Deck 7: B : Taking the Nations Economic Pulse

Question 1

Jim, a U.S. citizen, gets a summer job working in Germany. His summer earnings

A) would count as part of U.S. GDP and German GNP.
B) would count as part of U.S. GNP and German GDP.
C) would count as part of U.S. GDP but would have no effect on Germany's GNP or GDP.
D) would be double-counted, raising both U.S. GDP and German GDP.

Answer 1

B

Question 2

Assume that between 2000 and 2010 the money GDP of an economy increased from $3 trillion to $8 trillion and that the appropriate index of prices increased from 100 to 200. Which of the following expresses GDP for 2000 in terms of 2010 prices?

A) $1 trillion
B) $3 trillion
C) $4 trillion
D) $6 trillion

Answer 2

D

Question 3

You buy one hundred shares of IBM stock at $100 per share and pay $250 commission. How much will this transaction add to GDP?

A) zero
B) $250
C) $10,000
D) $10,250

Answer 3

B

Question 4

Which of the following would increase U.S. GDP?

A) The city government of New York buys file cabinets directly from a Mexican company.
B) A Mexican citizen buys stock in a U.S. company.
C) A Japanese automobile company produces cars within the U.S.
D) A U.S. automobile company produces cars in a foreign country.

Question 5

The consumer price index (CPI) and the GDP deflator are designed to measure the degree to which

A) there have been changes in the proportions of national income generated by (and thus earned by) the rich relative to the poor.
B) the cost of purchasing a bundle of goods has changed over time.
C) consumption patterns have changed with time.
D) consumer prices have risen over and above increases in worker wages.

Question 6

Suppose that Mike earned $15,000 in 2008 and $15,600 in 2009. If the consumer price index was 100 in 2008 and 103 in 2009, by approximately what percent did Mike's real salary increase?

A) 1 percent
B) 3 percent
C) 4 percent
D) 5 percent

Question 7

If you wanted to take 2000 nominal GDP and convert it to 1995 prices, you would take 2000 nominal GDP and

A) multiply it by (GDP deflator1995 4 GDP deflator2000).
B) multiply it by (GDP deflator2000 4 GDP deflator1995).
C) divide it by GDP deflator2000.
D) divide it by (GDP deflator2000 + GDP deflator1995).

Question 8

Your grandfather tells you he earned $0.65 per hour at his job when he was a boy in 1929. Given that the CPI was 17.1 in 1929 and 215.3 in 2008, how much would you have had to make in 2008 to have the same real hourly wage as your grandfather?

A) $0.65
B) $5.14
C) $8.18
D) $11.12

Question 9

Use the table below to answer the following question(s).
Table 7-14

Refer to Table 7-14. What is this country's gross domestic product?

A) 1,225
B) 1,305
C) 1,365
D) 1,440

Question 10

Gross domestic product is the sum of

A) the purchase price of all goods and services exchanged during the period.
B) the purchase price of all final goods and services produced domestically during the period.
C) the purchase price of all goods and services produced during the period minus depreciation of productive assets during the period.
D) the purchase price of all final goods and services produced by a country's citizens during the period.

Question 11

If you were required to write a paper for your history class (or a report for your job) in which you were using dollar valued data across different years, you would

A) use a price index to remove the effects of inflation to have reliable data measuring changes in the real value of things.
B) never attempt to correct for inflation because inflation is a key indicator of economic activity.
C) tell your teacher or boss that you never learned how to correct data for inflation.
D) assume that prices did not change during the period you are studying.

Question 12

Which of the following would not be counted as part of this year's GDP?

A) the increase in the value of an antique automobile that was restored this year
B) the value of a new automobile at its sale price
C) the value of a used car at its sale price
D) a family's replacement of a worn-out washing machine with a new one

Question 13

Use the table below to answer the following question(s).
Table 7-14

Refer to Table 7-14. What is this country's net exports?

A) 35
B) -35
C) 115
D) -115

Question 14

Which of the following transactions would be counted toward this year's GDP?

A) General Motors purchases 10,000,000 tires from Firestone.
B) A 300-year-old painting is sold for $12 million.
C) A street gang earns $2 million from selling illegal drugs.
D) Your real estate agent earns $5,000 commission when you sell your 100-year-old house for $100,000.

Question 15

Suppose that nominal GDP increased by 3 percent, but the real GDP increased by only 1 percent during that same period. Which of the following best explains the phenomenon?

A) Prices increased by approximately 1 percent.
B) Prices increased by approximately 2 percent.
C) Prices increased by approximately 3 percent.
D) Prices increased by approximately 4 percent.

Question 16

If tax rates were raised substantially, we would expect which of the following scenarios to result?

A) Measured GDP would fall relative to the actual amount of true economic activity.
B) Measured GDP would come closer to reflecting the actual amount of true economic activity.
C) GDP would increase by the amount of the new tax revenue because of the higher level of government spending it allows.
D) Personal consumption expenditures would rise, while government spending would fall.

