Deck 2: The Measurement of Income, Prices, and Unemployment

Question 1

The real income per capita is a measure of the

A) well-being of every individual in the nation.
B) well-being of the average individual in the nation.
C) well-being of the average employed person in the nation.
D) total well-being of the nation.

Answer 1

well-being of the average individual in the nation.

Question 2

If real GDP has increased, which of the following statements is always true?

A) Nominal GDP has increased.
B) Output has increased.
C) Prices have remained the same.
D) Output might have decreased if prices have risen enough.

Answer 2

Output has increased.

Question 3

The difference between gross investment and net investment is

A) equal to the difference between GDP and disposable income.
B) equal to the government deficit.
C) equal to capital consumption allowances.
D) equal to the difference between gross and net exports.

Answer 3

equal to capital consumption allowances.

Question 4

It is important to distinguish investment expenditures from consumption expenditures because

A) households invest and business firms consume.
B) business firms invest and households consume.
C) investment, not consumption, increases the natural real GDP.
D) B and C.

Question 5

An intermediate good is

A) always counted when measuring GDP because it doesn't represent time spent in production of a final good or service.
B) a good whose value is of neither a high grade nor a low grade.
C) a good that is sold to the government and then redistributed to the poor.
D) any good that is resold by its purchaser rather than used as is.

Question 6

Assume a simple economy without a government and that saving and borrowing behavior is never observed. Then the value of

A) production is equal to income.
B) expenditures is less than the value of production.
C) production is less than the value of expenditures.
D) production is less than income.

Question 7

Suppose that steel produced this year is used to produce a car sold next year. The value of the steel ________ included in GDP this year as ________.

A) is; an intermediate good
B) is not; an intermediate good
C) is; an adjustment to inventories
D) is not; an adjustment to inventories

Question 8

The value of steel sold to an automobile producer is ________ directly included in the GDP because ________.

A) always; it was produced during the current period
B) never; to do so is to double count the value of the steel
C) sometimes; the automobile may not be sold in the current period
D) sometimes; the steel is sometimes not resold in the current period

Question 9

By definition, when the economy is in equilibrium it must be true that

A) leakages equal injections.
B) saving equals investment.
C) government spending equals taxes.
D) exports equal imports.

Question 10

GDP can be measured by the

A) total value of all sales in the economy.
B) total market value of final goods and services produced in the economy.
C) total value of all intermediate goods produced in the economy.
D) net national product plus investment.

Question 11

Which of the following would NOT be included in total final product (GDP)?

A) welfare payments
B) a used office building purchased by a high-tech firm
C) semiconductors that are bought by a firm in Hong Kong
D) Both A and B.

Question 12

Job openings are plentiful when the

A) actual real GDP is above the natural real GDP.
B) natural real GDP is above the actual real GDP.
C) natural real GDP is increasing rapidly.
D) None of the above.

Question 13

Figure 2-1
The circular flow of income describes the

A) flow of income from domestic firms to the nonproduction sector and back again.
B) amount of money in the economy.
C) sum of all injections into the economy.
D) sum of all withdrawals from the economy.

Question 14

Changes in business inventories

A) are included in gross but not in net investment.
B) can either be positive or negative.
C) are not included in GDP because they are not sold to anyone.
D) are only partly included in GDP because part of these are holdings of intermediate goods.

Question 15

Which of the following government outlays would be classified as a transfer payment?

A) payments of veterans benefits under the GI bill
B) interest on the federal debt
C) subsidies to gold-mining firms
D) All of these.

Question 16

Suppose that nominal GDP were $1200 billion in 1990 and $2000 billion in 1995. The implicit GDP deflator was 1.00 in 1990 and 1.50 in 1995. From this we can infer that, between 1990 and 1995

A) nominal GDP rose by 33%.
B) prices rose by 66%.
C) real GDP remained constant.
D) real GDP rose by about 11%.

Question 17

If nominal GDP increases, which of the following will always take place?

A) Output will have increased but prices will have fallen or remained the same.
B) Prices will have increased but output will have fallen or remained the same.
C) Both output and prices will have increased.
D) none of the above

Question 18

Market prices are used to measure each final good included in the GDP. Therefore, the GDP ________ well-being if ________.

A) overstates; pollution results when the good is produced
B) understates; pollution results when the good is produced
C) overstates; rich people buy the good
D) understates; poor people buy the good

Question 19

Which of the following is not a leakage?

A) import of a Toyota
B) export of a Cadillac
C) personal saving
D) indirect business taxes

Question 20

Which of the following is NOT an injection?

