Deck 10: GDP and Economic Growth

Question 1

A definition of the gross domestic product (GDP) is:

A) personal consumption expenditures, gross private domestic investment, and net exports.
B) the sum of wage and salary compensation of employees, interest income, and rental income.
C) the market value of all intermediate goods and services produced by the economy in one year.
D) the market value of final goods and services produced by the economy in one year.

Answer 1

the market value of final goods and services produced by the economy in one year.

Question 2

The gross domestic product provides an estimate of society's evaluation of the relative worth of goods and services because it:

A) takes into account the value of security transactions.
B) excludes public and private transfer payments.
C) includes all income created by a nation's citizens, home or abroad.
D) is a monetary measure.

Answer 2

is a monetary measure.

Question 3

An example of an intermediate good or service would be:

A) a calculator purchased by a college student for taking exams.
B) gasoline used by an insurance agent visiting clients.
C) a house bought by a banking executive with five children.
D) a boat bought by a medical doctor for use on vacation.

Answer 3

gasoline used by an insurance agent visiting clients.

Question 4

In 2017, Kara sold her used car to Augi's Used Cars, a local dealership, for $2,000. Augi's then serviced and cleaned the car and sold it to Alex for $3,000. How much would these transactions add to GDP in 2017?

A) $0
B) $1,000.
C) $2,000.
D) $3,000.

Question 5

Which does not contribute directly to the production of the domestic output of an economy?

A) A police officer.
B) An insurance agent.
C) A full-time student.
D) A soldier.

Question 6

An example of a public transfer payment is a(n):

A) airline pass giving price discounts to senior citizens.
B) monthly allowance from home for a college student.
C) gift of land from a wealthy relative.
D) veteran's benefit payment.

Question 7

Net exports is a positive number when:

A) gross private domestic investment is greater than depreciation.
B) depreciation is greater than gross private domestic investment.
C) a nation's exports of goods and services exceed its imports.
D) a nation's imports of goods and services exceed its exports.

Question 8

Exports less imports may be defined as:

A) net imports.
B) net exports.
C) net investment.
D) foreign exchange.

Question 9

Which represents an expenditure that would be counted directly in GDP?

A) The buying of corporate stock by an investor.
B) The buying of a used car by a consumer.
C) The payment of military salaries by the government.
D) The distribution of corporate profits to stockholders.

Question 10

In an economy experiencing a growing stock of capital:

A) depreciation is greater than gross private domestic investment.
B) gross private domestic investment is greater than depreciation.
C) nominal GDP is rising and real GDP is falling.
D) nominal GDP is rising and real GDP is constant.

Question 11

In an economy experiencing a declining stock of capital:

A) gross private domestic investment is greater than depreciation.
B) depreciation is greater than gross private domestic investment.
C) disposable income exceeds personal income.
D) nominal GDP exceeds real GDP.

Question 12

In an economy that experiences no change in its stock of capital:

A) the consumption of private fixed capital exceeds gross investment.
B) no capital goods are being produced.
C) gross investment is zero.
D) net investment is zero.

Question 13

Suppose an economy produces only three products, A, B, and C. Quantity purchased and changes in the prices of these items over a period are shown below:


- Using year 1 as a base, the value of the country's nominal GDP in year 1:

A) cannot be determined with the information given.
B) is $850.
C) is $3,270.
D) is $800.

Question 14

Suppose an economy produces only three products, A, B, and C. Quantity purchased and changes in the prices of these items over a period are shown below:


- Using year 1 as a base, the value of the country's nominal GDP in year 2 is:

A) the same as nominal GDP in year 1.
B) $850, assuming no change in quantity from year 1 to year 2.
C) $3,270 assuming no change in quantity from year 1 to year 2.
D) $800 assuming no change in quantity from year 1 to year 2.

Question 15

Assume an economy is producing only one product. Year 2 is the base year. Output and price data for a five-year period are given.


-Refer to the above data. Nominal GDP for year 3 is:

A) $16.
B) $25.
C) $56.
D) $81.

Question 16

Assume an economy is producing only one product. Year 2 is the base year. Output and price data for a five-year period are given.


- Refer to the above data. If year 2 is the base year, then real GDP for year 5 is:

A) $41.
B) $50.
C) $56.
D) $100.

Question 17

Assume an economy is producing only one product. Year 2 is the base year. Output and price data for a five-year period are given.


-Refer to the above data. If year 2 is the base year, then for the years shown, the growth of:

A) real GDP has exceeded the growth of nominal GDP.
B) nominal GDP exactly reflects increases in real output.
C) nominal GDP overstates increases in real output.
D) nominal GDP understates increases in real output.