Question 17

If the base year for the GDP deflator is 2000 and the value of the GDP deflator in 2003 was 107, this indicates that the general level of prices

A) declined between 2000 and 2003.
B) was approximately 7 percent lower in 2003 than in 2000.
C) was approximately 7 percent higher in 2003 than in 2000.
D) was approximately 107 percent higher in 2003 than in 2000.

Question 18

Which of the following is not a problem or shortcoming of GDP?

A) Goods produced in one period that are sold in the following period fail to get counted in any period.
B) It tends to understate the growth of economic welfare because it does not fully and accurately account for improvements in the quality of products.
C) GDP is not an accurate measure of welfare because it makes no adjustment for harmful side effects (such as pollution) or destructive acts of nature.
D) GDP understates output because it fails to include nonmarket production such as that which takes place in the household or in illegal markets.

Question 19

If a used-car dealer purchases a used car for $1,000, restores it, and resells it for $1,500, the dealer contributes

A) value added equal to $500, but nothing is added to GDP.
B) value added equal to $500, and consequently $500 is added to GDP.
C) nothing to production because only existing goods are involved.
D) value added equal to $1,500, but only $500 is added to GDP.

Question 20

If the base year for the GDP deflator is 1996, the value of the GDP deflator for 1996

A) is 10.
B) is 100.
C) is 150.
D) cannot be determined from the data given.

Question 21

If on-the-job working conditions have improved over time,

A) real GDP will understate the growth rate of real income.
B) real GDP will overstate the growth rate of real income.
C) the GDP deflator will overestimate inflation.
D) real GDP will overstate the growth rate of real income, and the GDP deflator will understate inflation.

Question 22

How much would be added to this year's GDP if you sold your four-year-old automobile for $4,000 and purchased a two-year-old model from an acquaintance for $10,000.

A) nothing
B) $6,000
C) $10,000
D) $14,000

Question 23

Answer the following questions:
a.
What does GDP measure, and why is it a useful tool for economists, business decision makers, and government policy makers?
b.
Explain at least two important things GDP does not measure.

Question 24

Explain the two approaches to calculating GDP.

Question 25

Use the table below to choose the correct answer.
Gross domestic product equals

A) $550.
B) $510.
C) $595.
D) $610.

Question 26

As per capita GDP has risen in the United States and other countries,

A) life expectancy and leisure time have also risen and infant mortality and illiteracy have gone down..
B) life expectancy has risen but leisure time has gone down, while infant mortality and illiteracy have remained the same.
C) various quality of life variables have been unaffected.
D) most quality of life variables such as life expectancy and expenditures on leisure time activities have fallen.

Question 27

National income is

A) personal income of individuals minus the taxes they pay.
B) gross national product minus depreciation.
C) employee compensation, self-employment income, interest, rents, plus corporate profits.
D) consumption, investment, government expenditures, and net exports.

Question 28

Accurate measurement of GDP is important to business decision-makers because this information will help them better determine the

A) general happiness of a country's citizens.
B) course of the economy and the direction of demand for their products.
C) economic well-being of a particular group within a country.
D) amount of leisure time available and the quality of life in a country.

Question 29

In a country where many families make their own clothes, GDP will be understated because the clothes making represents

A) economic bads.
B) leisure.
C) the underground economy.
D) nonmarket production.

Question 30

Which of the following would increase U.S. GDP?

A) Ford Motor Company begins to produce and sell cars in China.
B) Mercedes-Benz begins to produce and sell cars in Mississippi.
C) An American investor buys 100 shares of Ford stock.
D) An American investor purchases 100 shares of Mercedes-Benz stock.

Question 31

If the GDP deflator in 2009 was 120 compared to a value of 100 during the 2004 base year, this would indicate that

A) the inflation rate during 2009 was 20 percent.
B) the general level of prices during 2009 was 20 percent higher than during 2004.
C) the inflation rate during 2009 was 120 percent.
D) real GDP was 20 percent higher in 2009 than 2004.

Question 32

If the Consumer Price Index in 2008 was 150 and the CPI in 2009 was 165, the rate of inflation between 2008 and 2009 would be

A) 9.09 percent.
B) 10 percent.
C) 15 percent.
D) 110 percent.

Question 33

Your father tells you he earned $3.00 per hour when he was 16 in 1977; you remember making $6.00 per hour when you were 16 in 1999. Given that the CPI was 36.7 in 1969 and 166.1 in 2007, which of the following is the 2007 real equivalent of your father's hourly earnings when he was 16?

A) $4.48
B) $6.78
C) $13.58
D) $15.01

Question 34

Economists generally use GDP to measure a nation's total output because it is

A) equal to the sales value of all transactions conducted during a period and thus can be easily calculated.
B) the best available measure of the true costs of producing consumer goods.
C) unaffected by changes in the prices of products over time.
D) a relatively reliable measure of the value of all final product goods and services produced during a specific time period.

Question 35

The dollar value of GDP increased approximately 4 percent during the year, but real GDP fell 2 percent. Which of the following best explains this data?