A) the state of Illinois builds a new courthouse
B) Kansas farmers sell 1 million bushels of wheat to Russia
C) the Smithsonian Institute purchases Chris Evert Lloyd's tennis racket
D) an accountant purchases a new personal computer for use in his office

Question 21

If real GDP for a given year is $2400 billion and nominal GDP is $2400

A) this year is the base year for the GDP deflator.
B) the GDP deflator for this year is 1.25.
C) the GDP deflator for this year is 0.8.
D) the GDP deflator for this year is 1.10.

Question 22

Which of the following components of the current account are included in GDP?

A) net exports
B) net foreign investment income
C) net transfer payments sent to foreigners
D) all of the above

Question 23

From the perspective of households the uses of income are

A) taxes, saving, consumption of domestically produced and imported goods.
B) taxes, investment, consumption of domestically produced and imported goods.
C) taxes, saving, consumption, exports, and imports.
D) None of the above.

Question 24

Positive net exports are treated like domestic investment in the national income accounts because they are

A) always part of inventories.
B) fixed assets not intended for resale.
C) they represent future flows of real income.
D) not intended for resale.

Question 25

Which of the following sets of categories correctly describes the categories of nonconsumption injections?

A) foreign imports, private domestic investment, government transfer payments
B) capital consumption allowances, government transfer payments, net exports
C) net exports, inventory accumulation, government transfer payments
D) government purchases of goods and services, net exports, private domestic investment

Question 26

When the dollar strengthens

A) exports will increase and U.S. consumers benefit.
B) imports will increase and U.S. consumers benefit.
C) exports will decrease and U.S. exporters benefit.
D) exports will increase and U.S. exporters gain.

Question 27

To measure productivity in an economy, we compute the actual real GDP and then divide it by

A) the number of years over which it was produced.
B) the amount of labor that went into producing it.
C) the capital stock in existence at the time.
D) the value of the capital stock that was used up in the process of production.
E) the natural real GDP in the same period.

Question 28

When the dollar depreciates

A) exports will increase and U.S. consumers benefit.
B) imports will increase and U.S. consumers benefit.
C) exports will decrease and U.S. exporters benefit.
D) exports will increase and U.S. exporters gain.

Question 29

The unemployment rate is a good measure of the social welfare or social distress because

A) it includes discouraged workers.
B) it distinguishes between part-time and full-time job seekers.
C) it measures the "importance" of a job to each worker.
D) None of the above.

Question 30

In order to determine personal income, what adjustments have to be made to national income?

A) subtract undistributed corporate profits, corporate income tax, social security taxes, and then add government transfers and private interest payments
B) subtract undistributed corporate profits, social security taxes, government transfers, and then add private interest payments
C) subtract undistributed corporate profits, corporate consumption allowance, corporate income tax, social security tax and then add government transfers and private interest payments
D) subtract corporate income tax and social security taxes and then add corporate dividends, government transfers, and private interest payments

Question 31

Negative net exports represent reduced investment because

A) payments for imports will be used by foreigners to buy domestic goods in the future.
B) payments for exports will be used by foreigners to buy domestic goods in the future.
C) payments for imports will be used by U.S. citizens to buy domestic goods in the future.
D) None of the above.

Question 32

Indicate which of the following individuals would be included in the labor force as defined by the Census Bureau.

A) a teenager looking for a part-time job
B) a man waiting for recall from a layoff
C) a woman who has accepted a new job but has not yet begun working
D) All of the above would be included in the labor force.

Question 33

Actual real GDP this year is expected to exceed last year's by two percent, while the annual growth rate of natural real GDP is three percent. This is enough to lead us to expect that this year's unemployment rate will be

A) below last year's and below the natural rate of unemployment.
B) below last year's but still above the natural rate of unemployment.
C) below last year's.
D) above last year's.
E) above last year's and above the natural rate of unemployment.

Question 34

The measured unemployment rate will be understated to the extent that

A) unemployed workers become discouraged and drop out of the labor market.
B) employed workers find that their opportunities for overtime are limited.
C) full-time workers are reduced to half-time workers.
D) All of these.

Question 35

Which of the following is a way to finance a budget deficit?

A) Increased private saving.
B) Decreased domestic investment.
C) Decreased foreign investment.
D) All of the above.

Question 36

The leakage and injections approach implies that a government deficit is financed by

A) private saving less private investment plus net exports.
B) private investment less private saving plus net exports.
C) the trade deficit must always offset the government deficit.
D) None of the above.

Question 37

Total expenditures as discussed by Gordon are

A) C + I + G + M.
B) C + S + T + X.
C) C + I + S + X.
D) C + I + G + X - M.

Question 38

The leakage and injections approach implies that deficit spending by the government must be financed by

A) private investment less private savings plus net exports.
B) private saving less private investment plus net exports.
C) the trade deficit must always offset the government deficit.
D) B and C.

Question 39

In the simple circular flow model containing just households and business firms, all income is received by households in exchange for

A) consumer expenditures.
B) wages.
C) labor services.
D) product.