Question 18

- Refer to the above diagram. Negative economic growth can be shown by a:

A) shift of EF to AB.
B) movement along AB from point 2 to point 3.
C) shift of AB to CD.
D) shift of CD to AB.

Question 19

- Refer to the above diagram. A shift in the production possibilities curve from AB to CD is most likely due to:

A) the use of the economy's resources in an efficient way.
B) an increase in the spending of business and consumers.
C) an increase in government purchase of the economy's output.
D) an increase in the quantity and quality of labor resources.

Question 20

Assume that an economy has 50 workers, each of whom works 3000 hours per year. If labor productivity is $8, total output for this economy will be:

A) $150,000.
B) $750,000.
C) $1,000,000.
D) $1,200,000.

Question 21

The basic determinants of labor inputs (total hours of work) include:

A) economies of scale and technological advance.
B) education and training, and allocative efficiency.
C) the size of the labor force and average hours of work.
D) the quantity and quality of capital and human resources.

Question 22

If there is an increase in labor productivity:

A) the production possibilities curve would shift outward and the long-run aggregate supply curve would shift rightward.
B) the production possibilities curve would shift inward and the long-run aggregate supply curve would shift leftward.
C) the production possibilities curve would shift outward and the long-run aggregate supply curve would shift leftward.
D) the production possibilities curve would shift inward and the long-run aggregate supply curve would shift rightward.

Question 23

The single most important source of productivity for economic growth for the United States has been:

A) improved resource allocation.
B) education and training.
C) technological advance.
D) economies of scale.

Question 24

An example of U.S. public investment in infrastructure would be:

A) a construction company.
B) an oil and gas pipeline.
C) a manufacturing plant.
D) a wastewater treatment system.

Question 25

Supporters of the World Trade Organization contend that it:

A) imposes safeguards for worker safety in member nations.
B) weakens the environmental laws in member nations.
C) undermines minimum wage laws in member nations.
D) liberalizes trade among member nations.

Question 26

The European Union promotes:

A) free trade among all nations.
B) free trade among member nations, but not necessarily with nonmember nations.
C) higher tariffs worldwide to promote more national stability.
D) higher tariffs among member nations to encourage more trade between Western Europe and the United States and Japan.

Question 27

All of the following are sources of increasing returns and economies of scale except:

A) network effects.
B) spreading of development costs.
C) more specialized inputs.
D) coordination problems in large organizations.

Question 28

Economists believe that the above-normal economic growth in the United States between 1995 and 2010 was caused primarily by:

A) increases in the rate of personal saving.
B) increased entrepreneurial activity, application of information technology, and global competition.
C) rising federal budget surpluses that reduced real interest rates.
D) expansionary monetary policy.

Question 29

Which of the following do economists consider to be the main way to improve living standards for workers?

A) Falling price levels.
B) Growth in the labor force.
C) Productivity growth.
D) Lower saving rates.

Question 30

Which of the following is the most likely explanation of the productivity slowdown that began in 2010?

A) High debt levels discouraged productive investments.
B) High inflation levels disrupted resource allocation.
C) Productive capacity fell dramatically during the Great Recession.
D) The Federal Reserve lowered interest rates too much in response to the Great Recession.

Question 31

Which of the following is a true statement?

A) Economists who support economic growth say that it is the most practical route to the higher standards of living the vast majority of people desire.
B) Most economists believe that the recent productivity acceleration implies an end to the business cycle.
C) Most economists believe that increases in real GDP actually produce decreases in overall economic well-being because of spillover costs.
D) Mainstream economists disagree as to whether the rate or productivity growth was higher between 1995 and 2009 than between 1973 and 1995.

Question 32

The study of why an economy's production capacity increases over time is the subject of growth economics.

Question 33

Supply factors that shift the economy's production possibilities curve outward also cause a rightward shift in its long-run aggregate supply curve.

Question 34

If the rate of growth in labor productivity averages 2 percent a year, it will take about 20 years for the standard of living to double.

Question 35

Both intermediate and final goods are counted as part of GDP.

Question 36

Government purchases exclude spending by the government for resources such as labor.

Question 37

If imports are greater than exports, then the difference between them will be added to other expenditures to calculate GDP.

Question 38

Transfer payments such as Social Security or unemployment compensation are counted in the calculation of GDP.

Question 39

If nominal GDP for an economy is $10,444 billion and the price index is 110, then real GDP is $9495.