A) The real capacity of the economy increased more rapidly than money output.
B) In the international sector, there was a balance of trade deficit of approximately 2 percent of GDP.
C) The inflation rate was approximately 6 percent during the year.
D) The general level of prices rose approximately 2 percent.

Question 36

Which of the following accurately indicates how the recent outbreaks of terrorism have influenced the GDP of western nations?

A) Additional expenditures on security designed to protect individuals from terrorist attacks are subtracted from GDP.
B) Additional expenditures on security designed to protect individuals from terrorist attacks are added to GDP as part of output.
C) Since expenditures on the prevention of terrorism do not contribute to the well-being of individuals, they exert no impact on GDP.
D) Since terrorism is merely a redistribution of output, expenditures on the prevention of terrorism do not contribute to GDP.

Question 37

Which of the following would be counted in the calculation of GDP?

A) the sale of a rare, old coin to a coin collector
B) the damage to a house caused by a hurricane
C) the brokerage commission from the sale of 100 shares of Microsoft stock
D) the sale of cocaine in the black market

Question 38

The primary value of GDP lies in its ability to

A) reflect the welfare of a society relative to a previous period.
B) compare the quality of a nation's products between two periods widely separated in time.
C) indicate short-term changes in the output rate of a nation.
D) indicate how much leisure time the people of a nation have.

Question 39

Assume that between 1999 and 2009 nominal GDP increased from $7 trillion to $12 trillion and that the GDP deflator rose from 100 to 150. Which of the following expresses GDP for 2009 in terms of 1999 prices?

A) $7.5 trillion
B) $8.0 trillion
C) $9.0 trillion
D) $18.0 trillion

Question 40

Per capita GDP is

A) real GDP divided by the GDP deflator
B) a measure of income per person
C) a measure of resources available to each person
D) an indicator of the overall production of a government

Question 41

Determine whether each of the following transactions will be counted in the 2005 GDP of the United States. If the transaction is counted, identify which expenditure component (personal consumption, gross investment, government consumption and gross investment, or net exports) will be affected.
a.Norm, a frequent visitor to a local bar, purchases a Budweiser beer. (Budweiser beer is domestically produced.)
b.The owner of the local bar purchases a new domestically made cooler unit in which to store his beer.
c.Carla, a U.S. foreign exchange student, works her way through college in Germany as a waitress in a bar.
d.On her night off, Carla purchases a Budweiser beer for her friend in the German bar.

Question 42

Answer the following questions:
a.What is the difference between gross domestic product and gross national product?
b.Give an example of a transaction that would be counted in GDP but not in GNP.
c.Give an example of a transaction that would be counted in GNP but not GDP.

Question 43

What is meant by a final good or service as opposed to an intermediate good or service? Why are only final goods and services included in the calculation of GDP?

Question 44

Your grandfather tells you that he earned $.50 per hour at his job when he was a boy in 1929.
a.Given that the CPI was 17.1 in 1929 and 184.0 in 2003, how much would you have to make in 2003 to have the same real hourly wage?
b.You made $5.50 an hour working during 2003. Were you better off than your grandfather in terms of purchasing power? Explain.
c.Your grandfather also tells you that a soda cost $.05 in 1929, and you know a soda cost $.55 in 2003. You decide to use the price of a soda as the price index. How much would the 2003 "soda equivalent" of $.50 per hour in 1929 be?

Question 45

Nominal gross domestic product for the United States was $7,661.6 billion in 1996 and $8,110.9 billion in 1997. The GDP deflator was 109.5 in 1996 and 111.6 in 1997.
a.What was the 1997 real GDP expressed in 1996 prices?
b.What were the 1996 and 1997 GDPs expressed in base-year prices?
c.What was the percent change in the nominal GDP between 1996 and 1997?
d.What was the percent change in real GDP between 1996 and 1997?
e.What was inflation between 1996 and 1997?

Question 46

What is the difference between real and nominal GDP? If the president of the United States (or your instructor) asked you to evaluate the economy over the past five years, which one would you use and why?

Question 47

The consumer price index is calculated using a fixed basket of goods. Will this always give an accurate representation of the changing cost of living to consumers? Why or why not?

Question 48

Discuss the problems with GDP as a measure of a country's current production and income.

Question 49

Indicate whether the following transactions would be included in GDP. If they are included, indicate which component (consumption, investment, government consumption and gross investment, or net exports) of GDP would be affected.
a.A Czech student attending school in Florida takes a summer job as a lifeguard.
b.A New York company buys welding equipment from a St. Louis firm to help it build jet fighters.
c.The IRS purchases a new computer from the GATS computer company (an American-owned business producing and operating in Germany) that will allow it to better detect income tax evasion.

Question 50

Answer the following questions:
a.In 2004, four major hurricanes hit Florida. Explain how this destruction of property, and the rebuilding that went on afterward, affected GDP.
b.Explain how GDP has trouble accounting for other parts of the economy as well.