Question 40

Which of the following is not one of the ways a budget surplus can be used?

A) To allow private saving to fall without any need for a decline in total investment.
B) To stimulate domestic investment.
C) To reduce foreign investment.
D) To increase the amount of borrowing from foreigners.

Question 41

A farmer sells raw milk for 50 cents to a dairy, who sells cheese made from it for $1.50 to a grocery wholesaler, who sells it for $1.90 to a supermarket, who sells it to the final consumer for $2.19. These transactions increase the GDP by

A) $0.50 + $1.00 + $0.40 + $0.29 = $2.19.
B) $0.50 + $1.00 + $1.90 + $2.19 = $5.59.
C) $0.50 + $1.00 = $1.50.
D) $2.19 - $1.50 = $0.69.
E) $2.19 - $0.50 = $1.69.

Question 42

The cars produced by Toyota in its factory in Kentucky ________ in U.S. GDP and ________ in U.S. GDP.

A) count, count
B) count, do not count
C) do not count, count
D) do not count, do not count

Question 43

In calculating GDP, "transfer payments" are

A) included because they are re-valuations of existing wealth.
B) excluded because no goods or services were produced in exchange for them.
C) included because they are payments for labor services.
D) excluded because used goods already counted the year they were produced.

Question 44

Cans of soup purchased by supermarkets but not sold to individuals in the current period

A) are considered intermediate goods, yet still count in the GDP.
B) are considered intermediate goods, thus do not count in the GDP.
C) are considered investment goods and do count in the GDP.
D) are considered investment goods and thus do not count in the GDP.
E) are considered consumption goods but do not yet count in the GDP.

Question 45

An individual buys shares in a mutual fund, which uses the proceeds to buy corporate stocks and bonds. This is part of the process by which

A) total product becomes unequal to total expenditures.
B) firms release goods to make them available to consumers.
C) firms obtain investment goods that consumers relinquish claims to.
D) consumers make an "inventory investment" in goods to be purchased in the future.

Question 46

A crucial national income accounting identity has (S + T) equal to

A) I + G - NX.
B) I + G + F.
C) I + NX.
D) G + F.
E) I + G + NX.

Question 47

In the second circular-flow model of Chapter 2, households have two uses for their total income:

A) consumption and investment.
B) consumption and saving.
C) saving and investment.
D) saving and payment of taxes.
E) consumption and payment of taxes.

Question 48

The condition in circular-flow models whereby firms purchase all the goods not purchased by households is that

A) inventory investment is zero.
B) saving is zero.
C) fixed investment is zero.
D) consumption equals investment.
E) investment equals saving.

Question 49

A restaurant purchases a package of sandwich buns for 50 cents. The buns are ________ good in this case, and thus its purchase ________ a transaction that is included in GDP.

A) a final, is
B) a final, is not
C) an intermediate, is
D) an intermediate, is not

Question 50

With positive net exports, a nation is a net ________, and thus has a ________ "net foreign investment."

A) seller of assets to foreigners, positive
B) seller of assets to foreigners, negative
C) buyer of foreign assets, positive
D) buyer of foreign assets, negative

Question 51

In a circular-flow diagram, the saving and taxation "pipes" are carrying

A) injections to firms.
B) injections to households.
C) leakages from firms.
D) leakages from households.

Question 52

In the national income accounting identity Q = C + S + T, T stands for

A) taxes.
B) transfers.
C) taxes minus transfers.
D) taxes plus transfers.

Question 53

The final goods businesses keep for themselves are called

A) assets.
B) savings.
C) investment.
D) sunk costs.
E) intermediate goods.

Question 54

A family purchases a package of sandwich buns at a supermarket. Are those buns considered a "final" good?

A) No, because they are an intermediate ingredient in the actual final good: sandwiches
B) Yes, if the family eats them and does not sell the sandwiches made from them.
C) No, because the supermarket bought the finished buns, so they are "used" goods by the time the family buys them.
D) Yes, for so long as it is sold on the market it is a final good.

Question 55

Suppose exports and imports both rise by $1. GDP

A) rises by $2.
B) rises by $1.
C) remains unchanged.
D) falls by $1.
E) falls by $2.

Question 56

Which of the following is not a "flow" variable?

A) government debt
B) consumption expenditure
C) labor services
D) income

Question 57

In the simple circular flow model containing just households and business firms, the entire product flows to ________ in exchange for ________.

A) business firms, labor services
B) business firms, wages
C) households, consumer expenditures
D) households, labor services

Question 58

This national income accounting rule guarantees that total product exactly equals total expenditure on that product:

A) changes in inventories count as expenditures.
B) changes in inventories do not count as expenditures.
C) depreciation of capital is subtracted from investment.
D) total product is the sum of values added.

