index.
D) an index of real wages.
E) a measure of the rate of growth of labor productivity.

Question 42

Which of the following people would be counted as employed by the Current Population Survey?

A) A housewife who works 14 hours a day taking care of her young family
B) A housewife who fits 5 hours of volunteer work at the library into her schedule
C) A housewife who works 5 hours every Monday at the local convenience store for the minimum wage
D) A student in college who pays for part of her tuition by working for a faculty member for financial aid "tuition credit"
E) None of the above

Question 43

The consumer price index is frequently used

A) to form the basis for cost-of-living increases in social security payments.
B) to form the basis of measurements of labor productivity.
C) to form the basis for cost-of-living clauses in labor contracts.
D) to form the basis of measures of international trade imbalances.
E) a and c.

Question 44

If import prices were to decline during a period in which domestic prices were increasing, then we would expect that

A) the GDP deflator is probably higher than the consumption and investment deflators.
B) the GDP deflator is almost certainly negative.
C) the government deflator is probably lower than the GDP deflator.
D) the index of export prices climbed markedly.
E) none of the above.

Question 45

To be counted as employed in the Current Population Survey, an adult must have worked

A) at least 15 minutes during the survey week.
B) at least 60 minutes during the survey week.
C) at least 5 hours during the survey week.
D) at least 40 hours during the survey month.
E) at least 30 hours during one of the previous four weeks.

Question 46

Suppose that the computation of a price index were to give energy consumption a 20 percent weight over the decade from 1973 through 1982. Suppose further that conservation during that time actually reduced the share of expenditure on energy while the relative price of energy rose. It could be concluded, in this case, that

A) changes in the index would be an accurate measure of the rate of inflation affecting household budgets.
B) changes in the index would overestimate the rate of inflation affecting household budgets.
C) changes in the index would underestimate the rate of inflation affecting household budgets.
D) the index would not change at all.
E) none of the above can be determined from the information provided.

Question 47

The labor force is composed of all people 16 years or older who are

A) either employed in the sense of the Current Population Survey or unemployed and looking for a job.
B) either fully employed for at least 35 hours a week or unemployed with work experience sometime in the past 52 weeks.
C) either employed in the sense of the Current Population Survey or unemployed with a record of being counted as employed in the survey sense sometime in the previous six months.
D) either fully employed, employed part time for more than 10 hours a week, or unemployed and looking for a job.
E) none of the above.

Question 48

Which of the following would be counted as unemployed?

A) A laid-off steel worker who has given up looking for a job
B) A housewife on vacation with her family
C) A housewife who does volunteer work at the local library
D) A housewife who works five hours a week for minimum wage at the local library
E) A retired schoolteacher who is seeking a part-time job at the local library

Question 49

All else equal, an increase in inventories will

A) decrease GDP because the goods are not sold.
B) not affect GDP since income is not affected.
C) increase GDP by increasing investment.
D) not affect GDP because the goods are not sold.
E) b and d.

Question 50

The weights used in computing the consumer price index are

A) based on the expenditure of a selected, typical family on all goods and services in any given month.
B) based on the results of a survey of expenditure patterns of many businesses in the base year.
C) based on the responses of a surveyed group of families to changes in the prices of goods and services on a month-to-month basis.
D) based on the results of surveys of expenditure patterns of many families taken every 10 years or so.
E) none of the above.

Question 51

The producer price index

A) is frequently cited as a source of information for future consumer price inflation.
B) is a measure of prices charged by producers at various stages of production.
C) is an excellent source of information about prices of crude raw materials and intermediate goods that are not explicitly included in the CPI.
D) is diminished in importance somewhat by the ambiguity of weights to be used in making the required definitional computation.
E) all of the above.

Question 52

If the consumer price index were 301 in 1983 and 311 in 1984 based on an index of 100 for 1967, then it could be concluded that

A) inflation and prices were both high relative to 1967 inflation of about 4 percent and 1967 prices, respectively.
B) inflation was high, relative to a comfortable rate of 4 percent, but prices were not especially high when the 15-year span from 1967 to 1983 is considered.
C) inflation was low, relative to a comfortable rate of 4 percent, but prices were actually 311 percent higher than just 16 years before.
D) inflation was low, relative to a comfortable rate of 4 percent, but prices were actually 211 percent higher than they were in 1967.
E) none of the above.

Question 53

The number of hours worked by American labor has

A) an upward trend over time, but has fluctuated with the business cycle.
B) no apparent trend over time because of the ravages of the business cycle.
C) trended upward over the last two decades despite a marked decline from 1975 through 1979.
D) declined over the past 15 years because of the four recessions suffered by the American economy.
E) none of the above.

Question 54

Simon Kuznets won the Nobel Prize in part for his contribution to

A) the national income and product accounts system.
B) the theory of business fixed investment.
C) the theory of residential fixed investment.
D) the government budget identity.
E) b and c.

Question 55

If investment, net exports, and government saving sum to 100, then the level of private saving

A) must equal 100.
B) must equal -100.
C) equals -100 only if government saving equals zero.
D) cannot be determined without further information.
E) none of the above.