Question 59

"Net exports" is defined as

A) GDP minus imports.
B) exports plus imports.
C) GDP minus exports.
D) exports minus imports.

Question 60

Adding up all transactions in the economy ________ "double counting" and thus produces ________ measure of GDP.

A) avoids, a proper
B) avoids, an improper
C) results in, a proper
D) results in, an improper

Question 61

Help in financing our federal budget deficit comes from a ________ amount of net exports, which is called ________.

A) negative, net foreign investment
B) negative, foreign borrowing
C) positive, net foreign investment
D) positive, foreign borrowing

Question 62

Suppose the Bureau of Labor Statistics interviews 194,000 people in its monthly survey: 91,300 are not in the labor force, 94,000 are employed, 6650 are unemployed, and 1,150 are in the armed forces. What is the unemployment rate the BLS announces?

A) 4.95 percent
B) 3.94 percent
C) 7.0 percent
D) 6.55 percent
E) 6.48 percent

Question 63

Ann is waiting to be recalled after a layoff. Bill also has no job at the moment and is not searching for one. Who is officially "unemployed"?

A) Ann
B) Bill
C) Ann and Bill
D) neither Ann nor Bill

Question 64

The current official "base year" is

A) 2000.
B) 1992.
C) 1980.
D) 1972.

Question 65

Which of the following is included in the GDP?

A) the current services flowing from the housing stock
B) the estimated value of drugs sold illegally
C) the estimated value of leisure time
D) transfer payments such as Social Security and veterans' benefits
E) private purchases of used assets

Question 66

Official unemployment statistics in the United States are derived from a monthly government survey of approximately ________ households.

A) 300
B) 2000
C) 60,000
D) 420,000

Question 67

A survey of 200,000 people finds 76,300 "employed," 6,640 "unemployed," and the remaining 117,060 "not in the labor force." What is the unemployment rate derived from these numbers?

A) 8.7 percent
B) 3.3 percent
C) 8.0 percent
D) 5.7 percent

Question 68

Suppose that in our economy: G = 1100, T = 900, S = 140, and NX = -90. How much of our final product is left for domestic firms to purchase for themselves?

A) 110
B) 200
C) 230
D) 50
E) 30

Question 69

When real GDP is below natural real GDP, the unemployment rate is

A) rising.
B) above the average unemployment rate.
C) falling.
D) below the average unemployment rate.

Question 70

Claire works fifteen hours a week at a dry cleaning shop. Dustin is retired and living in a retirement home. Who is officially "unemployed"?

A) Claire
B) Dustin
C) Claire and Dustin
D) neither Claire nor Dustin

Question 71

If a the government of Country Z is running a budget deficit and net exports are zero, then

A) investment is greater than saving.
B) investment and saving are equal.
C) saving is greater than investment.
D) none of the above.

Question 72

When it comes to government spending,

A) all of it is excluded from the GDP.
B) only the final goods purchased by government, such as trucks and typewriters, count in the GDP.
C) only the value of services provided by government workers counts in the GDP.
D) all final and intermediate goods and services purchased by government count in the GDP.

Question 73

We go from Gross to Net Domestic Product by

A) adding depreciation to GDP.
B) subtracting depreciation from GDP.
C) adding indirect business taxes to GDP.
D) subtracting indirect business taxes from GDP.

Question 74

A change in real GDP sums up changes in

A) prices alone.
B) physical production alone.
C) physical production minus changes in price.
D) physical production and prices.

Question 75

We go from personal income to personal disposable income by

A) subtracting undistributed profits.
B) adding transfer payments.
C) subtracting personal income taxes.
D) subtracting depreciation.
E) subtracting personal saving.

Question 76

In national income accounting, (S + T) is

A) the portion of total income not consumed.
B) net national product.
C) the methods of financing the government deficit.
D) the final output firms absorb as investment.

Question 77

A change in nominal GDP sums up changes in

A) prices alone.
B) physical production alone.
C) physical production and hours of production time.
D) physical production and prices.

Question 78

(C + S + T) most closely approximates

A) personal income.
B) personal disposable income.
C) national income.
D) net national product.
E) gross national product.

Question 79

If chain-weighted increases in real GDP for 2002-03, 2003-04, 2004-05, 2005-06, and 2006-07 are 5%, 4%, 2%, 1%, and 3% respectively, and nominal GDP in the 2002 base year is $6244.4 billion, then chain-weighted real GDP for 2007 is

A) $6987.02 billion
B) $7,181.06 billion
C) $7235.6 billion
D) $7239.0 billion

Question 80

Economic magnitudes measured at the prices actually paid are referred to as ________ magnitudes.

A) "real"
B) "actual"
C) "nominal"
D) "unadjusted"
E) "gross"